ArvinMeritor Reports Third-Quarter Fiscal Year 2006 Results
Raises Full-Year Earnings and Free Cash Flow Guidance
TROY, Mich., July 31 -- ArvinMeritor, Inc. today reported financial results for its third fiscal quarter ended June 30, 2006.
Third-Quarter Fiscal Year 2006 Highlights
* Record sales of $2.5 billion, up 4 percent from the third quarter of
fiscal 2005.
* Net income was $20 million or $0.29 per diluted share, compared to $46
million, or $0.66 per diluted share in the same period last year.
* On a GAAP basis, income from continuing operations was $25 million or
$0.36 per diluted share, compared to $50 million or $0.72 per diluted
share in the same period last year; this decline was primarily due to a
labor disruption at an ArvinMeritor brake facility in Canada which
unfavorably impacted income from continuing operations by $28 million,
after-tax.
* Income from continuing operations, before special items, was $51
million or $0.73 per diluted share, exceeding the previous guidance of
$0.60 to $0.70 per diluted share.
* Free cash flow was $155 million, an improvement of $96 million from the
same period last year.
* Continued reduction of net debt -- down $481 million from the same
period last year.
* Completed new $1.15 billion secured credit facilities that extend
maturities to 2011 and 2012.
* Announced the divestitures of two additional businesses within Light
Vehicle Aftermarket (LVA).
"Our results for the third quarter of fiscal 2006 build upon the continued execution of our strategic initiatives, including previously announced restructuring activities and our ongoing focus on operational performance," said Chairman, CEO and President Chip McClure. "However, we cannot discount the significant impact of the labor disruption that occurred in June at our brake facility in Tilbury, Ontario.
"We regret the disruption and inconvenience this temporary work stoppage had on the production schedules of certain customers, but we are pleased that this situation was quickly resolved. We are back on track and running at full capacity to provide the superior support and service our customers have come to expect from us. Excluding the impact of this disruption, we are proud of the performance we delivered in the quarter, exceeding the top end of our guidance range."
Third-Quarter Fiscal Year 2006 Results
For the third quarter of fiscal year 2006, ArvinMeritor posted sales of $2.5 billion, a 4-percent increase compared to the same period last year, and a record quarter for the company. The primary factors contributing to the increase were improved Light Vehicle Systems (LVS) sales in Europe and Asia/Pacific, and strong growth in the company's commercial specialty business, which provides a comprehensive line of components for vehicles including fire and rescue; construction and utility; military; school buses; motor homes and custom chassis.
Operating income was $47 million, down 49 percent, compared to $93 million in the prior year's third quarter, primarily due to the Tilbury labor disruption.
Income from continuing operations was $25 million or $0.36 per diluted share, compared to $50 million or $0.72 per diluted share a year ago. Income from continuing operations, before special items, was flat from the same period last year at $51 million or $0.73 per diluted share.
The company recorded a loss from discontinued operations of $5 million or $0.07 per diluted share, compared to a loss of $4 million or $0.06 per diluted share last year.
Fourth-Quarter and Full-Year 2006 Outlook
The company's fiscal year 2006 outlook for light vehicle production in North America is 15.8 million vehicles, up slightly from the previous forecast, and 16.4 million vehicles in Western Europe, unchanged from the prior forecast. The outlook for North American Class 8 truck production is 340,000 units in fiscal year 2006, also unchanged from the previous forecast. In Western Europe, the company is raising its outlook for heavy- and medium- duty trucks to 439,000, an increase of 14,000 units.
"The company's sales for fiscal year 2006 will remain strong, specifically within the North America Class 8 truck market, and we are forecasting full- year sales to be approximately $9 billion," McClure said.
The company is raising its full-year guidance and expects income from continuing operations, before special items, to be in the range of $1.65 to $1.75 per diluted share, up from the previously forecasted range of $1.60 to $1.70 per diluted share.
"Based on our continued focus on working capital improvements and our strong results year-to-date, we are also increasing our free cash flow forecast to the range of $200 million to $225 million, up from the previously forecasted range of $120 million to $170 million," said Jim Donlon, senior vice president and CFO.
McClure added, "We are starting to see the financial and operational benefits of restructuring the company, specifically within the LVS business group, and we have made significant progress toward our goal to divest our LVA businesses. We are committed to improving our performance, executing our strategy and capitalizing on the significant opportunities we see across our businesses and in the global markets."
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/ .
ARVINMERITOR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, in millions, except per share amounts)
Quarter Ended Nine Months Ended
June 30, June 30,
2006 2005 2006 2005
(Unaudited)
Sales $2,477 $2,389 $6,877 $6,713
Cost of sales (2,327) (2,186) (6,426) (6,222)
GROSS MARGIN 150 203 451 491
Selling, general, and
administrative (105) (104) (294) (286)
Restructuring costs (1) (6) (19) (65)
Other expense 3 - 23 (12)
OPERATING INCOME 47 93 161 128
Equity in earnings of affiliates 10 7 25 20
Interest expense, net and other (28) (31) (104) (89)
INCOME BEFORE INCOME TAXES 29 69 82 59
Benefit (provision) for income taxes - (15) 11 (12)
Minority interests (4) (4) (10) (4)
Income from continuing operations 25 50 83 43
Income (loss) from discontinued
operations (5) (4) 16 (12)
NET INCOME $20 $46 $99 $31
DILUTED EARNINGS PER SHARE
Continuing operations $0.36 $0.72 $1.19 $0.62
Discontinued operations (0.07) (0.06) 0.23 (0.17)
Diluted earnings per share $0.29 $0.66 $1.42 $0.45
Diluted shares outstanding 70.1 69.2 69.9 69.3
Note: Amounts for the three and nine months ended June 30, 2005 have been restated for discontinued operations.
ARVINMERITOR, INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
(In millions)
Quarter Ended June 30, Nine Months Ended June 30,
2006 2005 2006 2005
(Unaudited) (Unaudited)
Sales:
Light Vehicle Systems $1,322 $1,271 $3,707 $3,656
Commercial Vehicle
Systems 1,155 1,118 3,170 3,057
Total sales $2,477 $2,389 $6,877 $6,713
Operating income (loss):
Light Vehicle Systems $37 $23 $26 $(10)
Commercial Vehicle Systems 14 72 143 146
Segment operating income 51 95 169 136
Unallocated corporate costs (4) (2) (8) (8)
Total operating income $47 $93 $161 $128
Note: Amounts for the three and nine months ended June 30, 2005 have been restated for discontinued operations.
ARVINMERITOR, INC.
SUMMARY CONSOLIDATED BALANCE SHEET
(In millions)
June 30, September 30,
2006 2005
(Unaudited)
ASSETS
Cash and cash equivalents $365 $187
Receivables, net 1,723 1,655
Inventories 591 541
Other current assets 284 256
Assets of discontinued operations 308 531
Net property 971 1,013
Goodwill 810 801
Other assets 835 886
TOTAL ASSETS $5,887 $5,870
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term debt $60 $131
Accounts payable 1,703 1,483
Other current liabilities 658 667
Liabilities of discontinued
operations 150 242
Long-term debt 1,288 1,451
Retirement benefits 608 754
Other liabilities 228 209
Minority interests 60 58
Shareowners' equity 1,132 875
TOTAL LIABILITIES AND SHAREOWNERS'
EQUITY $5,887 $5,870
ARVINMERITOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in millions)
Nine Months Ended
June 30,
2006 2005
OPERATING ACTIVITIES
Income from continuing operations $83 $43
Adjustments to income from continuing operations
Depreciation and other amortization 125 135
Gains on divestitures (28) (4)
Restructuring costs, net of payments (9) 39
Loss on debt extinguishment 9 -
Proceeds from unwind of swap agreements - 22
Pension and retiree medical expense 102 82
Pension and retiree medical contributions (79) (141)
Changes in receivable securitization
and factoring 105 137
Changes in assets and liabilities 42 (174)
Cash flows provided by continuing operations 350 139
Cash flows used for discontinued operations (38) (151)
CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES 312 (12)
INVESTING ACTIVITIES
Capital expenditures (104) (99)
Acquisitions of businesses and
investments, net of cash acquired (8) (24)
Investment in debt defeasance trust (12) -
Proceeds from dispositions of
property and businesses 51 38
Net investing cash flows provided
by discontinued operations 201 154
CASH PROVIDED BY INVESTING ACTIVITIES 128 69
FINANCING ACTIVITIES
Net change in revolving credit facilities - -
Payments on accounts receivable
securitization program (66) -
Proceeds from issuance of notes
and Term Note B 470 -
Purchase of notes (603) (21)
Borrowings (payments) on lines of
credit and other (17) 23
Net change in debt (216) 2
Debt issuance and extinguishment costs (28) -
Proceeds from exercise of stock options 1 5
Cash dividends (21) (21)
CASH USED FOR FINANCING ACTIVITIES (264) (14)
IMPACT OF CURRENCY ON CASH 2 5
CHANGE IN CASH AND CASH EQUIVALENTS 178 48
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 187 132
CASH AND CASH EQUIVALENTS AT END OF PERIOD $365 $180
Note: Amounts for the nine months ended June 30, 2005 have been restated for discontinued operations.
ARVINMERITOR, INC.
SELECTED FINANCIAL INFORMATION - RECONCILIATION
Non-GAAP
(Unaudited, in millions, except per share amounts)
3 Months
Ended Gain on Restructuring
06/30/06 Liquidation(1)
Sales $2,477 $- $-
Gross margin 150 - -
Operating income 47 (5) 1
Income before income taxes 29 (5) 1
Income from continuing operations 25 (3) 1
DILUTED EARNINGS PER SHARE
Continuing operations $0.36 $(0.04) $0.01
Diluted shares outstanding 70.1 70.1 70.1
Operating income
Light Vehicle Systems $37 $(5) $-
Commercial Vehicle Systems 14 - 1
Segment operating income 51 (5) 1
Unallocated corporate costs (4) - -
Total operating income $47 $(5) $1
Tilbury Work Before Special
Stoppage Items 06/30/06
Sales $- $2,477
Gross margin 45 195
Operating income 45 88
Income before income taxes 45 70
Income from continuing operations 28 51
DILUTED EARNINGS PER SHARE
Continuing operations $0.40 $0.73
Diluted shares outstanding 70.1 70.1
Operating income
Light Vehicle Systems $- $32
Commercial Vehicle Systems 45 60
Segment operating income 45 92
Unallocated corporate costs - (4)
Total operating income $45 $88
(1) In the third quarter of fiscal 2006, the company substantially completed the liquidation of Meritor Suspensions Systems Holdings (UK) Ltd, a 57 percent owned consolidated joint venture, and recorded a $5 million gain, primarily related to the extinguishment of debt owed to the minority partner.
ARVINMERITOR, INC.
SELECTED FINANCIAL INFORMATION - RECONCILIATION
Non-GAAP
(Unaudited, in millions, except per share amounts)
3 Months
Ended Before Special
06/30/05 Restructuring Taxes Items 06/30/05
Sales $2,389 $- $- $2,389
Gross margin 203 - - 203
Operating income 93 5 - 98
Income before income taxes 69 5 - 74
Income from
continuing operations 50 3 (2) 51
DILUTED EARNINGS PER SHARE
Continuing operations $0.72 $0.04 $(0.03) $0.73
Diluted shares outstanding 69.2 69.2 69.2 69.2
Operating income
Light Vehicle Systems $23 $4 $- $27
Commercial Vehicle Systems 72 1 - 73
Segment operating income 95 5 - 100
Unallocated corporate costs (2) - - (2)
Total operating income $93 $5 $- $98
ARVINMERITOR, INC.
NET DEBT COMPOSITION
Non-GAAP
(Unaudited, in millions)
June 30, March 31, December
2006 2006 31, 2005
Total debt $1,348 $1,357 $1,537
Less: Fair value adjustment of notes (3) (7) (14)
Plus: U.S. Off-balance sheet
receivable securitization - - -
Subtotal 1,345 1,350 1,523
Less: cash (365) (236) (302)
Net debt $980 $1,114 $1,221
September 30, June 30,
2005 2005
Total debt $1,582 $1,512
Less: Fair value adjustment of notes (17) (27)
Plus: U.S. Off-balance sheet
receivable securitization - 156
Subtotal 1,565 1,641
Less: cash (187) (180)
Net debt $1,378 $1,461
ARVINMERITOR, INC.
FREE CASH FLOW - RECONCILIATION
Non-GAAP
(Unaudited, in millions)
Three Months Ended
June 30,
2006 2005
Cash provided by operating activities $186 $191
Capital expenditures (1) (31) (41)
Less: U.S. accounts receivable
securitization - (91)
Free cash flow $155 $59
(1) Includes capital expenditures of discontinued operations.