TROY, Mich. — ArvinMeritor today reported financial results for its third quarter ended June 30.
In the third quarter of fiscal year 2009, ArvinMeritor posted sales of $993 million, down from $1.9 billion, or 47 percent, from the same period last year (42 percent excluding effects of foreign currency). This decrease in sales is due to significantly lower production volumes in most original equipment markets globally.
Net loss was $162 million, or $2.23 per diluted share, compared to net income of $44 million or 60 cents per diluted share, in the third quarter of fiscal year 2008. Net loss includes losses from discontinued operations of $134 million or $1.84 per diluted share, primarily related to non-cash, after-tax charges of approximately $90 million associated with the divestiture of several of the company’s chassis businesses.
EBITDA from continuing operations, before special items, was $33 million, down $79 million or 71 percent, from the same period last year. Despite sales being down nearly 50 percent in the company’s core Commercial Vehicle Systems business, EBITDA margins in that business only declined by approximately 30 percent, due to operational improvements, the impact of restructuring and other cost reduction initiatives, and positive material performance.
Loss from continuing operations, on a GAAP basis, was $28 million or 39 cents per diluted share, compared to income from continuing operations of $48 million or 66 cents per diluted share in the prior year.
Loss from continuing operations, before special items, was $18 million or 25 cents per diluted share, compared to income from continuing operations, before special items, of $54 million or 74 cents per diluted share a year ago. Special items for the quarter primarily relate to restructuring charges and non-cash charges for a valuation reserve against certain deferred tax assets.
Free cash flow was $73 million in the third quarter, an increase of $211 million from the second fiscal quarter of this year. This increase is due to continued reductions in working capital levels, primarily in accounts receivable and inventory.
"Although sales are down significantly, our performance this quarter demonstrates a continued diligence to improve ArvinMeritor’s liquidity position through proactive management of working capital, improved operational performance and ongoing cost reduction actions," said Chairman, CEO and President Chip McClure. "With the completion of several divestitures, we moved closer to our objective of becoming a commercial vehicle company, enabling us to focus on expanding our leadership position in both on- and off-highway markets, as demonstrated by the new contracts we announced this quarter."
Divestiture of Wheels Business
Today, ArvinMeritor entered into a purchase and sale agreement to divest the entirety of its Wheels business – previously a division of the company’s LVS segment. The business is being sold to Iochpe-Maxion, S. A., a Brazilian producer of wheels and frames for commercial vehicles, railway freight cars and castings. The base purchase price is $180 million; actual closing proceeds may vary depending on taxes and the net cash or debt position of the business at closing.
The closing and funding of the entire adjusted purchase price is expected to be on or before Sept. 23, prior to the end of ArvinMeritor’s fourth fiscal quarter. The agreement also requires certain true-up payments for working capital and other miscellaneous adjustments, on a post-closing basis.
The completion of the transaction is subject to several conditions, including the clearance or waiver of applicable competition law waiting periods in the United States and Mexico, and the fulfillment of Buyer’s committed financing. The buyer will be pursuing corporate approvals, which are required under Brazilian law.
Divestiture of Chassis Businesses
As previously announced, in the third quarter, ArvinMeritor completed the sale of its 51-percent stake in Gabriel de Venezuela, substantially completed the sale of its Gabriel Ride Control Products North America business and entered into a binding letter of intent to sell its stake in Meritor Suspension Systems Co. All of these businesses are included in the company’s discontinued operations for the third quarter.
These transactions largely complete the divestiture of Chassis Systems, representing 72 percent of total Chassis revenue based on 2008 sales, including $117 million of pass-through sales, and 87 percent of value-added sales.
The remaining Chassis businesses operate near break-even and primarily support the company’s suspension module assembly business, which is expected to run-off over the next two years as various vehicle programs come to a conclusion.
While market conditions remain depressed in North America and Europe, South America and Asia Pacific continue to show signs of improvement, said ArvinMeritor. For the fourth quarter of fiscal year 2009 (compared to the third fiscal quarter of 2009), the company anticipates revenue to be slightly lower, due largely to seasonal patterns. The company expects loss per share, before special items, to be greater; and free cash flow, before factoring and restructuring, to be slightly negative. ArvinMeritor also anticipates total free cash flow will be negative.
"While we anticipate market conditions will remain tough through our fourth fiscal quarter, we are taking appropriate actions that should help offset the impact and allow us to remain in compliance with our year-end credit line financial covenant," said McClure. "We will continue to proactively manage working capital levels, execute key initiatives and reduce costs, while at the same time positioning the company for a recovery in our key markets."
