ArvinMeritor today, Feb. 4, reported financial results for its first fiscal quarter ended Dec. 28:
Sales from continuing operations of $1.4 billion, down $293 million or 18 percent from the same period last year (down 11 percent on a constant currency basis);
On a GAAP basis, net loss from continuing operations was $991 million compared to a net loss from continuing operations of $1 million. GAAP results reflect noncash charges of $944 million, including valuation reserves for certain deferred tax assets, and other asset impairments primarily for Light Vehicle Systems (LVS) goodwill and fixed assets;
Loss from continuing operations, before special items, of $56 million compared to income from continuing operations, before special items, of $6 million; and
Free cash outflow (cash outflow from operations, net of capital expenditures) of $386 million compared to an outflow of $305 million in the first quarter of fiscal year 2008.
“Although significant volume declines and charges associated with the LVS business negatively affected our results this quarter, we are aggressively executing a series of actions to help mitigate the effects of the ongoing economic crisis,” said Chip McClure, chairman, chief executive officer and president of the Troy, Mich.-based company. “Through continued focus on reducing costs, strengthening the aftermarket business and gaining new military contracts, the Commercial Vehicle Systems business performed well. Despite the severe downturn in heavy truck markets in most regions of the world, the CVS team was able to offset the negative volumes with minimal impact on performance. These results clearly underscore the validity of our aggressive Performance Plus cost savings and growth initiatives.”
ArvinMeritor said it has implemented a number of initiatives to help manage cash, and is prepared to take additional actions if needed. Initiatives in process include work force reductions of more than 1,500 employees, extended shutdowns and reduced work weeks at all plants, and reduced and rebalanced capital spending.
The company also initiated a 10 percent salary reduction for all U.S. executive-level employees, and a 5-percent reduction in salary for all other U.S. salaried employees, in addition to similar actions in other parts of the world; eliminated matching contribution to the U.S. 401(k); suspended merit increases for fiscal year 2009; reduced discretionary spending by about 30 percent year-over-year; reduced board of directors’ annual compensation by 10 percent; and suspended its quarterly dividend.
As previously announced, economic conditions do not support the company’s strategy to divest the entire LVS business at this time. “Due to continued deterioration in the global markets, it is now our priority to complete the divestiture of these businesses separately at acceptable returns to shareowners,” McClure said.
In January, the company executed multiple actions to reduce fixed costs within the LVS business, which are expected to result in $57 million in annual savings. These actions included the elimination of the LVS divisional organization, resulting in a headcount reduction of more than 100 positions. The Body and Chassis businesses now are being managed to realize maximum cost efficiencies, with additional actions currently under consideration. The Wheels business, located in Brazil and Mexico, will be retained by ArvinMeritor.
At the end of the first quarter, the company said it had $158 million in cash and cash equivalents, and that it is in compliance with the financial covenants in its material borrowing arrangements, including its $664 million revolving credit facility, of which $141 million (including $38 million in letters of credit) was utilized at the end of the quarter. ArvinMeritor said it maintains full access to committed securitization lines.
“ArvinMeritor is operating with the expectation that global markets will remain weak for an extended period of time,” McClure said. “Given the deterioration of the market environment and the current global constraints on credit, the management team remains intensely focused on maintaining the liquidity necessary to operate our business. We expect to be in compliance with the financial covenants in our material borrowing arrangements for the remainder of the year and believe that the actions we are taking today will help position the company well when economics and volumes improve.”
The company also announced this week that it will commemorate its centennial heritage anniversary throughout 2009 at events and product exhibitions that will be marked with the launch of several “next generation” products from axles to brakes to hybrid drivetrain applications.
“ArvinMeritor’s longevity is based on a rich heritage of product performance, customer service and engineering expertise,” McClure said. “These characteristics, combined with our commitment to develop industry-leading products and provide customized services to meet the needs of our customers around the world, describe our long history of ‘forward thinking.’ ”