ArvinMeritor Reports First-Quarter Fiscal Year 2006 Results
Company Meets First-Quarter Expectations and Increases Outlook for Free Cash Flow
TROY, Mich., Jan. 24 -- ArvinMeritor, Inc. today reported financial results for its first fiscal quarter, ended Dec. 31, 2005.
First-Quarter Fiscal Year 2006 Highlights
* Net income was $34 million, or $0.49 per diluted share, compared to $18 million, or $0.26 per diluted share last year -- an increase of 88 percent.
* Income from continuing operations, before special items, was $11 million, or $0.16 per diluted share -- the higher end of the company's previous guidance. On a GAAP basis, income from continuing operations was $27 million, or $0.39 per diluted share, compared to $14 million, or $0.20 per diluted share in the same period last year.
* Sales from continuing operations of $2.1 billion, up slightly from the same period last year.
* Free cash flow of $75 million -- a significant improvement from the first quarter of fiscal year 2005.
* Net debt as of Dec. 31, 2005 improved $120 million since Sept. 30, 2005 to the lowest level since the merger of Arvin and Meritor.
* Cash proceeds, resulting from the sale of the company's off-highway brake assets and its 39-percent equity investment in Purolator India, were $48 million.
"We delivered a good quarter and are pleased to have met first-quarter expectations at the higher end of our guidance, in addition to reporting another quarter of strong free cash flow. We are starting to see the benefits of the restructuring plan we announced in fiscal year 2005 and other aggressive cost reduction programs, which continue to strengthen our global businesses," said Chairman, CEO and President Chip McClure.
In December 2005, the company sold its Asti, Italy ride control business. This sale, along with the previous divestiture of its shareholdings in AP Amortiguadores, S.A. (APA) in fiscal year 2004, continues to move the company toward its plan to exit the Light Vehicle Systems (LVS) ride control business, and focus resources on its core operations. As a result, ride control is now reported as discontinued operations. All prior year results have been reclassified to conform to this presentation.
First-Quarter Fiscal Year 2006 Results
For the first quarter of fiscal year 2006, the company posted sales of $2.1 billion, a one-percent increase when compared to the same period last year. Stronger volumes in its Commercial Vehicle Systems (CVS) business were largely offset by the loss of sales associated with divestitures and the impact of foreign currency translation, which lowered sales by approximately $65 million when compared to the same period last year.
Operating income from continuing operations in the first quarter of fiscal year 2006 was $64 million, up $24 million from the prior year's first quarter. Included in operating income in the first quarter of fiscal year 2006 was a gain on the sale of certain assets of the company's off-highway brake business of $23 million. Excluding this gain and restructuring costs, operating income would have been $42 million. The benefits of stronger volumes in ArvinMeritor's CVS business, and cost reductions resulting from restructuring programs, were largely offset by the loss of income from previous divestitures and higher energy and pension costs.
Income from discontinued operations was $7 million, or $0.10 per diluted share, compared to $4 million, or $0.06 per diluted share in the same period last year.
"We continue to make significant progress in our efforts to refocus and maximize our operational efficiencies through the sale of non-core assets," McClure said. "In the first quarter of fiscal year 2006, we completed the divestiture of our off-highway brake assets and the sale of our 39-percent share in Purolator India, for total proceeds of $48 million."
He continued, "We are encouraged by the interest in our global Light Vehicle Aftermarket businesses, and continue to work diligently to divest these businesses at a fair market value."
Outlook
The company's fiscal year 2006 outlook for light vehicle production is 15.6 million vehicles in North America and 16.4 million vehicles in Western Europe. The forecast for North American Class 8 truck production is 325,000 units in fiscal year 2006, up from the 305,000 units projected in our previous outlook.
For the second quarter of fiscal year 2006, the sales forecast for continuing operations is $2.2 billion. The company's outlook for diluted earnings per share from continuing operations for the second quarter is $0.35 to $0.40, before special items.
McClure said, "Our sales from continuing operations in fiscal year 2006 are expected to be approximately $8.6 billion, unchanged from our previous outlook, and the outlook for full-year diluted earnings per share from continuing operations is in the range of $1.50 to $1.70, also unchanged. In addition, we now forecast free cash flow to be in the range of $120-170 million for fiscal year 2006." This outlook includes higher production levels for commercial vehicles and a $13 million impact related to a recent preliminary injunction issued in connection with class-action lawsuits related to retiree medical benefits. It excludes gains or losses on divestitures, restructuring costs, other special items and the potential impact of any extended customer shutdowns or production interruptions.
"In spite of continued challenges in the North American light vehicle market, including pricing pressures and rising energy costs, ArvinMeritor's diverse mix of customers, geographic markets and products continues to differentiate us from our peers," he continued. "Both financially and operationally, we are off to a good start."
About ArvinMeritor
ArvinMeritor, Inc. is a premier 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 certain aftermarkets. Headquartered in Troy, Mich., ArvinMeritor employs approximately 29,000 people at more than 120 manufacturing facilities in 25 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: http://www.arvinmeritor.com/ .
Non-GAAP Measures
In addition to the results reported in accordance with accounting principles generally accepted in the United States ("GAAP") included throughout this press release, the company has provided information regarding income from continuing operations, diluted earnings per share and operating income before special items which are non-GAAP financial measures. These non- GAAP measures are defined as reported income or loss from continuing operations, reported diluted earnings or loss per share and operating income or loss plus or minus special items. Other non-GAAP financial measures include "net debt" and "free cash flow". Net debt is defined as total debt less the fair value adjustment of debt due to interest rate swaps, plus factored receivables, less cash. Free cash flow represents net cash provided by operating activities before the net change in factored accounts receivable, less capital expenditures. The company believes it is appropriate to exclude the net change in factored accounts receivable in the calculation of free cash flow since the factored receivables may be viewed as a substitute for borrowing activity.
Management believes that the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the company's financial position and results of operations. In particular, management believes that net debt is an important indicator of the company's overall leverage and free cash flow is useful in analyzing the company's ability to service and repay its debt. Further, management uses these non- GAAP measures for planning and forecasting in future periods.
These non-GAAP measures should not be considered a substitute for the reported results prepared in accordance with GAAP. Neither net debt nor free cash flow should be considered substitutes for debt, cash provided by operating activities or other balance sheet or cash flow statement data prepared in accordance with GAAP or as a measure of financial position or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and thus does not reflect funds available for investment or other discretionary uses. These non-GAAP financial measures, as determined and presented by the company, may not be comparable to related or similarly titled measures reported by other companies.
Set forth on the following pages are reconciliations of these non-GAAP financial measures, if applicable, to the most directly comparable financial measures calculated and presented in accordance with GAAP.
ARVINMERITOR, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, in millions, except per share amount)
Three Months Ended
December 31,
2005 2004
(Unaudited)
Sales $2,086 $2,067
Cost of Sales (1,957) (1,933)
GROSS MARGIN 129 134
Selling, General, & Administrative (87) (83)
Restructuring Costs (1) (10)
Gain on Divestitures, Net 23 4
Customer Bankruptcies - (5)
OPERATING INCOME 64 40
Equity in Earnings of Affiliates 7 6
Interest Expense, Net and Other (32) (28)
INCOME BEFORE TAXES 39 18
Provision for Income Taxes (10) (6)
Minority Interests (2) 2
Income From Continuing Operations 27 14
Income from Discontinued Operations 7 4
NET INCOME $34 $18
DILUTED EARNINGS PER SHARE
Continuing Operations $0.39 $0.20
Discontinued Operations 0.10 0.06
Diluted Earnings Per Share $0.49 $0.26
Diluted Shares Outstanding 69.8 69.0
ARVINMERITOR, INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
(In millions)
Three Months Ended December 31,
2005 2004
(Unaudited)
Sales:
Light Vehicle Systems $1,150 $1,160
Commercial Vehicle Systems 936 907
Total Sales $2,086 $2,067
Operating Income (Loss):
Light Vehicle Systems $(3) $3
Commercial Vehicle Systems 67 37
Total Operating Income $64 $40
ARVINMERITOR, INC.
SUMMARY CONSOLIDATED BALANCE SHEET
(In millions)
December 31, September 30,
2005 2005
(Unaudited)
ASSETS
Cash and Cash Equivalents $302 $187
Receivables, Net 1,452 1,655
Inventories 550 541
Other Current Assets 256 256
Assets of Discontinued Operations 525 531
Net Property 982 1,013
Goodwill 787 801
Other Assets 875 886
TOTAL ASSETS $5,729 $5,870
LIABILITIES AND SHAREOWNERS' EQUITY
Short-Term Debt $99 $131
Accounts Payable 1,448 1,483
Other Current Liabilities 618 667
Liabilities of Discontinued Operations 221 242
Other Liabilities 968 963
Long-Term Debt 1,438 1,451
Minority Interests 60 58
Shareowners' Equity 877 875
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $5,729 $5,870
ARVINMERITOR, INC.
SUMMARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in millions)
Three Months Ended
December 31,
2005 2004
OPERATING ACTIVITIES
Income from Continuing Operations $27 $14
Adjustments to Income From
Continuing Operations
Depreciation and Amortization 40 45
Gains on Divestitures, Net (23) (4)
Restructuring Costs, Net of Payments (7) -
Pension and Retiree Medical Expense 33 27
Other Adjustments to Income 1 -
Pension and Retiree Medical Contributions (28) (22)
Changes in Receivable Securitization
and Factoring 37 (41)
Changes in Assets and Liabilities 83 (144)
Cash Flows Provided By (Used For)
Continuing Operations 163 (125)
Cash Flows Used By Discontinued Operations (12) (95)
CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 151 (220)
INVESTING ACTIVITIES
Capital Expenditures (37) (27)
Acquisitions of Businesses and
Investments, Net of Cash Acquired (1) (22)
Proceeds from Disposition of
Property and Businesses 39 33
Net Cash Flows Provided By
Discontinued Operations 7 162
CASH PROVIDED BY INVESTING ACTIVITIES 8 146
FINANCING ACTIVITIES
Net Change in Revolving Credit Facilities - 11
Borrowings on Accounts Receivable
Securitization Program (24) -
Purchase of Notes (3) -
Net Change on Lines of Credit and Other (14) 20
Net Change in Debt (41) 31
Proceeds from Exercise of Stock Options - 5
Cash Dividends (7) (7)
Net Financing Cash Flows Provided
By Discontinued Operations 2 -
CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES (46) 29
EFFECT OF CHANGES IN FOREIGN CURRENCY
EXCHANGE RATES ON CASH 2 4
CHANGE IN CASH AND CASH EQUIVALENTS 115 (41)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 187 132
CASH AND CASH EQUIVALENTS AT END OF YEAR $302 $91
ARVINMERITOR, INC.
SELECTED FINANCIAL INFORMATION - RECONCILIATION
Non-GAAP
(Unaudited, in millions)
Restruc- Gain on
(in millions, except per share Q1 FY 06 turing Divest- Income Q1 FY06
amounts) Reported Actions iture Taxes Adjusted
Sales $2,086 $- $- $- $2,086
Gross Margin 129 - - - 129
Operating Income 64 1 (23) - 42
Income from Continuing Operations 27 1 (14) (3) 11
Diluted Earnings Per Share -
Continuing Operations $0.39 $0.01 $(0.20) $(0.04) $0.16
Segment Operating Income
LVS Operating Loss $(3) $- $- $- $(3)
CVS Operating Income 67 1 (23) - 45
Total Operating Income $64 $1 $(23) $- $42
Operating Margins
LVS -0.3% -0.3%
CVS 7.2% 4.8%
Total Operating Margins 3.1% 2.0%
ARVINMERITOR, INC.
FREE CASH FLOW - RECONCILIATION
Non-GAAP
(Unaudited, in millions)
Three Months Ended
December 31,
2005 2004
Cash Provided by (Used for)
Operating Activities $151 $(220)
Changes in Receivables
Securitization and Factoring (37) 41
Cash Provided by (Used for)
Operations before Receivables
Securitization and Factoring 114 (179)
Capital Expenditures (1) (39) (27)
Free Cash Flow $75 $(206)
(1) Includes capital expenditures of discontinued operations.
ARVINMERITOR, INC.
NET DEBT COMPOSITION
Non-GAAP
(Unaudited, in millions)
December 31, September 30,
2005 2005
Total debt $1,537 $1,582
Fair value of interest rate swaps (14) (17)
Receivable factoring 60 23
Subtotal 1,583 1,588
Less: cash (302) (187)
Net Debt $1,281 $1,401