ArvinMeritor Reports Fiscal Year 2004 Second-Quarter Results
TROY, Mich., April 23 -- ArvinMeritor, Inc. today reported record sales of $2.3 billion and net income of $41 million, or $0.59 per diluted share, for its second fiscal quarter ended March 31, 2004, compared to the prior year's second-quarter net income of $24 million, or $0.36 per diluted share. The second quarter included a gain and associated tax benefits of $0.23 per diluted share on the sale of the company's 75-percent shareholding in AP Amortiguadores, S.A. (APA), a joint venture that manufactures ride control products, and a charge of $0.08 per diluted share, resulting from an agreement with the Environmental Protection Agency to remediate a former Rockwell facility that was sold in 1985. Sales increased $261 million, up 13 percent, from the prior year's second quarter. On a constant currency basis, sales would have been up approximately six percent, compared to the second quarter of fiscal year 2003, primarily as a result of stronger North American commercial vehicle truck and trailer volumes.
Operating income for the second quarter of fiscal year 2004 was $81 million, a 29- percent improvement compared to the same period last year. Operating income in the second quarter of fiscal year 2004 included a pre-tax gain of $20 million on the sale of APA and the environmental remediation costs of $8 million. Without these items, operating income would have increased 10 percent, despite higher pension and retiree medical costs, which were $8 million higher than the same quarter in fiscal year 2003, and higher steel costs of $8 million.
ArvinMeritor Chairman and Chief Executive Officer Larry Yost said, "We are pleased with the improvement in our second-quarter results. Our sales and earnings benefited from the stronger North American Class 8 truck volumes. The benefit of higher volumes and continued cost-reduction actions allowed us to improve our results."
Equity in earnings of affiliates was $5 million, $4 million higher than the same period last year, primarily as a result of higher commercial vehicle affiliate earnings in Brazil, Mexico and India. Net interest expense of $25 million was down $2 million from last year's second quarter. Proceeds from the sale of APA and cash generated from operations were used this quarter to reduce total debt and amounts outstanding under the company's accounts receivable securitization and factoring programs by $88 million.
As a result of the company's ongoing legal entity restructuring to more closely align its organizational structure with the underlying operations of the businesses and the favorable tax treatment of the gain on the sale of APA, the company's effective tax rate decreased to 26 percent compared to 32 percent in the second quarter of fiscal year 2003. These actions are expected to reduce the company's effective tax rate to approximately 30 percent in fiscal year 2004. Excluding the tax benefit of the APA sale, the company's full-year tax rate would approximate 32 percent.
Specific business segment financial results include:
* Light Vehicle Systems (LVS) sales were $1,239 million, up $75 million,
or six percent, from the second quarter of fiscal year 2003. On a
constant currency basis and excluding the effects of the disposition of
APA, sales would have been nearly flat. Operating income was
$46 million, up 59 percent from the same period last year, and
operating margin was 3.7 percent, up from 2.5 percent in the prior
year. Operating income was favorably impacted by the $20 million gain
on the sale of APA, and partially offset by the previously mentioned
environmental remediation costs of $8 million and higher premium
product launch costs of $4 million. Removing the effects of the gain
on APA and the environmental charge, operating margin would have
increased to 2.7 percent, when compared to the same period last year.
* Commercial Vehicle Systems (CVS) sales were $769 million, up
$180 million, or 31 percent, from last year's second quarter. On a
constant currency basis, sales would have been higher than the prior
year by approximately 25 percent. Operating income was $38 million, or
31 percent higher than the same period last year, and operating margin
was 4.9 percent, unchanged from the prior year. During the quarter,
CVS dissolved its transmission joint venture with ZF Friedrichshafen in
favor of a marketing arrangement that allows CVS to provide the
Freedomline(TM) transmission family to its customers. During the
quarter, CVS recognized sales of $8 million that would have been
recognized by the joint venture prior to the dissolution. Excluding
the effect of terminating the transmissions joint venture, operating
margin in the second quarter of fiscal year 2004 would have been 5.3
percent. Other factors negatively affecting operating margins during
the quarter included higher steel costs, higher pension and retiree
medical costs, and investments in commercial vehicle exhaust
technology.
* Light Vehicle Aftermarket (LVA) sales were $199 million, down
$5 million from last year's second quarter. On a constant currency
basis, sales would have been lower than the prior year by approximately
seven percent. LVA incurred an operating loss of $3 million during the
quarter, compared to operating income of $6 million for the same period
last year. Difficult industry conditions continued during the quarter,
particularly in the European exhaust market, where capacity exceeded
demand. Management has implemented additional actions to improve
profitability, reduce costs and align itself with current market
conditions. LVA recorded $2 million of restructuring costs in the
second quarter of fiscal year 2004. In addition, increased steel costs
and pricing pressures negatively impacted the results for the quarter.
Six-Month Summary
For the first six months of fiscal year 2004, sales were $4.4 billion, up $732 million, or 20 percent, compared to the same period last year. The sales increase includes incremental revenues of $203 million associated with the fiscal year 2003 acquisition of the majority interest in Zeuna Starker and favorable currency translation of approximately $275 million. Operating income for the first six months of fiscal year 2004 was $130 million, a decrease of $6 million, compared to the same period last year. Operating income in fiscal year 2004 includes the costs associated with the withdrawn tender offer for Dana Corporation of $16 million (before a non-operating gain of $7 million on the sale of Dana stock owned by the company) and the environmental remediation costs of $8 million, partially offset by the gain on the sale of APA of $20 million.
Net income for the first six months of fiscal year 2004 was $60 million, or $0.88 per diluted share, up from $56 million, or $0.83 per diluted share, in the same period last year.
Outlook
"Our fiscal year 2004 outlook for light vehicle production remains unchanged at 16.1 million vehicles in North America," Yost said. "Our light vehicle production outlook for fiscal year 2004 in Western Europe is 16.6 million vehicles, also unchanged from our previous estimate. Our current outlook for Class 8 truck production in North America has increased to 227,000 units for fiscal year 2004, up slightly from our previous estimate of 222,000 units.
"Our latest sales outlook for fiscal year 2004 is $9.0 billion, unchanged from our previous guidance," Yost continued. "We continue to maintain our full-year guidance of $2.20 to $2.40, as the one-time costs incurred in the first quarter associated with the Dana transaction and the environmental charge we recorded this quarter were offset by the APA gain. For the third quarter of fiscal year 2004, our sales forecast is $2.3 billion, and our outlook for diluted earnings per share is in the range of $0.70 to $0.75 per diluted share, up from $0.69 per diluted share a year ago.
"We are pleased with our earnings performance in the second quarter, as we saw our earnings grow year over year. We expect to see this improvement continue in the third quarter. We're focused on providing value to our customers and shareowners by managing our portfolio of products and strategically focusing on our core competencies. As part of our strategy to divest non-core businesses, we completed the sale of our share in the APA ride control joint venture during the quarter.
"Although our businesses have many opportunities, we face challenges. While uncertainty of steel prices and supply remain a concern, we are taking appropriate actions to mitigate this risk. With the strong dedication and commitment of our people, we are proud of the progress and the successes we have been able to achieve during the quarter."
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., the company 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.
STATEMENT OF CONSOLIDATED INCOME
(Unaudited, in millions, except per share amounts)
Quarter Ended Six Months Ended
March 31, March 31,
2004 2003 2004 2003
Sales $2,254 $1,993 $4,434 $3,702
Cost of Sales (2,053) (1,807) (4,051) (3,342)
Gross Margin 201 186 383 360
Selling, General and
Administrative (124) (114) (240) (215)
Environmental Charge (8) -- (8) --
Costs for Withdrawn Tender
Offer -- -- (16) --
Restructuring Costs (8) (11) (9) (11)
Gain on Sale of Business 20 2 20 2
Operating Income 81 63 130 136
Equity in Earnings of
Affiliates 5 1 7 2
Gain on Sale of Marketable
Securities -- -- 7 --
Interest Expense, Net and
Other (25) (27) (51) (52)
Income Before Income Taxes 61 37 93 86
Provision for Income Taxes (16) (12) (27) (28)
Minority Interests (4) (1) (6) (2)
Net Income $41 $24 $60 $56
Diluted Earnings Per
Share $0.59 $0.36 $0.88 $0.83
Diluted Average Shares
Outstanding 69.0 67.5 68.5 67.5
ARVINMERITOR, INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
(Unaudited, in millions)
Quarter Ended Six Months Ended
March 31, March 31,
2004 2003 2004 2003
Sales:
Light Vehicle Systems $1,239 $1,164 $2,490 $2,067
Commercial Vehicle Systems 769 589 1,454 1,161
Light Vehicle Aftermarket 199 204 397 401
Other 47 36 93 73
Total Sales $2,254 $1,993 $4,434 $3,702
Operating Income:
Light Vehicle Systems $46 $29 $77 $71
Commercial Vehicle Systems 38 29 70 53
Light Vehicle Aftermarket (3) 6 (2) 12
Other -- (1) 1 --
Segment Operating Income 81 63 146 136
Costs for Withdrawn Tender
Offer -- -- (16) --
Segment Operating Income $81 $63 $130 $136
ARVINMeritor, Inc.
SUMMARY CONSOLIDATED BALANCE SHEET
(In millions)
March 31, September 30,
2004 2003
(Unaudited)
ASSETS
Cash
Receivables
Inventories $119 1,582
566 $103 1,327
543
Other Current Assets 247 253
Property, Net 1,275 1,332
Goodwill 984 951
Other Assets 735 731
Total $5,508 $5,240
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term Debt
Accounts Payable $3 1,392
$20 1,311
Accrued and Other Current Liabilities 583 534
Other Liabilities 884 871
Long-term Debt 1,527 1,541
Minority Interests 68 64
Equity 1,051 899
Total $5,508 $5,240
ARVINMeritor, Inc.
SUMMARY STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited, in millions)
Six Months Ended March 31,
2004 2003
OPERATING ACTIVITIES
Net Income $60 $56
Adjustments to Income:
Depreciation and Amortization 112 103
Restructuring costs, Net of Expenditures (2) 3
Gain on Sale of Marketable Securities (7) --
Gain on Divestitures (20) (2)
Pension and Retiree Medical Expense 66 48
Pension and Retiree Medical Contributions (44) (102)
Change in Receivable Securitization and Factoring (27) 180
Changes in Assets and Liabilities (104) (50)
CASH PROVIDED BY OPERATING ACTIVITIES 34 236
INVESTING ACTIVITIES
Capital Expenditures (71) (69)
Proceeds from Dispositions of Property and Businesses 71 42
Acquisitions of Businesses and Investments, Net of
Cash Acquired -- (91)
Proceeds from Sale of Marketable Securities 18 --
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 18 (118)
FINANCING ACTIVITIES
Net Change in Revolving Debt (23) (50)
Net Change in Other Debt (9) --
Net Change in Debt (32) (50)
Proceeds from Stock Option Exercises 5 --
Cash Dividends (14) (13)
CASH USED FOR FINANCING ACTIVITIES (41) (63)
IMPACT OF CURRENCY ON CASH 5 10
CHANGE IN CASH 16 65
CASH AT BEGINNING OF PERIOD 103 56
CASH AT END OF PERIOD $119 $121