Meritor Automotive Reports Record Fiscal Year 1999 Results Earnings
11 November 1999
Meritor Automotive Reports Record Fiscal Year 1999 Results Earnings Per Share Increase 32 Percent; Sales Up 16 Percent
TROY, Mich., Nov. 10 -- Meritor Automotive, Inc.
today reported record results for its fiscal year ended September 30, 1999.
Fiscal 1999 sales were $4.5 billion, a 16 percent increase over last year's
sales of $3.8 billion. Net income for the year was $194 million, or $2.81 per
share, an increase of 32 percent as compared with 1998 net income of
$147 million, or $2.13 per share. Acquisitions contributed sales of
$395 million and earnings per share of $0.03 in fiscal 1999.
Net income before special items was $193 million in fiscal 1999, or $2.79
per share, compared with 1998 net income before special items of $166 million,
or $2.40 per share, an improvement of 16 percent. Special items include a
one-time gain related to the formation of the ZF Meritor joint venture and a
restructuring charge recorded in fiscal 1999 and a one-time charge in fiscal
1998 for the settlement of interest rate agreements.
Meritor Chairman and Chief Executive Officer, Larry D. Yost said: "Our
results for our second year as a public company, once again, are in line with
our stated financial goals and demonstrate our ability to deliver consistent
financial performance. Through the dedication, focus and vision of our people
striving to be the best, we have achieved eight consecutive quarters of
double-digit earnings growth. The three acquisitions in fiscal 1999, combined
with record demand in the North American markets and penetration gains from
Light Vehicle Systems' new product introductions, are driving the strong sales
performance. The growth in earnings reflects our ongoing efforts to improve
operating margins through operational excellence, as well as higher sales."
Fiscal 1999 operating earnings of $366 million, before restructuring
costs, were up 22 percent over the prior year's operating earnings of
$299 million. Operating margins, before the restructuring charge, improved to
8.2 percent in fiscal 1999 from last year's 7.8 percent. Excluding the
acquisitions and their associated goodwill amortization, the company's fiscal
year operating margin improved by 50 basis points, to 8.3 percent. This
improvement reflects the company's continued focus on process improvement and
cost reductions, offset somewhat by premium costs associated with meeting the
record levels of demand in the North American truck markets.
The company's long-term debt to capitalization ratio was 68 percent as of
September 30, 1999, and 51 percent as of September 30, 1998. The increase
from last year-end is the result of debt incurred to finance
three acquisitions in the first half of the fiscal year. The fiscal 1999
year-end long-term debt to capitalization ratio has improved from 74 percent
at March 31, 1999.
As of September 30, 1999, the company had purchased 298,000 of its shares,
at a cost of $6 million, under its $125 million repurchase program. To date,
the company has repurchased 1,352,500 shares at a cost of $27 million. Yost
stated: "Meritor's stock repurchase program is just one of several strategies
we are using to enhance long-term shareowner value. These strategies include
growing our existing business base through market share gains and new product
introductions; business alliances and joint ventures; strategic acquisitions;
restructuring and cost reduction efforts to boost operating performance; and
disposition of selected product lines."
Special Items
In the fourth quarter of fiscal 1999, Meritor recorded a one-time gain of
$24 million ($18 million after-tax, or $0.27 per share) in connection with the
formation of a transmission and clutch joint venture with ZF Friedrichshafen
AG (ZF). Income taxes related to this gain were recorded at an effective tax
rate of 25 percent, due to a book-tax basis difference on assets transferred
into the joint venture. This reduced Meritor's overall effective tax rate for
fiscal 1999 by 1.2 percentage points to 38.8 percent.
Meritor recorded a charge in the third quarter of fiscal 1999 of
$28 million ($17 million after-tax, or $0.25 per share) for restructuring
actions that it expects will significantly improve operational efficiencies
and reduce costs.
The company recorded a charge of $31 million ($19 million after-tax, or
$0.27 per share) in the fourth quarter of fiscal 1998 for the settlement of
interest rate agreements.
Heavy Vehicle Systems
Heavy Vehicle Systems (HVS) reported a record $2.9 billion in sales of
components and systems for original equipment and the aftermarket in fiscal
1999, an increase of $514 million, or 22 percent, over 1998. Excluding
acquisitions, HVS sales increased $119 million, or 5 percent. The record
production volumes in the North American heavy truck market drove North
American sales of truck axles, brakes and transmissions to $1.3 billion, an
increase of $245 million, or 22 percent. North American sales of other HVS
products were $657 million, down $65 million from last year, primarily as a
result of lower government program sales. European sales, excluding
acquisitions, were down $21 million, or 6 percent, and South American sales
fell $47 million, or 41 percent, while HVS sales in the rest of the world were
up $7 million.
HVS operating earnings for fiscal 1999 were $233 million, an increase of
10 percent over last year. Operating margins declined to 8.1 percent in
fiscal 1999 from 8.9 percent in fiscal 1998. Excluding the acquisitions and
their associated goodwill amortization, fiscal 1999 operating margins were
8.3 percent. This margin decline was driven primarily by an increase in
premium freight costs and the use of higher-cost alternate component suppliers
to meet the record demand in the North American heavy truck market. Fiscal
1999 operating margins were also adversely impacted by the decline of
higher-margin government program sales.
Light Vehicle Systems
Light Vehicle Systems (LVS) sales grew $100 million, or 7 percent, to a
record $1.6 billion for fiscal year 1999. Market penetration gains,
principally in the door, suspension and seat adjusting systems product lines,
combined with strong North American vehicle volumes drove the higher sales.
This growth was partially offset by weakness in European roof systems sales
and the negative impact of currency and lower vehicle volumes in South
America. LVS sales in North America increased $127 million, or 22 percent,
and sales in Asia/Pacific were up $21 million, or 38 percent. Sales in Europe
and South America were down $37 million and $11 million, respectively.
LVS operating margins improved dramatically in fiscal 1999 to 8.4 percent
from 6.0 percent in 1998. Substantial savings were realized in fiscal 1999
from material and other cost reduction programs. The operating margin
improvement also reflects the volume contribution from the higher sales.
Fourth Quarter
Fourth quarter sales for fiscal 1999 were $1.1 billion, including
acquisition sales of $129 million, up 18 percent from fourth quarter 1998
sales of $954 million. Fourth quarter operating earnings were $90 million, up
$23 million, or 34 percent, over the same period in fiscal 1998. Operating
margins increased to 8.0 percent during the fourth quarter of fiscal 1999, an
improvement of 1.0 percentage point over operating margins of 7.0 percent
during the fourth quarter of 1998. Other income in the fourth quarter of
fiscal 1999 was $5 million, down $5 million from last year's fourth quarter,
primarily as a result of non-recurring asset losses.
Before special items, net income was $47 million or $0.68 per share,
compared to fiscal 1998 net income of $42 million, or $0.61 per share, an
increase of 12 percent. Meritor earned $65 million, or $0.95 per share, in
its fourth fiscal quarter, after the one-time gain resulting from the ZF
Meritor alliance. Acquisitions contributed earnings per share of $0.02 in the
fourth quarter of fiscal 1999.
HVS fourth quarter sales for fiscal 1999 were $758 million, up $156
million, or 26 percent, over last year's fourth quarter. HVS sales, excluding
acquisitions, were up $27 million, or 4 percent. Excluding acquisitions, HVS
North American truck axle, brake and transmissions sales increased by
$51 million, or 18 percent, to $340 million, reflecting record demand for
heavy- and medium-duty trucks. North American sales of other HVS products for
the fourth quarter were $168 million, down $12 million from last year's fourth
quarter, primarily the result of lower government program sales. HVS fourth
quarter 1999 sales outside North America, excluding acquisitions, were
$121 million, down $12 million, or 9 percent. HVS operating margins in the
fourth quarter were 6.9 percent in 1999, down from 8.3 percent in 1998,
reflecting higher premium costs and other volume-related expenses incurred in
connection with the record demand in North America and higher information
technology expenditures. Fourth quarter operating margins were also adversely
impacted by the decline in higher-margin government sales.
LVS fourth quarter sales for fiscal 1999 were $368 million, up
$16 million, or 5 percent, from the fourth quarter last year. This increase
reflects a $40 million, or 31 percent, increase in North American sales driven
by higher roof, suspension and seat adjusting systems sales. The increase was
partially offset by a decline in European sales, due primarily to lower roof
systems sales and vehicle production volumes. LVS operating margins were
10.3 percent for fiscal 1999's fourth quarter and 4.8 percent in last year's
fourth quarter. This operating margin improvement reflects material and cost
reduction programs, as well as the ramp up of the seat adjusting systems
product line in last year's fourth quarter.
Outlook
Yost said: "We expect strength in our core markets in fiscal 2000,
although we believe volumes in the North American heavy truck and light
vehicle markets and the European car market will likely be lower than the
fiscal 1999 levels. The North American heavy truck market accounted for only
28 percent of Meritor's total sales in fiscal 1999. However, we expect to see
positive results in more moderate markets, driven by better balance in our HVS
capacity and component supply. We also anticipate stronger overall results in
fiscal 2000, as we continue to leverage the acquisitions and restructuring
actions initiated this past year and benefit from our ongoing process
improvement and cost reduction programs."
Yost continued: "We are proud of our success in our first two years as a
public company and believe we are well-positioned to continue to deliver on
our long-term financial commitments. Meritor will continue to execute its
balanced global growth strategy and strengthen its leading market positions in
both LVS and HVS, including Aftermarket. The recently announced divestiture
of our seat adjusting systems business for $130 million will allow LVS to
focus on building global market positions in aperture systems, including door,
access control and roof systems, and undercarriage components and systems."
Meritor, with 1999 sales of $4.5 billion, is a global supplier of a broad
range of systems and components for commercial, specialty and light vehicle
OEMs and the aftermarket. Meritor consists of two businesses: Heavy Vehicle
Systems, a leading supplier of complete drivetrain systems and components for
medium- and heavy-duty trucks, trailers and off-highway equipment and
specialty vehicles, including military, bus and coach, and fire and rescue;
and Light Vehicle Systems, a major supplier of roof, door, access control and
suspension systems and wheel products for passenger cars, light trucks and
sport utility vehicles.
This news release contains statements relating to future results that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected
as a result of certain risks and uncertainties, including but not limited to
those detailed from time to time in the company's Securities and Exchange
Commission filings.
MERITOR AUTOMOTIVE, INC.
Consolidated Statement Of Income
($ in millions, except per share amounts)
Quarter Ended Year Ended
September 30, September 30,
(Unaudited)
1999 1998 1999 1998
Sales $1,126 $954 $4,450 $3,836
Cost of Sales 960 823 3,804 3,289
Gross Margin 166 131 646 547
Selling, General
and Administrative 76 64 280 248
Restructuring Costs (a) -- -- 28 --
Operating Earnings 90 67 338 299
Other Income-Net 5 10 20 20
Gain on Sale
of Business (b) 24 -- 24 --
Interest Rate
Settlement Cost (c) -- (31) -- (31)
Interest Expense (17) (11) (65) (43)
Income Before
Income Taxes 102 35 317 245
Provision for
Income Taxes (37) (12) (123) (98)
Net Income $65 $23 $194 $147
Basic and Diluted
Earnings Per Share $0.95 $0.34 $2.81 $2.13
Average Shares
Outstanding
(in millions) 69.1 69.0 69.1 69.0
Before Special Items (d):
Operating Earnings $90 $67 $366 $299
Income Before
Income Taxes $78 $66 $321 $276
Net Income $47 $42 $193 $166
Basic and Diluted
Earnings Per Share $0.68 $0.61 $2.79 $2.40
(a) Represents restructuring costs of $28 million ($17 million after-tax,
or $0.25 per share) recorded in the third quarter of fiscal 1999.
(b) Represents the one-time gain of $24 million ($18 million after-tax, or
$0.27 per share) recorded in the fourth quarter of fiscal 1999 to
reflect the formation of a transmission and clutch joint venture with
ZF Friedrichshafen AG.
(c) Represents the one-time charge of $31 million ($19 million after-tax,
or $0.27 per share) recorded in the fourth quarter of fiscal 1998 for
the settlement of interest rate agreements entered into in April 1998
to secure interest rates for a planned issuance of debt securities
that did not occur until fiscal 1999.
(d) Excludes the items discussed in Notes a, b and c above.
MERITOR AUTOMOTIVE, INC.
Consolidated Business Segment Information
($ in millions)
Quarter Ended Year Ended
September 30, September 30,
(Unaudited)
1999 1998 1999 1998
Sales:
Heavy Vehicle Systems:
Original Equipment $639 $520 $2,460 $2,048
Aftermarket 119 82 415 313
758 602 2,875 2,361
Light Vehicle Systems 368 352 1,575 1,475
Total Sales $1,126 $954 $4,450 $3,836
Operating Earnings:
Heavy Vehicle
Systems (a) $52 $50 $233 $211
Light Vehicle Systems 38 17 133 88
Total Operating
Earnings $90 $67 $366 $299
(a) Includes goodwill amortization of $3 and $7 million, respectively, for
the quarter and year ended September 30, 1999, related to the
acquisitions of Volvo's heavy truck axle manufacturing operations,
LucasVarity's Heavy Vehicle Braking Systems business and Euclid
Industries.
MERITOR AUTOMOTIVE, INC.
Summary Consolidated Balance Sheet
($ in millions)
September 30, September 30,
1999 1998
ASSETS
Cash $68 $65
Other Current Assets 1,264 1,151
Property, Net 766 666
Goodwill, Net 54 39
Other Assets 244 165
Total $2,796 $2,086
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term Debt $44 $34
Other Current
Liabilities 1,080 1,020
Accrued Retirement
Benefits 371 378
Other Liabilities 116 44
Long-term Debt 802 313
Equity and
Minority Interests 383 297
Total $2,796 $2,086
MERITOR AUTOMOTIVE, INC.
Summary Statement Of Consolidated Cash Flows
($ in millions)
Year Ended September 30,
1999 1998
OPERATING ACTIVITIES
Net Income $194 $147
Adjustments to
Net Income:
Depreciation and
Amortization 131 102
Gain on Sale
of Business (24) --
Restructuring, Net
of Expenditures 23 --
Other 6 (17)
Changes in Assets
and Liabilities:
Receivables (95) (88)
Inventories -- (34)
Accounts Payable 45 129
Other (26) 39
CASH PROVIDED BY
OPERATING ACTIVITIES 254 278
INVESTING ACTIVITIES
Capital Expenditures (170) (139)
Acquisition of
Businesses and Other (573) (8)
Proceeds from Sale
of Businesses, Property
and Other Assets 51 17
CASH USED FOR
INVESTING ACTIVITIES (692) (130)
FINANCING ACTIVITIES
Net Increase (Decrease)
in Debt 507 (129)
Cash Dividends (29) (29)
Purchase of
Treasury Stock (6) --
Payment of Interest
Rate Settlement Cost (31) --
Payment of Distribution
Tax Obligation, Net -- (58)
CASH PROVIDED BY
(USED FOR) FINANCING
ACTIVITIES 441 (216)
INCREASE (DECREASE)
IN CASH 3 (68)
CASH AT BEGINNING
OF PERIOD 65 133
CASH AT END
OF PERIOD $68 $65