ArvinMeritor Reports Fiscal Year 2000 and Fourth Quarter Results
9 November 2000
ArvinMeritor Reports Fiscal Year 2000 and Fourth Quarter Results; Announces $90 Million Restructuring Actions
TROY, Mich., Nov. 8 ArvinMeritor, Inc. today
reported fiscal 2000 pro forma sales were $7.7 billion, up three percent over
the prior fiscal year, with pro forma net income before special items of
$254 million, or $3.56 per share. Comparable pro forma results before special
items for the prior period were sales of $7.5 billion and net income of
$279 million, or $3.66 per share. Operating income was $515 million, down
three percent from last year, reflecting operating margin of 6.7 percent,
compared to 7.1 percent a year ago.
Equity in earnings of affiliates declined 11 percent in 2000 to
$40 million on a pro forma basis, primarily due to declining earnings for its
commercial vehicle affiliates. Net interest expense increased 21 percent in
2000 to $142 million, primarily as a result of higher debt levels associated
with acquisitions and the share repurchase program. Special items in fiscal
year 2000 include a one-time gain on the sale of a non-core business and
restructuring charges.
Due to weak market conditions affecting the company's North American
Commercial Vehicle Systems and Light Vehicle Aftermarket businesses and a
result of post merger initiatives to combine facilities, ArvinMeritor
announced further restructuring actions trimming the global workforce by about
1,500 employees which will result in a total pre-tax cost of approximately
$90 million in the first quarter of 2001, and reduce the pre-tax operating
costs of about $25 million in fiscal year 2001, growing to $50 million in 2002
and thereafter.
Sales for the fourth quarter ending Sept. 30, 2000, were $1.7 billion,
down 11 percent from the same period last year on a pro forma basis. Net
income was $29 million, or earnings per share of $0.43. Operating margin
declined to 4.5 percent in the fourth quarter, from 6.4 percent in the same
period last year on a pro forma basis before special items. Net interest
expense in the fourth quarter increased 13 percent to $35 million, primarily
due to higher debt levels associated with the share repurchase program.
Commenting on the company's results, Larry Yost, chairman and CEO, said:
"During the past few months, ArvinMeritor's financial results were affected by
the unfavorable business conditions experienced in our major markets,
including substantial softening in the North American commercial vehicle
segment, a continued decline in the light vehicle aftermarket, the impact of a
weakened euro and North American OEM customer plant shutdowns. Although the
current environment has been challenging for the industry, we are confident
that the ArvinMeritor merger strengthens our position to adapt to these
changing economics as we emerge as a stronger company.
"To assure that we create value for our shareowners, we will continue to
concentrate on our core operations, divest and outsource non-core businesses
and processes, improve our cash flow, enhance our capital management
initiatives and expand leading-edge advanced technologies within our
portfolio."
Business Segments
ArvinMeritor Commercial Vehicle Systems (CVS) sales were $631 million in
the fourth quarter, a decrease of 19 percent from the same period last year on
a pro forma basis. The major factor contributing to this sales decline was
the weakened demand in the North American Class 8 commercial truck market.
Additionally, transmission and clutch sales are now reported as part of the
equity-basis results of the ZF Meritor joint venture. Excluding the impact of
transmission and clutch sales, CVS sales were down 15 percent. The fourth
quarter operating margin for CVS was 4.8 percent, compared to 7.2 percent in
the fourth quarter of 1999. CVS sales were $2.9 billion in 2000, a decrease
of less than one percent from a year ago, and its operating margin was
7.9 percent, down from the 8.3 percent reported for year-end 1999.
ArvinMeritor Light Vehicle Systems (LVS) sales decreased one percent in
the fourth quarter to $799 million from the same period a year ago on a pro
forma basis. The company maintained its content per vehicle, notwithstanding
the divestiture of its North American seat adjusting systems business and the
$39-million negative impact of currency translation. Had it not been for
these two factors, sales in this segment would have increased eight percent as
compared to the fourth quarter of last year. LVS operating margin in the
fiscal 2000 fourth quarter was 5.0 percent, compared to 5.1 percent in the
fourth quarter of 1999 on a pro forma basis. For the year, LVS sales were up
six percent to $3.7 billion over the same time last year, notwithstanding the
$109-million negative impact of currency translation and the loss of
$98 million in seat sales. LVS pro forma operating margin improved to
6.3 percent this year, compared to 5.7 percent last year, primarily
attributable to ongoing cost-reduction initiatives.
Light Vehicle Aftermarket sales declined 16 percent to $209 million in the
fourth quarter 2000, compared to $248 million in the fourth quarter of 1999 on
a pro forma basis. Markets in this segment are extremely soft in both North
America and Europe, reflecting industry trends toward higher quality products
that last longer, and consolidation of the distribution channel base.
Operating margin for Light Vehicle Aftermarket declined to 2.9 percent in the
fourth quarter of fiscal year 2000, from 7.7 percent in the same period last
year. The margin decline reflected competitive pricing pressures, product mix
changes, and a rapid decline in customer demand for which costs were not
reduced commensurate with the sales decline. For the year, Light Vehicle
Aftermarket pro forma sales increased 5.0 percent, to $950 million compared to
$906 million last year, and operating margin declined to 4.5 percent in 2000,
compared to 7.9 percent in 1999.
Merger Integration Activities Drive Added Cost Savings
Bill Hunt, vice chairman and president, said: "The company continues to
make excellent progress in the merger integration process. We are committed
to a successful integration that will bring value to our employees, customers
and shareowners. In the first 100 days of the merger process, we have
identified projected cost synergies for 2001 of $50 million pre-tax, and
$40 million after-tax, exceeding our initial target by 33 percent. This
success reflects the dedicated efforts of our 19 integration teams, including
a $10-million annual recurring reduction in income taxes, which is expected to
reduce the fiscal 2001 effective tax rate to 35.5 percent. We also are on
schedule to increase our cost synergies to $100 million in 2003 and we expect
to exceed our previously announced goals of $450 million in revenue synergies
by 2004."
Restructuring Actions Reduce Costs
Announcing restructuring actions, Hunt said, "In addition to the progress
made by the numerous integration teams, we are taking aggressive steps to
realign our operations, primarily in our Commercial Vehicle Systems and Light
Vehicle Aftermarket businesses, with the existing and anticipated declines in
our major markets.
In accordance with existing accounting requirements related to
restructuring activities, the company expects the restructuring charge to be
about $60 million ($39 million after-tax, or $0.57 per share) in its first
fiscal quarter ending Dec. 31, 2000. One-time pre-tax period costs of
$15 million also are expected to be incurred during the remainder of fiscal
2001, and about $15 million will be accounted for under purchase accounting.
"These efforts involve both former Arvin and Meritor operations and result
from our post-merger initiative to combine many of our facilities, as well as
to align our cost structure with the current market conditions," said Hunt.
"We are restructuring the company's operations at selected facilities around
the world to reduce costs and improve operating efficiencies. The company
expects to recover the cost of the program in just over two years and
estimates that these actions will reduce operating costs by approximately
$25 million in fiscal 2001 growing to $50 million in fiscal 2002."
ArvinMeritor expects these costs will require a net after-tax cash outlay
of about $35 million. Of the total $90 million restructuring costs,
approximately $50 million will relate to employee severance benefits,
$25 million for asset rationalization and about $15 million will be used to
fund other facility-related charges.
"To strengthen our position as a leading Tier One supplier in the
automotive industry, and to improve our financial performance, we are driving
aggressive cost-reduction strategies company-wide. This focus includes the
further evaluation of reductions in capital spending and our salaried
workforce. We are taking the critical steps necessary to ensure that we
emerge stronger at the end of our first full fiscal year, as well as achieve
our long-term financial goals," Hunt said.
"Our Commercial Vehicle Systems business will account for approximately
50 percent of the total restructuring activities, Light Vehicle Systems about
35 percent and our Light Vehicle Aftermarket group will account for
15 percent. Although we are continually looking for opportunities to reduce
costs and improve operating efficiencies, we believe we must respond quickly
to the changing economic environment. We will continue to initiate cost
reduction actions in each of our businesses and reduce corporate expenses to
enhance our performance."
Outlook
"We expect the North American commercial truck and trailer markets will
continue to soften during our fiscal 2001," Yost said. "We also believe the
light vehicle replacement market will remain weak over the same period, while
the impact of the euro and other currencies is difficult to predict. As a
result, we expect fiscal 2001 sales to be down about 5 percent from pro forma
2000.
"We remain cautious regarding the current market outlook for the first
quarter and the remainder of fiscal year 2001. We expect the first quarter of
2001 to be comparable to the fourth quarter of 2000, resulting in a $0.40 to
$0.45 diluted earnings per share. The cost savings we plan to achieve from
our synergy and restructuring actions should begin to be realized in the last
two quarters of 2001. Based on the current market outlook, we are comfortable
with the current First Call consensus estimate of $3.57 in fiscal 2001.
"We will continue to drive improved financial performance through
aggressive ongoing cost-reduction efforts, restructuring actions and synergy
realization programs," Yost continued. "In addition, we continually evaluate
other value-enhancing initiatives, such as our recently announced $100-million
stock repurchase program."
During the fourth quarter, ArvinMeritor had purchased 3.1 million shares
at a total cost of $52.5 million. To date, the company has purchased
4.1 million shares at a total cost of $67.5 million.
"ArvinMeritor has all the ingredients and qualities in place to continue
to be a leading Tier One supplier," Yost said. "We have the advantages of
added scale, product breadth, geographic scope, technological leadership and
systems integration capability to be among one of the industry's strongest
competitors."