ArvinMeritor Reports Second-Quarter Net Income of $45 Million - Up $78 Million
Achieves Second-Quarter Earnings Per Share at Top End of Range and Updates Full-Year Outlook
TROY, Mich., April 28 -- ArvinMeritor, Inc. today reported financial results for its second fiscal quarter ended March 31, 2006.
Second-Quarter Fiscal Year 2006 Highlights
* Net income was $45 million, or $0.64 per diluted share, compared to a net loss of $33 million in the second quarter of fiscal 2005.
* Income from continuing operations, before special items, was $28 million, or $0.40 per diluted share -- the top end of the company's guidance.
* On a GAAP basis, income from continuing operations was $31 million, or $0.44 per diluted share, compared to a loss from continuing operations of $21 million in the same period last year.
* Completed the sale of the Light Vehicle Aftermarket (LVA) Purolator filters business and the aftermarket exhaust business in North America, resulting in cash proceeds of $194 million.
* Issued $300 million of convertible notes that mature in 2026, with an initial redemption and repurchase date of 2016.
* Retired $600 million of 2007 - 2009 term debt, resulting in only $93 million of term debt maturing before 2012.
* Net debt decreased for the fourth consecutive quarter -- a reduction of $325 million from the same period last year.
ArvinMeritor Chairman, CEO and President Chip McClure said, "The actions we implemented to retire debt strengthened our balance sheet, improved liquidity and positioned the company for sustained financial stability. We are very pleased with the results of these efforts, and will continue to work on improving the company's performance by completing our restructuring actions and focusing on strong operational performance."
Second-Quarter 2006 Results
ArvinMeritor posted sales of $2.3 billion in the second quarter of fiscal year 2006, up three percent from the same period last year.
Operating income was $50 million, up $55 million compared to the same period last year. Excluding $17 million of restructuring costs, operating income would have been $67 million in the second quarter of fiscal year 2006.
Income from continuing operations, before special items, was $28 million or $0.40 per diluted share. Special items consisted of $10 million of after- tax restructuring costs, $6 million of after-tax costs associated with the company's $600 million debt tender offer, and $19 million of tax benefits primarily resulting from the resolution of various worldwide tax audits.
Income from discontinued operations was $14 million, or $0.20 per diluted share. Included in income from discontinued operations was an after-tax net gain on the sale of the Purolator filters business and aftermarket exhaust business of $22 million. The company also recorded $12 million of after-tax impairment charges in certain other LVA businesses. Loss from discontinued operations was $12 million in the same period last year.
Net income for the total company was $45 million, or $0.64 per diluted share, compared to a net loss of $33 million in the second quarter of last year.
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 340,000 units for fiscal year 2006, up from our prior guidance of 325,000 units. The forecast for heavy and medium truck volumes in Western Europe is 425,000 units, up from our previous forecast of 421,000 units.
For the third quarter of fiscal year 2006, the sales forecast for continuing operations is $2.4 billion. The company's outlook for diluted earnings per share from continuing operations for the third quarter is $0.60 to $0.70, before special items.
ArvinMeritor is updating its full-year guidance for fiscal year 2006. Sales from continuing operations are expected to be approximately $8.8 billion. Earnings per diluted share, before special items, are expected to be in the range of $1.60 to $1.70, revised from the previous guidance of $1.50 to $1.70. The outlook for free cash flow remains in the range of $120 million to $170 million for fiscal year 2006.
McClure said, "Continued high volumes in the commercial vehicle market and interest expense savings from the debt reduction actions we completed in the second quarter are the primary drivers for revising our full-year forecast.
"Looking forward, we are taking steps to minimize the effect on our future earnings and free cash flow related to the anticipated decline in the 2007 North American heavy truck market," he continued. "We expect improved productivity in our trailer business, continued growth in the commercial aftermarket business and increased sales from our Commercial Vehicle Emissions group."
About ArvinMeritor
ArvinMeritor, Inc. is a premier $8.8 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 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/ .
Forward-Looking Statements
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.
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 or cash received from the divestitures of businesses or sales of other assets 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 OPERATIONS
(Unaudited, in millions, except per share amounts)
Quarter Ended Six Months Ended
March 31, March 31,
2006 2005 2006 2005
(Unaudited)
Sales $2,314 $2,257 $4,400 $4,324
Cost of sales (2,142) (2,103) (4,099) (4,036)
GROSS MARGIN 172 154 301 288
Selling, general, and administrative (102) (99) (189) (182)
Restructuring costs (17) (49) (18) (59)
Gains on divestitures - - 23 4
Other expense (3) (11) (3) (16)
OPERATING INCOME (LOSS) 50 (5) 114 35
Equity in earnings of affiliates 8 7 15 13
Interest expense, net and other (44) (30) (76) (58)
INCOME (LOSS) BEFORE INCOME TAXES 14 (28) 53 (10)
Income tax benefit 21 9 11 3
Minority interests (4) (2) (6) -
Income (loss) from continuing
operations 31 (21) 58 (7)
Income (loss) from discontinued
operations 14 (12) 21 (8)
NET INCOME (LOSS) $45 $(33) $79 $(15)
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations $0.44 $(0.30) $0.83 $(0.10)
Discontinued operations 0.20 (0.18) 0.30 (0.12)
Diluted earnings (loss) per share $0.64 $(0.48) $1.13 $(0.22)
Diluted shares outstanding 69.9 69.1 69.8 69.1
Note: Amounts for the three and six months ended March 31, 2005 have been restated for discontinued operations.
ARVINMERITOR, INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
(In millions)
Quarter Ended Six Months Ended
March 31, March 31,
2006 2005 2006 2005
(Unaudited) (Unaudited)
Sales:
Light Vehicle Systems $1,235 $1,225 $2,385 $2,385
Commercial Vehicle Systems 1,079 1,032 2,015 1,939
Total sales $2,314 $2,257 $4,400 $4,324
Operating income (loss):
Light Vehicle Systems $(8) $(36) $(11) $(33)
Commercial Vehicle Systems 62 37 129 74
Segment operating income 54 1 118 41
Unallocated corporate costs (4) (6) (4) (6)
Total operating income (loss) $50 $(5) $114 $35
Note: Amounts for the three and six months ended March 31, 2005 have been restated for discontinued operations.
ARVINMERITOR, INC.
SUMMARY CONSOLIDATED BALANCE SHEET
(In millions)
March 31, September 30,
2006 2005
(Unaudited)
ASSETS
Cash and cash equivalents $236 $187
Receivables, net 1,726 1,655
Inventories 557 541
Other current assets 279 256
Assets of discontinued operations 294 531
Net property 971 1,013
Goodwill 795 801
Other assets 845 886
TOTAL ASSETS $5,703 $5,870
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term debt $211 $131
Accounts payable 1,597 1,483
Other current liabilities 638 667
Liabilities of discontinued operations 142 242
Long-term debt 1,146 1,451
Retirement benefits 669 754
Other liabilities 222 209
Minority interests 56 58
Shareowners' equity 1,022 875
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $5,703 $5,870
ARVINMERITOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in millions)
Six Months Ended
March 31,
2006 2005
OPERATING ACTIVITIES
Income (loss) from continuing operations $58 $(7)
Adjustments to income (loss) from
continuing operations
Depreciation and other amortization 84 91
Gains on divestitures (23) (4)
Restructuring costs, net of payments - 43
Loss on debt extinguishment 9 -
Pension and retiree medical expense 66 55
Pension and retiree medical contributions (49) (46)
Changes in receivable securitization
and factoring 42 38
Changes in assets and liabilities (28) (244)
Cash flows provided by (used for)
continuing operations 159 (74)
Cash flows used for discontinued operations (33) (129)
CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 126 (203)
INVESTING ACTIVITIES
Capital expenditures (75) (61)
Acquisitions of businesses and
investments, net of cash acquired (2) (22)
Proceeds from dispositions of
property and businesses 45 33
Net investing cash flows provided
by discontinued operations 199 157
CASH PROVIDED BY INVESTING ACTIVITIES 167 107
FINANCING ACTIVITIES
Net change in revolving credit facilities - 48
Borrowings on accounts receivable
securitization program 94 -
Proceeds from issuance of notes 300 -
Purchase of notes (603) -
Borrowings (payments) on lines of
credit and other (6) 20
Net change in debt (215) 68
Debt issuance and extinguishment costs (18) -
Proceeds from exercise of stock options - 5
Cash dividends (14) (14)
Net financing cash flows provided
by discontinued operations 1 -
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (246) 59
IMPACT OF CURRENCY ON CASH 2 4
CHANGE IN CASH AND CASH EQUIVALENTS 49 (33)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 187 132
CASH AND CASH EQUIVALENTS AT END OF PERIOD $236 $99
Note: Amounts for the six months ended March 31, 2005 have been restated for discontinued operations.
ARVINMERITOR, INC.
SELECTED FINANCIAL INFORMATION - RECONCILIATION
Non-GAAP
(Unaudited, in millions, except per share amounts)
Reported Debt
03/31/06 Restructuring Extinguishment
Sales $2,314 $- $-
Gross margin 172 - -
Operating income 50 17 -
Income before income taxes 14 17 9
Income from continuing operations 31 10 6
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations $0.44 $0.14 $0.09
Diluted shares outstanding 69.9 69.9 69.9
Operating income (loss)
Light Vehicle Systems $(8) $16 $-
Commercial Vehicle Systems 62 1 -
Segment operating income 54 17 -
Unallocated corporate costs (4) - -
Total operating income $50 $17 $-
Settlement Before
Of Tax Special Items
Audits Taxes, other 03/31/06
Sales $- $- $2,314
Gross margin - - 172
Operating income - - 67
Income before income taxes - - 40
Income from continuing operations (23) 4 28
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations $(0.33) $0.06 $0.40
Diluted shares outstanding 69.9 69.9 69.9
Operating income (loss)
Light Vehicle Systems $- $- $8
Commercial Vehicle Systems - - 63
Segment operating income - - 71
Unallocated corporate costs - - (4)
Total operating income $- $- $67
ARVINMERITOR, INC.
NET DEBT COMPOSITION
Non-GAAP
(Unaudited, in millions)
March December September June March
31, 31, 30, 30, 31,
2006 2005 2005 2005 2005
Total debt $1,357 $1,537 $1,582 $1,512 $1,544
Fair value adjustment
of notes (7) (14) (17) (27) (21)
Off-balance sheet
receivable securitization 42 - - 156 65
Receivable factoring 23 60 23 23 15
Subtotal 1,415 1,583 1,588 1,664 1,603
Less: cash (236) (302) (187) (180) (99)
Net debt $1,179 $1,281 $1,401 $1,484 $1,504