ArvinMeritor on Friday, Oct. 31, announced that it is responding aggressively to the current weakness in global business conditions by executing comprehensive restructuring and cost-reduction initiatives. In addition, it is exploring strategic alternatives to the spinoff of its Light Vehicle Systems (LVS) business group.
“Swift and decisive actions are necessary in response to today’s global economic conditions, which include softness in all markets in which we participate, as well as weaker foreign currencies,” says Chip McClure, chairman, chief executive officer and president of ArvinMeritor.
The Troy, Mich.-based company says it has:
“We believe the actions we are announcing today, as well as the progress we have made over the last several years to improve our cost structure, solidly position our company to address the weakness we are seeing in the marketplace,” McClure says. “I am confident that when the global economies and our industry stabilize, we will be a stronger, more focused company.”
The new cost-reduction actions are additional to those the company has executed over the past four years. During this period, the company has consolidated and/or closed 17 of its North American and European manufacturing facilities; divested non-core businesses; reduced its global work force by about 4,000; and implemented a business transformation program (Performance Plus).
“We are pleased that in a very tough environment, we were successful in achieving our Performance Plus cost savings target of $75 million in 2008,” McClure says. “We are also continuing to make strides in executing our profitable growth strategy by expanding our global presence and growing our CVS aftermarket, specialty and military businesses.”
The company also announced that it expects to recognize a non-cash income tax charge of about $190 million in its fourth quarter of fiscal year 2008 related to the repositioning of cash for maximum flexibility; the large majority of this non-cash charge, which is to provide for the utilization of certain deferred tax assets, will result in a net loss for the company on a GAAP basis for fiscal year 2008. Excluding this charge and other previously disclosed special items, the company expects earnings to be in line with the full fiscal year guidance it provided in September. The company expects free cash flow to be near break-even for the fiscal year, significantly ahead of guidance.
The company has begun implementing a number of immediate restructuring and cost-reduction initiatives aimed at mitigating current market conditions; in fiscal year 2009, ArvinMeritor expects to achieve $125 million in annualized savings related to these significant actions. The company is reducing its global work force by 1,250 employees, or about seven percent, which is comprised of 450 salaried and 800 hourly positions, including full-time, contract and temporary workers. The majority of these actions already have been completed, while the remainder are in process.
ArvinMeritor says it is implementing proactive cost-reduction actions to keep a strong focus on cash flow by maintaining tight controls on global inventory, pursuing working capital improvements and significantly reducing discretionary spending.
In May 2008, ArvinMeritor announced its plan to spin off its LVS business to its shareholders within 12 months, contingent upon satisfactory financial and automotive market conditions. Although the LVS spinoff continues to be an option, ArvinMeritor says it is investigating other alternatives to achieve the separation, including a potential sale.
“We continue to believe that separating our two business groups will unlock significant value for our shareowners and strengthen the competitive position of both businesses, but due to today’s difficult environment, we are pursuing additional approaches to achieve a separation,” McClure says.