ArvinMeritor Reports Fourth-Quarter and Fiscal Year 2003 Results
TROY, Mich., Nov. 13, 2003 -- ArvinMeritor, Inc. today reported sales of $2.0 billion and net income of $33 million, or $0.48 per diluted share, for its fourth fiscal quarter ended Sept. 30, 2003, compared to last year's fourth-quarter net income of $41 million, or $0.61 per diluted share. Net income for the fourth quarter of fiscal year 2003 included a charge for the cumulative effect of a change in accounting principle due to the adoption of FIN 46, "Consolidation of Variable Interest Entities," of $4 million, or $0.06 per diluted share.
Sales increased $231 million, or 13 percent, as compared to last year's fourth quarter. Excluding the effect of currency, and acquisitions and divestitures, sales would have been lower by one percent. Sales declined in North America and Europe by three percent, but were up by more than 20 percent in the rest of the world, driven by sales growth in the Asia/Pacific region. Operating income for the fourth quarter of fiscal year 2003 was $76 million, compared to $91 million for the same period last year.
ArvinMeritor Chairman and Chief Executive Officer Larry Yost said, "We are responding to the current automotive market conditions by aggressively implementing actions to improve the profitability of our business, including leveraging our scale by rationalizing facilities, further restructuring and workforce consolidation; focusing on global sourcing initiatives; and reinforcing quality programs and continuous improvement performance systems throughout the organization."
Specific business segment financial results include:
* Light Vehicle Systems (LVS) sales were $1,093 million, up 26 percent from the fourth quarter of fiscal year 2002. This increase was almost entirely due to foreign currency translation resulting from a stronger euro and the acquisition of Zeuna Starker. Operating income in the fourth quarter of fiscal year 2003 was favorably impacted by the $20-million gain on the previously announced sale of the exhaust tube manufacturing facility. This was offset by higher new product launch and steel costs of $10 million and a pre-tax charge of $11 million related to account reconciliations and information system implementation issues in a facility in Mexico, of which $6 million related to prior fiscal years. Management, after consulting with its independent auditors and outside counsel, has determined that the amount related to prior fiscal years is not material. LVS also recorded restructuring costs in this year's fourth fiscal quarter of $5 million associated with previously announced programs.
Our LVS business continues to focus on reducing cost through restructuring programs and other continuous improvement initiatives, while seeking new business wins in the marketplace. In October 2003, ArvinMeritor announced that Hyundai Motor Company has chosen our LVS business to become its North American door module supplier for Hyundai's popular Santa Fe and Sonata models, beginning production in 2005 and growing to one million door modules annually.
* Commercial Vehicle Systems (CVS) sales were $616 million, up $4 million, or one percent, from the fourth quarter of fiscal year 2002. Sales were up, despite a decline in North American Class 8 truck production. Higher trailer volumes in North America and higher sales in Asia/Pacific offset declines in North American truck volumes. Productivity improvements were partially offset by higher engineering investments and warranty charges. Operating income declined by $1 million.
Our CVS business is well-positioned to benefit from the recovery expected in the North American heavy truck market in fiscal year 2004. CVS continues to geographically diversify its business. Recently, CVS signed a memorandum of understanding with the Volvo Group to form two new truck axle joint ventures in Europe. Subject to finalizing the agreement, it is intended that in 2004, the two new joint ventures, owned jointly by ArvinMeritor and Volvo, would assume control and operation of the two Volvo Group manufacturing operations in France.
* Light Vehicle Aftermarket (LVA) sales were $219 million, down four percent from last year's fourth quarter. Without the impact of foreign currency translation, sales would have declined approximately $20 million. Lower volumes, higher product returns and lower pricing contributed to the decrease in operating income.
Our LVA business remains focused on reducing its costs through global outsourcing and rationalizing its distribution channels, while strengthening its business relationship with major customers. In September, for the second year in a row, the LVA Purolator filter business received the Toyota Quality Alliance Platinum award from Toyota Motor Sales, U.S.A. More recently, Grease Monkey International named Purolator the 2002 Vendor of the Year.
Full-Year Fiscal 2003 Results
Sales for the fiscal year were $7.8 billion, up $906 million, or 13 percent, compared to last year. Excluding the effect of acquisitions and divestitures, and the impact of foreign currency, revenue grew one percent. Operating income was $309 million, a decline of $34 million, compared to fiscal year 2002, reflecting an operating margin of 4.0 percent, down from 5.0 percent last year. Operating income for fiscal year 2003 was favorably impacted by the gain on the sale of the exhaust tube manufacturing facility, but was offset by higher steel costs, product launch costs, higher engineering investments, pricing pressures and the adjustment in Mexico.
Net income for fiscal year 2003 was $136 million, or $2.00 per diluted share, up from $107 million, or $1.59 per diluted share last year. Included in net income were the effects of changes in accounting principles of $4 million, or $0.06 per diluted share, in fiscal year 2003 and $42 million, or $0.63 per diluted share, in fiscal year 2002.
"Although we made progress in a number of areas, our fiscal year 2003 financial results did not achieve the expectations set by our management team," Yost said. "Our entire ArvinMeritor team is committed and dedicated to improving our company's financial performance. We will remain focused on reducing costs, leveraging our global resources, streamlining our asset base and improving return on invested capital and free cash flow. The strength of our entire team is focused on returning value to our shareowners."
Outlook
"Our fiscal year 2004 outlook for light vehicle production remains unchanged from our previous guidance at 15.8 million vehicles in North America and 16.2 million vehicles in Western Europe. We continue to remain optimistic about the growth in the North American Class 8 truck production to 222,000 units in fiscal year 2004," Yost said. "Our sales outlook for fiscal year 2004 is approximately $8.6 billion, up about ten percent from fiscal year 2003, and slightly higher than our previous guidance to reflect current foreign currency exchange rate expectations.
"For the first quarter of fiscal year 2004, our sales forecast is $2.0 billion, and our outlook for diluted earnings per share is unchanged from our previous guidance of $0.25 to $0.30 per diluted share," Yost continued. "We anticipate that our first quarter results will continue to be affected by the product launch costs that also impacted our fiscal year 2003 fourth quarter. We expect these issues to be substantially resolved in the first quarter.
"For the remainder of fiscal year 2004, we expect to achieve improved performance as volumes, particularly in the Commercial Vehicle business, return to more normal levels, our launch issues are resolved and performance improvement programs are achieved. We anticipate full-year diluted earnings per share in the range of $2.20 to $2.40 for fiscal year 2004." ArvinMeritor, Inc. is a premier $8-billion global supplier of a broad range of integrated systems, modules and components to the motor vehicle industry. The company serves light vehicle, commercial truck, trailer and specialty original equipment manufacturers and related aftermarkets.
Headquartered in Troy, Mich., ArvinMeritor employs approximately 32,000 people at more than 150 manufacturing facilities in 27 countries. ArvinMeritor common stock is traded on the New York Stock Exchange under the ticker symbol ARM. For more information, visit the company's Web site at: www.arvinmeritor.com .
All earnings per share amounts are on a diluted basis. The company's fiscal year ends on the Sunday nearest Sept. 30, and its fiscal quarters end on the Sundays nearest Dec. 31, March 31 and June 30. All year and quarter references relate to the company's fiscal year and fiscal quarters, unless otherwise stated.
ARVINMERITOR, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
Quarter Ended Fiscal Year Ended
September 30, September 30,
(Unaudited)
2003 2002 2003 2002
Sales $1,977 $1,746 $7,788 $6,882
Cost of Sales (1,806) (1,552) (7,042) (6,142)
Gross Margin 171 194 746 740
Selling, General and
Administrative (109) (103) (435) (388)
Restructuring Costs (6) - (22) (15)
Gain on Sale of Business 20 - 20 6
Operating Income 76 91 309 343
Equity in Earnings (Losses)
of Affiliates 2 (2) 8 (3)
Interest Expense, Net and
Other (26) (26) (104) (105)
Income Before Income Taxes 52 63 213 235
Provision for Income Taxes (16) (20) (68) (75)
Minority Interests 1 (2) (5) (11)
Income Before Cumulative Effect
of Accounting Change 37 41 140 149
Cumulative Effect of
Accounting Change (4) - (4) (42)
Net Income $33 $41 $136 $107
Diluted Earnings Per Share
Before Cumulative Effect
of Accounting Change $0.54 $0.61 $2.06 $2.22
Cumulative Effect of
Accounting Change (0.06) - (0.06) (0.63)
Diluted Earnings Per Share $0.48 $0.61 $2.00 $1.59
Average Diluted Shares
Outstanding 68.1 67.6 67.9 67.2
ARVINMERITOR, INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
(In millions)
Quarter Ended Fiscal Year Ended
September 30, September 30,
(Unaudited)
2003 2002 2003 2002
Sales:
Light Vehicle Systems $1,093 $867 $4,355 $3,601
Commercial Vehicle Systems 616 612 2,422 2,249
Light Vehicle Aftermarket 219 227 845 875
Other 49 40 166 157
Total Sales $1,977 $1,746 $7,788 $6,882
Operating Income:
Light Vehicle Systems $30 $38 $147 $186
Commercial Vehicle Systems 31 32 122 88
Light Vehicle Aftermarket 9 19 31 66
Other 6 2 9 3
Total Operating Income $76 $91 $309 $343
ARVINMERITOR, INC.
SUMMARY CONSOLIDATED BALANCE SHEET
(In millions)
September 30, September 30,
2003 2002
ASSETS
Cash $103 $56
Receivables 1,327 1,251
Inventories 543 458
Other Current Assets 266 211
Property, Net 1,332 1,179
Goodwill 951 808
Other Assets 731 688
Total $5,253 $4,651
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term Debt $20 $15
Accounts Payable 1,311 1,123
Accrued and Other Current Liabilities 547 605
Other Liabilities 871 635
Long-term Debt 1,502 1,435
Preferred Capital Securities 39 39
Minority Interests 64 58
Equity 899 741
Total $5,253 $4,651
ARVINMERITOR, INC.
SUMMARY STATEMENT OF CONSOLIDATED CASH FLOWS
(In millions)
Fiscal Year Ended September 30,
2003 2002
OPERATING ACTIVITIES
Income Before Cumulative Effect
of Accounting Change $140 $149
Adjustments to Income:
Depreciation and Amortization 214 196
Gain on Sale of Business (20) (6)
Restructuring Costs, Net of Expenditures 8 5
Deferred Income Taxes (21) (33)
Pension and Retiree Medical Expense 99 78
Pension and Retiree Medical Contributions (163) (136)
Change in Receivable Securitization 94 (106)
Changes in Other Assets and Liabilities (96) 37
CASH PROVIDED BY OPERATING ACTIVITIES 255 184
INVESTING ACTIVITIES
Capital Expenditures (193) (184)
Acquisitions of businesses, net of cash acquired,
and investments (88) (25)
Proceeds from Asset Dispositions 109 11
CASH USED FOR INVESTING ACTIVITIES (172) (198)
FINANCING ACTIVITIES
Net Decrease in Revolving Debt 26 (600)
Proceeds from Issuance of Notes - 591
Payments on Other Debt (55) -
Purchase of Preferred Capital Securities - (18)
Net decrease in debt (29) (27)
Proceeds from Stock Option Exercises - 22
Cash Dividends (27) (27)
CASH USED FOR FINANCING ACTIVITIES (56) (32)
IMPACT OF CURRENCY ON CASH 20 1
CHANGE IN CASH 47 (45)
CASH AT BEGINNING OF PERIOD 56 101
CASH AT END OF PERIOD $103 $56