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 28, 1997 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-302
-----
ARVIN INDUSTRIES, INC.
---------------------
(Exact name of registrant as specified in its charter)
Indiana 35-0550190
------------------ --------------
(State or other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
One Noblitt Plaza, Box 3000
Columbus, IN 47202-3000
------------------------------ ------------
(Address of principal executive (Zip Code)
offices)
812-379-3000
------------
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------------- ----------------------
Common Shares par value $2.50 New York Stock Exchange
(voting), Chicago Stock Exchange
together with Preferred Share
Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
-----
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any
amendment to Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant was $827,232,569 as of February 23,
1998. 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 1, 1998, the Registrant had outstanding 24,549,808
Common Shares (including employee stock benefit trust shares and
excluding treasury shares), $2.50 par value.
Documents Incorporated by Reference
-----------------------------------
Portions of the registrant's definitive Proxy Statement, for the
Annual Meeting of Shareholders to be held April 16, 1998 and
filed with the Securities and Exchange Commission pursuant to
Regulation 14A, are incorporated by reference in Part III of this
Form 10-K.
1
<PAGE>
ARVIN INDUSTRIES, INC.
Index to Annual Report on Form 10-K
Fiscal Year Ended December 28, 1997
Page No.
Part I
Item 1 Business 3
Item 2 Properties 5
Item 3 Legal Proceedings 6
Executive Officers 7
Item 4 Submission of Matters to a Vote of
Security Holders 7
Part II
Item 5 Market for Registrant's Common Equity and
Related Shareholder Matters 8
Item 6 Selected Financial Data 8
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7A Quantitative and Qualitative Disclosure about
Market Risk 9
Item 8 Financial Statements and Supplementary Data 15
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 37
Part III
Item 10 Directors and Executive Officers of the 38
Registrant
Item 11 Executive Compensation 38
Item 12 Security Ownership of Certain Beneficial
Owners and Management 38
Item 13 Certain Relationships and Related 38
Transactions
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8K 38
Other
Signatures 42
2
<PAGE>
Part I
Item 1. Business
--------
Arvin Industries, Inc. (which together with its consolidated
subsidiaries is referred to herein as "Arvin" or "the Company")
is a focused international manufacturer and supplier of
automotive parts. The Company's primary manufacturing locations
are in the United States (U.S.), Europe, Canada, Mexico and South
Africa. Arvin is a worldwide leader in automotive exhaust
systems and ride control products for the original equipment and
replacement markets. The Company's consolidated revenues were
over $2.3 billion in fiscal 1997.
Since its founding in 1919, Arvin has grown through internal
development, acquisitions and a number of joint ventures. The
Company classifies its business based on the two primary markets
it serves: Automotive Original Equipment ("OE") and Automotive
Replacement ("Replacement"). In fiscal 1997, Arvin derived
approximately 69 percent of its total revenues from the OE
market, with the remaining 31 percent coming from Replacement
market sales. The Company's strategy, which is based on
operational excellence, customer satisfaction and globalization,
is to strengthen its relationship with original equipment
manufacturers ("OEMs") by providing full-system and full-service
capabilities. We are continuing our focus on previously
established strategic initiatives which emphasize providing value
to our OEM customers by working as their system integrator for
our products.
The Company continues to pursue initiatives which are increasing
Arvin's global competitive position in the automotive parts
marketplace. We are actively pursuing new business investment
opportunities, including OE investments in developing markets,
further development of the hot end of exhaust systems, and
investments in new Replacement market territories. During 1997,
we completed a new factory in Thailand for Arvin's new OE exhaust
joint venture company, signed a joint venture agreement to supply
OE exhaust and catalytic converters in China, and purchased a 50
percent interest in an OE exhaust manufacturer in Argentina.
Despite recent turmoil in some of these markets, we believe that
the Company will benefit from the significant growth
opportunities presented in developing markets. Arvin also
celebrated the official opening of our new joint-venture power
steering pump plant in Pamplona, Spain during the first half of
1997. This new plant is booked to capacity through 1999. In the
Replacement market, we acquired the remaining shares of Timax
Exhaust Systems Holding B.V. (TESH), which has expanded our
presence in important European markets. We acquired a
controlling interest in Autocomponents Suspension S.r.l. early in
1997 and then acquired the remaining shares of both
Autocomponents and Way Assauto S.r.l., both Italian companies
serving the OE ride control market, early in 1998. We expect to
continue to make strategic investments which will expand our
market presence in both the OE and Replacement markets.
Automotive Original Equipment:
Principal products of the Automotive Original Equipment segment
include exhaust systems (mufflers, exhaust and tail pipes,
catalytic converters, flex tubes and tubular manifolds), ride
control products (shock absorbers, struts, ministruts and corner
modules), gas lift supports, vacuum actuators, engine and
steering dampers, power steering pumps, coated coil steel and
aluminum, press-molded thermoplastics and vinyl-metal stampings.
Primary customers of the Automotive Original Equipment segment
include Ford, General Motors, Chrysler, Toyota/Nummi, Renault,
Fiat, Rover, and Volkswagen/Audi/SEAT.
3
<PAGE>
A shrinking supply base in the OE market has been driven by a
shift in customer requirements and a change in the capabilities
required to be a successful, long term participant in the OE
market. The OE market has narrowed to fewer, larger suppliers
who can supply OE customers with higher quality products at a
lower cost on a global basis. This trend has provided and should
continue to provide Arvin with the opportunity to gain market
share. In addition to the reduced number of OE suppliers, OE
customers are interested in purchasing full systems or modules
from their suppliers and are outsourcing component production and
assembly to those suppliers. Arvin has successfully integrated
engineering, development and production operations to meet the
needs of its OE customers. The Company has significantly
enhanced its delivery capabilities geographically since the late
1980s through both acquisitions and the formation of a number of
joint ventures. Arvin believes that its aggressive capital
spending program has resulted in world-class manufacturing
operations, capable of delivering outstanding value and quality
to its customers.
Automotive Replacement:
Arvin believes that it is among the top two manufacturers of
replacement exhaust and ride control products in North America
and Europe. Principal products of the Automotive Replacement
segment include mufflers, exhaust and tail pipes, catalytic
converters, shock absorbers, struts, gas lift supports,
clamps/hangers and accessories.
Brand names for mufflers include Maremont, TIMAX, ANSA, and ROSI.
Shock absorbers are marketed under the Gabriel brand name and gas-
charged lift supports are marketed under the Strong Arm brand
name. Products are also marketed under private label to
customers such as Pep Boys, Sears, AutoZone, Kwik-Fit, Charlie
Brown and Meineke.
Primary customers of the Automotive Replacement segment include
retailers (e.g., Sears, Canadian Tire, Pep Boys and AutoZone),
wholesale distributors (e.g., United Auto Parts and General
Parts) and installers (e.g., Meineke and Kwik-Fit).
The Company's replacement market operations compete with both
OEMs and independent suppliers in North America and Europe, and
serve the market through their own sales force as well as a
network of manufacturers' representatives. The Company's
competitive position has been enhanced by rigorous attention to
lead time reduction and lowest cost product development.
Continuous improvement in the manufacturing processes has had a
positive impact on order fill rates and the cost and quality of
the products manufactured. In addition, emerging markets and the
increasing demand for performance vehicles have created
substantial growth opportunities which Arvin is aggressively
pursuing.
B. Number of Employees
At year-end, the Company had 14,324 employees.
C. Competition and Customer Relationships
Both of the Company's business segments operate in highly
competitive markets. Customer loyalty, developed through long-
standing relationships, is a primary element of competition as
well as competitive product pricing and customized services
provided. Arvin's long-standing relationships with its principal
customers have been dependent upon the Company's ability to meet
such customers' quantity and quality requirements in a timely
manner.
The loss of a principal customer or a significant decline in the
requirements for the Company's products (resulting, for example,
from a prolonged strike against the customer) could have a
material adverse effect on the operating results or financial
condition of the Company. In 1997, the Company had sales to two
customers that exceeded 10% of its consolidated net sales (Ford
Motor Company - 18.4 percent and General Motors Corporation -
12.6 percent).
4
<PAGE>
In the OE segment, the Company competes with vehicle
manufacturers and independent suppliers. The Company believes
that it is the leading supplier among five major competitors of
cold-end exhaust systems and one of the top four suppliers of hot
end exhaust systems in the North American and European markets.
The Company believes that it is one of the five largest suppliers
of OE ride control products in the world.
The Company also competes with vehicle manufacturers and
independent suppliers in the Replacement segment. The Company
believes that it is second of four primary suppliers of
automotive replacement exhaust systems and second of four primary
suppliers of automotive replacement ride control products in the
world. The Company is the leader in the U.S. replacement market
for gas-charged lift supports.
D. Regulations
United States air pollutant and 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. Reductions in
the permissible levels of emissions were introduced in 1996 in
the "Stage 2" standards. Additional tightening of the standards
are planned for "Stage 3" in the year 2000. The Company believes
that the introduction of more stringent standards should have a
positive impact on the results of operations for the Company.
Arvin believes that its facilities either comply with applicable
environmental control regulations or that remedial action is
being taken to bring such facilities into compliance. While Arvin
does not believe that continuing compliance will have a material
effect on its competitive or financial condition, some additional
capital expenditures and other expenses will be required to
maintain compliance with such regulations.
E. Patents
The Company owns a considerable number of patents and patent
applications which are, in its judgment, adequate for, but not
essential to, the conduct of its businesses.
F. Research and Development
Expenses for the development of new products and processes,
including significant improvements and refinements to existing
products were $25.3, $26.2, and $24.7 million for 1997, 1996, and
1995, respectively.
Item 2. Properties
----------
The Company has manufacturing facilities, distribution outlets,
sales offices and research centers located throughout the world.
The Company believes that all of its plants have been adequately
maintained and are suitable for its current needs through
productive utilization of the facilities.
Automotive Original Equipment:
The Company has approximately 6.5 million square feet to conduct
its business activities related to the OE segment. The Company's
original equipment facilities are nearly fully utilized.
5
<PAGE>
Principal manufacturing facilities in the United States are
located in Indiana, Missouri, South Carolina, Alabama, West
Virginia and Tennessee. The facilities in Indiana, Missouri,
South Carolina and Tennessee are owned, while the other
manufacturing facilities are leased. Principal manufacturing
facilities outside of the United States are located in the United
Kingdom, Spain, Italy, The Netherlands and Canada. Additional
manufacturing activities are conducted in South Africa, France
and Mexico.
Automotive Replacement:
The Company has approximately 3.6 million square feet of space to
conduct its Automotive Replacement business. The Company's
Replacement facilities are nearly fully utilized.
Principal manufacturing facilities located in the United States
are in Tennessee and Oklahoma. Also, the Replacement operations
lease warehouses in Utah and South Carolina from which products
are distributed.
Principal manufacturing facilities located outside the U. S. are
in the United Kingdom, Italy and France. Other manufacturing
activities are conducted in South Africa, Spain and Mexico. The
major distribution center in Blackpool, England is leased, as are
other smaller distribution centers in the United Kingdom.
Item 3. Legal Proceedings
-----------------
See Footnote 7 to the Consolidated Financial Statements.
6
<PAGE>
Executive Officers of the Registrant:
- -------------------------------------
Date
First
Name Age Offices Held Elected
to Exec.
Office
- --------------- --- ---------------------------- -------
Byron O. Pond 61 Chairman of the Board of
Directors and Chief Executive 1990
Officer (1)
James K. Baker 66 Vice-Chairman of the Board of 1965
Directors (1)
V. William Hunt 53 President and Chief Operating 1980
Officer (1)
Raymond P. Mack 57 Vice President-Human 1993
Resources
Richard A. Smith 52 Vice President-Finance and
Chief Financial Officer (1) 1990
Ronald R. Snyder 53 Vice President-General
Counsel and Secretary 1992
E. Leon Viars 58 Vice President and President, 1995
Arvin Replacement Products
Worldwide
David S. Hoyte 51 Vice President and President,
Arvin Ride and Motion Control 1996
Products Group
Wesley B. Vance 40 Vice President and President, 1997
Arvin Exhaust Europe
Larry D. Blair 54 Vice President and President, 1996
Arvin Exhaust North America
(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. Hoyte have been employed by the
Registrant or one of its subsidiaries for the past five years.
Mr. Hoyte joined Arvin as Chief Operations Improvement Officer in
October 1996. Mr. Hoyte was appointed President of the Arvin
Ride and Motion Control Products Group in December 1997.
Previous to his Arvin employment, Mr. Hoyte was Vice President,
cost management for IBM. Prior to IBM, Mr. Hoyte was Executive
Vice President of Operations for the Frigidaire Company.
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 1997 fiscal year.
7
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters
-------------------------------------
Arvin's common shares are listed on the New York Stock Exchange
and the Chicago Stock Exchange. Set forth below are the
dividends declared and the high and low sales prices of the
common shares for each quarter during the last two fiscal years.
Market Price Ranges and Quarterly Dividends Paid
(Prices and dividends on common shares)
1997 1996
--------------------------- ---------------------------
Market Price Market Price
Dividend High Low Dividend High Low
-------- ----------------- -------- -----------------
First Quarter $ .19 $ 25 7/8 $ 21 $ .19 $ 22 3/8 $ 16 3/4
Second Quarter .19 28 3/4 21 7/8 .19 24 7/8 19 3/4
Third Quarter .19 39 26 1/4 .19 24 5/8 19 5/8
Fourth Quarter .20 41 5/8 31 .19 25 1/4 22 3/4
As of March 6, 1998, Arvin had 4,075 holders of record of its
common shares.
Item 6. Selected Financial Data
-----------------------
<TABLE>
Five-Year Consolidated Financial Summary
(In millions, except per share amounts)
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating Results (1)
Net sales $ 2,349.0 $ 2,212.7 $ 1,966.4 $ 1,849.5 $ 1,640.8
Interest expense 39.5 38.8 42.5 42.8 35.0
Earnings 65.0 47.1 17.9 24.6 38.4
Basic earnings per share 2.83 2.10 .80 1.11 1.76
Diluted earnings per share 2.78 2.03 .80 1.10 1.67
Dividends declared 17.7 17.1 16.9 16.9 16.7
Dividends per common share .77 .76 .76 .76 .76
Average basic shares
outstanding 23.0 22.4 22.3 22.2 21.9
Average diluted shares
outstanding 23.4 24.6 22.4 22.4 25.7
Financial Position
Total assets $ 1,447.1 $ 1,307.8 $ 1,218.6 $ 1,231.5 $ 1,175.5
Short-term debt 55.6 52.6 41.6 25.1 7.9
Long-term debt 222.3 294.0 360.7 416.3 432.2
Capital securities 98.9 --- --- --- ---
Shareholders' equity 485.2 437.4 395.1 396.3 420.6
Book value per common share 20.69 19.38 17.76 17.81 19.04
<FN>1 From continuing operations
</TABLE>
8
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
----------------------------------------------
Overview
Arvin achieved record sales again in 1997. The Company recorded
sales of $2.3 billion, a six percent increase over 1996, despite
the effect of a strong U.S. dollar. On a constant dollar basis,
sales increased nine percent. Top line growth was achieved both
through recent acquisitions and as a result of the strength in
the original equipment market.
Graphic Table - Bar-graph indicating annual sales for original
equipment and replacement segments, respectively, for the
following years, in millions:
1997 $1,622.1 and $726.9
1996 $1,549.5 and $663.2
1995 $1,337.2 and $629.2
Arvin's operating income increased 39 percent, to $167.2 million,
in 1997. Improved margins, as a result of Arvin's internal
improvement programs which have reduced cycle times and waste in
the production process, were the primary contributor to the
increase. In addition, the Company has been working with its
suppliers to eliminate waste in their production processes, which
has contributed to improved material pricing for Arvin.
Graphic Table - Bar-graph indicating annual operating income for
original equipment and replacement segments, respectively, for
the following years, in millions:
1997 $92.5 and $74.7
1996 $71.6 and $48.5
1995 $67.8 and $31.7
Results of Operations (in millions)
Net Sales by Segment
- -------------------- 1997 1996 1995
-------- -------- --------
Automotive Original Equipment $1,622.1 $1,549.5 $1,337.2
Automotive Replacement 726.9 663.2 629.2
-------- -------- --------
Total $2,349.0 $2,212.7 $1,966.4
======== ======== ========
Operating Income by Segment
- ---------------------------- 1997 1996 1995
-------- -------- --------
Automotive Original Equipment $ 92.5 $ 71.6 $67.8
Automotive Replacement 74.7 48.5 31.7
-------- -------- --------
Total $167.2 $120.1 $99.5
======== ======== ========
Automotive Original Equipment (OE), 1997 vs. 1996: Sales in the
OE segment of $1,622.1 million for 1997 were $72.6 million or
five percent higher than OE sales for 1996. The inclusion of a
full year's results for Way Assauto S.r.l. (consolidated in June
1996) contributed 46 percent and the January 1997 acquisition of
a controlling interest in Autocomponents Suspension S.r.l.
contributed 33 percent of the 1997 increase. Sales benefited
from higher vehicle build rates in both the United States and
Western Europe. The Company's increased sales volume, excluding
the effect of acquisitions, approximated $35 million. Coated
steel volumes were up, as were other component automotive parts.
Selective price concessions in 1997 were less than one percent of
OE sales.
Graphic Table - Pie-chart indicating percentage of 1997 sales
from original equipment and replacement segments:
Original Equipment Sales 69%
Replacement Sales 31%
9
<PAGE>
The Company's 1997 OE operating income increased $20.9 million,
or 29 percent. Increased volume and productivity contributed
$21.5 million, offset by labor inflation of $14.5 million.
Improved material pricing, which contributed $24.6 million, was
somewhat offset by selective price concessions, which
approximated $13.9 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.
1996 vs. 1995: Sales in the OE segment of $1,549.5 million for
1996 were 16 percent higher than OE sales for 1995. Market
forces in the Company's primary markets of Western Europe and
North America were mixed. Western Europe's car registrations
increased 6.6 percent, while North American car and light truck
production declined 1.3 percent. Despite these mixed market
influences, the Company experienced strong increases in sales
volumes. Increased volume in ongoing operations accounted for 52
percent of the overall increase, while volume increases as a
result of the consolidation of the ride control manufacturer Way
Assauto S.r.l. contributed 16 percent of the increase. In
addition to the increased volume, the Company's OE markets
continued a trend toward higher quality, higher valued original
equipment parts, which contributed approximately 21 percent of
the increase. Coated steel and other component automotive parts
posted modest volume increases when compared with the prior year.
Offsetting these strong positive trends were selective price
concessions, which averaged less than one percent of OE sales.
Operating income of $71.6 million in the OE segment for 1996
improved by $3.8 million, or 6 percent, despite the first quarter
effect of the General Motors strike, estimated at $2.5 million.
Volume increases and the positive effect on product mix as a
result of a more complex product line were the primary drivers of
the increase. Previously mentioned price concessions were offset
by negotiated material price decreases.
Automotive Replacement (Replacement), 1997 vs. 1996: Replacement
sales increased $63.7 million to $726.9 million, a ten percent
increase over 1996. The Company's 1997 acquisition of a
controlling interest in Timax Exhaust Systems Holding B.V. (TESH)
accounted for approximately 77 percent of the increase, improved
pricing contributed another 21 percent of the overall increase
and the June 1996 acquisition of a controlling interest in Way
Assauto S.r.l. contributed 13 percent. A decline in the overall
North American replacement market was substantially offset by the
Company's favorable channel and product mix.
Operating units in the Replacement segment sell their product
through a variety of different customer channels including
merchandisers, installers, and wholesale distributors. As a
result of period to period variations in this channel mix, in
addition to normal variations in product mix, the average price
of units sold may not correspond to price changes. As in the OE
segment, there is also a certain degree of imprecision and
subjectivity in estimating the impact of period to period volume
changes, principally because of questions as to what constitutes
a unit for volume measurement. The appropriate measure of a unit
varies over time as products develop, varies among the different
countries in which the Company operates, and varies within each
operating unit of the Company.
Graphic Table - Pie-chart indicating percentage of 1997 operating
income from original equipment and replacement segments:
Original Equipment Operating Income 55%
Replacement Operating Income 45%
10
Operating income in the Replacement segment increased $26.2
million during 1997. The improved pricing mentioned above and
productivity improvements accounted for more than 80 percent of
the increase. Material cost reductions and improved product mix
offset labor inflation.
1996 vs. 1995: Sales in the Replacement segment of $663.2 million
for 1996 were 5 percent higher than Replacement sales for 1995.
Improved pricing contributed approximately 55 percent of the
overall increase. The Company's acquisition of a controlling
interest in Way Assauto S.r.l. accounted for approximately 28
percent of the increase. Both the North American and West
European replacement exhaust markets reported a decline in total
market volume; however, favorable channel and product mix
effectively offset those market declines.
Operating income in the Replacement segment increased $16.8
million during 1996, when compared to 1995. In addition to the
improved pricing mentioned above, operating income improved as a
result of reduced expenditures to obtain new business, which
decreased $9.3 million during the period, from the unusually high
level reported in the prior year. Increased accounts receivable
collection costs of $3.1 million, a one-time customer stock
adjustment of approximately $3.0 million, and a reserve of $2.6
million, which resulted from a decision to consolidate some of
the Company's Western European distribution locations, offset
those positive factors. Material cost reductions nearly offset
labor inflation.
Corporate general and administrative expenses increased $1.4 and
$5.4 million in 1997 and 1996, respectively. The increase in
both years was primarily a result of increased employee costs.
Special charges and credits, net include a $4.7 million addition
to legal and environmental reserves in 1997 for operations
previously owned by the Company's Maremont subsidiary, and $1.5
million for costs related to the early redemption of the
Company's 9 1/8 percent sinking fund debentures. Included in
1996 special charges is a $2.6 million reserve for future lease
commitments at abandoned or under-utilized properties, $1.7
million for legal and environmental reserves, $1.5 million for
costs related to the redemption of the Company's 7.5 percent
subordinated convertible debentures and $1.2 million for contract
termination costs. Offsetting these charges is a special credit
of $2.0 million related to insurance settlements. During 1995,
based upon a judgment entered against an Arvin subsidiary and
assessments by legal counsel of other pending legal matters, the
Company added $13.7 million to its litigation reserves. The 1995
results also include a special credit of $3.2 million as a result
of a settlement with a party potentially liable for certain costs
in connection with various environmental matters.
Net gain on capital transactions for 1997 includes $3.7 million
of gain on the sale of capital assets and a write down of $1.5
million in the carrying value of a non-controlled venture in the
South American exhaust market. In 1996, the $10.8 million gain
resulted from the Company's sale of its 31.4 percent equity
interest in Fric Rot S.A.I.C.
Interest expense: During 1997 interest expense increased
approximately 2 percent as a result of higher average borrowing
rates on the Company's outstanding interest-bearing liabilities.
During 1996 interest expense decreased 9 percent as a result of a
decrease in average outstanding debt.
Other expense, net increased $1.4 million in 1997. Reduced
royalty and rent income of $1.4 and $1.3 million, respectively,
were offset by increased interest income in 1997. Other expense
during 1997 includes $1.8 million to reserve for the Company's
estimated future obligation under a contractual agreement deemed
to be completed. Other expense, net decreased $5.1 million in
1996, primarily due to $4.7 million of restructuring costs
included in 1995 which were used to complete the Company's 1994
plan.
11
<PAGE>
Tax expense: The Company's effective tax rate, prior to capital
loss carryforward utilizations, decreased for the third straight
year in 1997. The effective tax rate, prior to capital loss
utilizations, was 36.2, 37.0 and 38.0 percent in 1997, 1996, and
1995, respectively. The effective tax rate after the effect of
capital loss carryforward utilizations was 34.9, 30.7, and 38.0
percent in 1997, 1996, and 1995, respectively.
Equity earnings of affiliates were essentially flat in 1997. The
net impact on comparative results of affiliates sold or
consolidated during 1996 and 1997 was negligible. Equity
earnings from affiliates for 1997 includes an intangible asset
write-off, a reduction in profits of a U.S. OE affiliate and the
elimination of a tax valuation allowance in the amounts of $3.2,
$1.2 and $4.7 million, respectively. Of the $3.3 million 1996
increase, $2.6 million reflects stronger OE sales and profits in
the United States; $1.0 million of the increase was contributed
by the Company's Argentinean affiliate, which was sold in
December 1996.
Minority interest in net income of consolidated subsidiaries
increased $1.3 and $.3 million in 1997 and 1996, respectively.
The 1997 increase was primarily a result of the consolidation of
the Autocomponents Suspension S.r.l. and increased earnings from
the Company's 75 percent owned Spanish subsidiary, AP
Amortiguadores, S.A. (APA). The 1996 increase was primarily a
result of improved results from APA.
Income from discontinued operations: The 1995 income represents
the results of Space Industries for the first nine months of
1995, prior to Arvin's decision to discontinue this business.
Income from disposal of discontinued operations in 1997
represents a previously deferred gain on the sale of Space
Industries. The $.7 million in 1995 relates to earnings of the
Company's Schrader subsidiary.
12
<PAGE>
Liquidity and Capital Resources:
Arvin's operations provided strong cash flows in both 1997 and
1996, primarily as a result of the Company's higher net income
and continued emphasis on high asset utilization and working
capital management. Key elements of the Consolidated Statement
of Cash Flows were:
1997 1996 1995
------ ------- -------
Net Cash Provided by
Operating Activities $177.6 $173.6 $92.8
Net Cash Used for
Investing Activities (116.6) (69.9) (45.0)
Net Cash Provided by (Used for)
Financing Activities 10.1 (80.2) (54.6)
Investing cash flows include purchases of property, plant and
equipment in 1997, 1996, and 1995 of $96.9, $79.1, and $100.5
million, respectively. The Company expects increased levels of
capital expenditures in 1998 to support new business requirements
and process improvements. Arvin acquired the remaining shares of
Autocomponents and Way Assauto during the first quarter of 1998
for an approximate purchase price of $8.7 million. Arvin expects
to further invest in the Company's German OE affiliate during
1998. Near term expenditures are expected to be funded from cash
on hand and internally generated funds.
Financing cash flows include changes in the Company's debt
structure, which are more fully described in Note 5 to the
Consolidated Financial Statements. The proceeds from long-term
borrowings reflect the issuance of $98.9 million, net of
discount, 9.5 percent Company-Obligated Mandatorily Redeemable
Preferred Capital Securities of Subsidiary Trust Holding Solely
Subordinated Debentures of the Company (Capital Securities) due
in 2027, callable in 10 years. Financing cash flows also include
Arvin's quarterly dividend to shareholders, which was increased
five percent during 1997 from 19 cents to 20 cents. 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. The Company has $45
million of medium-term notes coming due in 1998. While the
Company has sufficient liquidity to fund the repayment, it is
likely that the Company will raise additional long-term funding,
consistent with the Company's debt management strategy.
Graphic Table - Bar-graph indicating the components of
capitalization for the following years, in millions:
1997 1996 1995
------ ------ ------
Short-term debt and
current maturities $ 55.6 $ 52.6 $ 41.6
Long-term debt 222.3 294.0 360.7
Capital securities 98.9 -- --
Minority interest 12.4 34.2 31.5
Shareholders' equity 485.2 437.4 395.1
------ ------ ------
Total capitalization $874.4 $818.2 $828.9
====== ====== ======
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 Note 6 to the Consolidated Financial
Statements.)
Legal/Environmental Matters: The Company and its consolidated
subsidiaries are defending various environmental claims and legal
actions that arise in the normal course of business or from
previously owned businesses. Such matters are more fully
described in Note 7 to the Consolidated Financial Statements.
Arvin expects that any sum it may be required to pay in excess of
its recorded reserves will not have a material adverse effect on
its results of operations or financial condition.
13
<PAGE>
Year 2000 : During 1997, the Company named a task force and
began actively working with customers, suppliers, and employees
on Arvin's plan to address Year 2000 issues. Based on the
information gathered to date, the Company believes that it will
address the Year 2000 issue using internal staff, upgrading non-
compliant machines through both normal and accelerated
replacement programs, and upgrading certain of its externally
purchased software with Year 2000 compliant versions. The
Company expects internal staff to devote substantial time to
identifying and correcting Year 2000 issues during 1998, but does
not anticipate any significant increases in payroll costs as a
result of making Year 2000 issues an Arvin priority for 1998.
Any such costs, as well as any consultant costs, will be expensed
as incurred. Anticipated hardware and software upgrades will
generally replace fully depreciated assets. These costs are not
expected to have a material impact on the Company's cash flows,
capital expenditures, or results of operations.
Item 7A. Quantitative and Qualitative
disclosures about Market Risk
-----------------------------
Not applicable.
14
<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 28, 1997 16
Consolidated Statement of Financial Condition at
December 28, 1997 and December 29, 1996 17
Consolidated Statement of Shareholders' Equity for each
of the three years in the period ended December 28, 1997 18
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 28, 1997 19
Notes to Consolidated Financial Statements 20
Report of Independent Accountants 35
Financial Statement Schedules:
For each of the three years in the period ended
December 28, 1997
II Valuation and Qualifying Accounts 36
Supplementary Data:
Selected Quarterly Financial Data 37
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.
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.
15
<PAGE>
<PAGE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Operations
(Dollars in millions, except per share amounts)
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Sales $ 2,349.0 $ 2,212.7 $ 1,966.4
Costs and Expenses:
Cost of goods sold 2,014.9 1,940.2 1,707.7
Selling, operating general and administrative 165.6 151.1 152.3
Corporate general and administrative 19.0 17.6 12.2
Special charges and credits, net 6.2 5.0 10.5
Net gain on capital transactions (2.2) (10.8) 0.0
Interest expense 39.5 38.8 42.5
Other expense, net 8.1 6.7 11.8
-------- -------- --------
2,251.1 2,148.6 1,937.0
-------- -------- --------
Earnings from Continuing
Operations Before Income Taxes 97.9 64.1 29.4
Income taxes (34.2) (19.7) (11.2)
Minority interest in net income
of consolidated subsidiaries (3.8) (2.5) (2.2)
Equity earnings of affiliates 5.1 5.2 1.9
-------- -------- --------
Earnings from Continuing Operations 65.0 47.1 17.9
-------- -------- --------
Income from discontinued operations, net of
income tax of $.0, $.0, and $.5, respectively 0.0 0.0 0.4
Income from disposal of discontinued operations, net of
income tax benefit of $.0, $.0 and $2.8, respectively 1.6 0.0 0.7
-------- -------- --------
Net Earnings $ 66.6 $ 47.1 $ 19.0
======== ======== ========
Earnings per Common Share
Basic:
Continuing operations $ 2.83 $ 2.10 $ 0.80
Discontinued operations 0.07 0.00 0.05
-------- -------- --------
Total - basic $ 2.90 $ 2.10 $ 0.85
======== ======== ========
Diluted:
Continuing Operations $ 2.78 $ 2.03 $ 0.80
Discontinued Operations 0.07 0.00 0.05
-------- -------- --------
Total - diluted $ 2.85 $ 2.03 $ 0.85
======== ======== ========
Average Common Shares Outstanding (000's)
Basic 22,970 22,385 22,296
Diluted 23,382 24,615 22,355
<FN>
See notes to consolidated financial statements.
</TABLE>
16
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Financial Condition
(Dollars in millions, except per share amounts)
<CAPTION>
As of As of
12/28/97 12/29/96
-------- --------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 108.9 $ 39.4
Receivables, net of allowances of $5.6 in 1997 and $6.7 in 1996 354.6 304.7
Inventories 124.5 115.9
Current income tax benefit 30.9 27.8
Other current assets 50.5 51.1
-------- --------
Total current assets 669.4 538.9
-------- --------
Non-Current Assets:
Property, plant and equipment:
Land and buildings 203.0 179.5
Machinery and equipment 876.6 799.6
Construction in progress 53.9 31.9
-------- --------
1,133.5 1,011.0
Less accumulated depreciation 632.1 547.1
-------- --------
501.4 463.9
Goodwill, net of amortization of $36.5 in 1997 and $32.3 in 1996 165.9 158.0
Investment in affiliates 53.9 85.7
Other assets 56.5 61.3
-------- --------
Total non-current assets 777.7 768.9
-------- --------
$ 1,447.1 $ 1,307.8
======== ========
Liabilities and Shareholders' Equity:
Current Liabilities:
Short-term debt $ 55.6 $ 52.6
Accounts payable 303.3 257.7
Employee related costs 57.6 54.6
Accrued expenses 104.7 87.9
-------- --------
Total current liabilities 521.2 452.8
-------- --------
Long-term employee benefits 66.7 67.0
Other long-term liabilities 40.4 22.4
Long-term debt 222.3 294.0
Minority interest 12.4 34.2
Company-obligated mandatorily redeemable preferred capital securities
of subsidiary trust holding solely subordinated debentures of the Company 98.9 0.0
Commitments and contingencies (Note 7)
Shareholders' Equity:
Capital Stock:
Preferred shares (no par value, authorized 8,978,058;
none issued and outstanding) 0.0 0.0
Common shares ($2.50 par value, authorized 50,000,000;
issued 26,225,567 in 1997 and 26,149,217 in 1996) 65.6 65.4
Capital in excess of par value 248.8 247.3
Retained earnings 275.1 226.2
Cumulative translation adjustment (41.8) (19.9)
Employee stock benefit trust (25.6) (42.2)
Common shares held in treasury (36.9) (39.4)
-------- --------
Total shareholders' equity 485.2 437.4
-------- --------
$ 1,447.1 $ 1,307.8
<FN> ======== ========
See notes to consolidated financial statements.
</TABLE>
17
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Shareholders' Equity
(Dollars in millions, except per share amounts)
<CAPTION>
Year Ended
------------------------------------------------------------------------------------
12/28/97 12/29/96 12/31/95
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Common Shares:
Beginning balance 26,149,217 $ 65.4 24,228,602 $ 60.6 24,163,510 $ 60.4
Shares issued to employee
stock benefit trust 0.0 1,800,000 4.5 0.0
Exercise of stock options 4,700 0.0 56,900 0.1 65,092 0.2
Bonuses paid in stock 71,650 0.2 0.0 0.0
Conversion of 7.5% convertible
subordinated debentures 0.0 63,715 0.2 0.0
---------- ------ ---------- ------ ---------- ------
Ending balance 26,225,567 65.6 26,149,217 65.4 24,228,602 60.6
---------- ------ ---------- ------ ---------- ------
Capital in Excess of Par Value:
Beginning balance 247.3 207.4 206.6
Shares issued to employee
stock benefit trust 0.0 37.7 0.0
Exercise of stock options 0.3 0.9 1.0
Bonuses paid in stock 1.3 0.0 0.0
Conversion of 7.5% convertible
subordinated debentures 0.0 1.7 0.0
Other (0.1) (0.4) (0.2)
------ ------ ------
Ending balance 248.8 247.3 207.4
------ ------ ------
Retained Earnings:
Beginning balance 226.2 196.2 194.1
Net earnings 66.6 47.1 19.0
Cash dividends ($.77 per share in 1997,
$.76 per share in 1996 and 1995) (17.7) (17.1) (16.9)
------ ------ ------
Ending balance 275.1 226.2 196.2
------ ------ ------
Cumulative Translation Adjustment:
Beginning balance (19.9) (24.6) (20.7)
Amounts related to disposal of operations 0.0 0.0 (2.0)
Translation adjustments during the year (21.9) 4.7 (1.9)
------ ------ ------
Ending balance (41.8) (19.9) (24.6)
------ ------ ------
Employee Stock Benefit Trust:
Beginning balance (1,800,000) (42.2) 0 0.0 0.0
Establishment of trust (1,800,000) (42.2) 0.0
Exercise of stock options 634,935 14.9 0.0 0.0
Shares contributed to employee
benefit plan 66,111 1.7 0.0 0.0
---------- ------ ---------- ------ ------
Ending balance (1,098,954) (25.6) (1,800,000) (42.2) 0.0
---------- ------ ---------- ------ ------
Common Shares in Treasury:
Beginning balance (1,776,737) (39.4) (1,977,366) (44.5) (1,913,663) (43.5)
Stock exchanged for stock
options exercised (30,410) (1.0) (7,161) (0.2) (5,212) (0.1)
Shares contributed to employee
benefit plan 135,568 3.5 160,650 4.1 48,574 1.2
Shares contributed to charitable foundation 0.0 47,140 1.2 0 0.0
Shares purchased 0.0 0.0 (107,065) (2.1)
---------- ------ ---------- ------ ---------- ------
Ending balance (1,671,579) (36.9) (1,776,737) (39.4) (1,977,366) (44.5)
---------- ------ ---------- ------ ---------- ------
Total shareholders' equity $ 485.2 $ 437.4 $ 395.1
====== ====== ======
<FN>
See notes to consolidated financial statements.
</TABLE>
18
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Cash Flows
(Dollars in millions)
<CAPTION>
1997 1996 1995
------- ------- -------
<S>
Operating Activities: <C> <C> <C>
Net earnings $ 66.6 $ 47.1 $ 19.0
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 79.1 77.5 70.4
Amortization 6.5 5.8 5.6
Minority interest 3.8 2.5 3.1
Other 5.9 3.8 (2.2)
Changes in operating assets and liabilities:
Receivables (33.6) 6.3 0.6
Inventories and other current assets (0.7) 0.7 (19.8)
Accounts payable 35.1 20.9 14.1
Other accrued expenses 16.7 0.5 (3.9)
Income taxes payable and deferred taxes (1.8) 8.5 5.9
------- ------- -------
Net Cash Provided by Operating Activities 177.6 173.6 92.8
------- ------- -------
Investing Activities:
Purchase of property, plant and equipment (96.9) (79.1) (100.5)
Proceeds from sale of property, plant and equipment 3.1 5.4 1.9
Investments in affiliates (11.1) (8.5) 0.0
Business acquisitions, net of cash acquired (19.5) (8.0) 0.0
Cash proceeds from sale of businesses, net
of cash balances of businesses sold 3.7 19.3 55.3
Other 4.1 1.0 (1.7)
------- ------- -------
Net Cash Used for Investing Activities (116.6) (69.9) (45.0)
------- ------- -------
Financing Activities:
Change in short-term debt, net (45.7) 17.7 2.1
Proceeds from long-term borrowings 101.8 3.2 51.5
Principal payments on long-term debt (38.0) (87.4) (92.0)
Dividends paid (17.3) (12.9) (16.9)
Other 9.3 (0.8) 0.7
------- ------- -------
Net Cash Provided by (Used for) Financing Activities 10.1 (80.2) (54.6)
------- ------- -------
Cash and Cash Equivalents:
Effect of exchange rate changes on cash (1.6) 0.7 (0.4)
------- ------- -------
Net increase (decrease) 69.5 24.2 (7.2)
Beginning of the year 39.4 15.2 22.4
------- ------- -------
End of the year $ 108.9 $ 39.4 $ 15.2
======= ======= =======
Income tax payments totaled $44.0 in 1997, $13.6 in 1996 and $13.6 in 1995.
Interest payments totaled $33.1 in 1997, $40.8 in 1996 and $45.0 in 1995.
See notes to consolidated financial statements.
</TABLE>
19
<PAGE>
<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
(20 to 50 percent owned) are accounted for on the equity method.
Use of Estimates: The financial statements and related notes
have been prepared in conformity with generally accepted
accounting principles and include some amounts and disclosures
which are estimates based on currently available information and
management's judgment of current facts and circumstances.
Cash Equivalents: The Company considers all highly liquid
investments purchased with a maturity of three months or less to
be cash equivalents.
Inventories: Substantially all inventories located in the United
States (U.S.) are valued under the last-in, first-out (LIFO) cost
method. The remaining inventories are valued primarily on a
first-in, first-out (FIFO) basis. 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.
At year-end 1997 and 1996, $55.4 and $55.8 million of total
inventories were stated on the LIFO method. The current costs of
these inventories exceeded their LIFO value by $5.0 and $4.9
million at year-end 1997 and 1996, respectively.
Property, Plant and Equipment and Depreciation: Property, plant
and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the
estimated useful lives of the assets. The estimated service life
used to compute depreciation is generally 20 to 40 years for
buildings and 7 to 12 years for machinery, equipment and
fixtures. Maintenance and repair costs are expensed as incurred.
Goodwill: Goodwill represents the excess of cost over the net
asset value of assets acquired and is generally amortized using
the straight-line method over 40 years. The Company assesses the
recoverability of its goodwill whenever adverse events or changes
in circumstances or business climate indicate that expected
future cash flows (undiscounted and without interest charges) for
individual business units may not be sufficient to support
recorded goodwill. If undiscounted cash flows are not sufficient
to support the recorded asset, an impairment is recognized to
reduce the carrying value of the goodwill based on the expected
discounted cash flows of the business unit. Expected cash flows
are discounted at a rate commensurate with the risk involved.
Foreign Currency: The Company uses the local currency as the
functional currency for all of its consolidated operating
subsidiaries outside of the U.S., except for those operating in
hyperinflationary economies. 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.
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 1997, 1996,
and 1995 were $25.3, $26.2 and $24.7 million, respectively.
20
<PAGE>
Graphic Table - Bar-graph indicating research and development
costs for the following years, in millions:
1997 $25.3
1996 $26.2
1995 $24.7
Earnings Per Share: Basic earnings per share are based on the
weighted average number of common shares outstanding during the
year. Diluted earnings per share are based on the weighted
average number of common and common equivalent shares
(principally stock option related) outstanding during the year.
In 1997, Arvin adopted Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings per Share." Prior years'
earnings per share have been restated in accordance with the
provisions of SFAS 128.
The following illustrates the reconciliation of the numerators
and denominators of the basic and diluted EPS computations for
continuing operations.
1997 1996 1995
------------ ------------ ------------
Income Shares Income Shares Income Shares
------ ------ ------ ------ ------ ------
Basic EPS $65.0 22,970 $47.1 22,385 $17.9 22,296
Effect of Dilutive
Securities:
Options 412 131 59
7.5% convertible
debentures 2.9 2,099
------ ------ ------ ------ ------ ------
Diluted EPS $65.0 23,382 $50.0 24,615 $17.9 22,355
====== ====== ====== ====== ====== ======
Reclassifications: Certain amounts in the accompanying financial
statements and notes thereto have been reclassified to conform to
the current year presentation.
Fiscal Year: Arvin's fiscal year ends on the Sunday nearest to
December 31.
Note 2 - Acquisitions, Divestitures and Discontinued Operations:
In May 1997 Arvin exercised its option to purchase the remaining
50 percent of Timax Exhaust Systems Holding B.V. (TESH) for a
total purchase price of $28.3 million, which included a cash
payment of $20.9 million. TESH serves the replacement exhaust
markets in Italy, France, and the United Kingdom.
In January 1997 Arvin purchased a controlling interest in
Autocomponents Suspension S.r.l. through its purchase of an
additional five percent of the shares of Autocomponents for a
purchase price of $1.8 million. Autocomponents is located in
Melfi, Italy and manufactures ride control products primarily for
the original equipment market.
In June 1996 Arvin increased its ownership in Way Assauto S.r.l.
from 49.9 percent to 54.9 percent for $8.0 million. Way Assauto
is located in Asti, Italy and manufactures ride control products
primarily for the original equipment market.
These acquisitions were accounted for as purchases and the
results of their operations have been included in the
consolidated financial statements since the dates of acquisition.
Goodwill resulting from these acquisitions is being amortized
using the straight-line method over a 40 year period.
During the fourth quarter of 1996, Arvin sold its 31.4 percent
equity interest in its Argentinean affiliate, Fric Rot S.A.I.C.,
for $17.3 million. The pre-tax gain on the sale was $10.8
million.
In September 1995 Arvin sold its ownership interest in Space
Industries International, Inc. (SIII) for $30.6 million in cash.
Income from disposal of discontinued operations for 1997
represents a previously deferred $1.6 million gain on the sale of
SIII. Arvin also sold its Schrader Automotive unit during 1995.
Proceeds from the sale of Schrader included $36.2 million cash
and preferred stock and warrants with a face value of $8.5
million.
21
<PAGE>
Note 3 - Investments in Affiliates:
The Company has investments in a number of affiliates which are
accounted for on the equity method. The affiliates are engaged
in the production and distribution of automotive exhaust and ride
control products. Equity affiliates include Arvin Sango Inc.
(50%), Schmitz & Brill GmbH (50%), Gabriel Mexico S.A. (40%),
Gabriel de Venezuela (42%), Kayaba Arvin, S.A. (40%) and Cofap-
Arvin (40%). The Company's share of earnings of these affiliates
is included in income as earned. Equity earnings from affiliates
for 1997 includes an intangible asset write-off and the
elimination of a tax valuation allowance in the amounts of $3.2
and $4.7 million, respectively. In 1997 and 1996, the Company
received dividends from affiliates of $2.2 and $3.4 million,
respectively. The Company's total investment in affiliates at
December 28, 1997 was $53.9 million.
Summarized financial information of affiliates follows.
1997 1996 1995
----- ----- -----
Condensed Statement of Operations:
- ----------------------------------
Net sales $ 360.5 $ 408.7 $ 557.1
Gross profit 57.8 82.8 95.3
Net earnings 14.3 10.9 9.1
Condensed Statement of
Financial Condition:
- ---------------------
Current assets $ 137.1 $ 107.5 $ 247.3
Non-current assets 114.0 180.6 177.6
----- ----- -----
$ 251.1 $ 288.1 $ 424.9
===== ===== =====
Current liabilities $ 76.0 $ 71.9 $ 162.0
Non-current liabilities 53.1 107.1 137.3
Shareholders' equity 122.0 109.1 125.6
----- ----- -----
$ 251.1 $ 288.1 $ 424.9
===== ===== =====
22
<PAGE>
Note 4 - Concentrations of Risk:
Financial instruments which potentially expose Arvin 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. Arvin 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 existed at
December 28, 1997.
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 Arvin's needs on comparable terms. Abrupt
changes in the supply flow could, however, cause a delay in
manufacturing and a possible inability to meet sales commitments
on schedule or a possible loss of sales, which would affect
operating results adversely.
Note 5 - Borrowings:
At fiscal year-end, long-term debt consisted of:
1997 1996
------ ------
7.94% notes due 2005 $ 50.0 $ 50.0
6-7/8% notes due 2001 75.0 74.9
9.8% - 9.98% medium-term notes due 1998 45.0 45.0
10% medium-term notes due 2000 49.8 49.8
9-1/8% sinking fund debentures due 2017 --- 28.4
10-3/8% Euro-Sterling Notes due 2018 38.0 43.2
Other 17.7 9.2
Less: Current maturities (53.2) (6.5)
----- -----
$ 222.3 $ 294.0
===== =====
Maturities of long-term debt for fiscal 1998 through 2002 are
$51.1, $7.0, $57.6, $82.7 and $8.1 million, respectively.
The Company may borrow up to $100 million under its multi-
currency credit facility agreement, which matures on August 27,
2002. At December 28, 1997 there were no borrowings under this
facility. In addition, Arvin has uncommitted credit facilities
totaling $305.4 million with various domestic and foreign banks.
At December 28, 1997, borrowings under these facilities totaled
$2.4 million.
The weighted average interest rates on short-term borrowings at
December 28, 1997 and at December 29, 1996 were 7.9 percent and
5.6 percent, respectively.
On January 28, 1997, Arvin Capital I, a wholly owned subsidiary
trust of Arvin, issued $100 million 9.5 percent Company-Obligated
Mandatorily Redeemable Preferred Capital Securities of Subsidiary
Trust Holding Solely Subordinated Debentures of the Company
("Capital Securities") due February 1, 2027, callable in 10
years. The Capital Securities were issued at a $1.1 million
discount, which is being amortized over 30 years. The proceeds
of the Capital Securities were invested entirely in 9.5 percent
junior subordinated debentures of Arvin. The subordinated
debentures are the sole assets of the subsidiary trust The
subordinated debentures and related indenture, the trust
agreement for the subsidiary trust and Arvin's related guarantee
together constitute a full and unconditional guarantee by Arvin
of the subsidiary trust's obligations under the Capital
Securities.
23
<PAGE>
Graphic Table - Bar-graph indicating total debt (including
Capital Securities) for the following years, in millions:
1997 $376.8
1996 $346.6
1995 $402.3
Note 6 - Financial Instruments and Risk Management:
The Company uses financial derivatives to manage its global
foreign exchange and interest rate exposure. Forward exchange
contracts and cross-currency options serve primarily to protect
the functional currency value of non-functional currency
positions and anticipated transactions of the Company and its
foreign subsidiaries. Interest rate swaps and options are used
principally to manage the Company's floating rate exposure and to
hedge anticipated debt issuance transactions. Arvin uses the
designation method to qualify foreign currency and interest rate
derivative transactions for hedge accounting treatment. The
Company does not hold or issue derivative financial instruments
for trading purposes or use leveraged derivatives in its
financial risk management program.
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.
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 one interest rate
swap agreement outstanding and owned two put options on 5-year
U.S. Treasury Notes at December 28, 1997. Each of the three
transactions involved a notional amount of $25 million. Under
the terms of the interest rate swap, Arvin receives a fixed rate
of 6.75 percent for three years and pays a LIBOR-based floating
rate which resets every six months. The swap agreement
effectively changes long-term debt of the Company from a fixed
rate to a floating rate of interest.
Under the terms of each put option contract, Arvin owns the right
to sell $25 million 5-year U.S. Treasury Notes to its
counterparty on the option expiration date in March 1998 at an
average strike price which equates to the yield on the underlying
Notes. The underlying Notes are the most recently issued 5-year
U.S. Treasury Notes as of the option expiration date. The
options were purchased in September 1997 to hedge the expected
future issuance of fixed rate debt.
Foreign Exchange Risk Management: At year-end 1997 and 1996, the
Company had forward exchange contracts totaling $184.7 and $126.8
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 1997 and 1996 hedged existing non-functional currency
denominated assets and liabilities. Although the Company used
forward contracts during 1997 and 1996 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 and North American
currencies, and are usually for a term not exceeding one year.
24
<PAGE>
During 1997 and in prior years, the Company also used foreign
exchange options to reduce the Company's exposure to changes in
exchange rates. These option contracts were principally in the
major European currencies, and were written for a term of less
than one year. There were no such option contracts outstanding
at year-end 1997 or 1996.
Fair Value of Financial Instruments: At December 28, 1997 the
fair value of long-term debt, including that due within one year,
approximated $292.4 million. The carrying value at that date was
$275.5 million. The fair and carrying values of the Capital
Securities were $117.7 and $98.9 million, respectively. At year-
end 1996 the fair and carrying values of long term debt,
including that due within one year, were $318.6 and $300.5
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 fair value and accrued liability of financial derivatives at
year-end 1996 and 1997 were not material. Fair value of interest
rate and foreign exchange contracts generally reflects the
estimated amounts the Company would have received (paid) had the
contract been terminated on the reporting date.
Note 7 - Commitments and Contingencies:
The Company and its consolidated subsidiaries are defending
various environmental claims and legal actions that arise in the
normal course of business or from previously owned businesses.
Where reasonable estimates of environmental liabilities are
possible, Arvin has provided for the undiscounted costs of study,
cleanup, remediation, and certain other costs, taking into
account, as applicable, available information regarding site
conditions, potential cleanup methods and the extent to which
other parties can be expected to bear those costs. Management
regularly reviews pending environmental and legal proceedings
with its legal counsel and adjusts its accruals to reflect the
current best estimate of its exposure. Where no best estimate is
determinable, the Company has accrued for the minimum amount of
the most probable range of its liability. 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 year end 1997 and 1996,
respectively, the Company had accrued $15.2 and $14.1 million for
environmental remediation costs and $7.9 and $3.3 million for its
estimated liability related to pending legal matters. Arvin
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 results of
operations, cash flows or financial condition.
Certain of Arvin's manufacturing plants, warehouses and offices
are leased facilities. The Company also leases manufacturing and
office equipment. Future minimum lease payments on operating
leases are $12.1 million in 1998, $12.2 million in 1999, $11.2
million in 2000, $9.5 million in 2001, $6.6 million in 2002 and
$18.0 million thereafter. Net rental expense under these leases
in 1997, 1996 and 1995 was $16.8, $15.5 and $15.4 million,
respectively.
Note 8 - Special Charges and Credits:
Special charges for 1997 of $6.2 million include a $1.5 million
charge related to the early redemption of Arvin's 9 1/8 percent
sinking fund debentures and $4.7 million of additions to legal
and environmental reserves for operations previously owned by the
Company's Maremont subsidiary.
25
<PAGE>
Special charges and credits, net for 1996 of $5.0 million include
$2.6 million to reserve for future lease commitments at abandoned
or under-utilized properties, $1.2 million for contract
termination costs, $1.7 million for the net additions to legal
and environmental reserves for operations previously owned by the
Company's Maremont subsidiary, and a special credit of $2.0
million, which resulted from insurance settlements. In addition,
Arvin recorded a special charge of $1.5 million related to the
early redemption of its 7.5 percent convertible subordinated
debentures.
During 1995, based upon a judgment entered against an Arvin
subsidiary and assessments by legal counsel of other pending
legal matters, the Company added $13.7 million to its litigation
reserves. The 1995 results also include a special credit of $3.2
million as a result of an insurance settlement.
26
<PAGE>
Note 9 - Income Taxes:
Earnings from continuing operations before income taxes were as
follows:
1997 1996 1995
----- ----- -----
United States $ 31.2 $ 23.8 $ (8.9)
International 66.7 40.3 38.3
----- ----- -----
$ 97.9 $ 64.1 $ 29.4
===== ===== =====
The provision for income taxes was as follows:
1997 1996 1995
----- ----- -----
Current tax expense:
Federal $ 8.6 $ 6.9 $ (.3)
State 3.0 2.3 1.2
International 22.5 15.8 17.1
Deferred tax expense:
Federal .2 (3.0) (5.6)
State --- (1.8) (.6)
International (.1) (.5) (.6)
----- ----- -----
Continuing operations provision $ 34.2 $ 19.7 $ 11.2
===== ===== =====
The provision for income taxes was different from the U.S.
federal statutory rate applied to earnings from continuing
operations before income taxes, and is reconciled as follows:
1997 1996 1995
----- ----- -----
Statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net 2.0 1.0 2.8
International tax rate difference (1.6) (1.1) 1.0
Amortization of goodwill 1.8 2.8 5.2
Foreign tax credit utilization, net (.5) (.4) (3.3)
Other items, net (.5) (.3) (2.7)
----- ----- -----
Subtotal 36.2 37.0 38.0
Capital loss carryforward
utilization (1.3) (6.3) --
----- ----- -----
Effective tax rate 34.9% 30.7% 38.0%
===== ===== =====
27
<PAGE>
Deferred tax assets (liabilities) are comprised of the following
at fiscal year-end:
1997 1996
------ ------
Gross deferred tax assets:
Accrued employee benefits $ 25.0 $ 19.2
Inventory and receivables reserves 19.3 17.7
Environmental and other legal reserves 8.7 7.6
Other 12.3 5.6
Net losses and tax credit carryforward 28.3 21.8
Valuation allowance for deferred tax assets (13.0) (16.0)
------ ------
Deferred tax assets, net of
valuation allowance 80.6 55.9
------ ------
Gross deferred tax liabilities:
Depreciation (34.5) (29.9)
Pension ( .6) (1.5)
------ ------
Gross deferred tax liabilities (35.1) (31.4)
------ ------
Net deferred tax assets $ 45.5 $ 24.5
====== ======
During 1997, the valuation allowance for deferred tax assets
decreased by $3.0 million. The decrease was caused principally
by a capital loss carryforward utilized in connection with the
gain on sale of capital assets.
Net operating loss, capital loss, and tax credit carryforwards
available in various tax jurisdictions at December 28, 1997
expire in the tax effected amounts of $3.4, $2.8, $9.1, $4.7,
$3.0 and $5.3 million for the years 1998 through 2002 and beyond,
respectively.
Graphic Table - Bar-graph indicating the effective tax rate for
the following years:
1997 (1) 36.2%
1996 (1) 37.0%
1995 38.0%
(1) Effective tax rate prior to capital loss carryforward
utilization.
Realization of deferred tax assets is dependent upon taxable
income within the carryback and carryforward periods available
under the tax laws. Although realization of deferred tax assets
in excess of deferred tax liabilities is not certain, management
has concluded that it is more likely than not that Arvin will
realize the full benefit of U.S. deferred tax assets, except for
approximately $3.2 million of capital loss carryforward. While
in the aggregate, Arvin's non-U.S. subsidiaries have generated
cumulative taxable income over the last three years, certain non-
U.S. subsidiaries are in net operating loss carryforward
positions. There is currently insufficient evidence to
substantiate recognition of net deferred tax assets in the
financial statements for certain of those non-U.S. subsidiaries
in a net operating loss carryforward position. Accordingly, a
valuation allowance of $9.8 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 $5.8, $2.0, and $2.4 million and reductions of
valuation allowances were $4.3, $4.0, and $1.5 million for 1997,
1996, and 1995, respectively.
At year-end 1997, consolidated retained earnings included
undistributed earnings of non-U.S. subsidiaries of approximately
$172.7 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.
28
<PAGE>
Note 10 - Pension Plans:
Substantially all of Arvin's employees in the U.S. are covered by
non-contributory trusteed pension plans. Employees of certain of
the Company's international operations are covered by either
contributory or non-contributory trusteed pension plans.
Benefits are based on, in the case of certain plans, final
average salary and years of service and, in the case of other
plans, a fixed amount for each year of service. Net periodic
pension costs are determined using the Projected Unit Credit Cost
method. Arvin's funding policy provides that annual
contributions to the pension trusts will be at least equal to the
minimum amounts required by ERISA in the U.S. and actuarial
recommendations or statutory requirements in other countries.
Net pension expense for these plans consists of the following
components:
1997 1996 1995
------ ------ ------
Service cost $ 9.4 $ 9.3 $ 7.6
Interest cost 23.2 20.8 20.1
Actual gain on assets (66.5) (42.2) (46.4)
Net amortization and deferral 39.0 16.3 22.7
------ ------ ------
Net periodic pension cost $ 5.1 $ 4.2 $ 4.0
====== ====== ======
The Company's pension obligations for its United States plans
were projected to, and the assets were valued as of the end of
1997 and 1996. The plan assets, comprised almost entirely of
high grade stocks and bonds, included 1.4 and 1.3 million shares
of Arvin common stock at year-end 1997 and 1996, respectively.
Assumptions used in determining the projected benefit obligation
for the domestic and international plans are as follows:
1997 1996 1995
----- ----- -----
United States Plans
- --------------------
Discount Rate for Obligations 7.00% 7.25% 7.00%
Expected Return on Plan Assets 9.00% 9.00% 9.00%
Average Salary Increases 4.75% 4.75% 4.75%
International Plans
- --------------------
Discount Rate for Obligations 7.00% 8.00% 8.00%
Expected Return on Plan Assets 9.00% 9.00% 9.00%
Average Salary Increases 5.00% 6.00% 6.00%
29
<PAGE>
The following table summarizes the funded status of the Company's
pension plans:
1997 1996
----------- -----------
Benefit obligation
Vested $ (301.2) $ (267.1)
Nonvested (18.4) (17.3)
------- -------
Accumulated benefit obligation (319.6) (284.4)
Projected impact of future
salary increases (29.3) (27.1)
------- -------
Projected benefit obligation (348.9) (311.5)
Plan assets at market value 383.6 325.2
------- -------
Funded status 34.7 13.7
Unamortized initial asset (6.9) (8.3)
Unrecognized gain (38.0) (12.4)
Unrecognized prior service cost 13.8 11.8
------- -------
Prepaid pension cost $ 3.6 $ 4.8
======= =======
Note 11 - 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. Arvin generally does not pre-fund these
benefits and has the right to modify or terminate certain of
these plans in the future.
The components of postretirement medical expense are as follows:
1997 1996 1995
---- ---- ----
Service cost $ .9 $ 1.0 $ .9
Interest cost 2.6 2.4 2.7
Other (.4) (.4) (.3)
---- ---- ----
Total cost $ 3.1 $ 3.0 $ 3.3
==== ==== ====
The postretirement benefit obligation is comprised of the
following components:
1997 1996
---- ----
Retirees $ 20.2 $ 19.0
Fully eligible active plan participants 3.2 2.7
Other active plan participants 14.3 14.2
---- ----
Total accumulated postretirement
benefit obligation 37.7 35.9
Unrecognized net actuarial gains 9.2 9.7
---- ----
Accrued postretirement
benefit obligation $ 46.9 $ 45.6
==== ====
Future benefit costs were estimated assuming a medical inflation
rate of nine percent in 1997 and eight percent in 1998, with the
rate of medical inflation decreasing ratably over the next three
years and then remaining at five percent. A one percent increase
in this annual trend rate would have increased the accumulated
postretirement benefit obligation at December 28, 1997 by 15.3
percent. The effect of this change on the aggregate of service
and interest cost for 1997 would be an increase of 18.9 percent.
The weighted average discount rate used to estimate the
accumulated postretirement benefit obligation was 7.0 percent and
7.25 percent at year-end 1997 and 1996, respectively.
30
<PAGE>
Certain of Arvin'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 12 - Employee Stock Plans:
Employee grant awards under the Company's stock benefit plan may
include incentive and non-statutory stock options, stock
appreciation rights, restricted shares and performance shares or
units. The exercise price of each option is not less than the
fair market value of Arvin's common stock on the date of the
grant. At December 28, 1997 there were 190,011 options available
for grant. Options granted generally vest one year from grant
date and expire ten years from the grant date. Summarized stock
option activity was as follows:
1997 1996 1995
---------- ---------- ----------
Options Outstanding at
beginning of year 2,446,259 2,271,050 2,096,339
Granted 456,859 401,609 325,450
Exercised (639,635) (56,900) (65,092)
Expired (204,150) (169,500) (85,647)
---------- ---------- ----------
Outstanding at year-end 2,059,333 2,446,259 2,271,050
========== ========== ==========
Exercisable at year-end 1,564,474 1,944,650 1,795,600
========== ========== ==========
Weighted Average Option Prices per share
- ----------------------------------------
At beginning of year $24.07 $25.07 $25.77
Granted 30.94 20.49 18.56
Exercised 22.01 17.37 16.47
Expired 30.28 31.07 24.08
Outstanding at year-end 25.62 24.07 25.07
Exercisable at year-end $23.70 $24.17 $25.48
The weighted average fair value of options granted was $6.90,
$4.73 and $4.02 per share in 1997, 1996, and 1995, respectively.
The fair value of each option was estimated on the date of the
grant using the Black-Scholes option pricing model and the
following weighted average assumptions for grants in 1997, 1996,
and 1995, respectively: dividend yield of 2.6, 3.7 and 4.1
percent; expected volatility of 30.0, 27.8 and 27.8 percent;
risk-free interest rates of 6.0, 6.4 and 5.7 percent; and
expected lives of 3.0, 4.4 and 4.4 years.
The Company has elected 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, no compensation expense is recorded
for stock options. If the Company had used a fair-value method
of accounting for stock-based compensation cost, reported net
income would have been $65.1, $45.3, and $17.2 million in 1997,
1996, and 1995, respectively. Basic earnings per share would
have been $2.83, $2.02, and $.77 and diluted earnings per share
would have been $2.78, $1.96, and $.77 for 1997, 1996, and 1995,
respectively. Compensation cost for performance share plans,
which is included in the consolidated statement of operations,
was not material.
31
<PAGE>
The following table reflects information about stock options
outstanding at December 28, 1997.
Options Outstanding Options Exercisable
---------------------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------- ----------- ---------- -------- ---------- ---------
$14.00 - $23.99 811,997 6.26 years $20.36 811,997 $20.36
$24.00 - $29.99 690,477 5.40 years 26.72 690,477 26.72
$30.00 - $38.99 556,859 8.85 years 31.93 62,000 33.96
Employee Stock Benefit Trust (the Trust): In December 1996 Arvin
established the Trust to satisfy future obligations arising under
existing benefit plans, including stock plans, 401(k) plans, and
other employee benefit plans as designated by the Company and to
promote employee ownership in Arvin. In 1997 the Trust utilized
$16.6 million of the common stock to satisfy those obligations.
Note 13 - Shareholders' Rights Plan:
Arvin enacted a preferred share purchase rights plan pursuant to
a Rights Agreement dated May 29, 1986 ("the Rights Plan.") The
Rights Plan has been amended twice since 1986 and in 1996 the
term of the Rights Plan was extended to June 13, 2006.
Under the Rights Plan, one preferred share purchase right
("Right") trades with each share of the Company's common stock.
Each Right entitles its holder, until the earlier of June 13,
2006 or the redemption of the Rights, to purchase from the
Company one one-hundredth of a share of Arvin's Series C Junior
Participating Preferred Stock (the "Preferred Stock") at an
exercise price of $90 per one one-hundredth share, subject to
adjustment. The Rights are redeemable by the Board of Directors
at $.10 per Right at any time prior to the acquisition by a
person or group of beneficial ownership of 20 percent or more of
the Company's common stock. The right to exercise the Rights
terminates at the time the Board elects to redeem them. At no
time do the Rights have any voting rights.
The Rights are not exercisable or transferable apart from the
Company's common stock until the earlier of (i) ten days
following a public announcement that a person or group has
acquired beneficial ownership of 20 percent or more of the
outstanding common stock or (ii) ten business days after
commencement, or announcement of an intention to make a tender
offer or exchange offer, which would result in a person or group
beneficially owning 20 percent or more of the outstanding common
stock. When exercisable, the holder of the Right (other than the
person or group acquiring or attempting to acquire beneficial
ownership of 20 percent or more of the Company's common stock)
has the right to purchase, at the current exercise price of the
Right, a number of shares of the Company's common stock having a
market value equal to twice the current exercise price of the
Right. If 20 percent or more (but less than 50 percent) of the
common stock is acquired by a person or group, the Board of
Directors may exchange each Right for one share of common stock.
The Rights have certain anti-takeover effects and may cause
substantial dilution to a person or group that attempts to
acquire the Company on terms not approved by the Board. The 20
percent acquisition threshold can be reduced to 10 percent by the
Board.
32
<PAGE>
Note 14 - Business Segments:
Arvin is engaged in the manufacture and sale of automotive parts
and other products and services, primarily in the United States
and Europe.
1997 1996 1995
-------- -------- --------
Net Sales:
Automotive Original Equipment $ 1,622.1 $ 1,549.5 $ 1,337.2
Automotive Replacement 726.9 663.2 629.2
-------- -------- --------
Total net sales $ 2,349.0 $ 2,212.7 $ 1,966.4
Operating Income from Continuing
Operations:
Automotive Original Equipment $ 92.5 $ 71.6 $ 67.8
Automotive Replacement 74.7 48.5 31.7
-------- -------- --------
Operating income by segment 167.2 120.1 99.5
Less:
Expenses unrelated to segments, net 9.7 10.4 15.4
Capital transactions unrelated to 1.1 (10.8) ---
segments
Corporate general and administrative 19.0 17.6 12.2
Interest expense 39.5 38.8 42.5
-------- -------- --------
Earnings from continuing operations
before income taxes $ 97.9 $ 64.1 $ 29.4
======== ======== ========
Identifiable assets:
Automotive Original Equipment $ 849.1 $ 799.8 $ 711.4
Automotive Replacement 396.7 349.8 326.7
-------- -------- --------
Total identifiable assets 1,245.8 1,149.6 1,038.1
General Corporate (1) 201.3 158.2 180.5
-------- -------- --------
Total assets $ 1,447.1 $ 1,307.8 $ 1,218.6
======== ======== ========
Depreciation and amortization:
Automotive Original Equipment $ 65.1 $ 61.9 $ 53.0
Automotive Replacement 19.8 17.2 19.1
General Corporate and Discontinued
Operations .7 .6 2.8
-------- -------- --------
Total depreciation and amortization $ 85.6 $ 79.7 $ 74.9
======== ======== ========
Additions to property, plant and
equipment:
Automotive Original Equipment $ 84.5 $ 66.1 $ 79.3
Automotive Replacement 11.8 11.8 19.2
General Corporate and Discontinued
Operations .6 1.2 2.0
-------- -------- --------
Total capital additions $ 96.9 $ 79.1 $ 100.5
======== ======== ========
1 Consists primarily of cash and cash equivalents, prepaid
expenses and non-current assets.
Graphic Table - Bar-graph indicating sales in the United States,
Europe and Other, respectively, for the following years, in
millions:
1997 $1,263.7, $844.6 and $240.7
1996 $1,233.1, $759.9 and $219.7
1995 $1,129.4, $635.0 and $202.0
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:
33
<PAGE>
1997 1996 1995
------- ------- -------
Net sales:
United States $ 1,263.7 $ 1,233.1 $ 1,129.4
Europe 844.6 759.9 635.0
Other 240.7 219.7 202.0
------- ------- -------
Total net sales $ 2,349.0 $ 2,212.7 $ 1,966.4
======= ======= =======
Operating Income:
United States $ 83.0 $ 50.0 $ 44.6
Europe 56.1 50.5 39.8
Other 28.1 19.6 15.1
------- ------- -------
Total operating income $ 167.2 $ 120.1 $ 99.5
======= ======= =======
Identifiable assets:
United States $ 579.9 $ 561.5 $ 506.8
Europe 591.4 528.8 470.8
Other 74.5 59.3 60.5
------- ------- -------
Total identifiable assets $ 1,245.8 $ 1,149.6 $ 1,038.1
======= ======= =======
Sales to three customers, primarily in the Automotive Original
Equipment segment, exceeded 10 percent of total net sales in
1997, 1996 or 1995. Sales to those customers were as follows:
1997 1996 1995
--------------- --------------- --------------
% of % of % of
Amount Sales Amount Sales Amount Sales
-------- ----- -------- ----- -------- -----
Customer one $ 432.1 18.4% $ 423.1 19.1% $ 379.4 19.3%
Customer two 295.8 12.6% 286.8 13.0% 243.3 12.4%
Customer three 217.9 9.3% 226.2 10.2% 179.3 9.1%
----- ----- ----- ----- ----- -----
$ 945.8 40.3% $ 936.1 42.3% $ 802.0 40.8%
===== ===== ===== ===== ===== =====
34
<PAGE>
Report of Independent Accountants
To the Shareholders and
Board of Directors of
Arvin Industries, Inc.
In our opinion, the accompanying consolidated statements
listed in the accompanying index present fairly,
in all material respects, the financial position of Arvin
Industries, Inc. and its subsidiaries at December 28, 1997 and
December 29, 1996, and the results of their operations and their
cash flows for each of the three years in the period ended
December 28, 1997 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 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 provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Indianapolis, Indiana
January 24, 1998
35
<PAGE>
Arvin Industries, Inc.
Schedule II
Valuation and Qualifying Accounts
(Dollars in millions)
<TABLE>
<CAPTION>
Balance at Additions Charged to Deductions Balance at
Beginning Charged to Other from End of
Description of Year Income Accounts Reserves Year
- ------------ ------- ------ --------- -------- ---------
Year ended December 28, 1997
- -----------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 6.7 $ .5 $ .8 (6)(1) $ 2.4 (2) $ 5.6
Accumulated amortization of
goodwill $ 32.3 $ 5.9 $ (1.7)(1) $ -- $ 36.5
Valuation allowance for deferred
tax assets $ 16.0 $ -- $ 5.7 (6)(1) $ 8.7 (5) $ 13.0
Year ended December 29, 1996
- -----------------------------
Allowance for doubtful accounts $ 4.2 $ 5.5 $ .1 (1) $ 3.1 (2) $ 6.7
Accumulated amortization of
goodwill $ 31.3 $ 5.1 $ 1.6 (1) $ 2.5 (4) $ 32.3
Valuation allowance for deferred
tax assets $ 21.8 $ 2.0 $ -- $ 7.8 (5) $ 16.0
Year ended December 31, 1995
- -----------------------------
Allowance for doubtful accounts $ 3.8 $ 2.5 $ .1 (1) $ 2.2 (2) $ 4.2
Accumulated amortization of
goodwill $ 26.6 $ 4.7 $ -- $ -- $ 31.3
Valuation allowance for deferred
tax assets $ 9.5 $ 13.8 $ -- $ 1.5 $ 21.8
<FN>
(1) Includes translation adjustment.
(2) Includes accounts charged off, net of recoveries and
reclassification of reserves.
(3) Includes fully amortized goodwill written off.
(4) Includes reclassifications.
(5) Principally the utilization of capital loss
carryforwards.
(6) Result of acquisitions.
</TABLE>
36
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in millions, except per share amounts)
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------ ------------ ------------ ------------
1997 1996 1997 1996 1997 1996 1997 1996
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 564.0 $ 511.6 $ 632.5 $ 583.3 $ 554.0 $ 557.1 $ 598.5 $ 560.7
Gross profit 72.7 61.6 93.3 78.6 80.3 70.9 87.8 61.4
Earnings
- ---------
Continuing operations 13.0 5.9 21.1 14.1 13.6 8.3 17.3 18.8
Net 13.0 5.9 21.1 14.1 15.2 8.3 17.3 18.8
Earnings per
common share
Basic:
- ------
Continuing operations $ .57 $ .26 $ .92 $ .63 $ .59 $ .37 $ .74 $ .83
Net .57 .26 .92 .63 .66 .37 .74 .83
Diluted:
- --------
Continuing operations .57 .26 .91 .60 .58 .37 .72 .80
Net .57 .26 .91 .60 .65 .37 .72 .80
<FN>
Note 1: First quarter 1997 earnings from continuing operations includes $2.2
million for net gain on capital transactions. Earnings from continuing
operations for 1997 also includes special charges and credits, net of
$1.5, $1.5 and $3.2 million in quarters two, three and four,
respectively.
Note 2: Earnings from continuing operations for the fourth quarter 1996 includes
$10.8 million for net gain on capital transactions. Earnings from
continuing operations for 1996 also includes special charges and
credits, net of $.3, ($.7), $6.2 and ($.8) million in quarters one, two,
three and four, respectively.
</TABLE>
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
---------------------------------------------
None.
37
<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 16, 1998, 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 16, 1998 under the caption "Executive Compensation"
(exclusive of the portion under the subcaption "Report of the
Human Resources 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 16, 1998 under the captions "Certain Beneficial
Owners" and "Election of Directors" and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
None
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
---------------------------------------
(a) (1) Financial Statements
The following financial statements are filed as part of this
report See index to Consolidated Financial Statements in Item
8.
Consolidated Statement of Operations for each of the
three years in the period ended December 28, 1997
Consolidated Statement of Financial Condition at
December 28, 1997 and December 29, 1996
Consolidated Statement of Shareholders' Equity for each
of the three years in the period ended December 28, 1997
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 28, 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants
38
<PAGE>
(a) (2) Financial Statement Schedules
Financial Statement Schedules:
For each of the three years in the period ended December
28,1997
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 May 10, 1996
as Exhibit 3(ii)
Instruments defining the Rights of Security-Holders, including
Indentures:
Pursuant to Item 601 (b)(4)(iii)(A) of Regulation S-K, the
registrant is not filing certain documents because the total
amount of debt securities authorized under each such document
does not exceed 10 percent of the total assets of the registrant
and its subsidiaries on a consolidated basis. The registrant
agrees to furnish a copy of each such document to the Commission
upon request.
4(A) Indenture dated as of March 1, Registration Statement No.33-
1987 relating to $200 million 10941 as Exhibit 4
aggregate principal amount debt
securities
4(B) 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.
4c Indenture dated July 3, 1990 Registration Statement No.33-
relating to Senior Debt 53087 as Exhibit 4-4
Securities.
4(D) Rights Agreement, as amended Form 8-K dated May 10, 1996
Form 8-K dated June 16, 1986
Form 8-K dated February 28,
1989
Form 10-Q for the third
quarter ended 10-2-94 as
Exhibit 4
4(E) Amended and Restated Declaration Form 8-K dated February 10,
of Trust dated as of January 28, 1997 as Exhibit 4.3
1997 relating to 9.5 percent
Capital Securities of Arvin
Capital I, guaranteed by Arvin
Industries, Inc.
4(F) Indenture dated as of January Registration Statement No.
28, 1997 relating to 9.5 percent 333-18521 as Exhibit 4.4
Junior Subordinated Deferrable
Interest Debentures due 2027,
held by Arvin Capital I
39
<PAGE>
4(G) First Supplemental Indenture Form 8-K dated February 10,
dated as of January 28, 1997 1997 as Exhibit 4.5
relating to 9.5 percent Junior
Subordinated Deferrable Interest
Debentures due 2027, held by
Arvin Capital I
4(H) Capital Securities Guarantee Registration Statement No.
Agreement dated as of January 333-18521 as Exhibit 4.7
28, 1997 relating to the 9.5
percent Capital Securities of
Arvin Capital I, guaranteed by
Arvin Industries, Inc.
10(A) * 1978 Stock Option Plan for 1980 Form 10-K as Exhibit
Officers and Key 10(A)
Employees
-Amendments 1982 Form 10-K as Exhibit
10(A), Form 10-Q for the
first quarter ended 4-1-84
as Exhibit 10(A), Form 10-Q
for the first quarter ended
4-5-87 as Exhibit 10(A)
10(B) * Management Incentive Plans filed herewith as Exhibit
10(B)
10(C) * Employment Agreement with Byron Form 10-Q for the third
O. Pond quarter ended 10-4-93 as
dated October 31, 1993 Exhibit 10(F)
10(D) * Unfunded Deferred Compensation 1982 Form 10-K as Exhibit
Plan for 10(D)
Directors
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)
10(F) Employee Stock Benefit Trust Form 8-K dated January 20,
effective as of December 20, 1997 as Exhibit 99.1
1996 relating to The Arvin
Industries, Inc. Employee Stock
Benefit Trust
10(G) Common Stock Purchase Agreement Form 8-K dated January 20,
dated December 20, 1996 relating 1997 as Exhibit 99.2
to The Arvin Industries, Inc.
Employee Stock Benefit Trust
10(H)* Deferred Compensation Plan, filed herewith as Exhibit
amended and restated effective 10(H)
January 1, 1997
10(I)* Form of Change of Control filed herewith as Exhibit
Agreement 10(I)
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)
27 Financial Data Schedule filed herewith as Exhibit 27
* This exhibit is a management contract or compensatory plan
or arrangement.
40
<PAGE>
(b) Reports on Form 8-K
None.
41
<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 13, 1998
42
<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 12, 1998
- ------------------------------- --------------
B. O. Pond
Chairman of the Board of
Directors
and Chief Executive Officer
/s/ J. K. Baker March 12, 1998
- ------------------------------- --------------
J. K. Baker
Vice-Chairman of the Board of
Directors
/s/ V. W. Hunt March 12, 1998
- ------------------------------- --------------
V. W. Hunt
President, Chief Operating
Officer and Director
/s/ R. A. Smith March 12, 1998
- ------------------------------- --------------
R. A. Smith
Vice President-Finance, Chief
Financial Officer
and Director
/s/ I. W. Gorr March 12, 1998
- ------------------------------- --------------
I. W. Gorr
Director
/s/ F. R. Meyer March 12, 1998
- ------------------------------- --------------
F. R. Meyer
Director
/s/ A. R. Velasquez March 12, 1998
- ------------------------------- --------------
A. R. Velasquez
Director
/s/ J. P. Allen March 12, 1998
- ------------------------------- --------------
J. P. Allen
Director
/s/ S. C. Beering March 12, 1998
- ------------------------------- --------------
S. C. Beering
Director
/s/ J. P. Flannery March 12, 1998
- ------------------------------- --------------
J. P. Flannery
Director
/s/ William D. George, Jr. March 12, 1998
- ------------------------------- --------------
William D. George, Jr.
Director
/s/ R. W. Hanselman March 12, 1998
- ------------------------------- --------------
R. W. Hanselman
Director
/s/ D. J. Kacek March 12, 1998
- ------------------------------- --------------
D. J. Kacek
Director
43
<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 "1997
Executive Incentive Plan" which provided for payments based on
earnings per share and the achievement of certain financial and
other business-related objectives established at the beginning of
the year.
Exhibit 10 (H)
ARVIN INDUSTRIES, INC.
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 1997)
ARVIN INDUSTRIES, INC.
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 1997)
TABLE OF CONTENTS
Page
ARTICLE I ESTABLISHMENT AND PURPOSE 1
1.1. Establishment 1
1.2. Purpose 1
ARTICLE II DEFINITIONS 1
2.1. Accounting Date 1
2.2. Administrator 1
2.3. Board 2
2.4. Code 2
2.5. Committee 2
2.6. Company 2
2.7. Participant 2
2.8. Plan 2
2.9. Plan Year 2
2.10. Qualified Plan 2
2.11. Qualified Plan Company Matching Contribution 2
2.12. Qualified Plan Limits 2
2.13. Qualified Plan Salary Reduction Contribution 2
2.14. Salary Reduction Agreement 2
2.15. Supplemental Company Matching Contribution 3
2.16. Supplemental Salary Reduction Agreement 3
2.17. Supplemental Salary Reduction Contribution 3
2.18. Supplemental Subaccount 3
ARTICLE III ELIGIBILITY 3
ARTICLE IV SUPPLEMENTAL CONTRIBUTIONS 3
4.1. Supplemental Salary Reduction Contributions 3
4.2. Supplemental Salary Reduction Agreement 4
4.3. Supplemental Company Matching Contributions 4
ARTICLE V INVESTMENT OF SUPPLEMENTAL CONTRIBUTIONS 5
5.1. Deemed Investment 5
5.2. Actual Investment 5
ARTICLE VI DISTRIBUTIONS 6
6.1. Distributions 6
6.2. Accelerated Distributions 6
6.3. Financial Emergency 6
ARTICLE VII ADMINISTRATION OF THE PLAN 7
7.1. Administrator 7
7.2. General Powers of Administration 7
ARTICLE VIII AMENDMENT OR TERMINATION 7
8.1. Amendment or Termination 7
8.2. Effect of Amendment or Termination 7
ARTICLE IX GENERAL PROVISIONS 8
9.1. Participant's Rights Unsecured 8
9.2. General Conditions 8
9.3. No Guarantee of Benefits 8
9.4. No Enlargement of Employee Rights 8
9.5. Spendthrift Provision 8
9.6. Applicable Law 9
9.7. Incapacity of Recipient 9
9.8. Corporate Successors 9
9.9. Unclaimed Benefit 9
9.10. Limitations on Liability 9
9.11. Construction 9
ARVIN INDUSTRIES, INC.
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective January 1, 1997)
Pursuant to rights reserved under Section 11.1 of the Arvin
Industries, Inc. Deferred Compensation Plan (the "Plan"), Arvin
Industries, Inc. hereby amends and completely restates the Plan,
effective as of January 1, 1997, to provide, in its entirety, as
follows:
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1. Establishment. Effective as of February 26, 1987, Arvin
Industries, Inc. (hereinafter "Company") established the ARVIN
INDUSTRIES, INC. DEFERRED COMPENSATION PLAN for executives
described herein.
1.2. Purpose. The Company maintains a profit sharing plan
known as the Arvin Savings Plan which is intended to meet the
requirements of a tax qualified defined contribution plan under
Section 401(a) of the Internal Revenue Code of 1986 (the "Code")
and a qualified cash or deferred arrangement under Code Section
401(k). Code Sections 401(a)(17), 401(k), 401(m) and 415 places
limitations on the maximum amount which may be credited to a
participant's account under a qualified defined contribution
plan. It is the purpose of this Plan to provide selected
executives with benefits that are reasonably comparable to the
benefits they would have received under the Savings Plan if it
were not for the limitations imposed by the Code. It is intended
that the Plan meet applicable exemption under Sections 201(2),
301(a)(3), 401(a)(1) and 4021(b)(6) of the Employee Retirement
Income Security Act of 1974 and under Department of Labor
Regulation 2520.104-23.
ARTICLE II
DEFINITIONS
Wherever used herein the following terms shall have the
meanings hereinafter set forth:
2.1. "Accounting Date" means the last day of each calendar
month.
2.2. "Administrator" means the administrative committee
appointed by the Company Board as administrator of the Qualified
Plan.
2.3. "Board" means the Board of Directors of the Company.
2.4. "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any regulations promulgated
thereunder.
2.5. "Committee" means the Compensation Committee of the
Board.
2.6. "Company" means Arvin Industries, Inc. or, to the
extent provided in Section 9.8 below, any successor corporation
or other entity resulting from a merger or consolidation into or
with the Company or a transfer or sale of substantially all of
the assets of the Company.
2.7. "Participant" means an executive employee of the
Company who is a participant under the Qualified Plan and who is
covered under the Arvin Industries, Inc. Supplemental Retirement
Plan for Designated Management Employees as of the last day of
the Plan Year immediately preceding the Plan Year for which the
Salary Reduction Agreement relates.
2.8. "Plan" means this Arvin Industries, Inc. Deferred
Compensation Plan.
2.9. "Plan Year" means each calendar year.
2.10. "Qualified Plan" means the Arvin Savings Plan and
any successor or replacement cash or deferred arrangement.
2.11. "Qualified Plan Company Matching Contribution"
means the total of all matching contributions made by the Company
for the benefit of a Participant under and in accordance with the
terms of the Qualified Plan in any Plan Year.
2.12. "Qualified Plan Limits" mean the limits imposed,
at any time and from time to time, upon the amount of Qualified
Plan Salary Reduction Contributions or Qualified Plan Company
Matching Contributions that may be made on behalf of a
Participant by Section 401(a)(17), Section 401(k) (including any
limits imposed by the Company and Administrator to ensure
compliance with Section 401(k)), Section 401(m), Section 402(g)
and Section 415 of the Code.
2.13. "Qualified Plan Salary Reduction Contribution"
means the salary reduction contribution made by the Company for
the benefit of a Participant under and in accordance with the
terms of the Qualified Plan in any Plan Year.
2.14. "Salary Reduction Agreement" means the written
salary reduction agreement entered into by a Participant with a
Company pursuant to the Qualified Plan.
2.15. "Supplemental Company Matching Contribution" means
the matching contribution made by a Company for the benefit of a
Participant under and in accordance with the terms of this Plan
in any Plan Year.
2.16. "Supplemental Salary Reduction Agreement" means
the written agreement described in Section 4.2.
2.17. "Supplemental Salary Reduction Contribution" means
the salary reduction contribution made by a Company for the
benefit of a Participant under and in accordance with the terms
of this Plan in any Plan Year.
2.18. "Supplemental Subaccount" means the account
maintained by the Company under the Plan for a Participant that
is credited with amounts contributed under Section 4.1 and
Section 4.3 of the Plan. To the extent a Participant makes
different distribution elections in his Supplemental Salary
Reduction Agreements, the Administrator shall maintain two (2)
Supplemental Subaccounts for the Participant, one for his lump
sum elections and one for his installment elections.
ARTICLE III
ELIGIBILITY
A Participant who makes Qualified Plan Salary Reduction
Contributions and receives Qualified Plan Company Matching
Contributions, the total amounts of which are reduced by reason
of the application of the Qualified Plan Limits, shall be
eligible to participate in the Plan.
ARTICLE IV
SUPPLEMENTAL CONTRIBUTIONS
4.1. Supplemental Salary Reduction Contributions. The
Supplemental Salary Reduction Contribution to be made by the
Company for the benefit of a Participant for any Plan Year shall
be in an amount equal to (a) minus (b) where:
(a) equals the Qualified Plan Salary Reduction
Contribution that would have been allocated to the Qualified
Plan on behalf of the Participant for the Plan Year based on
the percentage (not in excess of 16%) salary reduction
designated by the Participant in his Supplemental Salary
Reduction Agreement for such Plan Year, without giving
effect to the Qualified Plan Limits; and
(b) equals the amount of the Qualified Plan Salary
Reduction Contribution actually allocated to the Qualified
Plan on behalf of the Participant for the Plan Year.
Supplemental Salary Reduction Contributions made for the
benefit of a Participant for any Plan Year shall be credited to
such Participant's Supplemental Subaccount as soon as practicable
after the last day of each calendar month during which the
deferred salary was earned.
4.2. Supplemental Salary Reduction Agreement. As a condition
to the Company's obligation to make a Supplemental Salary
Reduction Contribution for the benefit of a Participant pursuant
to Section 4.1, that Participant must execute a Supplemental
Salary Reduction Agreement. In the Supplemental Salary Reduction
Agreement, the Participant shall designate whether distribution
of the deferred amount shall be made in a single lump sum or in
substantially equal annual installments over ten (10) years. The
Supplemental Salary Reduction Agreement for any Plan Year shall
be made before the beginning of that Plan Year and shall remain
in full force and effect for subsequent Plan Years unless revoked
or modified by a Participant by written instrument delivered to
the Administrator prior to the beginning of the Plan Year in
which such revocation or modification is to be effective.
4.3. Supplemental Company Matching Contributions. The
Supplemental Company Matching Contribution to be made by the
Company for the benefit of a Participant for any Plan Year shall
be in an amount equal to (a) minus (b) where:
(a) equals the Qualified Plan Company Matching
Contribution that would have been allocated to the Qualified
Plan on behalf of the Participant for the Plan Year without
giving effect to any reduction in the Participant's
Qualified Plan Salary Reduction Contribution required by the
Qualified Plan Limits; and
(b) equals the amount of the Qualified Plan Company
Matching Contribution actually allocated to the Qualified
Plan on behalf of the Participant for the Plan Year.
Supplemental Company Matching Contributions made for the
benefit of a Participant for any Plan Year shall be credited to
such Participant's Supplemental Subaccount as soon as practicable
after the last day of each calendar month.
ARTICLE V
INVESTMENT OF SUPPLEMENTAL CONTRIBUTIONS
5.1. Deemed Investment. Unless actual investment options are
provided to Participants under Section 5.2 of this Plan, amounts
credited hereunder to the Supplemental Subaccount of a
Participant shall be treated as if they were actually invested in
the Qualified Plan Subaccount of the Participant and shall be
subject to the same Participant investment elections, and
credited with gains and losses at the same time and in the same
manner, as are applicable to amounts invested in the Qualified
Plan Subaccount of such Participant; provided, however, that the
adjustments shall only be required to be made on the Accounting
Dates. A change by a Participant in the investment election
applicable to amounts in his Qualified Plan Subaccount, or a
direction to transfer amounts in his Qualified Plan Subaccount
among investment funds maintained under the Qualified Plan, shall
also apply to amounts credited to his Supplemental Subaccount and
shall be effective at the same time that such change in election
or direction to transfer is applicable to his Qualified Plan
Subaccount.
5.2. Actual Investment. In lieu of crediting earnings and
losses under Section 5.1 of this Plan, the Administrator may
provide for investment funds into which Participants may direct
the investment of their Supplemental Subaccount balances. To the
extent such investment funds are provided to Participants:
(a) each Participant shall be required to elect in
writing the manner and extent to which his Supplemental
Subaccount shall be invested in each of the available
investment funds; and
(b) such Participant's Supplemental Subaccount shall
be credited with income, gain or loss as though it had been
invested in the investment fund or funds as directed by that
Participant.
Except as may otherwise be communicated by the Administrator
to the Participants, the rules regarding the timing and manner of
electing investment funds (including changing elections or
transferring amounts from one investment fund to another) and of
allocating income, gains and losses to Supplemental Subaccounts
shall be the same as is set forth in the Qualified Plan from time
to time; provided, however, that the adjustments shall only be
required to be made on the Accounting Dates. Notwithstanding
anything in this Section 5.2 to the contrary, each Participant's
interest in his Supplemental Subaccount shall be unfunded,
neither the Company, the Administrator nor the Trustee of the
Arvin Industries, Inc. Employee Benefit Trust shall be under any
legal obligation to actually invest a Participant's Supplemental
Subaccount as directed by that Participant, and that Participant
shall have no right, title or interest in or to his Supplemental
Subaccount except as may otherwise be provided under the Arvin
Industries, Inc. Employee Benefit Trust.
ARTICLE VI
DISTRIBUTIONS
6.1. Distributions. All amounts credited to a Participant's
Supplemental Subaccount, including gains and losses credited in
accordance with Section 5.1 or Section 5.2 of the Plan, shall be
distributed to that Participant (or, in the event that
Participant's termination of employment is caused by his death,
to his beneficiary under the Qualified Plan) as soon as is
practicable in the calendar year immediately following the
calendar year during which occurred the termination of the
Participant's employment with the Company for any reason. The
manner of distribution shall be determined in accordance with the
Participant's Supplemental Salary Reduction Agreements.
6.2. Accelerated Distributions. Notwithstanding anything
contained in this Plan to the contrary, the Committee may, in its
sole and absolute discretion, direct an immediate distribution of
the amounts credited to a Participant's Supplemental Subaccount
if the Committee determines that such action is in the best
interest of the Company, the Participants and their
beneficiaries.
6.3 Financial Emergency. The Committee, at its sole discre
tion, may alter the timing or manner of payment of deferred
amounts in the event that the Participant establishes, to the
satisfaction of the Committee, severe financial hardship. In
such event, the Committee may --
(a) provide that all, or a portion of, the amount
previously deferred by the Participant immediately be
paid in a lump sum cash payment;
(b) provide that all, or a portion of, installments payable
over a period of time be paid in a lump sum; or
(c) provide for such-other installment payment schedules as
it deems appropriate under the circumstances;
as long as the amount distributed shall not be in excess of that
amount which is necessary for the Participant to meet the
financial hardship.
Severe financial hardship will be deemed to have occurred in
the event of the Participant's impending bankruptcy, a
dependent's long and serious illness, or other events of similar
magnitude. The Committee's decision in passing on the severe
financial hardship of the Participant and the manner in which, if
at all, the payment of deferred amounts shall be altered or
modified shall be final, conclusive, and not subject to appeal.
ARTICLE VII
ADMINISTRATION OF THE PLAN
7.1. Administrator. The Administrator shall be responsible
for the general operation and administration of the Plan and for
carrying out the provisions thereof.
7.2. General Powers of Administration. All provisions set
forth in the Qualified Plan with respect to the administrative
powers and duties of the Administrator, expenses of
administration, and procedures for filing claims shall also be
applicable with respect to this Plan. The Administrator shall be
entitled to rely conclusively upon all tables, valuations,
certificates, opinions and reports furnished by any actuary,
accountant, counsel or other person employed or engaged by the
Administrator with respect to this Plan or the Qualified Plan.
ARTICLE VIII
AMENDMENT OR TERMINATION
8.1. Amendment or Termination. The Company intends the Plan
to be permanent but reserve the right to amend or terminate the
Plan when, in the sole opinion of the Company, such amendment or
termination is advisable. Any such amendment or termination shall
be made pursuant to a resolution of the Board and shall be
effective as of the date of such resolution.
8.2. Effect of Amendment or Termination. No amendment or
termination of this Plan shall directly or indirectly reduce the
balance of any Supplemental Subaccount held hereunder as of the
effective date of such amendment or termination. Upon termination
of this Plan, distribution of amounts in each Supplemental
Subaccount shall be made to the Participant or his beneficiary in
the manner and at the time described in Article VI of the Plan.
No additional credits of Supplemental Salary Reduction
Contributions or Supplemental Company Matching Contributions
shall be made to the Supplemental Subaccount of a Participant
after termination of the Plan, but the Company shall continue to
credit gains and losses to each Supplemental Subaccount pursuant
to Section 5.1 or Section 5.2, until the balance of such
Supplemental Subaccount has been fully distributed to each
Participant or his beneficiary.
ARTICLE IX
GENERAL PROVISIONS
9.1. Participant's Rights Unsecured. The Plan at all times
shall be entirely unfunded and, except as provided under the
Arvin Industries, Inc. Employee Benefit Trust, no provision shall
at any time be made with respect to segregating any assets of the
Company for payment of any distributions hereunder. The right of
a Participant or his designated beneficiary to receive a
distribution hereunder shall be an unsecured claim against the
general assets of the Company, and neither the Participant nor
his designated beneficiary shall have any rights in or against
any specific assets of the Company. Except as provided under the
Arvin Industries, Inc. Employee Benefit Trust, all amounts
credited to the Supplemental Subaccount of a Participant shall
constitute general assets of the Company and may be disposed of
by the Company at such time and for such purposes as they may
deem appropriate.
9.2. General Conditions. Except as otherwise expressly
provided herein, all terms and conditions of the Qualified Plan
applicable to a Qualified Plan Salary Reduction Contribution or a
Qualified Plan Company Matching Contribution shall also be
applicable to a Supplemental Salary Reduction Contribution or a
Supplemental Company Matching Contribution to be made hereunder.
Any Qualified Plan Salary Reduction Contribution or Qualified
Plan Company Matching Contribution, or any other contributions to
be made under the Qualified Plan, shall be made solely in
accordance with the terms and conditions of the Qualified Plan
and nothing in this Plan shall operate or be construed in any way
to modify, amend or affect the terms and provisions of the
Qualified Plan.
9.3. No Guarantee of Benefits. Nothing contained in this
Plan shall constitute a guaranty by the Company or any other
person or entity that the assets of the Company will be
sufficient to pay any benefit hereunder.
9.4. No Enlargement of Employee Rights. No Participant shall
have any right to receive a distribution of contributions made
under this Plan except in accordance with the terms of the Plan.
Establishment of this Plan shall not be construed to give any
Participant the right to be retained in the service of the
Company.
9.5. Spendthrift Provision. No interest of any person or
entity in, or right to receive a distribution under, the Plan
shall be subject in any manner to sale, transfer, assignment,
pledge, attachment, garnishment, or other alienation or
encumbrance of any kind; nor may such interest or right to
receive a distribution be taken, either voluntarily or
involuntarily for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including
claims for alimony, support, separate maintenance and claims in
bankruptcy proceedings.
9.6. Applicable Law. Except to the extent preempted by the
Employee Retirement Income Security Act of 1974, as amended, the
Plan shall be construed and administered under the laws of the
State of Indiana.
9.7. Incapacity of Recipient. If any person entitled to a
distribution under the Plan is deemed by the Administrator to be
incapable of personally receiving and giving a valid receipt for
such payment, then, unless and until claim therefor shall have
been made by a duly appointed guardian or other legal
representative of such person, the Administrator may provide for
such payment or any part thereof to be made to any other person
or institution then contributing toward or providing for the care
and maintenance of such person. Any such payment shall be a
payment for the account of such person and a complete discharge
of any liability of the Company and the Plan therefor.
9.8. Corporate Successors. The Plan shall not be
automatically terminated by a transfer or sale of assets of the
Company or by the merger or consolidation of the Company into or
with any other corporation or other entity, but the Plan shall be
continued after such sale, merger or consolidation with respect
to that transferee, purchaser or successor entity only if and to
the extent that the transferee, purchaser or successor entity
agrees to continue the Plan. In the event that the Plan is not
continued by the transferee, purchaser or successor entity, then
the Plan shall terminate with respect to that transferee,
purchaser or successor entity, subject to the provisions of
Section 8.2.
9.9. Unclaimed Benefit. Each Participant shall keep the
Administrator informed of his current address and the current
address of his designated beneficiary. The Administrator shall
not be obligated to search for the whereabouts of any person. If
the location of a Participant is not made known to the
Administrator within three (3) years after the date on which
payment of the Participant's Supplemental Subaccount may first be
made, payment may be made as though the Participant had died at
the end of the three-year period. If, within one additional year
after such three-year period has elapsed, or, within three years
after the actual death of a Participant, the Administrator is
unable to locate any designated beneficiary of the Participant,
then the Company shall have no further obligation to pay any
benefit hereunder to such Participant or designated beneficiary
and such benefit shall be irrevocably forfeited.
9.10. Limitations on Liability. Notwithstanding any of
the preceding provisions of the Plan, neither the Company, the
Administrator, nor any individual acting as employee or agent of
either shall be liable to any Participant, former Participant,
beneficiary or other person for any claim, loss, liability or
expense incurred in connection with the Plan.
9.11. Construction. Words in the masculine gender shall
include the feminine and the singular shall include the plural,
and vice versa, unless qualified by the context. Any headings
used herein are included for ease of reference only, and are not
to be construed so as to alter the terms hereof.
IN WITNESS WHEREOF, the Company has adopted this amended and
restated Plan on this day of
, 1996 to be effective as of
January 1, 1997.
ARVIN INDUSTRIES, INC.
By
Its Chairman of the Compensation
Committee
Exhibit 10 (I)
EMPLOYMENT AGREEMENT
AGREEMENT by and between Arvin Industries, Inc., an Indiana
corporation (the "Company") and (the "Executive"),
dated as of the ___ day of _______, 1995.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and
its shareholders to assure that the Company will have the
continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to
encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending
Change of Control, and to provide the Executive with compensation
and benefits arrangements upon a Change of Control which ensure
that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this
Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section
1(b)) on which a Change of Control (as defined in Section 2)
occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior
to the date on which the Change of Control occurs, and if it
is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with
or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean
the date immediately prior to the date of such termination
of employment.
(b) The "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the third
anniversary of the date hereof; provided, however, that
commencing on the date one year after the date hereof, and
on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to
as the "Renewal Date"), unless previously terminated, the
Change of Control Period shall be automatically extended so
as to terminate three years from such Renewal Date, unless
at least 60 days prior to the Renewal Date the Company shall
give notice to the Executive that the Change of Control
Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to
vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i)
any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent
to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least
a majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to
continue the Executive in its employ, and the Executive hereby
agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, for the period commencing
on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the
Executive's position (including status, offices, titles
and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all
material respects with the most significant of those
held, exercised and assigned at any time during the
120-day period immediately preceding the Effective Date
and (B) the Executive's services shall be performed at
the location where the Executive was employed
immediately preceding the Effective Date or any office
or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business
hours to the business and affairs of the Company and,
to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder,
to use the Executive's reasonable best efforts to
perform faithfully and efficiently such
responsibilities. During the Employment Period it
shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so
long as such activities do not significantly interfere
with the performance of the Executive's
responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such
activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to
the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period,
the Executive shall receive an annual base salary
("Annual Base Salary"), which shall be paid at a
monthly rate, at least equal to twelve times the
highest monthly base salary paid or payable, including
any base salary which has been earned but deferred, to
the Executive by the Company and its affiliated
companies in respect of the twelve-month period
immediately preceding the month in which the Effective
Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months
after the last salary increase awarded to the Executive
prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As
used in this Agreement, the term "affiliated companies"
shall include any company controlled by, controlling or
under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal
year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to
the Executive's highest bonus under the Company's
annual cash bonus incentive plan or any comparable
bonus under any predecessor or successor plan, for the
last three full fiscal years prior to the Effective
Date (annualized in the event that the Executive was
not employed by the Company for the whole of such
fiscal year) (the "Recent Annual Bonus"). Each such
Annual Bonus shall be paid no later than the end of the
third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded,
unless the Executive shall elect to defer the receipt
of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans.
During the Employment Period, the Executive shall be
entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs
applicable generally to other peer executives of the
Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs
provide the Executive with incentive opportunities
(measured with respect to both regular and special
incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case,
less favorable, in the aggregate, than the most
favorable of those provided by the Company and its
affiliated companies for the Executive under such
plans, practices, policies and programs as in effect at
any time during the 120-day period immediately
preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time
after the Effective Date to other peer executives of
the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the
Employment Period, the Executive and/or the Executive's
family, as the case may be, shall be eligible for
participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies
(including, without limitation, medical, prescription,
dental, disability, employee life, group life,
accidental death and travel accident insurance plans
and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices,
policies and programs provide the Executive with
benefits which are less favorable, in the aggregate,
than the most favorable of such plans, practices,
policies and programs in effect for the Executive at
any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to
the Executive, those provided generally at any time
after the Effective Date to other peer executives of
the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable
policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive at
any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment
Period, the Executive shall be entitled to fringe
benefits, including, without limitation, tax and
financial planning services, payment of club dues, and,
if applicable, use of an automobile and payment of
related expenses, in accordance with the most favorable
plans, practices, programs and policies of the Company
and its affiliated companies in effect for the
Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to
an office or offices of a size and with furnishings and
other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the
most favorable of the foregoing provided to the
Executive by the Company and its affiliated companies
at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to
the Executive, as provided generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies.
(viii) Vacation. During the Employment Period,
the Executive shall be entitled to paid vacation in
accordance with the most favorable plans, policies,
programs and practices of the Company and its
affiliated companies as in effect for the Executive at
any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in
good faith that the Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with
the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the 30 days after
such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with
the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or
physical illness which is determined to be total and
permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's
legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's
duties with the Company or one of its affiliates (other
than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Executive
by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in
which the Board or Chief Executive Officer believes
that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in
illegal conduct or gross misconduct which is materially
and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission
was in the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief
Executive Officer or a senior officer of the Company or based
upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board), finding that, in
the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's
position (including status, offices, titles and
reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of
this Agreement, or any other action by the Company
which results in a diminution in such position,
authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4(b) of this
Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than as provided
in Section 4(a)(i)(B) hereof or the Company's requiring
the Executive to travel on Company business to a
substantially greater extent than required immediately
prior to the Effective Date;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination
of "Good Reason" made by the Executive shall be conclusive.
Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day
period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good
Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the
Company for Cause, or by the Executive for Good Reason,
shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the
specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination
date (which date shall be not more than thirty days after
the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such
fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means
(i) if the Executive's employment is terminated by the
Company for Cause, or by the Executive for Good Reason, the
date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall
be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or
the Disability Effective Date, as the case may be.
6. Obligations of the Company Upon Termination.
(a) Good Reason; Other Than for Cause, Death or
Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the
extent not theretofore paid, (2) the product of
(x) the higher of (I) the Recent Annual Bonus and
(II) the Annual Bonus paid or payable, including
any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year
consisting of less than twelve full months or
during which the Executive was employed for less
than twelve full months), for the most recently
completed fiscal year during the Employment
Period, if any (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of
days in the current fiscal year through the Date
of Termination, and the denominator of which is
365 and (3) any compensation previously deferred
by the Executive (together with any accrued
interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described
in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1)
three and (2) the sum of (x) the Executive's
Annual Base Salary and (y) the Highest Annual
Bonus; and
C. an amount equal to the excess of (a) the
actuarial equivalent of the benefit under the
Company's qualified defined benefit retirement
plan (the "Retirement Plan") (utilizing actuarial
assumptions no less favorable to the Executive
than those in effect under the Company's
Retirement Plan immediately prior to the Effective
Date), and any excess or supplemental retirement
plan in which the Executive participates
(together, the "SERP") which the Executive would
receive if the Executive's employment continued
for three years after the Date of Termination
assuming for this purpose that all accrued
benefits are fully vested, and, assuming that the
Executive's compensation in each of the three
years is that required by Section 4(b)(i) and
Section 4(b)(ii), over (b) the actuarial
equivalent of the Executive's actual benefit (paid
or payable), if any, under the Retirement Plan and
the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date
of Termination, or such longer period as may be
provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits
to the Executive and/or the Executive's family at least
equal to those which would have been provided to them
in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this
Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect
to other peer executives of the Company and its
affiliated companies and their families, provided,
however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or
other welfare benefits under another employer provided
plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such
other plan during such applicable period of
eligibility. For purposes of determining eligibility
(but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall
be considered to have remained employed until three
years after the Date of Termination and to have retired
on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with out placement
services the scope and provider of which shall be
selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to
the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice
or contract or agreement of the Company and its
affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If the Executive's employment is
terminated by reason of the Executive's death during the
Employment Period, this Agreement shall terminate without
further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination. With
respect to the provision of Other Benefits, the term Other
Benefits as utilized in this Section 6(b) shall include,
without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at
least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such
affiliated companies under such plans, programs, practices
and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more
favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's
death with respect to other peer executives of the Company
and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during
the Employment Period, this Agreement shall terminate
without further obligations to the Executive, other than for
payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in
this Section 6(c) shall include, and the Executive shall be
entitled after the Disability Effective Date to receive,
disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices
and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their
families at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and
their families.
(d) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause during
the Employment Period, this Agreement shall terminate
without further obligations to the Executive other than the
obligation to pay to the Executive (x) his Annual Base
Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive, and
(z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment
during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided
by the Company or any of its affiliated companies and for which
the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are
vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by
this Agreement.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment. The Company agrees
to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur
as a result of any contest (regardless of the outcome thereof) by
the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a
result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest
on any delayed payment at the applicable Federal rate provided
for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event
it shall be determined that any payment or distribution by
the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under
this Section 9) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section
9(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Executive,
after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at
least $50,000 (taking into account both income taxes and any
Excise Tax) as compared to the net after-tax proceeds to the
Executive resulting from an elimination of the Gross-Up
Payment and a reduction of the Payments, in the aggregate,
to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced
Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required
and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be
made by Price Waterhouse or such other certified public
accounting firm as may be designated by the Executive (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized
accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to
as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section
9, shall be paid by the Company to the Executive within five
days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive.
(c) The Executive shall notify the Company in writing
of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably
request in writing from time to time, including,
without limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), the
Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c))
promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive
shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior
to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required
to be paid.
10. Confidential Information. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not
be assignable by the Executive otherwise than by will or the
laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business
and/or assets of the Company to assume expressly and agree
to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if
no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana, without
reference to principles of conflict of laws. The captions
of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to
the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company:
One Noblitt Plaza, Box 3000
Columbus, Indiana 47202-3000
Attention: General Counsel
or to such other address as either party shall have
furnished to the other in writing in accordance herewith.
Notice and communications shall be effective when actually
received by the addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign
taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement
or the failure to assert any right the Executive or the
Company may have hereunder, including, without limitation,
the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written
agreement between the Executive and the Company, the
employment of the Executive by the Company is "at will" and,
subject to Section 1(a) hereof, prior to the Effective Date,
the Executive's employment and/or this Agreement may be
terminated by either the Executive or the Company at any
time prior to the Effective Date, in which case the
Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall
supersede any other agreement between the parties with
respect to the subject matter hereof, including without
limitation, the termination of the employment agreement
between the Executive and the Company dated June 17, 1993.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its
Board of Directors, the Company has caused these presents to be
executed in its name on its behalf, all as of the day and year
first above written.
-----------------------
[Executive]
ARVIN INDUSTRIES, INC.
By -----------------------
<TABLE>
Exhibit 11
Arvin Industries, Inc.
Computation of Earnings Per Share of Common Stock (Unaudited)
(amounts in millions except per share amounts)
<CAPTION>
Basic Earnings Per Share 1997 1996 1995
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Income from continuing operations $ 65.0 $ 47.1 $ 17.9
Income from discontinued operations, net of tax 1.6 -- 1.1
---- ---- ----
Net income to common stock $ 66.6 $ 47.1 $ 19.0
==== ==== ====
Average shares of common stock outstanding 23.0 22.4 22.3
==== ==== ====
Earnings per average share of common stock:
Continuing operations $ 2.83 $ 2.10 $ .80
Discontinued operations .07 -- .05
---- ---- ----
$ 2.90 $ 2.10 $ .85
==== ==== ====
Diluted Earnings Per Share:
- ---------------------------
Income from continuing operations $ 65.0 $ 47.1 $ 17.9
Income from discontinued operations, net of tax 1.6 -- 1.1
---- ---- ----
Net income 66.6 47.1 19.0
Add back 7.5% convertible debentures' after tax interest
expense (if dilutive) -- 2.9 --
---- ---- ----
Net income to common stock assuming maximum dilution $ 66.6 $ 50.0 $ 19.0
==== ==== ====
Average shares of common stock outstanding 23.0 22.4 22.3
Incremental common shares applicable to common stock
options based on the average market price during the .4 .1 .1
period
Average common shares issuable assuming conversion of 7.5%
convertible subordinated debentures (if dilutive) -- 2.1 --
---- ---- ----
Average common shares assuming maximum dilution 23.4 24.6 22.4
==== ==== ====
Diluted earnings per average share assuming
maximum dilution:
Continuing operations $ 2.78 $ 2.03 $ .80
Discontinued operations .07 -- .05
---- ---- ----
$ 2.85 $ 2.03 $ .85
==== ==== ====
</TABLE>
<TABLE>
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges (Unaudited)
(Dollars in millions)
<CAPTION>
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Profit before tax $ 97.9 $ 64.1 $ 29.4 $ 38.8 $ 56.8
Income (Loss) of 50% owned
subsidiaries 2.9 1.3 (0.8) 0.3 2.0
Dividends received from less
than 50% owned subsidiaries 1.2 2.7 2.6 1.6 1.3
Interest expense 42.6 45.4 44.9 44.9 37.4
25% of rent expense 4.1 3.9 3.9 3.2 3.2
----- ----- ----- ----- -----
Total fixed charges 46.7 49.3 48.8 48.1 40.6
Pre-tax earnings required to
cover preferred dividends -- -- -- -- --
----- ----- ----- ----- -----
Total fixed charges and
preferred dividends 46.7 49.3 48.8 48.1 40.6
===== ===== ===== ===== =====
Earnings before income taxes and
fixed charges $ 148.5 $ 117.1 $ 79.5 $ 88.8 $ 100.7
===== ===== ===== ===== =====
Ratio of earnings to fixed
charges 3.2 2.4 1.6 1.8 2.5
Ratio of earnings to fixed
charges and preferred dividends
3.2 2.4 1.6 1.8 2.5
<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, capital securities
and capitalized interest), amortization of debt expense and the
percentage of rental expense on operating leases deemed representative
of the interest factor.
Note 2: The ratios of earnings to fixed charges, before the restructuring and
special charges for 1997, 1996, 1995 and 1994 were 3.3, 2.5, 1.9 and
2.4, respectively.
</TABLE>
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 28, 1997. 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
- ------------- ---------------
Maremont Corporation Delaware
Maremont Exhaust Products, Inc. Delaware
Gabriel Europe, Inc. Delaware
Gabriel Ride Control Products, Inc. Delaware
Roll Coater, Inc. Indiana
Arvin International Holdings, Inc. Delaware
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
Way Assauto S.r.l. Italy
Autocomponents Suspension S.r.l. Italy
ANSA Marmitte S.p.A. Italy
Arvin de Mexico S.A. de C.V. Mexico
Arvin-Exhaust B.V. The Netherlands
Arvin International Holland B.V. The Netherlands
Timax Exhaust Systems Holding The Netherlands
Arvin RCI B.V. The Netherlands
Arvin-Exhaust S.A. Spain
A. P. Amortiguadores, S.A. Spain
Arvin France S.A. France
Financiere ROSI S.A. France
Arvin International U.K., Ltd. 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
Exhibit 23(A)
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (No. 333-35529, No. 333-
35531, No. 333-27081, No. 33-50371, No. 33-50381, No. 33-21717,
No. 33-19049, No. 33-04407, No. 2-97395, No. 2-78417, No. 33-
40438 and No. 333-16833) of Arvin Industries, Inc. of our report
dated January 24, 1998 appearing in this Form 10-K.
Price Waterhouse LLP
/s/ Price Waterhouse LLP
Indianapolis, Indiana
March 16, 1998
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 24, 1998 appearing in this Form
10-K.
Price Waterhouse LLP
/s/ Price Waterhouse LLP
Indianapolis, Indiana
March 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial
information extracted from Form 10-K for the
period ended December 28, 1997 and is
qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Dec-28-1997
<PERIOD-TYPE> 12-MOS
<CASH> 108,900
<SECURITIES> 0
<RECEIVABLES> 360,200
<ALLOWANCES> (5,600)
<INVENTORY> 124,500
<CURRENT-ASSETS> 669,400
<PP&E> 1,133,500
<DEPRECIATION> 632,100
<TOTAL-ASSETS> 1,447,100
<CURRENT-LIABILITIES> 521,200
<BONDS> 222,300
0
0
<COMMON> 65,600
<OTHER-SE> 419,600
<TOTAL-LIABILITY-AND-EQUITY> 1,447,100
<SALES> 2,349,000
<TOTAL-REVENUES> 2,349,000
<CGS> 2,014,900
<TOTAL-COSTS> 2,180,500
<OTHER-EXPENSES> 12,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,500
<INCOME-PRETAX> 97,900
<INCOME-TAX> 34,200
<INCOME-CONTINUING> 65,000
<DISCONTINUED> 1,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,600
<EPS-PRIMARY> 2.90
<EPS-DILUTED> 2.85
</TABLE>
