SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark one
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Fiscal year
ended December 31, 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
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Common Shares par value $2.50 (voting), New York Stock Exchange
together with Preferred Share Chicago Stock Exchange
Purchase Rights
7.5 percent Convertible Subordinated New York Stock Exchange
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 $438,049,117 as of February 23, 1996. 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 3, 1996, the Registrant had outstanding 22,257,736 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 18, 1996 and filed with the
Securities and Exchange Commission pursuant to Regulation 14A, are
incorporated by reference in Part III of this Form 10-K.
<PAGE>
ARVIN INDUSTRIES, INC.
Index to Annual Report on Form 10-K
Fiscal Year Ended December 31, 1995
Page No.
Part I
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Item 1 Business 3
Item 2 Properties 6
Item 3 Legal Proceedings 7
Executive Officers 8
Item 4 Submission of Matters to a Vote of Security Holders 8
Part II
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Item 5 Market for Registrant's Common Equity and Related
Shareholder Matters 9
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8 Financial Statements and Supplementary Data 18
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 43
Part III
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Item 10 Directors and Executive Officers of the Registrant 44
Item 11 Executive Compensation 44
Item 12 Security Ownership of Certain Beneficial Owners and
Management 44
Item 13 Certain Relationships and Related Transactions 44
Part IV
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Item 14 Exhibits, Financial Statement Schedules and Reports 44
on Form 8K
Other
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Signatures 48
<PAGE>
Part I
Item 1. Business
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Arvin Industries, Inc. (which together with its consolidated
subsidiaries is referred to herein as "Arvin" or "the Company") is an
international manufacturing company supplying automotive parts,
primarily exhaust and ride control products, to both Original Equipment
Manufacturers and Replacement markets through operating entities in
North America, Europe and numerous other parts of the world. The
Company also provides coil coating for steel, serving the North American
market.
Since its founding in 1919, Arvin has grown through internal
development, acquisition and joint ventures. The Company's
strategic focus is to strengthen its automotive parts businesses by
achieving a mix of sales to original equipment manufacturers
and replacement parts suppliers on a global basis.
In conjunction with the Company's strategy to become a focused
automotive parts supplier, the Company sold its Schrader Automotive unit
on February 16, 1995. Schrader manufactured tire valves and other
related products.
In addition, on September 29, 1995, the Company completed the sale of
its 70 percent ownership interest in Space Industries International,
Inc. ("SIII") to a new company formed by the senior management of SIII.
The results of operations of SIII were previously reported by the
Company as the Technology segment.
Additional information on the above events is contained in Note 2 to the
Consolidated Financial Statements, Item 8 herein.
Operations
A. Business Segments
The Company's products are classified based upon the two primary market
segments served: Automotive Original Equipment and Automotive
Replacement. Both of these market segments manufacture exhaust and ride
control products, as well as provide other products and services.
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, and coil
coating.
Principal raw materials for manufacturing are stainless, aluminized,
galvanized, cold-rolled and vinyl-clad steel; aluminum sheets; and
paint, rubber, oil and zinc, all of which are available from a number of
primary suppliers.
See Note 16 to the Consolidated 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, and coated coil steel. The majority of the Company's
products sold in this segment are handled by Arvin sales staff located
throughout North America and Europe.
Arvin is a leading producer of original equipment exhaust systems.
Customers of the Company's U.S. operating unit include Ford, General
Motors, Chrysler and Mazda; and customers of the Company's European
operating units include Ford, Volvo, Volkswagen, the Rover Group and
Fiat. 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 is
also a major supplier of catalytic converters to Chrysler, the Rover
Group, Renault, Volkswagen, and Volvo.
The Company supplies original equipment ride control products to Ford,
Chrysler, Nissan, Honda and Polaris through its U.S. operating unit.
The Company's APA subsidiary also supplies ride control products to
European automotive original equipment market customers, which include
Ford, Renault, Fiat and Seat. The Company's Way Assauto and
Autocomponents Suspension joint ventures supply shock absorbers to Fiat
vehicles manufactured in Italy.
Arvin's AVM subsidiary is a leading worldwide supplier of gas-charged
lift supports to Chrysler and General Motors, and vacuum actuators to
Ford, Chrysler and other OE manufacturers. Additional original
equipment applications include air bag components, stampings, diesel
engine oil pans and other fabricated metal parts for manufacturers of
both automobiles and heavy-duty trucks, assembled metal components and a
tool surface modification service.
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 provides coil slitting and 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.
Automotive Replacement:
Principal products of the Automotive Replacement (Replacement) segment
include replacement mufflers, exhaust and tail pipes, catalytic
converters, shock absorbers, MacPherson struts and gas-charged lift
supports. All products in this segment are sold by a combination of the
Company's own sales force and manufacturers' representatives.
Through Maremont Exhaust, Timax Exhaust Systems, Arvin Exhaust,
Etablissements 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 ride control products.
Products are marketed under both customers' private labels as well as
under the Company's own brand names, which include: "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, Wal-Mart), auto parts retailers
(e.g., Autozone, Pep Boys), muffler shops (e.g., Meineke), tire dealers
(e.g., Firestone, Les Schwab Tire), and wholesale distributors (e.g.,
CARQUEST, Auto Value). In Europe, significant customers for Timax
Exhaust, Etablissements Rosi and Ansa Marmitte include Autodistribution,
Kwik-Fit, Midas and Partco. Arvin Exhaust distributes replacement
products through original equipment customers in North America and
Europe with installation through dealership services.
B. Number of Employees
At year end, the Company had 12,071 employees.
C. Competition and Customer Relationships
Each of the Company's business segments operates in a highly competitive
market. Customer loyalty, developed through long-standing
relationships, is a primary element of competition as well as
competitive product pricing and customized services provided. The
Company's long-standing relationships with its principal customers 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 1995, the Company had sales to two customers that exceeded 10% of its
consolidated net sales (Ford Motor Company - 19.3 percent and General
Motors Corporation - 12.4 percent).
In the OE segment, the Company competes with vehicle manufacturers and
independent suppliers. The Company believes that it is the leading
supplier among four major competitors in the North American OE exhaust
systems market and one of the leaders among nine major competitors in
the European Union. For OE ride control products, the Company believes
that it is one of the three largest suppliers in the North American
market and one of seven major suppliers in the European Union.
The Company also competes with vehicle manufacturers and independent
suppliers in the Replacement segment. The Company believes that it is
one of four primary suppliers in the North American automotive
replacement exhaust systems market and one of three major suppliers in
the European Union. The Company is one of two major suppliers in the
North American automotive replacement ride control products market and
is one of several suppliers in the European Union. The Company is the
leader in the U.S. replacement market for gas-charged lift supports.
D. Regulations
United States air pollutant emissions as well as acoustical emissions
are controlled by government regulations that, coupled with mandated
fuel economy improvements, continue to affect Arvin. Over the near term,
the Company does not anticipate any regulatory changes that will
materially impact the use of catalytic converters in the United States.
European air pollutant emissions regulations continue to become more
stringent and are applicable throughout the European Union. Current
legislation requires catalytic converters to be fitted to all newly
produced gasoline fueled passenger cars. Further reductions in the
permissible levels of emissions have been introduced in 1996 in the
"Stage 2" standards. Additional tightening of the standards are
planned for "Stage 3" in the year 2000. The Company believes that
the introduction of more stringent standards should have a positive
impact on the results of operations for the Company.
Arvin believes either that its facilities comply with applicable
environmental control regulations or that remedial action is being taken to
bring such facilities into compliance. While Arvin does not believe that
continuing compliance will have a material effect on its competitive or
financial condition, some additional capital expenditures and other
expenses will be required to maintain compliance with such regulations.
E. Patents
The Company owns a considerable number of patents and patent
applications which are, in its judgment, adequate for, but not essential
to, the conduct of its businesses.
F. Research and Development
Expenses for the development of new products and processes, including
significant improvements and refinements to existing products were
$24.7, $22.8, and $17.6 million for 1995, 1994, and 1993, respectively.
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.
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 nearly fully utilized.
Principal manufacturing facilities in the United States are located in
Indiana, Missouri, Alabama and Tennessee. Additional manufacturing
activities are conducted in South Carolina. The facilities in Indiana,
Missouri, South Carolina and Tennessee are owned, while the other
manufacturing facilities are leased. Principal sales offices for this
segment are leased in Rochester Hills and Farmington Hills, Michigan.
Principal manufacturing facilities outside of the United States are
located in the United Kingdom, Spain, the Netherlands and Canada.
Additional manufacturing activities are conducted in South Africa,
Italy, France and Mexico.
Automotive Replacement:
The Company has approximately 3.2 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. 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.
Item 3. Legal Proceedings
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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. In the
fourth quarter of 1995, Chamberlain was awarded $4.4 million in
connection with its petition for pre-judgment interest, costs and
attorney fees related to this judgment. As a result of this judgment
and award and revised assessments by legal counsel of other pending
legal matters, the Company added $13.7 million during 1995 to previously
established litigation reserves. The Company has filed an appeal with
respect to the judgment and the post-judgment award.
Another previously disclosed suit, also filed by Chamberlain, is based
on assertions that non-conforming products manufactured by Saco were
shipped to the U.S. government and that Maremont did not disclose this
fact in connection with the May 1987 stock sale. Chamberlain's claim
includes recovery of costs and expenses incurred. The Company has been
dismissed as a defendant in this case, however, Maremont remains as a
defendant. The Company believes that it has meritorious defenses.
Formal discovery has been completed in this matter. A June 1996 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
Recovery Act. Ground water and surface water treatment
facilities have been installed as interim measures. Comments from EPA
on the RFI (RCRA Facility Investigation) were addressed and submitted
to the EPA in January 1994. A Phase Two Feasibility Study began in
1995. 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 includes costs incurred in connection with
further studies and design of a remediation plan, remediation 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 has 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.
At December 31, 1995, the Company had accrued $9.6 million for
environmental remediation costs and $21.0 million for its estimated
liability relating to pending legal matters. 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.
Executive Officers of the Registrant:
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Date First
Elected to
Name Age Offices Held Exec. Office
- ---------------- ------- -------------------------- -------------
Byron O. Pond 59 Chairman of the Board of 1990
Directors and Chief
Executive Officer(1)
James K. Baker 64 Vice-Chairman of the Board 1965
of Directors(1)
V. William Hunt 51 President and Chief 1980
Operating Officer(1)
Raymond P. Mack 55 Vice President-Human 1993
Resources
Richard A. Smith 50 Vice President-Finance and 1990
Chief Financial Officer (1)
Ronald R. Snyder 51 Vice President-General 1992
Counsel and Secretary
E. Leon Viars 56 Executive Vice President 1995
Bernard Kievit 54 Vice President 1995
(1) Also a member of the Board of Directors
All terms of all officers of the Registrant run until their respective
successors are elected and qualified.
All listed executive officers except Mr. Snyder have been employed by
the Registrant or one of its subsidiaries for the past five years. Mr.
Snyder joined Arvin in his current capacity in December, 1992.
Previously, he was a partner in the Indianapolis law firm of Barnes &
Thornburg.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of Security Holders during the
fourth quarter of the 1995 fiscal year.
<PAGE>
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.
Market Price Ranges and Quarterly Dividends Paid
(Prices and dividends on common shares)
1995 1994
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Market Price Market Price
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Dividend High Low Dividend High Low
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First Quarter $ .19 $ 24 7/8 $ 19 3/4 $ .19 $ 33 3/4 $ 27 3/4
Second Quarter .19 23 3/4 20 3/4 .19 29 3/8 23 1/2
Third Quarter .19 24 1/8 20 7/8 .19 25 3/4 23 1/2
Fourth Quarter .19 22 1/8 16 1/8 .19 25 7/8 22 13/16
As of March 8, 1996, Arvin had 5,062 holders of record of
its common shares.
Item 6. Selected Financial Data
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<TABLE>
Five-Year Consolidated Financial Summary
(In millions, except per share amounts)
<CAPTION>
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Operating Results 1
Net sales $ 1,966.4 $ 1,849.5 $ 1,640.8 $ 1,587.2 $ 1,373.4
Interest expense 42.5 42.8 35.0 36.5 39.4
Earnings from continuing
operations 17.9 24.6 38.4 36.4 17.9
Primary earnings per common share .80 1.10 1.72 1.52 .53
Dividends declared:
Preferred shares --- --- --- 5.8 7.8
Common shares 16.9 16.9 16.7 13.8 12.8
Per common share .76 .76 .76 .70 .68
Average number of common
shares outstanding 22.4 22.4 22.3 20.1 19.1
Financial Position
Total assets $ 1,291.0 $ 1,231.5 $ 1,175.5 $ 1,110.6 $ 1,086.2
Long-term debt 360.7 416.3 432.2 388.7 333.1
Total debt 402.3 441.4 440.1 409.1 369.9
Redeemable preferred shares --- --- --- --- 100.5
Shareholders' equity 395.1 396.3 420.6 398.4 374.1
Book value per common share 17.76 17.81 19.04 18.45 19.59
<FN>
1 From continuing operations
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Financial Review
(Dollar amounts in tables in millions)
Overview
Arvin recorded sales from its automotive businesses of $1.97 billion in
1995, the highest level in the Company's history. These record
automotive sales represent a 6 percent increase over 1994, and a 20
percent increase over 1993. The increased 1995 sales were realized
despite a 1 percent decline in automotive production in the United
States, a modest 0.6 percent growth in Western Europe's new car market,
and an estimated decline of 12 percent in the U. S. automotive
replacement market. Overall, the Company's sales in the United States
remained flat, where increases in the Automotive Original Equipment
segment were offset by declines in the Automotive Replacement segment.
Sales in Europe jumped 21 percent in the current year as a result of
sales increases in all European markets served.
Operating income declined 4 percent in 1995, largely as a result of new
business costs in the U.S. Automotive Replacement segment and increased
manufacturing costs in both automotive segments that were not fully
recovered by selling price increases. Also impacting results for 1995
was the estimated 12 percent decline in the U. S. automotive replacement
market. Operating income for 1995 includes $4.7 million of
restructuring charges to complete the 1994 restructuring plan. These
costs were anticipated as a part of the 1994 plan, but were not
permitted to be recognized in 1994 expenses under generally accepted
accounting principles. Operating income for 1994 includes a
restructuring charge of $20.3 million. The 1994 restructuring plan was
essentially completed by year-end 1995. Currency fluctuations had a
positive impact on the comparative levels of sales and operating income
during 1995. Using a constant exchange rate basis, sales increased 5
percent and operating income fell 11 percent.
Net income from continuing operations for the current year includes a
special charge of $13.7 million related to a judgment entered against an
Arvin subsidiary in connection with a 1987 divestiture and assessments
by legal counsel of other pending legal matters. Net income for 1994
included a special charge of $7.8 million related to increased
environmental and other reserves related primarily to environmental
clean-up costs at a site previously owned by the Company's Maremont
subsidiary.
During 1995, Arvin completed the sale of its 70 percent ownership
interest in Space Industries International, Inc. (Space Industries).
Previously, Space Industries had been reported by Arvin as the
Technology segment. Current and historical financial information has
been restated to reflect the results of the Technology segment as
discontinued operations. "Income (Loss) from discontinued operations"
also includes income from the Company's Schrader operations through the
first quarter of 1994. The proceeds from the divestitures of Space
Industries and Schrader enabled Arvin to reduce total debt by $39.1
million in 1995.
Results of Operations
Net Sales by Segment 1995 1994 1993
- -----------------------------------------------------------------------------
Automotive Original Equipment $1,337.2 68% $1,194.7 65% $1,042.9 64%
Automotive Replacement 629.2 32 654.8 35 597.9 36
- -----------------------------------------------------------------------------
Total $1,966.4 100% $1,849.5 100% $1,640.8 100%
=============================================================================
Operating Income by Segment 1995 1994 1993
- -----------------------------------------------------------------------------
Automotive Original Equipment $ 67.8 68% $ 70.9 68% $ 64.1 57%
Automotive Replacement 31.7 32 33.2 32 49.0 43
- -----------------------------------------------------------------------------
Total $ 99.5 100% $ 104.1 100% $ 113.1 100%
=============================================================================
Automotive Original Equipment (OE), 1995 vs. 1994: Sales in
the OE segment of $1,337.2 million for 1995 were 12 percent
higher than OE sales for 1994. The effect of price changes
on sales was negligible. Ride control units sold increased
in every major market served. Exhaust unit sales declined
in the United States as a result of lower vehicle
production, and increased throughout Western Europe. The
effect of net increased sales volume of exhaust systems
approximated $21 million, while ride control's unit volume
increase approximated $22 million. The Company recognized
increased sales volumes despite essentially level market
volumes in Western Europe and a modest decline in the North
American market. The Company's sales volume in Mexico
declined an estimated $17.7 million as a result of general
economic conditions in that country. Sales increases in
excess of identified price and volume factors reflect the
industry's demand for higher quality, more expensive OE
parts. Coated steel volumes were level with the prior year,
while changing volumes in other component automotive parts
posted modest decreases. Operating profit of $67.8 million
in the OE segment for 1995 declined by $3.1 million, or 4
percent, when compared with 1994. The decline was primarily
a result of increased material and labor costs of
approximately $18 million, offset by the positive effect of
productivity improvements of approximately $12 million.
Selling price increases contributed approximately $3 million
to the current year's operating profit. Costs to complete
the 1994 restructuring plan for this segment, which were not
permissible to be expensed in 1994 under generally accepted
accounting principles, exceeded the 1994 restructuring
charge by approximately $1 million.
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.
1994 vs. 1993: OE sales in 1994 were 15 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 North America 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 in traditional
Automotive OE businesses, 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 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.
Automotive Replacement (Replacement), 1995 vs. 1994: Sales
in the Replacement segment of $629.2 million for 1995 were 4
percent lower than Replacement sales for 1994, despite the
overall 2 percent positive effect on sales of price
increases. Volume fell at an overall rate of 3 percent.
The volume decline was most pronounced in the North American
exhaust aftermarket, where the Company's 13 percent decline
in volume approximated the estimated overall North American
market decrease. All North American markets reported volume
declines. The European replacement exhaust market also
reported a slight decline in volume. Sales to developing
countries continued to post strong increases.
Operating units in the Replacement segment sell their
product through a variety of different customer "channels"
including merchandisers, installers, and wholesale
distributors. As a result of period to period variations in
this "channel mix," in addition to normal variations in
"product mix," the average price of units sold may not
correspond to price changes. As in the OE segment, there is
also a certain degree of imprecision and subjectivity in
estimating the impact of period to period volume changes,
principally because of questions as to what constitutes a
"unit" for volume measurement. The appropriate measure of a
"unit" varies over time as products develop, varies among
the different countries in which the Company operates, and
varies within each operating unit of the Company.
Operating profit in the Replacement segment decreased $1.5
million during 1995, when compared to 1994. Labor and
material cost inflation amounted to approximately $7
million. Volume declines accounted for an estimated $5
million of the decrease and increased costs of acquiring new
customers accounted for approximately $3 million of the
decrease. Both 1994 and 1995 reflect unusually high costs
to acquire new business. Total 1995 new business costs were
elevated by significant amounts pertaining to new customer
commitments made prior to year end 1994. At year end 1995,
the comparable commitments to new customers were negligible.
Reported results for 1994 include $18.0 million of
restructuring costs for this segment. Costs to complete the
1994 restructuring program in the Replacement segment were
less than $1 million in 1995.
1994 vs. 1993: Replacement sales increased 10 percent over
the prior year. While European sales were up slightly,
stronger increases were seen in the United States in both
the ride control and exhaust product lines. Increases in
the United States 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 United States 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 United States
Corporate general and administrative expenses in 1995
reached their lowest level since 1990. The 1995 expense of
$12.2 million represents a 3 percent decrease compared to
1994 and a 24 percent decrease compared to 1993. The
decrease for both years 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 Company's domestic data center
operations were incurred in 1993.
Restructuring and special charges of $28.1 million are
included in the results of continuing operations for 1994.
The components of the charges are as follows:
<TABLE>
<CAPTION>
Automotive
Original Automotive Corporate
Equipment Replacement and Other Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee Separations $ 2.1 $ 5.3 $ --- $ 7.4
Asset Write-downs .2 7.1 --- 7.3
Facility Consolidations --- 5.6 --- 5.6
Other Special Charges --- --- 7.8 7.8
- ---------------------------------------------------------------------------------
Total $ 2.3 $ 18.0 $ 7.8 $ 28.1
=================================================================================
</TABLE>
The workforce reductions and consolidation of manufacturing
facilities and product lines announced as a part of the 1994
restructuring were substantially completed by year end 1995.
The 1994 restructuring charge included employee separation
costs 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. Additional
severance expense in 1995, which was not permitted to be
recognized in 1994 under generally accepted accounting
principles, was $3.0 million, net of a $.6 million
adjustment to reserves established in 1994. Cash
expenditures during 1995 included $2.9 million for
continuing operations' employees separated under the 1994
restructuring plan. Actual employee separations in
continuing operations were 30 less than planned separations
of 329 persons.
Asset write-downs of $7.3 million represented costs
associated with reducing the carrying value of
underperforming assets to their estimated fair values. A
majority of the assets written down were a part of a
facility consolidation in the Replacement segment, which
closed its Canadian exhaust manufacturing and distribution
facilities and merged those operations into the U.S. parent
company. Facility consolidations in the United States also
included a consolidation of Replacement ride control
manufacturing operations to the Chickasha, Oklahoma plant
and a consolidation of certain Replacement administrative
functions in Brentwood, Tennessee.
Facility consolidations also took place in Europe, where the
Company closed a Replacement ride control distribution
facility. This facility, originally located in the
Netherlands to accommodate faster delivery of U. S. and
French manufactured products to a variety of locations
within Europe, was combined with the French manufacturing
facility to utilize already existing supply lines.
Cash expenditures during 1995 to complete facility
consolidations approximated $2.3 million for continuing
operations. Total restructuring expense of $4.7 million for
1995 includes $1.7 million of facility consolidation
expense, net of $.5 million of income as a result of an
adjustment to a facility consolidation reserve established
in 1994.
The 1994 special charge included increases in environmental
and other reserves related primarily to the completion of a
feasibility study which identified and estimated remediation
costs at the Platt Saco Lowell site previously owned by the
Company's Maremont subsidiary. During 1995, based upon a
judgment entered against an Arvin subsidiary and assessments
by legal counsel of other pending legal matters, the Company
added $13.7 million ($3.5 million in the fourth quarter) to
its litigation reserves. The 1995 results also include a
special credit of $3.2 million as a result of a settlement
with a party potentially liable for certain costs in
connection with various environmental matters.
Interest expense decreased less than 1 percent ($.3 million)
in 1995, mirroring a decrease in average outstanding debt of
less than 1 percent over the same period. During 1994,
interest expense increased 22 percent or $7.8 million. The
increase was a result of higher average borrowing rates on
higher average outstanding debt.
Other expense, net increased $2.1 million in 1995. The
increase was primarily a result of a $1.6 million increase
in foreign currency transaction losses, primarily in Mexico.
The 1994 balance of "Other expense, net" represents an
increase of $1.5 million over the prior year. This increase
was also primarily the result of higher foreign exchange
losses, coupled with higher goodwill amortization.
Equity earnings of affiliates decreased $1.8 million in
1995. Equity earnings of affiliates was adversely affected
by $3.1 million as a result of losses from a 50 percent
owned equity subsidiary serving the European original
equipment market. As previously disclosed, the Company
instituted a review of the performance of this entity,
including discussions with its joint venture partners.
These negotiations have encompassed, but have not been
limited to, renegotiation of ownership percentages,
additional capital contributions by the partners and
alternative methods of making such additions, and
renegotiation of the entity's current financing arrangements
with its lending institutions. A decision on these
alternative proposals has not been finalized and the outcome
of these discussions remains unclear. The Company believes
that a revised agreement among the entity's shareholders and
creditors is necessary for the entity to continue as a going
concern. The Company's investment in this affiliate at
December 31, 1995 was $13.9 million. Equity earnings of
affiliates for 1994 was relatively unchanged from 1993.
Minority interest in net income of consolidated subsidiaries
increased $.5 million in the current year. In 1994, the
minority interest in net income of consolidated subsidiaries
increased $2.6 million from a $.9 million share of losses in
1993. These increases were a result of improved earnings of
the Company's Timax business unit in both 1995 and 1994. 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. In addition, minority interest in net
income of consolidated subsidiaries for both years was
increased by improved results from the Company's 75 percent
owned Spanish subsidiary, AP Amortiguadores, S.A.
Income (Loss) from discontinued operations for 1995
represents the results of Space Industries for the first
nine months of 1995. In 1994, the $41.7 million loss
primarily represents losses from Space Industries, net of
$.3 million of earnings from Schrader. The 1993 income of
$1.9 million resulted from $2.5 million of Schrader's
earnings, reduced by $.6 million of losses from Space
Industries. Included in Space Industries' 1995 results are
a one-time credit of $3.9 million to reduce prior years'
accruals of employee benefits and a one-time charge
approximating $1.6 million for the settlement of certain
retirement benefits.
For 1994, the results of Space Industries include a pre-tax
restructuring and special charge of $53.0 million ($40.1
million net of tax and minority interest). The components
of this charge were as follows:
Employee Separations $ .7
Asset Write-downs 19.6
Goodwill Impairment 29.6
Facility Consolidations 2.7
Other Special Charges .4
- -------------------------------------------------
Total $ 53.0
=================================================
The 1994 restructuring and related asset write-downs were a
result of more competition for fewer available contracts
throughout 1994. As a result, the Company initiated a
comprehensive review of the carrying value of its intangible
assets. Results of this study concluded 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
was 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. Based on the analysis of 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.
A principal portion of the Space Industries restructuring
was to shift the direction of the business away from large
scale space programs in the microgravity materials science
field. As a result, a number of senior management positions
were consolidated from Space Industries' Houston, Texas
facility into a new office in Washington, D.C., resulting in
the elimination of several senior level positions at other
facilities. Employee transfers from Space Industries'
Service Contracts Division into a new joint venture company
resulted in a reduction of 950 employees. Additional
restructuring activities yielded an 11 percent additional
reduction in employee numbers. Overall, Space Industries'
headcount fell from 2,423 in September 1994 to 1,147 in
September 1995. In addition to these personnel changes, the
company also downsized and reduced laboratory facilities at
its SRL division by 60 percent and discontinued efforts in
the measurement and control area. There were no further
restructuring charges or credits in 1995 for Space
Industries; however, cash flows through the September 29,
1995 sale date included $.8 million for lease cancellation
costs and $.5 million for severance payments, both of which
were accrued as a part of the 1994 restructuring.
Income from disposal of discontinued operations relates to
earnings of the Company's Schrader subsidiary after the
decision to sell this business, adjustments in 1995 to tax
liabilities related to the Schrader business, and a
provision to write down preferred stock received in
conjunction with the sale of Schrader. There was no gain or
loss recorded on the disposition of Space Industries.
Financial Condition
Liquidity: Working capital decreased $12.5 million or 10
percent in 1995. The primary reason for the decrease is the
reclassification to current portion of long-term debt of
$15.0 million of the Company's medium-term notes maturing in
the third quarter of 1996. After the end of the third
quarter, the Company issued $50.0 million of 7.94 percent
notes in a private placement. This new debt replaced the
$50.0 million of 9.97 percent debt which was redeemed in
December of 1995. (See the Consolidated Statement of Cash
Flows for a more detailed analysis of changes in cash.) The
current ratio decreased from 1.4 at the end of 1994 to 1.3
at the end of 1995.
Accounts receivable and Accounts payable both increased (5
percent and 12 percent, respectively). The primary reason
for the accounts receivable increase is longer payment terms
granted to customers in the replacement ride control
products market. Days sales outstanding at the end of 1995
was 50.7 days compared to 50.5 days at the end of 1994. The
increase in accounts payable is a result of increases in
year-end inventories and longer negotiated payment terms.
Assets of business transferred under contractual
arrangements and Liabilities and deferred credit of business
transferred represent 100 percent of the assets of the
Company's former subsidiary, Space Industries, which was
sold to a new company formed by the senior management of
Space Industries for approximately $30.6 million in cash.
Under the agreement, the Company guaranteed approximately
$22.9 million of the new company's debt incurred as a part
of the transaction. The guarantee amount, which was $21.7
million at December 31, 1995, is scheduled to decline on a
quarterly basis before expiring on September 30, 1999. The
accounting for the Space Industries transaction follows the
treatment set forth in the Securities and Exchange
Commission's Staff Accounting Bulletins - Topic 5E (SAB
Topic 5E) "Accounting for divestiture of a subsidiary or
other business operation."
Capital Resources: Based on the Company's projected cash
flow from operations and existing credit facility
arrangements, management believes that sufficient liquidity
is available to meet anticipated capital and dividend
requirements over the foreseeable future. Capital
expenditures of continuing operations were $98.8 and $100.7
million in 1995 and 1994, respectively, and related to
ongoing production improvements, product enhancements, new
production, and manufacturing efficiencies as well as normal
replacement. Planned capital expenditures for 1996 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 1995 sale of Schrader and the September 1995 sale
of Space Industries were used to reduce the Company's debt
and for other corporate purposes.
Financial Instruments and Risk Management: The Company
uses financial derivatives, including forward exchange
contracts and options and interest rate swaps and options,
to manage its global foreign exchange and interest rate
exposure. The foreign exchange derivatives serve primarily
to protect the functional currency value of certain non-
functional currency positions and anticipated transactions
of the Company and its foreign subsidiaries. (See also
Notes 1 and 7 to the Consolidated Financial Statements.)
Legal/Environmental Matters: 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. In the fourth quarter of
1995, Chamberlain was awarded $4.4 million in connection
with its petition for pre-judgment interest, costs and
attorney fees related to this judgment. As a result of this
judgment and award and revised assessments by legal counsel
of other pending legal matters, the Company added $13.7
million during 1995 to previously established litigation
reserves. The Company has filed an appeal with respect to
the judgment and the post-judgment award.
Another previously disclosed suit, also filed by
Chamberlain, is based on assertions that non-conforming
products manufactured by Saco were shipped to the U.S.
government and that Maremont did not disclose this fact in
connection with the May 1987 stock sale. Chamberlain's
claim includes recovery of costs and expenses incurred. The
Company believes that it has meritorious defenses. Formal
discovery has been completed in this matter. A June 1996
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,
remediation 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 has 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 recorded the $13.7 million addition to its
litigation reserves described above as a "Special Charge."
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 (FASB) issued Statement of Financial
Accounting Standards No. 121 which establishes new
accounting standards for evaluating and recording
impairments of long-lived assets. The Company adopted
Statement No. 121 during 1995 with no material effect on
financial position or results of operations.
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 equals 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.
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Page No.
Index to Consolidated Financial Statements
Consolidated Financial Statements:
Consolidated Statement of Operations for each of the
three years in the period ended December 31, 1995 19
Consolidated Statement of Financial Condition at
December 31, 1995 and January 1, 1995 20
Consolidated Statement of Shareholders' Equity for each
of the three years in the period ended December 31, 1995 21
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1995 22
Notes to Consolidated Financial Statements 23
Report of Independent Accountants 41
Financial Statement Schedules:
For each of the three years in the period ended December 31, 1995
II Valuation and Qualifying Accounts 42
Supplementary Data:
Selected Quarterly Financial Data 43
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>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales $ 1,966.4 $ 1,849.5 $ 1,640.8
Costs and Expenses:
Cost of goods sold 1,707.7 1,573.7 1,384.6
Selling, operating general and administrative 152.3 149.9 145.6
Corporate general and administrative 12.2 12.6 16.0
Restructuring 4.7 20.3 ----
Special charges and credits, net 10.5 7.8 ----
Interest expense 42.5 42.8 35.0
Interest income (1.3) (2.7) (2.0)
Other expense, net 8.4 6.3 4.8
----------- ----------- -----------
1,937.0 1,810.7 1,584.0
----------- ----------- -----------
Earnings from Continuing
Operations Before Income Taxes 29.4 38.8 56.8
Income taxes (11.2) (16.2) (23.1)
Minority interest in net (income) loss of consolidated subsidiaries (2.2) (1.7) .9
Equity earnings of affiliates 1.9 3.7 3.8
----------- ----------- -----------
Earnings from Continuing Operations 17.9 24.6 38.4
----------- ----------- -----------
Income (Loss) from discontinued operations, net of
income tax of $.5, $2.1, and $2.1, respectively .4 (41.7) 1.9
Income from disposal of discontinued operations, net of
income tax (tax benefit) of ($2.8), $1.3, and $0, respectively .7 .8 ----
----------- ----------- -----------
Net Earnings (Loss) $ 19.0 $ (16.3)$ 40.3
=========== =========== ===========
Earnings/(Loss) per Common Share
Primary:
Continuing Operations $ .80 $ 1.10 $ 1.72
Discontinued Operations .05 (1.83) .09
----------- ----------- -----------
Total - primary $ .85 $ (.73)$ 1.81
=========== =========== ===========
Fully Diluted:
Continuing Operations $ .80 $ 1.10 $ 1.66
Discontinued Operations .05 (1.83) .08
----------- ----------- -----------
Total - fully diluted $ .85 $ (.73)$ 1.74
=========== =========== ===========
Average Common Shares Outstanding (000's)
Primary 22,355 22,386 22,311
Fully Diluted 25,102 25,778 25,793
<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)
<CAPTION>
As of As of
12/31/95 1/1/95
----------- -----------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 15.2 $ 11.1
Receivables, net of allowances of $4.2 in 1995 and $3.8 in 1994 276.0 262.8
Inventories (at lower of cost or market) 111.8 102.1
Other current assets 80.5 76.3
----------- -----------
Total current assets 483.5 452.3
----------- -----------
Non-Current Assets:
Property, plant and equipment (at cost):
Land 15.2 14.9
Buildings and leasehold improvements 164.4 150.9
Machinery & equipment 720.0 653.4
Construction in progress 37.4 38.4
----------- -----------
937.0 857.6
Less: Allowance for depreciation 487.6 439.5
----------- -----------
449.4 418.1
Goodwill, net of amortization of $31.3 in 1995 and $26.6 in 1994 146.0 150.4
Investment in affiliates 92.4 92.0
Assets of business transferred under contractual arrangements 72.4 ----
Net assets of discontinued operations ---- 68.3
Other assets 47.3 50.4
----------- -----------
Total non-current assets 807.5 779.2
----------- -----------
$ 1,291.0 $ 1,231.5
=========== ===========
Liabilities and Shareholders' Equity:
Current Liabilities:
Short-term debt $ 41.6 $ 25.1
Accounts payable 216.7 193.4
Accrued employee compensation costs 30.2 39.6
Accrued expenses 67.1 60.3
Income taxes payable 9.4 2.9
----------- -----------
Total current liabilities 365.0 321.3
----------- -----------
Long-term employee benefits 52.7 50.3
Other long-term liabilities 13.6 15.0
Long-term debt 360.7 416.3
Liabilities and deferred credit of business transferred 72.4 ----
Minority interest 31.5 32.3
Commitments and contingencies (Note 10)
Shareholders' Equity:
Capital Stock:
Preferred shares (no par value, authorized 8,978,058
in 1995 and 1994; none issued and outstanding) ---- ----
Common shares ($2.50 par value, authorized 50,000,000;
issued 24,228,602 in 1995 and 24,163,510 in 1994) 60.6 60.4
Capital in excess of par value 207.4 206.6
Retained earnings 196.2 194.1
Minimum pension liability adjustment ---- (.6)
Cumulative translation adjustment (24.6) (20.7)
Common shares held in treasury (at cost) (44.5) (43.5)
----------- -----------
Total shareholders' equity 395.1 396.3
----------- -----------
$ 1,291.0 $ 1,231.5
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Shareholders' Equity
(Dollars in millions)
<CAPTION>
Year Ended
-----------------------------------------------------------------
12/31/95 1/1/95 1/2/94
----------------- ----------------- -----------------
Shares Amount Shares Amount Shares Amount
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Common Shares:
Beginning balance 24,163,510 $ 60.4 24,076,912 $ 60.2 23,691,462 $ 59.2
Exercise of stock options 65,092 .2 86,598 .2 385,450 1.0
------------ ------- ------------ ------- ------------ -------
Ending balance 24,228,602 60.6 24,163,510 60.4 24,076,912 60.2
------------ ------- ------------ ------- ------------ -------
Capital in Excess of Par Value:
Beginning balance 206.6 204.7 194.4
Exercise of stock options 1.0 1.5 8.2
Shares contributed to employee benefit plan (.2) .4 2.1
-------- ------- -------
Ending balance 207.4 206.6 204.7
-------- ------- -------
Retained Earnings:
Beginning balance 194.1 227.3 203.7
Net earnings (loss) 19.0 (16.3) 40.3
Cash dividends ($.76 per common share per year) (16.9) (16.9) (16.7)
-------- ------- -------
Ending balance 196.2 194.1 227.3
-------- ------- -------
Pension Liability Adjustment:
Beginning balance (.6) --- ---
Minimum pension liability adjustment .6 (.6) ---
-------- ------- -------
Ending balance --- (.6) ---
-------- ------- -------
Cumulative Translation Adjustments:
Beginning balance (20.7) (26.7) (12.5)
Amounts related to disposal of operations (2.0) --- ---
Translation adjustments during the year (1.9) 6.0 (14.2)
-------- ------- -------
Ending balance (24.6) (20.7) (26.7)
-------- ------- -------
Common Shares in Treasury:
Beginning balance (1,913,663) (43.5) (1,981,909) (44.9) (2,093,121) (46.4)
Stock exchanged for stock options exercised (5,212) (.1) (3,836) (.1) (7,572) (.2)
Shares contributed to employee benefit plan 48,574 1.2 72,082 1.5 133,231 2.1
Shares purchased (107,065) (2.1) --- --- (14,447) (.4)
------------ ------- ------------ ------- ------------ -------
Ending balance (1,977,366) (44.5) (1,913,663) (43.5) (1,981,909) (44.9)
------------ ------- ------------ ------- ------------ -------
Total shareholders' equity $ 395.1 $ 396.3 $ 420.6
======== ======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Cash Flows
(Dollars in millions)
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net earnings (loss) $ 19.0 $ (16.3) $ 40.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 69.3 71.2 63.5
Amortization 5.6 7.0 6.5
Asset write-downs 1.1 26.9 ---
Goodwill impairment --- 29.6 ---
Long-term employee benefits (.9) 12.3 (.6)
Deferred income taxes, long-term (1.5) (12.7) (5.4)
Minority interest 3.1 (14.2) (1.3)
Other .2 (3.3) 6.8
Changes in operating assets and liabilities:
Receivables .6 (60.2) 27.4
Inventories and other current assets (19.8) (2.0) (14.0)
Accounts payable and other accrued expenses 10.2 77.8 (9.0)
Income taxes payable and deferred taxes 5.9 --- (10.5)
--------- --------- ---------
Net Cash Provided by Operating Activities 92.8 116.1 103.7
--------- --------- ---------
Investing Activities:
Purchase of property, plant and equipment (100.5) (106.6) (92.9)
Proceeds from sale of property, plant and equipment 1.9 2.9 10.2
Investments in affiliates --- (2.6) (12.4)
Business acquisitions, net of cash acquired --- (7.5) ---
Cash proceeds from sale of businesses, net
of cash balances of businesses sold 55.3 --- ---
Other (1.7) (1.2) (5.4)
--------- --------- ---------
Net Cash Used for Investing Activities (45.0) (115.0) (100.5)
--------- --------- ---------
Financing Activities:
Change in short-term debt, net 2.1 17.4 (11.7)
Proceeds from long-term borrowings 51.5 85.6 48.3
Principal payments on long-term debt (92.0) (106.6) (4.8)
Exercise of stock options 1.1 2.1 9.2
Dividends paid (16.9) (16.9) (16.7)
Other (.4) --- (.5)
--------- --------- ---------
Net Cash Provided by/(Used for) Financing Activities (54.6) (18.4) 23.8
--------- --------- ---------
Cash and Cash Equivalents:
Effect of exchange rate changes on cash (.4) .6 (2.5)
--------- --------- ---------
Net increase/(decrease) (7.2) (16.7) 24.5
Beginning of the year 22.4 39.1 14.6
--------- --------- ---------
End of the year $ 15.2 $ 22.4 $ 39.1
=========== =========== ===========
<FN>
See notes to consolidated financial statements.
<FN>
Income tax payments totaled $13.6 million in 1995, $31.7 million in 1994, and $59.2 million in 1993.
<FN>
Interest payments totaled $45.0 million in 1995, $42.8 million in 1994, and $38.6 million in 1993.
</TABLE>
<PAGE>
Arvin Industries, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in millions unless noted otherwise)
Note 1 - Significant Accounting Policies:
Principles of Consolidation: The consolidated financial
statements include the accounts of Arvin Industries, Inc.
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. The estimated service lives to compute
depreciation range from 10 to 40 years for buildings and 7
to 12 years for machinery, equipment and fixtures. Where
appropriate, the Company uses accelerated depreciation
methods for tax purposes. Maintenance and repair costs are
expensed as incurred.
Goodwill: Goodwill represents the excess of cost over the
fair value of assets acquired and is amortized using the
straight-line method over periods of generally 40 years.
The Company assesses the recoverability of its goodwill
whenever adverse events or changes in circumstances or
business climate indicate that expected future cash flows
(undiscounted and without interest charges) for individual
business units may not be sufficient to support recorded
goodwill. If undiscounted cash flows are not sufficient to
support the recorded asset, an impairment is recognized to
reduce the carrying value of the goodwill based on the
expected discounted cash flows of the business unit.
Expected cash flows are discounted at a rate commensurate
with the risk involved.
Foreign Currency : The Company uses the local currency as
the functional currency for all of its consolidated
operating subsidiaries outside of the United States.
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. Net losses from
foreign currency transactions of $4.0, $2.4, and $.8 million
for 1995, 1994, and 1993, respectively, are included in net
earnings.
Derivatives: Derivative financial instruments are used by
the Company to manage foreign currency and interest rate
exposures. The Company uses the designation method to
qualify foreign currency and interest rate derivative
transactions for hedge accounting treatment. Gains and
losses on foreign currency hedges of existing assets and
liabilities are included in the carrying amounts of those
assets and liabilities and are recognized in income on a
current basis, while gains and losses on anticipated debt
issuance transactions are deferred and amortized as an
adjustment to interest expense. Gains and losses on
derivative transactions affecting anticipated foreign
currency cash flows are also recognized in income on a
current basis. Gains and losses on interest rate swap and
option agreements, which qualify as hedges of existing
liabilities, are deferred and are recognized as an
adjustment to interest expense as realized over the lives of
the agreements.
Pension Plans: Substantially all of the Company's employees
in the United States 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 1995, 1994, and 1993 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 or statutory requirements in other
countries.
Research and Development Costs : Expenditures relating to
the development of new products and processes, including
significant improvements and refinements to existing
products, are expensed as incurred. The amounts charged
against income in 1995, 1994, and 1993 were $24.7, $22.8,
and $17.6 million, respectively.
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.
Reclassifications: Certain amounts in the accompanying
financial statements and notes thereto have been
reclassified to conform to the current year presentation.
Use of Estimates: The preparation of the financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Fiscal Year: The Company's fiscal year ends on the Sunday
nearest to December 31.
Note 2 - Acquisitions and Discontinued Operations:
During the third quarter of 1993, the Company combined the
assets of its Calspan and SRL subsidiaries with the assets
of Space Industries International, Inc. This transaction
was accounted for as a purchase. As a result of the
combination, the Company owned approximately 70 percent of
the new company, Space Industries International, Inc.
During the third quarter of 1993, the Company also 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.
Also during the third quarter of 1993, the Company formed a
50/50 joint venture with Sogefi S.p.A., an Italian company.
The venture includes Sogefi's formerly wholly owned
subsidiaries, Etablissements 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.
In the first quarter of 1994, the Company purchased 80
percent 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.
The Company sold its Schrader Automotive unit on February
16, 1995. Proceeds from the sale included $36.2 million cash
and preferred stock and warrants with a face value of $8.5
million. The gain on the sale, recorded in the first
quarter 1995, was $.7 million, net of tax. The results of
Schrader have been classified as discontinued operations in
the accompanying financial statements. Schrader's 1995
revenues through the sale date were $13.1 million. For
fiscal 1994 and 1993, Schrader's revenues were $91.2 and
$87.1 million, respectively. Income (Loss) from
discontinued operations includes $.3 and $2.5 million for
Schrader for 1994 and 1993, respectively. Income from
disposal of discontinued operations related to Schrader
includes $.7 and $.8 million for 1995 and 1994,
respectively. The effective tax rate included in these
amounts differs from the U.S. statutory rate due to rate
differentials related to the non-U.S. subsidiaries of
Schrader. In addition, the 1995 difference relates to an
adjustment to tax liabilities arising from permanent book
versus tax basis differences.
On September 29, 1995, the Company completed the sale of its
ownership interest in Space Industries International, Inc.
(SIII) to a new company formed by the senior management of
SIII for approximately $30.6 million in cash. In
conjunction with the sale, the Company guaranteed a portion
of the purchaser's debt (see Note 10). As a result of this
guarantee, the Company has accounted for the SIII
transaction following the treatment set forth in the
Securities and Exchange Commission's Staff Accounting
Bulletins - Topic 5E (SAB Topic 5E) "Accounting for
divestiture of a subsidiary or other business operation."
Accordingly, the assets of SIII at the sale date have been
recorded under the caption "Assets of business transferred
under contractual arrangements" with a corresponding amount
recorded as "Liabilities and deferred credit of business
transferred." A $1.6 million gain on sale of SIII has been
separately deferred. The Company will continue to follow
this accounting treatment until the amount of the
outstanding debt guarantee declines to a level which permits
the Company to record the transaction as a sale for
accounting purposes.
The accompanying financial statements present the results of
operations of SIII, previously reported as the Technology
segment, as discontinued operations. SIII's revenues through
the September 29, 1995 sale date were $95.5 million. Fiscal
1994 and 1993 revenues were $189.8 and $211.4 million,
respectively. Income (Loss) from discontinued operations
includes $.4, ($42.0) and ($.6) million for SIII for 1995,
1994 and 1993, respectively.
Note 3 - Restructuring and Special Charges
Results of continuing operations for 1994 include
restructuring and special charges of $28.1 million. The
components of the charges were as follows:
Automotive
Original Automotive Corporate
Equipment Replacement and Other Total
- ---------------------------------------------------------------------------
Employee $ 2.1 $ 5.3 $ --- $ 7.4
Separations
Asset Write-downs .2 7.1 --- 7.3
Facility --- 5.6 --- 5.6
Consolidations
Other Special Charges --- --- 7.8 7.8
- ---------------------------------------------------------------------------
Total $ 2.3 $ 18.0 $ 7.8 $ 28.1
===========================================================================
The results of discontinued operations for 1994 also
included restructuring and special charges totaling $53.0
million, which were primarily to reduce the carrying values
of underperforming assets, including goodwill.
The workforce reductions and consolidation of manufacturing
facilities and product lines announced as a part of the 1994
restructuring were substantially completed by year end 1995.
The 1994 restructuring charge included employee separation
costs 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. Additional
severance expense in 1995, which was not permitted to be
recognized in 1994 under generally accepted accounting
principles, was $3.0 million, net of a $.6 million
adjustment to reserves established in 1994. Cash
expenditures during 1995 included $2.9 million for
continuing operations' employees separated under the 1994
restructuring plan and $.5 million for employees in
discontinued operations. The total number of actual
employee separations was 308 versus 338 as a part of the
plan. Nine employees of discontinued operations are
included in both the actual and planned employee
separations.
Facility consolidations took place in Europe, Canada, and
the United States. Cash expenditures during the year to
complete facility consolidations approximated $2.3 million
for continuing and $.8 million for discontinued operations.
Total restructuring expense of $4.7 million for 1995
includes $1.7 million of facility consolidations expense,
net of $.5 million of income as a result of an adjustment to
a facility consolidation reserve established in 1994.
The 1994 special charge of $7.8 million included increases
in environmental and other reserves related primarily to the
completion of a feasibility study which identified and
estimated remediation costs at the Platt Saco Lowell site
previously owned by the Company's Maremont subsidiary.
During 1995, based upon a judgment entered against an Arvin
subsidiary and assessments by legal counsel of other pending
legal matters, the Company added $13.7 million ($3.5 million
in the fourth quarter) to its litigation reserves. The 1995
results also include a special credit of $3.2 million as a
result of a settlement with a party potentially liable for
certain environmental costs.
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 million in
1995, $1.2 million in 1994, and $.8 million in 1993.
Approximately $42.0 million and $49.2 million of total
inventories at year-end 1995 and 1994 were stated on the
LIFO method. The current costs of these inventories exceeded
the LIFO value by approximately $4.6 million and $4.7
million at year-end 1995 and 1994, respectively.
Note 5 - Income Taxes:
Earnings from continuing operations before income taxes were
as follows:
1995 1994 1993
- ----------------------------------------------------------------
United States $ (8.9) $ 29.2 $ 45.0
International 38.3 9.6 11.8
- ----------------------------------------------------------------
$ 29.4 $ 38.8 $ 56.8
================================================================
The provision for income taxes was as follows:
1995 1994 1993
- ----------------------------------------------------------------
Current tax expense:
Federal $ (.3) $ 9.0 $ 12.6
State 1.2 2.2 2.2
International 17.1 11.5 8.0
Deferred tax expense:
Federal (5.6) (3.1) 1.0
State (.6) (.3) ---
International (.6) (3.1) (.7)
- ----------------------------------------------------------------
Continuing operations provision $ 11.2 $ 16.2 $ 23.1
================================================================
The provision for income taxes was different from the U.S.
federal statutory rate applied to earnings from continuing
operations before income taxes, and is reconciled as
follows:
1995 1994 1993
- ----------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net 2.8 3.0 2.5
International tax rate difference 1.0 7.5 3.2
Amortization of excess purchase 5.2 4.0 2.7
price
Foreign tax credit utilization, (3.3) (6.1) (2.2)
net
Other items, net (2.7) (1.7) (.5)
- ----------------------------------------------------------------
Effective tax rate 38.0% 41.7% 40.7%
================================================================
Deferred tax assets (liabilities) are comprised of the
following at fiscal year end:
1995 1994
- ----------------------------------------------------------------
Gross deferred tax assets:
Accrued employee benefits $ 18.9 $ 20.8
Inventory and receivables 10.2 8.0
Environmental and other legal 11.5 7.2
Vacation pay accrued .8 1.0
Other 4.0 5.4
Net losses and tax credit carryforward 26.2 9.6
Valuation allowance for deferred tax assets (21.8) (9.5)
- ----------------------------------------------------------------
Deferred tax assets, net of valuation allowance
49.8 42.5
- ----------------------------------------------------------------
Gross deferred tax liabilities:
Depreciation (30.4) (29.7)
Pension (1.4) (2.8)
- ----------------------------------------------------------------
Gross deferred tax liabilities (31.8) (32.5)
- ----------------------------------------------------------------
Net deferred tax assets $ 18.0 $ 10.0
================================================================
During 1995, the Company increased the valuation allowance
for deferred tax assets by $12.3 million. The increase was
caused principally by the generation of a capital loss
carryforward for tax purposes in 1995 upon the sale of Space
Industries International, Inc.
Net operating loss, capital loss, and tax credit
carryforwards available in various tax jurisdictions at
December 31, 1995 expire in the amounts of $1.2, $1.8, $3.3,
$1.7, $15.7 and $2.5 million for the years 1996 through 2001
and beyond, respectively.
Realization of deferred tax assets is dependent upon taxable
income within the carryback and carryforward periods
available under the tax laws. Although realization of
deferred tax assets in excess of deferred tax liabilities is
not certain, management has concluded that it is "more
likely than not" that the Company will realize the full
benefit of U.S. deferred tax assets, except for
approximately $11.4 million of capital loss carryforward.
While in the aggregate, the Company's non-U.S. subsidiaries
have generated cumulative taxable income over the last three
years, certain international subsidiaries are in net
operating loss carryforward positions. There is currently
insufficient evidence as required by SFAS 109 to
substantiate recognition of net deferred tax assets in the
financial statements for those non-U.S. subsidiaries in a
net operating loss carryforward position. Accordingly, a
valuation allowance of $10.4 million has been recorded. It
is reasonably possible that sufficient positive evidence
could be generated in the near term at one or more of these
non-U.S. subsidiaries to support a reduction in the
valuation allowance. Increases in the valuation allowance
at the Company's non-U.S. subsidiaries were $2.4, $2.9, and
$6.4 million and reductions of valuation allowances were
$1.5, $3.9, and $2.3 million for 1995, 1994, and 1993,
respectively.
At year-end 1995, consolidated retained earnings included
undistributed earnings of non-U.S. subsidiaries of
approximately $97.1 million. These earnings are permanently
invested and are not considered available for distribution
to the parent company or will be remitted substantially free
of additional U.S. income taxes. Accordingly, no provision
has been made for income taxes that may be payable upon
remittance of such earnings.
Note 6 - Borrowings:
At fiscal year-end, long-term debt consisted of:
1995 1994
- ----------------------------------------------------------------
Capital lease obligations (see Note 9) $ 5.4 $ 6.2
9-5/8% medium-term notes due 1996 15.0 15.0
9.97% notes due 1996 --- 50.0
7.94% notes due 2005 50.0 ---
6-7/8% notes due 2001 74.9 74.9
9.8% - 9.98% medium-term notes due 1998 45.0 45.0
10% medium-term notes due 2000 49.7 49.7
7-1/2% convertible subordinated
debentures due 2014 63.8 90.3
9-1/8% sinking fund debentures due 2017 28.4 29.4
10-3/8% Euro-Sterling Notes due 2018 43.5 47.4
Other 6.5 15.2
Less: Current maturities (21.5) (6.8)
- ----------------------------------------------------------------
$ 360.7 $ 416.3
================================================================
Maturities of long-term debt for fiscal 1996 through 2000
are $21.5, $6.6, $52.5, $7.3 and $57.6 million,
respectively.
The Company has two revolving credit facilities totaling
$100 million, both with a termination date of August 25,
1997. At December 31, 1995, there were no borrowings under
these facilities. In addition, the Company has uncommitted
credit facilities totaling $279 million with various
domestic and foreign banks. At December 31, 1995,
borrowings under these facilities totaled $7.7 million.
The weighted average interest rates on short-term borrowings
at December 31, 1995 and January 1, 1995 were 6.4 percent
and 6.8 percent, respectively.
In October 1995 one of the Company's foreign subsidiaries
issued $50 million principal amount of 7.94 percent notes
due 2005 under a financing agreement guaranteed by the
Company. In December 1995 the Company redeemed all of its
9.97 percent notes due 1996.
During 1995 and 1994, the Company repurchased approximately
$26.5 million and $7.3 million, respectively, 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. In 1995 and
1994, the Company also repurchased approximately $1.0
million and $17.2 million, respectively, of its outstanding
9 1/8 percent sinking fund debentures due 2017.
Note 7 - Financial Instruments and Risk Management:
The Company uses financial derivatives, including forward
exchange contracts and options and interest rate swaps and
options, to manage its global foreign exchange and interest
rate exposure. The foreign exchange derivatives serve
primarily to protect the functional currency value of non-
functional currency positions and anticipated transactions
of the Company and its foreign subsidiaries. The interest
rate derivative transactions are used principally to manage
the Company's floating rate exposure target within
parameters that are consistent with its long-term financial
strategy and to hedge anticipated debt issuance
transactions. Interest rate derivative contracts are linked
to specific debt instruments. The Company does not hold or
issue derivative financial instruments for trading purposes
or use leveraged derivatives in its financial risk
management program.
The notional amounts of interest rate swaps serve as the
basis for the cash flows from the swaps, but do not
represent the Company's exposure through its use of these
instruments. The Company is exposed to credit losses in the
event of nonperformance (which is not anticipated) by the
counterparties to the agreements. Forward agreements are
subject to the creditworthiness of the counterparties, which
are principally large banks.
Interest Rate Risk Management: The Company had interest
rate swap agreements totaling $246.6 and $247.0 million
notional amount with commercial and investment banks (the
counterparties) at December 31, 1995 and January 1, 1995,
respectively. Under each swap, the Company agrees to
exchange with the counterparties the difference between
fixed rate and floating rate interest amounts calculated on
the notional amounts. In each case, the floating rate is
the LIBOR, reset every six months. At year end 1995, $171.6
million notional amount of the swap agreements effectively
changed long-term debt issued by the Company or its
subsidiaries from a fixed to a floating rate of interest.
The average fixed interest rate received on such swaps
during the year was 5.5 percent. The remaining $75.0
million of swaps at year-end 1995 result in the Company
paying a fixed rate of interest while receiving a floating
rate of interest. The average fixed interest rate paid on
such swaps during the year was 8.4 percent. At January 1,
1995, the Company had $172.0 million notional amount of swap
agreements which effectively changed its long-term debt from
a fixed to a floating rate of interest. The average fixed
rate received approximated 5.5 percent. The remaining $75.0
million of swaps at year-end 1994 resulted in the Company
paying a fixed rate of interest while receiving a floating
rate of interest. The average fixed rate paid during 1994
on such agreements was 8.4 percent. The net impact of the
Company's interest rate hedging was $2.9 million expense,
$2.4 million expense, and $3.4 million income in 1995, 1994,
and 1993, respectively. During 1995, the Company used the
short sale of U. S. Treasury securities to fix the effective
interest cost of a new debt issue completed in October.
There was no material gain or loss on this short sale, nor
were there any such anticipatory hedges outstanding at
either year end.
Foreign Exchange Risk Management: At year-end 1995 and
1994, the Company had forward exchange contracts totaling
$55.2 and $44.1 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 1995 and
1994 hedged existing non-functional currency denominated
assets and liabilities. Although the Company used forward
contracts during 1995 and 1994 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 1995 and in prior years, the Company also used
foreign exchange options to protect the U. S. dollar value
of anticipated foreign currency earnings. These option
contracts were principally in the major European currencies,
and were written for a term of less than one year. There
were no option contracts outstanding at year-end 1995 or
1994. The impact of the Company's hedging program on foreign
exchange gains and losses was not material in any of the
three years presented.
Fair Value of Financial Instruments: Interest rate swap
agreements had a carrying value of a $.7 million liability
at December 31, 1995. The fair value of these agreements
approximated a $3.7 million liability at that date. At year-
end 1994, the carrying and fair values for the swap
agreements were a $1.5 and $11.4 million liability,
respectively. Fair value of these agreements generally
reflects the estimated amounts that the Company would pay to
terminate the contracts at the reporting date. 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.
At December 31, 1995, the fair value of long-term debt,
including that due within one year, approximated $414.2
million. The carrying value at that date was $382.2
million. At year-end 1994, the fair and carrying values of
debt were $411.8 and $423.1 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 1995 and 1994 were not material.
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 awarded 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
therefore, in accordance with APB Opinion No. 25, no
compensation expense is incurred in connection with these
options. Options are exercisable one year after their grant
date and generally expire ten years after that date.
1995 1994 1993
- -----------------------------------------------------------------------------
Options outstanding at
beginning of year 2,096,339 1,936,595 1,897,022
Options granted 325,450 345,850 467,050
Options exercised (65,092) (86,598) (385,450)
Options expired (85,647) (99,508) (42,027)
- -----------------------------------------------------------------------------
Options outstanding at year-end 2,271,050 2,096,339 1,936,595
=============================================================================
Options available for grant at
year-end 62,915 324,245 573,545
Weighted average option prices
per share:
Granted $18.56 $25.00 $30.78
Exercised 16.47 18.10 21.34
Expired 24.08 23.93 28.89
Outstanding 25.07 25.77 25.47
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:
Operating Leases
Capital ------------------
Leases Rents Subleases
- -----------------------------------------------------------------------------
Fiscal year:
1996 $ 1.2 $ 10.0 $ .6
1997 1.2 12.2 .4
1998 1.1 10.5 .4
1999 1.1 9.5 .4
2000 1.8 8.4 .3
- -----------------------------------------------------------------------------
Total minimum lease payments $ 6.4
Less: Amount representing interest 1.0
- --------------------------------------------------
Present value of minimum lease payments 5.4
Included in short-term debt .8
- --------------------------------------------------
Included in long-term debt $ 4.6
==================================================
Rent expense under operating leases was as follows:
1995 1994 1993
- ---------------------------------------------------------
Annual rent $ 17.5 $ 15.1 $ 15.4
Less: Sublease rent 2.1 2.1 2.5
- ---------------------------------------------------------
Net rent expense $ 15.4 $ 13.0 $ 12.9
=========================================================
Capital lease assets included in property, plant and
equipment are as follows:
1995 1994
- ---------------------------------------------------
Land $ -- $ .4
Buildings -- 4.5
Machinery and equipment 6.3 13.6
- ---------------------------------------------------
6.3 18.5
Less: Accumulated depreciation .8 8.7
- ---------------------------------------------------
$ 5.5 $ 9.8
===================================================
Note 10 - Contingencies:
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. In the fourth quarter of 1995, Chamberlain was
awarded $4.4 million in connection with its petition for pre-
judgment interest, costs and attorney fees related to this
judgment. Based upon this judgment and award and revised
assessments by legal counsel of other pending legal matters,
the Company added $13.7 million during 1995 to previously
established litigation reserves. The Company has filed an
appeal with respect to the judgment and the post-judgment
award.
Another previously disclosed suit, also filed by
Chamberlain, is based on assertions that non-conforming
products manufactured by Saco were shipped to the United
States government and that Maremont did not disclose this
fact in connection with the May 1987 stock sale.
Chamberlain's claim includes recovery of costs and expenses
incurred. The Company believes that it has meritorious
defenses. Formal discovery has been completed in this
matter. A June 1996 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,
remediation 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 has 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.
At December 31, 1995, the Company had accrued $9.6 million
for environmental remediation costs and $21.0 million for
its estimated liability related to pending legal matters.
Given the inherent uncertainties in evaluating legal and
environmental exposures, actual costs to be incurred in
future periods may vary from the currently recorded
estimates. The Company expects that any sum it may be
required to pay in connection with legal and environmental
matters in excess of the amounts recorded will not have a
material adverse effect on its financial condition.
In conjunction with the September 29, 1995 sale of Space
Industries International, Inc., the Company guaranteed
approximately $22.9 million of the purchaser's (Calspan SRL
Corporation) debt. The guarantee amount, which was $21.7
million at December 31, 1995, 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. This review
included discussions with its joint venture partners. These
negotiations have encompassed, but have not been limited to,
renegotiation of ownership percentages, additional capital
contributions by the partners and alternative methods of
making such additions, and renegotiations of the entity's
current financing arrangements with its lending
institutions. A decision on these alternative proposals has
not been finalized and the outcome of these discussions
remains unclear. The Company believes that a new
arrangement is necessary for the entity to continue as a
going concern. The Company's investment in this affiliate
at December 31, 1995 was $13.9 million.
Note 11 - Pension Plans:
The Company has contributory and non-contributory defined
benefit pension plans for its continuing operations. Plan
benefits are paid through pension trusts that are
sufficiently funded to ensure that the plans can pay
benefits to retirees as they become due. Net pension
expense for these plans consists of the following
components:
1995 1994 1993
- -----------------------------------------------------------
Service cost $ 7.6 $ 8.5 $ 7.0
Interest cost 20.1 17.8 16.5
Actual (gain) loss on assets (46.4) 14.9 (32.0)
Net amortization and deferral 22.7 (37.8) 11.8
- -----------------------------------------------------------
Net periodic pension cost $ 4.0 $ 3.4 $ 3.3
============================================================
The Company's pension obligations for its United States
plans were projected to, and the assets were valued as of,
the end of 1995 and 1994. The plan assets, comprised almost
entirely of high grade stocks and bonds, included 1.2 and
1.3 million shares of the Company's common stock at year-end
1995 and 1994, respectively.
Assumptions used in determining the projected benefit
obligation for the domestic and international plans are as
follows:
1995 1994 1993
- --------------------------------------------------------------------
United States Plans
- -------------------
Discount Rate for Obligations 7.00% 8.00% 7.50%
Expected Return on Plan Assets 9.00% 9.00% 9.00%
Average Salary Increases 4.75% 4.75% 4.75%
International Plans
- -------------------
Discount Rate for Obligations 8.00% 9.00% 7.50%
Expected Return on Plan Assets 9.00% 9.00% 9.00%
Average Salary Increases 6.00% 7.00% 5.50%
The following tables summarize the funded status of the
Company's pension plans:
Plans for Plans for
which which
assets accumulated
exceed benefits
accumulated exceed
1995 benefits assets
- ------------------------------------------------------------------------
Benefit obligation
Vested $ (148.1) $ (103.9)
Nonvested (6.7) (6.0)
- ------------------------------------------------------------------------
Accumulated benefit obligation (154.8) (109.9)
Projected impact of future
salary increases (24.0) (.7)
- ------------------------------------------------------------------------
Projected benefit obligation (178.8) (110.6)
Plan assets at market value 181.2 103.6
- ------------------------------------------------------------------------
Funded Status 2.4 (7.0)
Unamortized initial asset (5.5) (4.2)
Unrecognized (gain) loss 2.4 4.6
Unrecognized prior service cost 4.5 7.6
Additional minimum liability1 --- (7.3)
- ------------------------------------------------------------------------
Prepaid pension cost (pension liability) $ 3.8 $ (6.3)
========================================================================
Plans for Plans for
which which
assets accumulated
exceed benefits
accumulated exceed
1994 benefits assets
- ------------------------------------------------------------------------
Benefit obligation
Vested $ (116.4) $ (89.2)
Nonvested (7.4) (6.4)
- ------------------------------------------------------------------------
Accumulated benefit obligation (123.8) (95.6)
Projected impact of future
salary increases (20.7) (.7)
- ------------------------------------------------------------------------
Projected benefit obligation (144.5) (96.3)
Plan assets at market value 157.7 87.9
- ------------------------------------------------------------------------
Funded Status 13.2 (8.4)
Unamortized initial asset (6.4) (4.7)
Unrecognized (gain) loss (1.5) 6.1
Unrecognized prior service cost 4.3 7.3
Additional minimum liability1 --- (8.1)
- ------------------------------------------------------------------------
Prepaid pension cost (pension liability) $ 9.6 $ (7.8)
========================================================================
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.
Note 12 - Other Postretirement Benefits:
The Company provides certain retiree health care benefits
covering a majority of U.S. salaried employees. Employees
are generally eligible for benefits upon retirement and
completion of a specified number of years of credited
service. The plans are contributory based on years of
service, with contributions adjusted annually. The Company
does not pre-fund these benefits and has the right to modify
or terminate certain of these plans in the future.
The components of other postretirement benefit expense for
continuing operations are as follows:
1995 1994 1993
- -----------------------------------------------------------------
Service cost $ .9 $ 1.2 $ 1.2
Interest cost 2.7 2.6 2.9
Other (.3) --- ---
- -----------------------------------------------------------------
Total Cost $ 3.3 $ 3.8 $ 4.1
=================================================================
The accumulated postretirement benefit obligation in the
accompanying balance sheet is comprised of the following
components:
1995 1994
- ---------------------------------------------------------------
Retirees $ (16.4) $ (15.3)
Fully eligible active plan participants (2.7) (2.8)
Other active plan participants (15.5) (14.9)
- ---------------------------------------------------------------
Total accumulated postretirement benefit (34.6) (33.0)
obligation
Unrecognized net actuarial gains (9.9) (9.1)
- ---------------------------------------------------------------
Accrued postretirement benefit obligation $ (44.5) $ (42.1)
===============================================================
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. Future benefit costs for 1995 were
estimated assuming medical costs would increase at a 10
percent annual rate for 1996 decreasing to a 5 percent
annual growth rate ratably over the next 5 years and then
remaining at a 5 percent growth rate thereafter. A one
percent increase in this annual trend rate would have
increased the accumulated postretirement benefit obligation
at December 31, 1995 by 17.1 percent. The effect of this
change on the aggregate of service and interest cost for
1995 would be an increase of 18.2 percent. The weighted
average discount rate used to estimate the accumulated
postretirement benefit obligation was 7 percent and 8
percent at year-end 1995 and 1994, respectively.
Certain of the Company's non-U.S. subsidiaries provide
limited non-pension benefits to retirees in addition to
government sponsored programs. The cost of these programs
is not significant to the Company. Most retirees outside
the United States are covered by government sponsored and
administered programs.
Note 13 - Impact of New Accounting Standards:
In March 1995 the Financial Accounting Standards Board
(FASB) issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." This statement requires that long-lived
assets and certain identifiable intangibles held and used by
an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. When the sum of the
expected undiscounted future cash flows is less than the
carrying amount of an asset, an impairment loss is
recognized. The Company adopted Statement No. 121 during
fiscal 1995 with no material effect on financial position or
results of operations.
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 equals 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.
Note 14 - Shareholders' Rights Plan:
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 of 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 upon approval 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 Risk:
Financial instruments which potentially expose the Company
to concentrations of credit risk consist primarily of trade
accounts receivable. The Company's customer base includes
most significant automotive manufacturers and a large number
of well known jobbers, distributors, and installers of
automotive replacement parts in North America and Europe.
The Company generally does not require collateral and the
majority of its trade receivables are unsecured. Although
the Company is directly affected by the financial well-being
of the automotive industry, management does not believe
significant credit risk exists at December 31, 1995.
The Company relies on several key vendors to supply its
primary raw material needs for each of its markets.
Although there are a limited number of manufacturers in each
market capable of supplying these needs, the Company
believes that other suppliers could provide for the
Company's needs on comparable terms. Abrupt changes in the
supply flow could, however, cause a delay in manufacturing
and a possible inability to meet sales commitments on
schedule or a possible loss of sales, which would effect
operating results adversely.
Note 16 - Business Segments:
The Company is engaged in the manufacture and sale of
automotive parts and other products and services, primarily
in the United States and Europe.
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
Automotive Original Equipment $ 1,337.2 $ 1,194.7 $ 1,042.9
Automotive Replacement 629.2 654.8 597.9
- -------------------------------------------------------------------------------------
Total net sales $ 1,966.4 $ 1,849.5 $ 1,640.8
=====================================================================================
Operating Income from Continuing Operations
Automotive Original Equipment $ 67.8 $ 70.9 $ 64.1
Automotive Replacement 31.7 33.2 49.0
- -------------------------------------------------------------------------------------
Operating income by segment 99.5 104.1 113.1
Less:
Expenses unrelated to segments 16.7 12.6 7.3
Corporate general and administrative 12.2 12.6 16.0
Net interest expense 41.2 40.1 33.0
- -------------------------------------------------------------------------------------
Earnings from continuing operations
before income taxes $ 29.4 $ 38.8 $ 56.8
=====================================================================================
Identifiable assets:
Automotive Original Equipment $ 711.4 $ 650.4 $ 588.1
Automotive Replacement 326.7 338.9 286.8
- -------------------------------------------------------------------------------------
Total identifiable assets 1,038.1 989.3 874.9
General Corporate and Discontinued Operations(1) 252.9 242.2 299.2
- -------------------------------------------------------------------------------------
Total assets $ 1,291.0 $ 1,231.5 $ 1,174.1
=====================================================================================
Depreciation and amortization:
Automotive Original Equipment $ 53.0 $ 46.2 $ 40.7
Automotive Replacement 19.1 23.6 21.3
General Corporate and Discontinued Operations 2.8 8.4 8.0
- -------------------------------------------------------------------------------------
Total depreciation and amortization $ 74.9 $ 78.2 $ 70.0
=====================================================================================
Additions to property, plant and equipment:
Automotive Original Equipment $ 79.3 $ 80.0 $ 60.3
Automotive Replacement 19.2 20.2 27.3
General Corporate and Discontinued Operations 2.0 6.4 5.3
- -------------------------------------------------------------------------------------
Total capital additions $ 100.5 $ 106.6 $ 92.9
=====================================================================================
<FN>
1 Consists primarily of cash and cash equivalents,
prepaid expenses, non-current assets, net assets of
discontinued operations, and assets of business
transferred under contractual arrangements.
</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>
1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
United States $ 1,129.4 $ 1,130.7 $ 1,015.2
Europe 635.0 523.1 442.5
Other 202.0 195.7 183.1
- ----------------------------------------------------------------------------------------
Total net sales $ 1,966.4 $ 1,849.5 $ 1,640.8
========================================================================================
Operating Income from continuing operations:
United States $ 44.6 $ 63.8 $ 81.4
Europe 39.8 27.7 16.5
Other 15.1 12.6 15.2
- ----------------------------------------------------------------------------------------
Operating Income $ 99.5 $ 104.1 $ 113.1
========================================================================================
Identifiable assets:
United States $ 506.8 $ 493.8 $ 434.6
Europe 470.8 428.6 367.9
Other international 60.5 66.9 72.4
- ----------------------------------------------------------------------------------------
Total identifiable assets $ 1,038.1 $ 989.3 $ 874.9
========================================================================================
</TABLE>
Sales to two customers, primarily in the Automotive
Original Equipment segment, exceeded 10 percent of total net
sales from continuing operations in 1995, 1994 and 1993, as
follows:
1995 1994 1993
- ------------------------------------------------------------------------
% of % of % of
Amount Sales Amount Sales Amount Sales
-------- ----- -------- ----- -------- -----
Customer one $ 379.4 19.3% $ 326.8 17.7% $ 292.7 17.8%
Customer two 243.3 12.4% 202.2 10.9% 195.4 11.9%
- ------------------------------------------------------------------------
$ 622.7 31.7% $ 529.0 28.6% $ 488.1 29.7%
========================================================================
Note 17 - Investments in Affiliates:
Included in Arvin's continuing operations at December 31,
1995, are equity interests of 50 percent or less owned
companies engaged in the production and distribution of
automotive exhaust and ride control products. Amounts
presented include the accounts of the following equity
affiliates: Etablissements Rosi S.A. (50%), Ansa Marmitte
S.p.A. (50%), Arvin Sango, Inc. (50%), Way Assauto S.r.l.
(49.9%), Schmitz & Brill GmbH (50%), Gabriel Mexico S.A.
(40%), Fric Rot S.A.I.C. (31.43%), Gabriel de Venezuela
(41.91%) and Gabriel India, LTD. (25%). The Company holds
numerous other, smaller equity investments at a 40 to 50
percent ownership level.
As of December 31, 1995 and January 1, 1995, the excess of
cost over acquired net assets for companies accounted for by
the equity method was $36.5 million and $37.6 million,
respectively. In 1995 and 1994, the Company received
dividends from affiliates of $2.9 and $1.6 million,
respectively.
Summarized financial information of the affiliates is as
follows:
Condensed Statement of Operations: 1995 1994 1993
- -------------------------------------------------------------------------
Net sales $ 557.1 $ 507.0 $ 361.6
Gross profit 95.3 87.9 71.1
Net earnings 9.1 13.2 14.0
Condensed Statement of Financial Condition: 1995 1994 1993
- -------------------------------------------------------------------------
Current assets $ 247.3 $ 204.0 $ 175.5
Non-current assets 177.6 173.7 173.7
- -------------------------------------------------------------------------
$ 424.9 $ 377.7 $ 349.2
=========================================================================
Current liabilities $ 162.0 $ 118.8 $ 98.5
Non-current liabilities 137.3 133.5 135.6
Shareholders' equity 125.6 125.4 115.1
- -------------------------------------------------------------------------
$ 424.9 $ 377.7 $ 349.2
=========================================================================
<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 December 31, 1995 and
January 1, 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 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 sold on September 29, 1995 (see notes 2 and 10 to
consolidated financial statements), as of and for the two years ended
January 1, 1995. Such statements reflect total assets of $74.3 million
at January 1, 1995, which are included in net assets of discontinued
operations, and net sales of $190.4 million and $212.0 million for the
years ended January 1, 1995 and January 2, 1994, respectively, which are
included in income from discontinued operations. Those statements were
audited by other auditors whose report thereon has been furnished to us,
and our opinion herein, insofar as it relates to the amounts included
for Space Industries International, Inc. as of and for the two years
ended January 1, 1995, is based solely on the report of other auditors.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Indianapolis, Indiana
January 30, 1996
<PAGE>
<TABLE>
Arvin Industries, Inc.
Schedule II
Valuation and Qualifying Accounts
(Dollars in millions)
<CAPTION>
Additions
Balance Charged to Charged to Deductions Balance at
Beginning Profit Other from End of
Description of Year or Loss Accounts Reserves Year
----------- ------- ------- -------- -------- ----
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
- ----------------------------
Allowance for doubtful accounts $ 3.8 $ 2.5 $ .1 (1) $ 2.2 (2) $ 4.2
Accumulated amortization of
goodwill $ 26.6 $ 4.7 $ --- $ --- $ 31.3
Valuation allowance for deferred
tax assets $ 9.5 $ 13.8 $ --- $ 1.5 $ 21.8
Year Ended January 1, 1995
- --------------------------
Allowance for doubtful accounts $ 2.6 $ 1.9 $ .5 (1) $ 1.2 (2) $ 3.8
Accumulated amortization of
goodwill $ 22.0 $ 4.7 $ --- $ .1 (3) $ 26.6
Valuation allowance for deferred
tax assets $ 10.5 $ 2.9 $ --- $ 3.9 $ 9.5
Year Ended January 2, 1994
- --------------------------
Allowance for doubtful accounts $ 3.4 $ 1.1 $ --- $ 1.9 (2) $ 2.6
Accumulated amortization of
goodwill $ 17.6 $ 4.4 $ --- $ --- $ 22.0
Valuation allowance for deferred
tax assets $ 6.4 $ 6.4 $ --- $ 2.3 $ 10.5
<FN>
(1) Includes translation adjustment.
<FN>
(2) Includes accounts charged off, net of recoveries and
reclassification of reserves.
<FN>
(3) Includes fully amortized goodwill written off.
</TABLE>
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 are as follows:
(Dollars in millions, except per share amounts)
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------- --------------- --------------- ---------------
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 494.2 $ 426.4 $ 509.7 $ 488.7 $ 462.1 $ 452.7 $ 500.4 $ 481.7
Gross profit 60.6 62.1 70.2 77.8 58.2 66.9 69.7 69.0
Earnings (Loss)
Continuing operations 2.6 5.4 5.2 14.4 2.7 9.9 7.4 (5.2)
Net 5.1 5.3 5.6 14.0 1.0 9.8 7.4 (45.5)
Earnings (Loss)
per common share
Primary
Continuing operations $ .12 $ .24 $ .23 $ .65 $ .12 $ .45 $ .33 $ (.23)
Net .23 .24 .25 .63 .04 .44 .33 (2.03)
Fully Diluted
Continuing operations .12 .24 .23 .61 .12 .43 .33 (.23)
Net .23 .24 .25 .59 .04 .42 .33 (2.03)
<FN>
Note 1: Earnings (Loss) from continuing operations for 1995 includes restructuring and
special charges and credits, net of $2.1, $8.4, ($4.6) and $5.3 million in
quarters one, two, three and four, respectively.
<FN>
Note 2: Earnings (Loss) from continuing operations in the fourth quarter of 1994
includes restructuring and special charges and credits, net of $28.1.
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
--------------------
None.
<PAGE>
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 18, 1996, under the captions "Election of
Directors" and "Compliance with Forms 3, 4 and 5 Reporting
Requirements", and is incorporated herein by reference.
Item 11. Executive Compensation
- -------------------------------
This information is contained in the definitive proxy statement of the
Registrant for the Annual Meeting of Shareholders to be held April 18,
1996 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 18,
1996 under the captions "Certain Beneficial Owners" and "Election of
Directors" and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
See Notes 2 and 10 to the Consolidated Financial Statements, Item 8
herein, with respect to the Company's sale of its ownership interest in
Space Industries International, Inc. to Calspan SRL Corporation of which
Joseph P. Allen, a director of Arvin, is president, chief executive
officer and a shareholder.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
(a) (1) Financial Statements
--------------------
The following financial statements are filed as part of this report
See index to Consolidated Financial Statements in Item 8.
Consolidated Statement of Operations for each of the
three years in the period ended December 31, 1995
Consolidated Statement of Financial Condition at
December 31, 1995 and January 1, 1995
Consolidated Statement of Shareholders' Equity for each
of the three years in the period ended December 31, 1995
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a) (2) Financial Statement Schedules
-----------------------------
Financial Statement Schedules:
For each of the three years in the period ended December 31, 1995
II Valuation and Qualifying Accounts
The registrant's Consolidated Financial Statement schedules are included
in Item 8 herein.
(a) (3) Exhibits
--------
The exhibits filed as a part of this Annual Report on Form 10-K are:
Exhibit Incorporated Herein By
Number Exhibit Reference as Filed With
- ------ ------- -----------------------
3(A) Amended and Restated Articles of 1990 Form 10-K as Exhibit
Incorporation and Amendments 3(A)
Thereto
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, Registration Statement No.33-
1987 relating to $200 million 10941 as Exhibit 4
aggregate principal amount debt
securities
4(B) Indenture dated as of July 10, Registration Statement No.33-
1989 relating to 7.5 percent 29230 as Exhibit 4.5
Convertible Subordinated
Debentures due 2014
4(C) Indenture dated July 3, 1990 Registration Statement No.33-
relating to Debt Securities of 34818 as Exhibit 4(a)
Arvin Overseas Finance B.V.,
unconditionally guaranteed by
Arvin Industries, Inc.
4(D) Indenture dated July 3, 1990 Registration Statement No.33-
relating to Senior Debt 53087 as Exhibit 4-4
Securities.
4(E) 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 1980 Form 10-K as Exhibit
Officers 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 Form 10-Q for the third
O. Pond dated October 31, 1993 quarter ended 10-4-93 as
Exhibit 10(F)
10(D) * Unfunded Deferred Compensation 1982 Form 10-K as Exhibit
Plan for Directors 10(D)
10(E) * 1988 Arvin Industries, Inc. 1991 Form 10-K as Exhibit
Stock 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 filed herewith as Exhibit 11
Share
12 Computation of Ratios filed herewith as Exhibit 12
21 Subsidiaries of the Registrant filed herewith as Exhibit 21
23(A) Consent of Independent filed herewith as Exhibit
Accountants 23(A)
23(B) Consent of Independent filed herewith as Exhibit
Accountants 23(B)
23(C) Independent Auditors' Report filed herewith as Exhibit
and Consent of Independent 23(C)
Accountants
27 Financial Data Schedule filed herewith as Exhibit 27
* This exhibit is a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
-------------------
Report Dated - August 23, 1995
Report Filed - August 24, 1995
Item 5 Reported - On August 23, 1995, Space Industries
International, Inc. ("SIII"), an approximately 70% owned subsidiary
of Arvin Industries, Inc. ("Arvin"), announced that SIII had
entered into an agreement and plan of merger ("Agreement") with new
companies formed by senior management of SIII. The Agreement
provided for the acquisition of SIII's outstanding capital and
preferred stock for an aggregate of approximately $42.6 million.
Upon completion of the merger, Arvin would guarantee a portion of
the new companies' debt incurred in connection with the merger,
amounting to $22.9 million at closing and declining on a quarterly
basis over four years.
Report Dated - September 29, 1995
Report Filed - October 4, 1995
Items 5 and 7 Reported - Arvin Industries, Inc. reported it sold
its 70 percent ownership in Space Industries International, Inc.
("SIII") to a group formed by SIII senior management. Upon
completion of the sale, the new company changed its name to Calspan
SRL Corporation.
Report Dated - September 29, 1995
Report Filed - November 15, 1995
Items 2 and 7 Reported - This Form 8-K/A amended the Form 8-K dated
September 29, 1995 and filed October 4, 1995. This amendment
supplemented the information previously provided under Item 5 and
the exhibits filed therewith. Included in this amendment were Item
2, pro forma financial information (Item 7(b)), and additional
exhibits (Item 7(c)).
Report Dated - October 19, 1995
Report Filed - November 28, 1995
Items 5 and 7 Reported - The Board of Directors of the registrant
adopted amendments to Sections 2.2 and 2.5 of its Amended and
Restated By-Laws at a regular meeting thereof, held on October 19,
1995. The effect of the amendment to Section 2.2, as amended, was
to provide that the annual meeting of shareholders shall generally
be held on the third Thursday in April of each year. The effect of
the amendment to Section 2.5, as amended, was to clarify the
requirement that the record date be not more than 70 nor less than
10 days before the date of the meeting or event. This requirement
has no application to the declaration of dividends.
Report Dated - November 15, 1995
Report Filed - November 15, 1995
Items 5 and 7 Reported - On November 15, 1995, Arvin Industries,
Inc. announced that it had changed the presentation of its
unaudited financial statements for the three and nine months ended
October 1, 1995 to reflect, as an unconsolidated subsidiary, the
results of Arvin Sango Inc., a 50 percent owned subsidiary, which
had been previously consolidated by the Company for the period
beginning January 2, 1995.
<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.
by: /s/ R. A. Smith
____________________________________________
R.A. Smith
Vice President-Finance & Chief
Financial Officer
by: /s/ W. M. Lowe, Jr.
____________________________________________
W. M. Lowe, Jr.
Controller & Chief Accounting Officer
Date: March 22, 1996
<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/ B. O. Pond March 20, 1996
- --------------------------------------------- ----------------
B. O. Pond
Chairman of the Board of Directors
and Chief Executive Officer
/s/ J. K. Baker March 20, 1996
- --------------------------------------------- ----------------
J. K. Baker
Vice-Chairman of the Board of Directors
/s/ V. W. Hunt March 20, 1996
- --------------------------------------------- ----------------
V. W. Hunt
President and Director
/s/ R. A. Smith March 20, 1996
- --------------------------------------------- ----------------
R. A. Smith
Vice President-Finance, Chief Financial
Officer and Director
/s/ I. W. Gorr March 20, 1996
- --------------------------------------------- ----------------
I. W. Gorr
Director
/s/ F. R. Meyer March 20, 1996
- --------------------------------------------- ----------------
F. R. Meyer
Director
/s/ A. R. Velasquez March 20, 1996
- --------------------------------------------- ----------------
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 "1995 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
<TABLE>
Arvin Industries, Inc.
----------------------
Computation of Earnings (Loss) Per Share of Common Stock (Unaudited)
--------------------------------------------------------------------
(amounts in millions except per share amounts)
----------------------------------------------
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary Earnings Per Share
- --------------------------
Income from continuing operations $ 17.9 $ 24.6 $ 38.4
Income (Loss) from discontinued operation, net of tax 1.1 (40.9) 1.9
------ ------ ------
Net income (loss) to common stock $ 19.0 $ (16.3) $ 40.3
====== ====== ======
Average shares of common stock outstanding 22.3 22.2 21.9
Incremental common shares applicable to common stock
options based on the common stock daily average
market price during the period 0.1 0.2 0.4
------ ------ ------
Average common shares, as adjusted 22.4 22.4 22.3
====== ====== ======
Earnings (Loss) per average share of common stock
(including common stock equivalents):
Continuing operations $ 0.80 $ 1.10 $ 1.72
Discontinued operations 0.05 (1.83) 0.09
------ ------ ------
$ 0.85 $ (0.73) $ 1.81
====== ====== ======
Fully Diluted Earnings Per Share: (1)
- -------------------------------------
Income from continuing operations $ 17.9 $ 24.6 $ 38.4
Income (Loss) from discontinued operation, net of tax 1.1 (40.9) 1.9
------ ------ ------
Net income (loss) 19.0 (16.3) 40.3
Add back 7.5% convertible debentures' interest
expense, net of tax 3.6 4.5 4.5
------ ------ ------
Net income (loss) to common stock assuming full dilution $ 22.6 $ (11.8) $ 44.8
====== ====== ======
Average shares of common stock outstanding 22.3 22.2 21.9
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 0.1 0.2 0.5
Average common shares issuable assuming conversion
of 7.5 % convertible subordinated debentures 2.7 3.4 3.4
------ ------ ------
Average common shares assuming full dilution 25.1 25.8 25.8
====== ====== ======
Fully diluted earnings (loss) per average share assuming
conversion of all applicable securities:
Continuing operations $ 0.86 $ 1.13 $ 1.66
Discontinued operations 0.04 (1.59) 0.08
------ ------ ------
$ 0.90 $ (0.46) $ 1.74
====== ====== ======
<FN>
(1) Fully diluted earnings per share amounts are shown for
1995 and 1994 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 12
<TABLE>
Computation of Ratio of Earnings to Fixed Charges (Unaudited)
(Dollars in millions)
<CAPTION>
- ---------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Profit Before Tax $ 29.4 $ 38.8 $ 56.8 $ 50.2 $ 29.4
Income (Loss) of 50% owned
subsidiaries (0.8) 0.3 2.0 3.1 1.9
Dividends received from less
than 50% owned subsidiaries 2.6 1.6 1.3 2.4 0.4
Interest Expense 44.9 44.9 37.4 38.6 39.8
25% of Rent Expense 3.9 3.2 3.2 2.7 2.6
---------- ---------- ---------- --------- ----------
Total Fixed Charges 48.8 48.1 40.6 41.3 42.4
Pre-tax earnings required to
cover Preferred Dividends 0.0 0.0 0.0 10.2 15.2
---------- ---------- ---------- --------- ----------
Total Fixed Charges and
Preferred Dividends 48.8 48.1 40.6 51.5 57.6
========== ========== ========== ========= ==========
Earnings Before Income Taxes and
Fixed Charges $ 79.5 $ 88.8 $ 100.7 $ 97.0 $ 74.1
========== ========== ========== ========= ==========
Ratio of Earnings to Fixed Charges 1.6 to 1 1.8 to 1 2.5 to 1 2.3 to 1 1.7 to 1
Ratio of Earnings to Fixed
Charges and Preferred Dividends 1.6 to 1 1.8 to 1 2.5 to 1 1.9 to 1 1.3 to 1
<FN>
Note 1: For purposes of calculating the ratio of earnings to fixed
charges, "earnings" consist of earnings from continuing operations
before income taxes, adjusted for the portion of fixed charges
deducted from such earnings. "Fixed charges" consist of interest
on all indebtedness (including capital lease obligations and
capitalized interest), amortization of debt expense and the
percentage of rental expense on operating leases deemed
representative of the interest factor.
<FN>
Note 2: The ratios of earnings to fixed charges, before the restructuring
and special charges, for 1995 and 1994 were 1.9 to 1 and 2.4 to 1,
respectively.
<FN>
Note 3: The above computations do not include any fixed charges related to
the Company's guarantee of debt for Calspan SRL Corporation. The
debt guarantee was $22.9 million at September 29, 1995 and $20.7
million at December 31, 1995.
</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 December 31,
1995. Certain subsidiaries, which when considered in the aggregate
would not constitute a significant subsidiary, are omitted from the list
below.
State or Other
Jurisdiction of
Company Name Incorporation
- ------------ ---------------
Continuing Operations:
Maremont Corporation Delaware
Maremont Exhaust Products, Inc. Delaware
Gabriel Europe, Inc. Delaware
Q 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 Finance Company of Canada Canada
Arvin Canada Holding, Ltd. Canada
Arvin de Mexico S.A. de C.V. Mexico
Arvin-Exhaust B.V. The Netherlands
Arvin International Holland B.V. The Netherlands
Arvin-Exhaust S.A. Spain
A. P. Amortiguadores, S.A. Spain
Arvin France S.A. France
Arvin International U.K., PLC United Kingdom
Arvin Exhaust Ltd. United Kingdom
Arvin Investment U.K., Ltd. United Kingdom
Timax U.K., Ltd. United Kingdom
Gabriel S. A. (Pty.) Ltd. South Africa
<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 January 30, 1996 appearing in this
Form 10 -K.
Price Waterhouse LLP
Indianapolis, Indiana
March 21, 1996
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
January 30, 1996 appearing in this Form 10 - K.
Price Waterhouse LLP
Indianapolis, Indiana
March 21, 1996
Exhibit 23(C)
Independent Auditors' Report
The Board of Directors
Space Industries International, Inc.:
We have audited the 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 auditing
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 LLP
Houston, Texas
January 25, 1995
Consent of Independent Accountants
The Board of Directors
Calspan SRL Corporation:
We consent to the incorporation by reference in the registration
statements (Nos. 33-50371, 33-50381, 33-21717, 33-19049, 33-
04407, 2-97395, 2-78417 and 33-40438) on Form S - 8 and (Nos. 33-
41242 and 33-53087) on Form S-3 of Arvin Industries, Inc. of our
report dated January 25, 1995 with respect to the consolidated
balance sheets of Space Industries International, Inc. and
subsidiaries (formerly Calspan Holding Corporation and
predecessor to Calspan SRL 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, which report appears in the December 31, 1995 annual
report on Form 10-K of Arvin Industries, Inc.
KPMG PEAT MARWICK LLP
Buffalo, New York
March 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial
information extracted from Form 10-K
for the period ended December 31, 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-01-1995
<PERIOD-END> Dec-31-1995
<PERIOD-TYPE> YEAR
<CASH> 15,200
<SECURITIES> 0
<RECEIVABLES> 280,200
<ALLOWANCES> (4,200)
<INVENTORY> 111,800
<CURRENT-ASSETS> 483,500
<PP&E> 937,000
<DEPRECIATION> 487,600
<TOTAL-ASSETS> 1,291,000
<CURRENT-LIABILITIES> 365,000
<BONDS> 360,700
0
0
<COMMON> 60,600
<OTHER-SE> 334,500
<TOTAL-LIABILITY-AND-EQUITY> 1,291,000
<SALES> 1,966,400
<TOTAL-REVENUES> 1,966,400
<CGS> 1,707,700
<TOTAL-COSTS> 1,860,000
<OTHER-EXPENSES> 23,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,500
<INCOME-PRETAX> 29,400
<INCOME-TAX> 11,200
<INCOME-CONTINUING> 17,900
<DISCONTINUED> 1,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,000
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
