<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Mark one
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the
Quarterly period ended March 29, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 1-302
-----
ARVIN INDUSTRIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Indiana 35-0550190
---------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Noblitt Plaza, Box 3000
Columbus, IN 47202-3000
- -------------------------------- --------------
(Address of principal executive (Zip Code)
offices)
812-379-3000
---------------
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of March 29, 1998, the Registrant had outstanding 24,549,808
Common Shares (including employee stock benefit trust shares and
excluding treasury shares), $2.50 par value.
1
<PAGE>
Table of Contents
--------------------
Part I. Financial Information Page
- --------------------------------- No.
Item 1. Financial Statements
Consolidated Statement of Operations for the
Three Months Ended March 29, 1998 and
March 30, 1997 3
Consolidated Statement of Financial Condition
at March 29, 1998 and December 28, 1997 4
Consolidated Statement of Cash Flows for the
Three Months Ended March 29, 1998 and
March 30, 1997 5
Condensed Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Part II. Other Information
- -----------------------------
Item 6. Exhibits and Reports on Form 8K 11
2
<PAGE>
Part I
Item 1: Financial Statements
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Operations
(Dollars in millions, except per share amounts)
Unaudited
<CAPTION>
Three Months Ended
----------------------
March 29, March 30,
1998 1997
------- -------
<S> <C> <C>
Net Sales $ 593.4 $ 564.0
Costs and Expenses:
Cost of goods sold 512.5 491.3
Selling, operating general and administrative 44.3 36.6
Corporate general and administrative 4.3 5.8
Interest expense 8.7 9.6
Other expense, net 2.7 1.7
------- -------
572.5 545.0
------- -------
Earnings Before Income Taxes 20.9 19.0
Income taxes (7.6) (5.7)
Minority share of income (.3) (1.7)
Equity income of affiliates .5 1.4
------- -------
Net Earnings $ 13.5 $ 13.0
======= =======
Earnings Per Common Share
Basic $ .57 $ .57
Diluted $ .56 $ .57
Average Common Shares Outstanding (000's)
Basic 23,530 22,655
Diluted 24,089 22,836
Dividends Per Common Share $ .20 $ .19
<FN>
See notes to consolidated financial statements.
3
<PAGE>
</TABLE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Financial Condition
(Dollars in millions, except per share amounts)
Unaudited
<CAPTION>
As of As of
3/29/98 12/28/97
--------- ---------
<S> <C> <C>
Assets
- ------
Current Assets:
Cash and cash equivalents $ 108.1 $ 108.9
Receivables, net of allowances of $5.7 at
March 29, 1998 and $5.6 at December 28, 1997 457.2 354.6
Inventories 124.9 124.5
Other current assets 85.2 81.4
--------- ---------
Total current assets 775.4 669.4
--------- ---------
Non-Current Assets:
Property, plant and equipment:
Land, buildings, machinery & equipment 1,137.0 1,133.5
Less accumulated depreciation 644.5 632.1
--------- ---------
492.5 501.4
Goodwill, net of amortization of $37.5 at
March 29, 1997 and $36.5 at December 28, 1997 165.1 165.9
Investment in affiliates 53.0 53.9
Other assets 55.6 56.5
--------- ---------
Total non-current assets 766.2 777.7
--------- ---------
$ 1,541.6 $ 1,447.1
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Short-term debt $ 35.3 $ 55.6
Accounts payable 317.3 303.3
Employee related costs 52.8 57.6
Accrued expenses 108.9 104.7
--------- ---------
Total current liabilities 514.3 521.2
--------- ---------
Long-term employee benefits 67.2 66.7
Other long-term liabilities 40.5 40.4
Long-term debt 320.6 222.3
Minority interest 5.8 12.4
Company-obligated mandatorily redeemable
preferred capital securities of
subsidiary trust holding solely
subordinated debentures of the company 98.9 98.9
Shareholders' Equity:
Common shares ($2.50 par value) 65.6 65.6
Capital in excess of par value 249.5 248.8
Retained earnings 283.9 275.1
Cumulative translation adjustment (46.1) (41.8)
Employee stock benefit trust (21.5) (25.6)
Common shares held in treasury (at cost) (37.1) (36.9)
--------- ---------
Total shareholders' equity 494.3 485.2
--------- ---------
$ 1,541.6 $ 1,447.1
========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
Arvin Industries, Inc.
Consolidated Statement of Cash Flows
(Dollars in millions)
Unaudited
<CAPTION>
Three Months Ended
------------------
March 29, March 30,
1998 1997 (1)
----- -----
<S> <C> <C>
Operating Activities:
Net earnings $ 13.5 $ 13.0
Adjustments to reconcile net earnings to
net cash used for operating activities:
Depreciation 20.9 21.0
Amortization 1.5 1.6
Minority interest .3 1.7
Other 5.7 .2
Changes in operating assets and liabilities:
Receivables (67.2) (48.9)
Inventories and other current assets (6.2) 1.0
Accounts payable 18.2 11.6
Other accrued expenses (5.0) 3.1
Income taxes payable and deferred taxes 5.6 (9.4)
----- -----
Net Cash Used for Operating Activities (12.7) (5.1)
----- -----
Investing Activities:
Purchase of property, plant and equipment (17.1) (15.8)
Proceeds from sale of property, plant
and equipment 1.0 2.3
Investments in affiliates (.3) (7.0)
Business acquisitions, net of cash acquired (8.7) (1.8)
Cash proceeds from sale of business, net
of cash balance of business sold -- 3.2
Other 1.3 11.3
----- -----
Net Cash Used for Investing Activities (23.8) (7.8)
----- -----
Financing Activities:
Change in short-term debt, net (.9) (42.5)
Proceeds from long-term borrowings 99.9 99.5
Principal payments on long-term debt (20.4) (2.3)
Trade receivable financing (40.0) --
Dividends paid (4.7) (4.9)
Other 2.7 (4.2)
----- -----
Net Cash Provided by Financing Activities 36.6 45.6
----- -----
Cash and Cash Equivalents:
Effect of exchange rate changes on cash (.9) (.9)
----- -----
Net increase (decrease) (.8) 31.8
Beginning of the year 108.9 39.4
----- -----
End of the period $ 108.1 $ 71.2
===== =====
<FN>
(1) Certain amounts have been reclassified to conform
with current year presentation.
<FN>
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
ARVIN INDUSTRIES, INC.
- -------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------
Note 1. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements and
should be read in conjunction with the financial statements and
notes thereto appearing in the Company's annual report on Form 10-
K for the year ended December 28, 1997.
In the opinion of management, all adjustments considered
necessary for a fair presentation of the results of operations
for the periods reported have been included and all such
adjustments are of a normal recurring nature.
The results of operations for the three months ended March 29,
1998 are not necessarily indicative of the results to be expected
for the full year ending January 3, 1999.
Note 2. Basic earnings per share are based on the weighted
average number of common shares outstanding during the period.
Diluted earnings per share are based on the weighted average
number of common and common equivalent shares (principally stock
option related) outstanding during the period. There were options
outstanding as of March 29, 1998 and March 30, 1997 which had a
dilutive effect of 559,000 and 181,000 common shares,
respectively. Arvin has adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings per Share" and
has restated prior period earnings per share accordingly.
Note 3. 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. Arvin
expects that any sum it may be required to pay in connection with
legal and environmental matters in excess of the amounts recorded
6
<PAGE>
will not have a material adverse effect on its results of
operations, cash flows or financial condition.
Note 4. On March 23, 1998 Arvin issued $100 million of 6.75
percent notes, maturing on March 15, 2008. Proceeds from this
issue were or will be used for the repayment of $45 million of
9.8 to 9.98 percent medium-term notes due in 1998 and for general
corporate purposes, including working capital and capital
expenditures.
Note 5. Comprehensive income (loss) for the first quarter of
1998 and 1997 of $9.2 and $(3.0) million, respectively, includes
reported net income adjusted by the non-cash effect of changes in
the cumulative translation adjustment.
Note 6. The Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information," at the beginning of fiscal
1998. Following the provisions of SFAS 131, Arvin is reporting
segment sales and operating income in the same format reviewed by
the Company's management (the "management approach"). Arvin has
two reportable segments: Original Equipment ("OE") and
Replacement. The OE segment is comprised of those business units
that deal primarily with Original Equipment Manufacturers
("OEM's"). Business units in the OE segment also provide the
OEM's with replacement parts, either as dealer service parts or
as part of manufacturers' recall or warranty programs, which
typically accounts for 5 -10 percent of OE segment sales. The
Replacement segment is comprised of those business units that
deal primarily with Replacement customers, including wholesale
distributors, retailers, and installers. Sales and operating
income from business units whose primary focus is other than the
manufacturing of automotive exhaust, ride, or motion control
products are reported as Other. There was no change in the
Company's reported sales as a result of the restatement of prior
results for SFAS 131. Operating income, reported under the
management approach, includes the gains and losses reported by
the Company's equity subsidiaries.
7
<PAGE>
Segment Information
(Dollars in millions)
3/29/98 3/30/97
------- -------
Net Sales:
- ----------
Original equipment $ 407.0 $ 401.5
Replacement 160.2 138.0
Other 26.2 24.5
------- -------
Net sales $ 593.4 $ 564.0
======= =======
Operating Income:
- ------------------
Original equipment $ 22.2 $ 21.2
Replacement 13.5 9.9
Other (2.3) 5.5
------- -------
Operating income 33.4 36.6
Less equity income of affiliates (.5) (1.4)
Interest expense (8.7) (9.6)
Corporate general and (4.3) (5.8)
administrative
Other income (expense) 1.0 (.8)
------- -------
Earnings before income taxes $ 20.9 $ 19.0
======= =======
3/29/98 12/28/97
-------- --------
Assets:
- ---------
Original equipment $ 796.8 $ 763.3
Replacement 330.0 307.9
Other 52.5 55.5
-------- --------
Total operating assets 1,179.3 1,126.7
Corporate and other 362.3 320.4
-------- --------
Total assets $ 1,541.6 $ 1,447.1
======== ========
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Financial Review
(Dollar amounts in tables in millions)
Overview of Results of Operations
First Quarter First Quarter
Net Sales by Segment 1998 1997
- --------------------- -------------- --------------
Original Equipment $407.0 69% $401.5 71%
Replacement 160.2 27 138.0 25
Other 26.2 4 24.5 4
------ ---- ------ -----
Total $593.4 100% $564.0 100%
====== ==== ====== =====
Operating Income by First Quarter First Quarter
Segment 1998 1997
- ------------------------- --------------- -------------
Original Equipment $22.2 66% $21.2 58%
Replacement 13.5 40 9.9 27
Other (2.3) (6) 5.5 15
------ ---- ------ ----
Total $33.4 100% $36.6 100%
====== ==== ====== ====
Automotive Original Equipment ("OE"): Sales in the OE segment of
$407.0 million for the quarter ended March 29, 1998 were one
percent higher than OE sales for the same quarter of 1997.
Market forces in the Company's primary markets of Europe and
North America were mixed. In the U.S. and Canada, car and light
truck production decreased three percent from the first quarter
of 1997. New car registrations in Europe improved 12 percent as
compared to the first quarter of 1997. Increased volume in
ongoing operations provided $15.5 million of additional sales.
The negative effect of a strong dollar on the translation of the
Company's non-U.S. OE sales was $11.7 million. Consolidated OE
sales increased four percent on a constant dollar basis.
Improved product mix and the effect of prior year business
acquisitions offset selective price concessions, which averaged
less than one percent of OE sales.
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.
9
<PAGE>
OE operating income increased $1.0 million or five percent for
the quarter. The 1997 first quarter operating income included
$1.1 million of non-recurring charges. Foreign currency
translation was a modest negative factor in the first quarter
of 1998.
Automotive Replacement ("Replacement"): Sales in the replacement
segment of $160.2 million for the quarter ended March 29, 1998
increased 16 percent over the first quarter of 1997. The Company's
1997 acquisition of a controlling interest in TESH accounted for
80 percent of the sales increase. The remaining increase in
sales was primarily a result of pricing.
Operating income for the replacement market increased $3.6
million during the quarter to $13.5 million. The increase was
primarily the result of improved pricing. Reduced costs to
obtain new business also contributed to the current quarter's
increase. Material price decreases offset labor inflation. The
strong U.S. dollar had little impact on the results of the
Replacement segment.
Other: Other sales increased $1.7 million as a result of
favorable mix. Operating income decreased $7.8 million. The
decrease was primarily related to non-recurring gains recorded in
1997 related to the sale of certain leased assets and an
increase in current year reserves for environmental issues
related to properties formerly held under lease.
Corporate General and Administrative expenses decreased $1.5
million in the first quarter of 1998. The decrease was primarily
attributable to expenditures for employee costs and professional
services.
Interest Expense decreased 9 percent in the first quarter of
1998, when compared to the first quarter of 1997, as a result of
a lower average interest rate and lower average outstanding
interest-bearing liabilities.
Other Expense, net increased $1.0 million in the first quarter
1998. A $2.8 million increase in environmental and legal
reserves in 1998 and a first quarter 1997 gain on capital
transactions of $2.2 million were offset by a variety of
insignificant items.
Financial Condition
Liquidity: During the first quarter of 1998, accounts receivable
increased by approximately 29 percent and accounts payable
increased five percent. The seasonal increase in March over
December sales, coupled with a $40 million reduction of trade
receivable financing, accounted for the increases.
10
<PAGE>
Key elements of the Consolidated Statement of Cash Flows were:
First quarter
1998 1997
----- -----
Net Cash Used for Operating
Activities (12.7) (5.1)
Net Cash Used for Investing
Activities (23.8) (7.8)
Net Cash Provided by Financing
Activities 36.6 45.6
Investing cash flows include $8.7 million for the purchase of the
remaining shares of Autocomponents and Way Assauto in the first
quarter of 1998. Arvin expects to further invest in the
Company's German OE affiliate during 1998. Such investment is
expected to be funded from cash on hand and internally generated
funds.
Financing cash flows include $99 million proceeds from 6.75
percent Notes due in 2008, $20 million of which was used for debt
retirement as more fully described in Note 4 to the Consolidated
Financial Statements. Financing cash flows also include Arvin's
quarterly dividend to shareholders, which was increased five
percent during 1997 from 19 cents to 20 cents.
Capital Resources: Based on the Company's projected cash flow
from operations and existing investments and financing credit
facility arrangements, management believes that sufficient
liquidity is available to meet anticipated capital and dividend
requirements over the foreseeable future.
The Company expects increased levels of capital expenditures in
1998 to support new business requirements and process
improvements. Planned capital expenditures for 1998 are adequate
for normal growth and replacement and are consistent with
projections for future sales and earnings. Near-term
expenditures are expected to be funded from cash on hand and
internally generated funds.
Hedging: The Company uses derivative financial instruments from
time-to-time to hedge certain financial and operating
transactions denominated in currencies other than functional
currencies. The Company believes that adequate controls are in
place to monitor these activities which are not financially
material.
Legal/Environmental Matters: The Company 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
11
<PAGE>
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. 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 information and statements included or implied are
forward looking and involve certain risks and uncertainties that
could cause actual results to differ materially from those
expressed or implied by these statements. These forward-looking
statements are identified by their use of terms and phrases such
as "expected," "expect," "should," "estimated earnings,"
"anticipate," and "believe." Information about potential factors
identified by the Company which would affect the actual financial
results are included in the Company's Form 8-K, filed January 3,
1997 with the SEC.
Part II
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
- -------------
11 Computation of Earnings Per Share filed herewith as Exhibit 11
27 Financial Data Schedule filed herewith as Exhibit 27
b. Reports Filed on Form 8-K
- ------------------------------
Current report on Form 8-K dated March 18, 1998
Items 5 and 7 reported
The Registrant filed with the Securities and Exchange Commission
a Prospectus Supplement and related Prospectus dated March 18,
1998 regarding an offering of $100,000,000 of its 6.75 percent
Notes due March 15, 2008 that have been registered under the
Securities Act of 1933 on Form S-3 (No. 33-53087). A copy of
the form of 6.75 percent Notes due March 15, 2008 is attached to
the above mentioned 8-K as Exhibit 4. The terms of the offering
of such 6.75 percent Notes due March 15, 2008 were established in
an Underwriting Agreement, dated March 18, 1998, among the
Registrant, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Lehman Brothers Inc. (the "Underwriting
Agreement"). A copy of the Underwriting Agreement is attached
to the above mentioned 8-K as Exhibit 1.
12
<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/ Richard A. Smith
____________________________________
Richard A. Smith
Vice President-Finance & Chief
Financial Officer
by: /s/ William M. Lowe, Jr.
____________________________________
William M. Lowe, Jr.
Vice President-Financial Operations
(Chief Accounting Officer)
Date: May 1, 1998
<PAGE>
<TABLE>
Exhibit 11
Arvin Industries, Inc.
Computation of Earnings Per Share of Common Stock (Unaudited)
(amounts in millions except per share amounts)
<CAPTION>
March 29, March 30,
1998 1997
--------- ---------
<S> <C> <C>
Basic Earnings Per Share
- ------------------------
Net income to common stock $ 13.5 $ 13.0
========= =========
Average shares of common stock outstanding 23.5 22.7
========= =========
Earnings per average share of common stock $ .57 $ .57
========= =========
Diluted Earnings Per Share:
- ---------------------------
Net income to common stock assuming
maximum dilution $ 13.5 $ 13.0
========= =========
Average shares of common stock outstanding 23.5 22.7
Incremental common shares applicable to
common stock options based on the
average market price during the period .6 .1
--------- ---------
Average common shares assuming
maximum dilution 24.1 22.8
========= =========
Diluted earnings per average share assuming
maximum dilution $ .56 $ .57
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary
financial information extracted from
Form 10-Q for the period ended March
29, 1998 and is qualified in its
entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<FISCAL-YEAR-END> Jan-03-1999
<PERIOD-START> Dec-29-1997
<PERIOD-END> Mar-29-1998
<PERIOD-TYPE> 3-MOS
<CASH> 108,100
<SECURITIES> 0
<RECEIVABLES> 462,900
<ALLOWANCES> 5,700
<INVENTORY> 124,900
<CURRENT-ASSETS> 85,200
<PP&E> 1,137,000
<DEPRECIATION> 644,500
<TOTAL-ASSETS> 1,541,600
<CURRENT-LIABILITIES> 514,300
<BONDS> 300,300
98,900
0
<COMMON> 65,600
<OTHER-SE> 428,700
<TOTAL-LIABILITY-AND-EQUITY> 1,541,600
<SALES> 593,400
<TOTAL-REVENUES> 593,400
<CGS> 512,500
<TOTAL-COSTS> 556,800
<OTHER-EXPENSES> 2,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,700
<INCOME-PRETAX> 20,900
<INCOME-TAX> 7,600
<INCOME-CONTINUING> 13,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,500
<EPS-PRIMARY> .57
<EPS-DILUTED> .56
</TABLE>
