Meritor Reports 7th Consecutive Quarter of Double-Digit Earnings Growth
20 July 1999
Meritor Automotive Reports Seventh Consecutive Quarter of Double-Digit Earnings Growth
TROY, Mich., July 20 -- Meritor Automotive, Inc.
today reported record results for its third fiscal quarter ended June 30,
1999. Sales were $1.2 billion and net income was $56 million, or $0.81 per
share, before restructuring costs. Sales for the quarter increased by
$214 million, or 21 percent, over the same period last year and earnings per
share, before restructuring, grew by $0.13, or 19 percent. Sales increased by
$70 million, or 7 percent, and earnings per share increased by $0.12, or
18 percent, after excluding sales from recent acquisitions of $144 million and
their related earnings per share contribution of $0.01.
Meritor Chairman and Chief Executive Officer, Larry D. Yost said: "Our
third quarter results mark the seventh consecutive quarter of double-digit
earnings growth, improved operating margins and strong sales performance since
Meritor became a public company on October 1, 1997. Record demand in our
primary North American Heavy Vehicle Systems markets, market penetration gains
from Light Vehicle Systems new product introductions and our three recent
acquisitions are driving the sales performance. Higher sales, along with our
ongoing efforts to enhance operational excellence through process improvement
and cost reduction initiatives, are driving our improved profit margins and
higher earnings."
Third quarter operating margins, before restructuring, improved to
8.9 percent, up from 8.8 percent for the same period last year. Excluding the
acquisitions and their associated goodwill amortization, the company's third
quarter operating margins improved by 30 basis points to 9.1 percent. This
improvement reflects the company's continued focus on process improvement and
cost reduction programs.
As announced last month, Meritor recorded a third quarter charge of
$28 million ($17 million after tax, or $0.25 per share) for restructuring
actions that it expects will significantly improve operational efficiencies,
reduce costs and expand operating margins. The company estimates that the
restructuring actions will reduce operating costs by approximately $12 million
($7 million after tax, or $0.10 per share) in fiscal year 2000 and by
approximately $15 million ($9 million after tax, or $0.13 per share) annually,
beginning the following fiscal year. Meritor earned $39 million, or
$0.56 per share, in its third fiscal quarter, after restructuring costs.
Meritor's pre-tax interest coverage, excluding the restructuring charge,
was 6.1x for the nine months ended June 30, 1999. The company's long-term
debt to capitalization ratio decreased to 72 percent at June 30, 1999, from
74 percent at March 31, 1999. The increase from 51 percent at September 30,
1998, reflects the three acquisitions Meritor completed in the first half of
the fiscal year.
Heavy Vehicle Systems
Heavy Vehicle Systems (HVS) sales were $807 million for the third quarter
of fiscal 1999, an increase of $197 million, or 32 percent, as compared to the
third quarter last year. Excluding acquisitions, HVS sales increased
$53 million, or 9 percent. The sales growth reflects the continuing strength
of the North American heavy truck market, partially offset by a decline
related to planned government program changeovers and weaker sales in Europe
and Brazil. HVS sales in North America, excluding acquisitions, increased
$77 million, or 17 percent, while European sales were down about $13 million,
or 13 percent, and South American sales were down $15 million, or 48 percent.
HVS sales in the Asia/Pacific region were up about $4 million.
Light Vehicle Systems
Light Vehicle Systems (LVS) sales grew $17 million, or 4 percent, in the
third fiscal quarter to $410 million, as compared to the same quarter last
year. Sales growth for this business was driven by strong North American
vehicle volumes and market penetration gains, principally in the seat
adjusting, door, North American roof and suspension systems product lines.
This growth was partially offset by lower roof systems sales in Europe and the
negative impact of currency translation on European sales. LVS sales in North
America increased about $41 million, or 27 percent, while sales in Europe were
down $25 million, or 13 percent. Sales in the rest of the world were up
slightly.
Nine Month Summary
For the nine months ended June 30, 1999, Meritor's sales were
$3.3 billion, up 15 percent over the same period last year. Operating
earnings, before restructuring, were $276 million, up 19 percent, while
operating margins increased 30 basis points to 8.3 percent. The operating
margin improvement reflects higher sales and savings generated from the
company's cost reduction and productivity improvement programs, somewhat
offset by the impact of acquisitions and their related goodwill amortization.
Net income for fiscal 1999's first nine months was $146 million, or
$2.11 per share, before the restructuring charge. This was 18 percent higher
than last year's net income of $124 million, or $1.79 per share. Meritor
earned $129 million or $1.86 per share, after the restructuring charge, for
the nine months ended June 30, 1999.
Outlook
Yost stated: "Our core markets continue at a strong pace and we maintain
a positive outlook for the remainder of our fiscal year and into fiscal 2000.
We expect record production levels approaching 300,000 and 180,000 units,
respectively, for North American heavy- and medium-duty trucks in this fiscal
year. In addition, we forecast North American light vehicle production to be
up about 9 percent in fiscal 1999, while European production is estimated to
be flat for light vehicles and down moderately for heavy trucks. The
strength, balance and diversity of our products and served markets provide a
solid base to meet global customer demands and achieve our long-term financial
goals."
Yost continued: "Our recently announced restructuring actions and planned
joint venture with ZF Friedrichshafen AG to manufacture and market North
American medium- and heavy-duty truck transmissions are examples of the
strategies Meritor is pursuing to further enhance long-term shareowner value.
We remain confident about, and committed to, achieving 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."
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 wheel products 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.
CONSOLIDATED SALES AND EARNINGS INFORMATION
(Unaudited, $ in millions, except per share amounts)
Quarter Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
Sales
Heavy Vehicle Systems $ 807 $ 610 $ 2,117 $ 1,759
Light Vehicle Systems 410 393 1,207 1,123
Total Sales $ 1,217 $ 1,003 $ 3,324 $ 2,882
Gross Margin $ 182 (a) $ 151 $ 480 (a) $ 416
Selling, General
and Administrative 74 63 204 184
Restructuring Costs 28 -- 28 --
Operating Earnings $ 80 $ 88 $ 248 $ 232
Other Income-Net 3 3 15 10
Interest Expense (18) (11) (48) (32)
Income Before Income Taxes 65 80 215 210
Provision for Income Taxes (26) (33) (86) (86)
Net Income $ 39 $ 47 $ 129 $ 124
Basic and Diluted
Earnings Per Share $ 0.56 $ 0.68 $ 1.86 $ 1.79
Average Shares
Outstanding
(in millions) 69.1 69.0 69.1 69.0
Before Special Items (b):
Operating Earnings $ 108 $ 88 $ 276 $ 232
Net Income $ 56 $ 47 $ 146 $ 124
Basic and Diluted
Earnings Per Share $ 0.81 $ 0.68 $2.11 $ 1.79
(a) Includes goodwill amortization of $2.5 and $4.6 million,
respectively, for the quarter and nine months ended June 30, 1999,
related to the acquisitions of Volvo's heavy truck axle manufacturing
operations, LucasVarity's Heavy Vehicle Braking Systems business and
Euclid Industries.
(b) Excludes restructuring costs of $28 million ($17 million after tax,
or $0.25 per share) recorded in the third quarter and nine months
ended June 30, 1999.
MERITOR AUTOMOTIVE, INC.
SUMMARY CONSOLIDATED BALANCE SHEET
(Unaudited, $ in millions)
June 30, September 30,
1999 1998
ASSETS
Cash $ 45 $ 65
Other Current Assets 1,344 1,151
Property, Net 763 666
Goodwill, Net 437 39
Other Assets 228 165
Total $ 2,817 $ 2,086
LIABILITIES & SHAREHOLDERS' EQUITY
Short-term Debt $ 23 $ 34
Current Liabilities 1,092 1,020
Accrued Retirement Benefits 383 378
Other Liabilities 107 44
Long-term Debt 878 313
Equity & Minority Interests 334 297
Total $ 2,817 $ 2,086
MERITOR AUTOMOTIVE, INC.
SUMMARY STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited, $ in millions)
Nine Months Ended
June 30,
1999 1998
OPERATING ACTIVITIES
Net Income $ 129 $ 124
Adjustments to Net Income
Depreciation and Amortization 94 77
Restructuring, Net of Expenditures 16 --
Pension Contributions (18) (16)
Other 27 11
Changes in Assets and Liabilities (116) (108)
CASH PROVIDED BY OPERATING ACTIVITIES 132 88
INVESTING ACTIVITIES
Capital Expenditures (99) (80)
Acquisition of Businesses and Other (570) (6)
CASH USED FOR INVESTING ACTIVITIES (669) (86)
FINANCING ACTIVITIES
Net Increase in Debt 570 13
Cash Dividends (22) (22)
Payment of Interest Rate
Settlement Cost (a) (31) --
Payment of Distribution
Tax Obligation, Net -- (58)
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 517 (67)
DECREASE IN CASH (20) (65)
CASH AT BEGINNING OF PERIOD 65 133
CASH AT END OF PERIOD $ 45 $ 68
(a) Represents payment of the one-time charge of $31 million ($19 million
after tax, or $.27 per share) relating to the settlement of interest
rate agreements which was accrued in the fourth quarter of fiscal
1998.