ArvinMeritor Reports Second-Quarter Fiscal Year 2009 Results
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TROY, Mich., May 5, 2009: ArvinMeritor, Inc. today reported financial results for its second fiscal quarter ended March 31, 2009.
Quarterly Highlights
-- Sales of $1.1 billion, down approximately $671 million, or 38 percent,
from the same period last year (down 32 percent on a constant currency
basis).
-- On a GAAP basis, net loss from continuing operations was $52 million
or $0.72 per diluted share, compared to net income from continuing
operations of $24 million or $0.33 per diluted share in the same
period last year.
-- Loss from continuing operations, before special items, of $9 million,
or $0.12 per diluted share, compared to income from continuing
operations, before special items, of $27 million, or $0.37 per diluted
share in the same period last year.
-- Cash outflow from operations was $102 million in the second quarter of
fiscal year 2009. Excluding reductions in sales of receivables, cash
flow was positive $77 million resulting from reductions in working
capital and benefits of cost reduction actions.
-- Free cash outflow (cash outflow from operations less capital
expenditures) of $138 million in the second quarter of fiscal year
2009 compared to positive free cash flow of $134 million in the same
period last year.
"We are proud of the strong performance from our global operations teams despite continued low volumes in the commercial and light vehicle markets," said Chip McClure, chairman, CEO and president. "While revenues are down in the OE light vehicle, truck and trailer businesses, compared to the first quarter, we are reporting more favorable earnings due to a continued focus on cost reduction efforts and strong performance from our specialty and aftermarket groups."
Second-Quarter Fiscal Year 2009 Results
For the second quarter of fiscal year 2009, ArvinMeritor posted sales from continuing operations of $1.1 billion, a decrease of approximately 38 percent from the same period last year. This decrease is primarily due to significantly lower production volumes in most original equipment markets globally.
EBITDA, before special items, was $36 million, down $68 million from the same period last year. The unfavorable impact of lower sales on EBITDA was partially offset by aggressive cost reduction efforts and demand for specialty and aftermarket products, driven by the company's military contracts and expanding remanufacturing business. Also impacting EBITDA in the second quarter of fiscal year 2009 was a favorable one-time adjustment of $12 million resulting from the elimination of substantially all variable incentive compensation.
Loss from continuing operations, before special items, was $9 million, or $0.12 per diluted share, compared to income from continuing operations, before special items of $27 million, or $0.37 per diluted share, in the same period last year. Special items for the quarter primarily reflect $56 million of pre-tax restructuring charges.
Commercial vehicle sales were $739 million, down 38 percent from the same period last year. EBITDA, before special items, for Commercial Vehicle Systems was $53 million for the quarter, down 37 percent from the second quarter of fiscal year 2008, primarily due to lower sales. However, compared to the company's first quarter, EBITDA, before special items, was higher despite sales being down 23 percent. This reflects the impact of our cost reduction actions as well as a favorable mix of specialty and aftermarket products.
Cost-Reduction Actions
During the first half of fiscal year 2009, the company executed various actions to reduce costs and manage cash during these difficult economic times. These actions are expected to result in savings of approximately $430 million on an annual basis, or $311 million for fiscal year 2009. Cost reduction actions include the elimination of the Light Vehicle Systems (LVS) divisional organization, temporary or permanent reduction of approximately 3,000 employees globally, salary reductions, suspension of annual salary increases, elimination of the 401-K match, extended plant shutdowns across the company's global operations, the elimination of all non-essential discretionary spending and savings driven by the Performance Plus program.
Light Vehicle Systems Update
In January, the company announced that difficulties in the credit markets and continued volume weakness in most markets prevented the sale of Body and Chassis as one entity at an acceptable value. Therefore, the company has remained intensely focused on managing both the Body Systems and Chassis businesses for maximum cost efficiencies.
EBITDA, before special items, for LVS was negative $13 million for the quarter, compared to negative $35 million in the first quarter. Improvements in labor and burden, restructuring initiatives, pricing adjustments, contract renegotiations and strong aftermarket sales contributed to stronger performance this quarter. Body Systems has also been awarded new business expected to be valued at more than $15 million of annual sales in China, $60 million of annual sales in North America (of which 80 percent is with non-U.S. companies) and more than $47 million of annual sales in Europe. In total, we believe these business wins represent significant sales over the life of the programs and should enhance the value of this business.
In addition, the company continues to aggressively pursue exit strategies for its Chassis businesses. ArvinMeritor anticipates finalizing the first transaction for a significant unit of Chassis in the near future.
Impact of Chrysler Bankruptcy
As of April 29, ArvinMeritor had $7 million of outstanding receivables subject to Chrysler's U.S. bankruptcy proceedings. Of that amount, only $3 million are expected to be outside of administrative claim status. Management has determined that if some or all of these receivables are ultimately not collectible, the impact on the company's second-quarter results would not be material.
ArvinMeritor will be impacted by Chrysler's announcement to idle its facilities during the bankruptcy process. The company anticipates a 30-60 day shutdown to have a negative impact on EBITDA in the range of $2 million to $5 million.
Liquidity
The ArvinMeritor management team remains focused on managing the business for maximum liquidity. At the end of the second quarter, the company was in compliance with all covenants in our senior secured credit facility and the U.S. securitization facility. It is possible that the company may need amendments or waivers to these facilities before the end of the 2009 fiscal year in order to increase the flexibility afforded to ArvinMeritor through the senior secured debt-to-EBITDA covenants. If such amendments or waivers are not needed by the end of the third fiscal quarter, it is increasingly likely that they will be needed on Sept. 30, 2009. If amendments or waivers are needed and not obtained, the company would be in violation of the debt to EBITDA covenant and the lenders would have the right to accelerate the obligations.
Even with amendments or waivers to the company's senior secured credit facility and the U.S. securitization facility, it may be necessary to pursue additional liquidity enhancing actions, which are not entirely within the company's control, including exploring asset sales or obtaining additional external sources of liquidity.
Outlook
While current market conditions remain depressed, North America and South America are showing signs of stabilization, and certain markets in Asia are indicating slight signs of improvement, offsetting continued declines in Europe.
For the third quarter of fiscal year 2009 (compared to the second fiscal quarter of 2009), the company anticipates:
-- Revenue to be about flat
-- Loss per share, before special items, to be greater
-- Free cash flow, before reductions in sales of receivables, to be
positive
-- Total free cash flow to be slightly negative
"ArvinMeritor was proactive in taking aggressive steps to preserve liquidity through this downturn and continues to be diligent in maintaining all of the actions put into place in the past six months," said McClure. "We will continue to operate with that same rigor, while maintaining a constant focus on the company's financial position. We anticipate that we will begin to see positive signs of improvement in some markets during the second half of this year."
