Meritor Automotive Reports Record Fiscal Year 1998 Results
11 November 1998
Meritor Automotive Reports Record Fiscal Year 1998 Results In First Year as Public Company
TROY, Mich., Nov. 11 -- Meritor Automotive, Inc. ,
today reported record results for its fiscal year ended September 30, 1998,
its first year as a publicly-held company. Fiscal 1998 sales were
$3.8 billion, a 16 percent increase over last year's sales of $3.3 billion.
Net income for the year was $147 million, or $2.13 per share, an increase of
48 percent as compared with 1997 pro forma net income of $99 million, or $1.44
per share.
Meritor Chairman and Chief Executive Officer, Larry D. Yost said, "I want
to congratulate the men and women of Meritor and thank our valued customers
and suppliers who helped make our initial year as a public company a great
success."
Net income, before special items, was $166 million in fiscal 1998, or
$2.40 per share, compared with 1997 net income of $120 million, or $1.74 per
share, an improvement of 38 percent. Special items include a one-time charge
for settlement of interest rate agreements in fiscal 1998 and restructuring
and spin-off costs in fiscal 1997, as described below. Fiscal 1998 operating
earnings of $299 million were up 35 percent over the prior year's pro forma
operating earnings of $221 million, before restructuring and spin-off costs.
Operating margins for fiscal 1998 improved to 7.8 percent from last year's
6.7 percent.
"Our results for the year were outstanding and reflect the ongoing
successful implementation of our productivity and cost improvement programs,
the strength of our global markets and penetration gains across nearly our
entire product range," Yost said. "We believe that Meritor is well-positioned
to achieve our stated long-term financial goals to grow internally, on an
average annual basis, sales by 8 percent and earnings per share by 15 percent,
as well as to improve our long-term debt to capitalization ratio to
45 percent, excluding acquisition activities."
Selling, general and administrative expenses, as a percentage of sales,
improved slightly from 6.6 percent to 6.5 percent, despite planned increased
investments in information technology. Other income for 1998 was up
$5 million over last year primarily due to higher equity income from joint
ventures pertaining to the heavy truck and trailer markets.
Cash flow from operations for fiscal 1998 was $278 million, an increase of
34 percent over the prior year reflecting Meritor's strong emphasis on cash
generation. Increased cash flow has enabled Meritor to reduce debt and
improve its long-term debt to capitalization ratio by 20 percentage points, to
51 percent at September 30, 1998, from 71 percent a year ago.
Fourth Quarter and Special Items
In the fourth quarter of fiscal 1998, the company recorded a one-time
charge of $31 million ($19 million after-tax) or $.27 per share in connection
with the settlement of interest rate agreements. These agreements were
entered into in April 1998 to secure interest rates in anticipation of
offering debt securities. The planned issuance of these debt securities did
not occur, initially due to the consideration of a major acquisition and,
subsequently, the instability in the U.S. corporate bond market. These
agreements were settled and paid in October 1998.
The company recorded restructuring charges and spin-off costs of
$29 million ($21 million after-tax) or $.30 per share in the fourth quarter of
fiscal 1997.
Amounts set forth in this paragraph are before special items and 1997
results are stated on a pro forma basis. Fourth quarter sales for fiscal 1998
were $954 million, increasing 13 percent from fourth quarter 1997 sales of
$842 million. Fourth quarter operating earnings were $67 million, up
$18 million or 37 percent over 1997. Operating margins increased to
7.0 percent during the fourth quarter of 1998, a 1.2 percentage point increase
over operating margins of 5.8 percent for the fourth quarter of 1997. Net
income was $42 million or $.61 per share, increasing 56 percent compared to
1997 net income of $27 million or $.39 per share.
Heavy Vehicle Systems
Heavy Vehicle Systems sales grew to a record $2.4 billion in fiscal 1998,
an increase of $404 million or 21 percent over 1997. Sales increased across
all of the company's heavy truck and trailer products, including axles,
transmissions, clutches, drivelines and brake systems, primarily as a result
of the strong North American heavy truck market, greater market penetration
and improved volumes in the aftermarket. Sales also increased in Heavy
Vehicle Systems off-highway, government and specialty product lines.
Light Vehicle Systems
Light Vehicle Systems also reported record sales for the year of
$1.5 billion, an increase of $123 million or 9 percent over 1997. The sales
growth was driven by penetration gains in the door, suspension, access control
and seat adjusting systems and wheel product lines and somewhat by higher
industry volumes in Europe. This growth was negatively affected by lower
European sunroof demand and the adverse impact of currency translation on
European sales.
Outlook
Yost said, "Our markets are currently strong, and looking to the first
half of fiscal 1999 the outlook remains the same. However, beyond this
horizon the outlook is less clear and economic uncertainties around the world
may make 1999 a challenging year in many of our global markets. As a result
of the diversity and balance of our product portfolio and served markets, we
expect to perform well in this environment with revenue growth in the single
digit range."
Meritor, with 1998 sales of more than $3.8 billion, is a global supplier
of a broad range of components and systems for commercial, specialty and light
vehicle OEMs and the aftermarket. Meritor consists of two businesses: Heavy
Vehicle Systems, a leading supplier of drivetrain systems and components for
medium- and heavy-duty trucks, trailers and off-highway equipment and
specialty vehicles, including military, bus and coach, and fire and rescue;
and Light Vehicle Systems, a major supplier of roof, door, access control,
suspension and seat adjusting systems, and wheels for passenger cars, light
trucks and sport utility vehicles.
This news release contains statements relating to future results that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected
as a result of certain risks and uncertainties, including but not limited to
those detailed from time to time in the Company's Securities and Exchange
Commission filings.
For more information, visit the Meritor website at
http://www.meritorauto.com
MERITOR AUTOMOTIVE, INC.
SALES AND EARNINGS INFORMATION
($ in millions, except per share amounts)
Quarter Ended Year Ended
September 30, September 30,
1998 1997 (1) 1998 1997 (1)
Sales
Heavy Vehicle Systems $602 $538 $2,361 $1,957
Light Vehicle Systems 352 304 1,475 1,352
Total Sales $954 $842 $3,836 $3,309
Gross Margin $131 $106 $547 $438
Selling, General
and Administrative 64 57 248 217
Restructuring and
Spin-off Costs - 29 - 29
Operating Earnings $67 $20 $299 $192
Other Income-Net 10 5 20 15
Interest Rate
Settlement Cost (2) (31) - (31) -
Interest Expense (11) (12) (43) (38)
Income Before
Income Taxes 35 13 245 169
Provision for
Income Taxes (12) (7) (98) (70)
Net Income $23 $6 $147 $99
Basic and Diluted
Earnings Per Share $0.34 $0.09 $2.13 $1.44
Average Shares Outstanding
(in millions) 69.0 68.9 69.0 68.9
Before Special Items (3):
Operating Earnings $67 $49 $299 $221
Net Income $42 $27 $166 $120
Basic and Diluted
Earnings Per Share $0.61 $0.39 $2.40 $1.74
(1) The quarter and year ended September 30, 1997 are presented on a pro
forma basis, see attached reconciliation from historical to pro forma.
(2) Represents the one-time charge of $31 million relating to the
settlement of interest rate agreements. The agreements were entered into in
April 1998 to secure interest rates in anticipation of offering debt
securities.
(3) Special items include the interest rate settlement cost of $31
million ($19 million after-tax or $.27 per share) recorded in the fourth
quarter of 1998 and restructuring and spin-off costs of $29 million ($21
million after-tax or $.30 per share on a pro forma basis) recorded in the
fourth quarter of 1997.
MERITOR AUTOMOTIVE, INC.
PRO FORMA SALES AND EARNINGS INFORMATION
($ in millions, except per share amounts)
Quarter Ended September 30, 1997
Pro Forma (1)
Historical Adjustments Pro Forma
Sales
Heavy Vehicle Systems $538 $ - $538
Light Vehicle Systems 304 - 304
Total Sales $842 $ - $842
Gross Margin $106 $ - $106
Selling, General
and Administrative 60 (3) 57
Restructuring and
Spin-off Costs 29 - 29
Operating Earnings $17 $3 $20
Other Income-Net 5 - 5
Interest Expense (4) (8) (12)
Income Before Income Taxes 18 (5) 13
Provision for Income Taxes (9) 2 (7)
Net Income $9 $(3) $6
Basic and Diluted
Earnings Per Share $0.09
Basic and Diluted
Earnings Per Share $0.39
Before Special Items (2)
Shares Outstanding
(in millions) 68.9
Year Ended September 30, 1997
Pro Forma (1)
Historical Adjustments Pro Forma
Sales
Heavy Vehicle Systems $1,957 $ - $1,957
Light Vehicle Systems 1,352 - 1,352
Total Sales $3,309 $ - $3,309
Gross Margin $438 $ - $438
Selling, General
and Administrative 228 (11) 217
Restructuring and
Spin-off Costs 29 - 29
Operating Earnings $181 $11 $192
Other Income-Net 15 - 15
Interest Expense (10) (28) (38)
Income Before Income Taxes 186 (17) 169
Provision for Income Taxes (77) 7 (70)
Net Income $109 $(10) $99
Basic and Diluted
Earnings Per Share $1.44
Basic and Diluted
Earnings Per Share $1.74
Before Special Items (2)
Shares Outstanding
(in millions) 68.9
(1) Pro forma information reflects (a) the 68.9 million shares of common
stock issued at the date of the spin-off from Rockwell International, (b)
management's estimate that corporate costs would have been $3 million and $11
million lower on a stand-alone basis for the quarter and year ended September
30, 1997 than those allocated to the Automotive Business by Rockwell and (c)
$8 million and $28 million of interest expense at 6.0% for the quarter and
year ended September 30, 1997 related to the debt incurred by the Company in
connection with the $445 million pre-distribution payment to Rockwell.
(2) Special items include the restructuring and spin-off costs of $29
million ($21 million after-tax or $.30 per share on a pro forma basis)
recorded in the fourth quarter of 1997.
MERITOR AUTOMOTIVE, INC.
SUMMARY BALANCE SHEET
($ in millions)
September 30, September 30,
1998 1997
ASSETS
Cash $65 $133
Other Current Assets 1,151 1,018
Property, Net 666 635
Other Assets 204 216
Total $2,086 $2,002
LIABILITIES & SHAREOWNERS' EQUITY
Short-term Debt $34 $21
Current Liabilities 1,020 895
Accrued Retirement Benefits 378 387
Other Liabilities 44 46
Long-term Debt 313 465
Equity & Minority Interest 297 188
Total $2,086 $2,002
MERITOR AUTOMOTIVE, INC.
SUMMARY STATEMENT OF CONSOLIDATED CASH FLOWS
($ in millions)
September 30, September 30,
1998 1997
OPERATING ACTIVITIES
Net Income $147 $109
Adjustments to Net Income
Depreciation and Amortization 102 100
Pension Contributions (28) (5)
Other 11 37
Changes in Assets and Liabilities 46 (33)
CASH PROVIDED BY OPERATING
ACTIVITIES 278 208
INVESTING ACTIVITIES
Capital Expenditures (139) (126)
Other 9 (8)
CASH USED FOR INVESTING
ACTIVITIES (130) (134)
FINANCING ACTIVITIES
Net (Decrease) Increase in Debt (129) 456
Cash Dividends (29) -
Pre-Distribution Payment
to Rockwell - (445)
Distribution Tax Obligation (72) 58
Net Transfers from (to) Rockwell 14 (84)
CASH USED FOR FINANCING
ACTIVITIES (216) (15)
(DECREASE) INCREASE IN CASH (68) 59
CASH AT BEGINNING OF YEAR 133 74
CASH AT END OF YEAR $65 $133