WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 2, 2005
Commission file number 1-15983
| ArvinMeritor, Inc. |
| (Exact name of registrant as specified in its charter) |
| Indiana | 38-3354643 |
| (State or other jurisdiction | (I.R.S. Employer |
| of incorporation or organization) | Identification No.) |
| 2135 West Maple Road, Troy, Michigan | 48084-7186 |
| (Address of principal executive offices) | (Zip Code) |
| (248) 435-1000 |
| (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
70,040,402 shares of Common Stock, $1.00 par value, of ARVINMERITOR, INC. were outstanding on January 31, 2005.
ARVINMERITOR, INC.
INDEX
| PART I. | FINANCIAL INFORMATION: |
|
Item 1. Financial Statements: |
Page No. | |
|
Consolidated Statement of Income — Three Months Ended December 31, 2004 and 2003 |
2 | |
|
Consolidated Balance Sheet — December 31, 2004 and September 30, 2004 |
3 | |
|
Condensed Consolidated Statement of Cash Flows — Three Months Ended December 31, 2004 and 2003 |
4 | |
|
Notes to Consolidated Financial Statements |
5 | |
| Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition |
27 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
37 | |
| Item 4. Controls and Procedures |
37 | |
| PART II. | OTHER INFORMATION: |
|
| Item 1. Legal Proceedings |
38 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
38 | |
| Item 5. Other Information |
38 | |
| Item 6. Exhibits |
39 | |
| Signatures | 40 |
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARVINMERITOR, INC.
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 31, | ||||||||
| 2004 |
2003 | |||||||
| (Unaudited) | ||||||||
| Sales | $ | 2,090 | $ | 1,924 | ||||
| Cost of sales | (1,964 | ) | (1,775 | ) | ||||
| GROSS MARGIN | 126 | 149 | ||||||
| Selling, general and administrative | (84 | ) | (90 | ) | ||||
| Restructuring costs | (10 | ) | (1 | ) | ||||
| Other income (expense) | 4 | (16 | ) | |||||
| OPERATING INCOME | 36 | 42 | ||||||
| Equity in earnings of affiliates | 6 | 2 | ||||||
| Gain on sale of marketable securities | — | 7 | ||||||
| Interest expense, net and other | (28 | ) | (26 | ) | ||||
| INCOME BEFORE INCOME TAXES | 14 | 25 | ||||||
| Provision for income taxes | (4 | ) | (8 | ) | ||||
| Minority interests | 2 | (2 | ) | |||||
| INCOME FROM CONTINUING OPERATIONS | 12 | 15 | ||||||
| INCOME FROM DISCONTINUED OPERATIONS | 6 | 4 | ||||||
| NET INCOME | $ | 18 | $ | 19 | ||||
| BASIC EARNINGS PER SHARE | ||||||||
| Continuing operations | $ | 0.18 | $ | 0.22 | ||||
| Discontinued operations | 0.09 | 0.06 | ||||||
| Basic earnings per share | $ | 0.27 | $ | 0.28 | ||||
| DILUTED EARNINGS PER SHARE | ||||||||
| Continuing operations | $ | 0.17 | $ | 0.22 | ||||
| Discontinued operations | 0.09 | 0.06 | ||||||
| Diluted earnings per share | $ | 0.26 | $ | 0.28 | ||||
| Basic average common shares outstanding | 67.8 | 67.0 | ||||||
| Diluted average common shares outstanding | 69.0 | 68.3 | ||||||
| Cash dividends per common share | $ | 0.10 | $ | 0.10 | ||||
See notes to consolidated financial statements. Amounts for the three months ended December 31, 2003 have been restated for discontinued operations.
2
ARVINMERITOR, INC.
CONSOLIDATED BALANCE SHEET
(in millions)
| December 31, | September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2004 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 91 | $ | 132 | ||||
| Receivables, net | 1,559 | 1,478 | ||||||
| Inventories | 618 | 523 | ||||||
| Other current assets | 278 | 238 | ||||||
| Assets of discontinued operations | 488 | 615 | ||||||
| TOTAL CURRENT ASSETS | 3,034 | 2,986 | ||||||
| NET PROPERTY | 1,112 | 1,032 | ||||||
| GOODWILL | 837 | 808 | ||||||
| OTHER ASSETS | 822 | 813 | ||||||
| TOTAL ASSETS | $ | 5,805 | $ | 5,639 | ||||
| LIABILITIES AND SHAREOWNERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term debt | $ | 7 | $ | 3 | ||||
| Accounts payable | 1,372 | 1,366 | ||||||
| Other current liabilities | 615 | 622 | ||||||
| Liabilities of discontinued operations | 205 | 282 | ||||||
| TOTAL CURRENT LIABILITIES | 2,199 | 2,273 | ||||||
| LONG-TERM DEBT | 1,516 | 1,487 | ||||||
| RETIREMENT BENEFITS | 603 | 583 | ||||||
| OTHER LIABILITIES | 255 | 247 | ||||||
| MINORITY INTERESTS | 62 | 61 | ||||||
| SHAREOWNERS' EQUITY: | ||||||||
| Common stock (December 31 and September 30, 2004, 71.0 shares issued | ||||||||
| and 70.0 and 69.5 outstanding, respectively) | 71 | 71 | ||||||
| Additional paid-in capital | 573 | 569 | ||||||
| Retained earnings | 606 | 595 | ||||||
| Treasury stock (December 31 and September 30, 2004, 1.0 and 1.5 shares, | ||||||||
| respectively) | (13 | ) | (22 | ) | ||||
| Unearned compensation | (18 | ) | (15 | ) | ||||
| Accumulated other comprehensive loss | (49 | ) | (210 | ) | ||||
| TOTAL SHAREOWNERS' EQUITY | 1,170 | 988 | ||||||
| TOTAL LIABILITIES AND SHAREOWNERS' EQUITY | $ | 5,805 | $ | 5,639 | ||||
See notes to consolidated financial statements.
3
ARVINMERITOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 31, | ||||||||
| 2004 |
2003 | |||||||
| (Unaudited) | ||||||||
| OPERATING ACTIVITIES | ||||||||
| Income from continuing operations | $ | 12 | $ | 15 | ||||
| Adjustments to income from continuing operations to arrive | ||||||||
| at cash provided by (used for) operating activities: | ||||||||
| Depreciation and amortization | 46 | 49 | ||||||
| Gain on divestitures | (4 | ) | — | |||||
| Gain on sale of marketable securities | — | (7 | ) | |||||
| Restructuring costs, net of payments | — | (3 | ) | |||||
| Pension and retiree medical expense | 27 | 33 | ||||||
| Pension and retiree medical contributions | (22 | ) | (23 | ) | ||||
| Changes in receivable securitization and factoring | (41 | ) | 9 | |||||
| Changes in assets and liabilities, excluding effects of | ||||||||
| acquisitions, divestitures and foreign currency adjustments | (144 | ) | (58 | ) | ||||
| Cash flows provided (used) by continuing operations | (126 | ) | 15 | |||||
| Cash flows used for discontinued operations | (94 | ) | (2 | ) | ||||
| CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES | (220 | ) | 13 | |||||
| INVESTING ACTIVITIES | ||||||||
| Capital expenditures | (27 | ) | (29 | ) | ||||
| Acquisitions of businesses and investments | (22 | ) | — | |||||
| Proceeds from disposition of property and businesses | 33 | 15 | ||||||
| Proceeds from sale of securities | — | 18 | ||||||
| Net investing cash flows provided (used) by discontinued operations | 162 | (2 | ) | |||||
| CASH PROVIDED BY INVESTING ACTIVITIES | 146 | 2 | ||||||
| FINANCING ACTIVITIES | ||||||||
| Net increase in revolving credit facilities | 11 | 28 | ||||||
| Borrowings (payments) on lines of credit and other | 20 | (7 | ) | |||||
| Net proceeds from debt | 31 | 21 | ||||||
| Proceeds from exercise of stock options | 5 | — | ||||||
| Cash dividends | (7 | ) | (7 | ) | ||||
| CASH PROVIDED BY FINANCING ACTIVITIES | 29 | 14 | ||||||
| EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE | ||||||||
| RATES ON CASH | 4 | 5 | ||||||
| CHANGE IN CASH AND CASH EQUIVALENTS | (41 | ) | 34 | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 132 | 103 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 91 | $ | 137 | ||||
See notes to consolidated financial statements. Amounts for the three months ended December 31, 2003 have been restated for discontinued operations.
4
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
| ArvinMeritor, Inc. (the company or ArvinMeritor) is a leading global supplier of a broad range of integrated systems, modules and components serving light vehicle, commercial truck, trailer and specialty original equipment manufacturers and certain aftermarkets. The consolidated financial statements are those of the company and its consolidated subsidiaries. |
| The company’s light vehicle aftermarket and coil coating businesses are classified as held for sale and presented as discontinued operations in the consolidated financial statements and related notes. The company sold its coil coating business during the first quarter of fiscal year 2005 (see Note 4). |
| In the opinion of the company, the unaudited financial statements contain all adjustments, consisting solely of adjustments of a normal, recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. These statements should be read in conjunction with the company’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2004. The results of operations for the three months ended December 31, 2004, are not necessarily indicative of the results for the full year. |
| The company’s fiscal year ends on the Sunday nearest September 30. The company’s fiscal quarters end on the Sundays nearest December 31, March 31 and June 30. The first quarter of fiscal year 2005 and 2004 ended on January 2, 2005, and December 28, 2003, respectively. All year and quarter references relate to the company’s fiscal year and fiscal quarters unless otherwise stated. |
| For each interim reporting period the company makes an estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate so determined is used in providing for income taxes on a year-to-date basis. |
2. Earnings per Share
| Basic earnings per share is calculated using the weighted average number of shares outstanding during each period. The diluted earnings per share calculation includes the impact of dilutive common stock options and restricted stock. |
| A reconciliation of basic average common shares outstanding to diluted average common shares outstanding at December 31 is as follows (in millions): |
| 2004 |
2003 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Basic average common shares outstanding | 67 | .8 | 67 | .0 | |||||||
| Impact of restricted stock | 0 | .9 | 1 | .0 | |||||||
| Impact of stock options | 0 | .3 | 0 | .3 | |||||||
| Diluted average common shares outstanding | 69 | .0 | 68 | .3 | |||||||
| At December 31, 2004 and 2003, options to purchase 1.3 million and 4.0 million shares of common stock, respectively, were not included in the computation of diluted earnings per share because their inclusion would be anti-dilutive. |
5
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. New Accounting Standards
| In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs.” This statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires that these items be recognized as current-period charges. In addition, SFAS No. 151 requires that the allocation of fixed production overhead to inventory be based on the normal capacity of the company’s manufacturing facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The company is evaluating the impact of adopting this standard. |
| In December 2004, the FASB issued SFAS No. 123(R), “Share Based Payment,” which will require compensation costs related to share-based payment transactions to be recognized in the financial statements. This statement also establishes fair value for share based payment transactions with employees. This statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The company began expensing the fair value of stock options in fiscal year 2002. As a result, the adoption of this statement is not expected to have a material impact on the results of operations or financial position of the company. |
| In December 2004, the FASB issued Staff Position (FSP) FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” The American Jobs Creation Act of 2004 (the Act) provides tax relief to U.S. domestic manufacturers. The FSP states that the manufacturers’ deduction under the Act should be accounted for as a special deduction in accordance with SFAS No. 109 and not as a tax rate deduction. The adoption of FSP FAS 109-1 is not expected to have an impact on the company’s results of operations or financial position. |
| In December 2004, the FASB issued FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of 2004.” The Act introduced a special limited-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer. The FSP addresses whether a company should be allowed additional time beyond the financial reporting period in which the Act was enacted to evaluate the effects of the Act on the company’s plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The adoption of FSP FAS 109-2 is not expected to have an impact on the company’s results of operations or financial position. |
4. Discontinued Operations
| In the fourth quarter of fiscal year 2004, the company announced plans to divest its Light Vehicle Aftermarket (LVA) business segment and coil coating business, Roll Coater, Inc., a wholly owned subsidiary. These plans are part of the company’s long-term strategy to focus on core competencies and support its growing list of global light vehicle systems original equipment manufacturing (OEM) customers and its commercial vehicle systems OEM and aftermarket customers. LVA supplies exhaust, ride control, motion control and filter products as well as other automotive parts to the passenger car, light truck and sport utility aftermarket. LVA and Roll Coater are reported as discontinued operations for all periods presented. Accordingly, net property and amortizable intangible assets of these businesses are no longer being depreciated or amortized. The company expects to complete the divestiture of LVA in fiscal year 2005. |
| In November 2004, the company completed the sale of Roll Coater. Roll Coater supplied coil coating services and other value-added metal processing services to the transportation, appliance, HVAC, construction, doors and other industries. Cash proceeds from the sale were approximately $163 million, resulting in a $2 million after-tax gain on the sale, which is recorded in discontinued operations for the three months ended December 31, 2004. In connection with the sale, the company will record an after-tax pension curtailment gain of approximately $4 million in the second quarter of fiscal year 2005. |
6
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Results of the discontinued operations are summarized as follows (in millions):
| Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 31, | ||||||||
| 2004 |
2003 | |||||||
| Sales: | ||||||||
| Light Vehicle Aftermarket | $ | 204 | $ | 210 | ||||
| Roll Coater | 28 | 46 | ||||||
| Total sales | $ | 232 | $ | 256 | ||||
| Income before income taxes | $ | 11 | $ | 7 | ||||
| Provision for income taxes | (5 | ) | (3 | ) | ||||
| Income from discontinued operations | $ | 6 | $ | 4 | ||||
Assets and liabilities of the discontinued operations are summarized as follows (in millions):
| December 31, | September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2004 | |||||||
| Current assets | $ | 301 | $ | 299 | ||||
| Net property | 160 | 288 | ||||||
| Other assets | 27 | 28 | ||||||
| Assets of discontinued operations | $ | |||||||