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| 8-K - CURRENT REPORT - MERITOR, INC. | meritor8k.htm |
CONTACTS: Media Inquiries
Robert Herta
(248) 435-1185
robert.herta@meritor.com
Investor Inquiries
Christy Daehnert
(248) 435-9426
christy.daehnert@meritor.com
Meritor Reports First-Quarter Fiscal Year 2013 Results
TROY, Mich. (Jan. 30, 2013) - Meritor, Inc. (NYSE: MTOR) today reported financial results for its first fiscal quarter ended Dec. 31, 2012.
First-Quarter Highlights
• | Sales were $891 million, down $268 million or 23 percent, from the same period last year. |
• | Net loss on a GAAP basis was $21 million, compared to a net loss of $22 million in the prior year's first quarter. |
• | Adjusted EBITDA was $46 million, compared with $79 million from the same period last year. |
• | Operating cash flow was negative $91 million in the first quarter of fiscal year 2013, compared to positive $5 million in the same period last year. |
• | Free cash flow was negative $106 million in the first quarter of fiscal year 2013, compared to negative $20 million in the same period last year. |
“Our performance this quarter was slightly below our expectations driven primarily by weaker than expected market conditions outside North America,” said Chairman, CEO and President Chip McClure. “In response to these changing conditions and the impact of reduced military spending, we have taken aggressive actions targeted at variable labor and structural cost reductions which we expect to drive improving margins in the coming quarters.”
First-Quarter Results
For the first quarter of fiscal year 2013, Meritor posted sales of $891 million, down 23 percent from the same period last year. This decrease was primarily due to lower sales in all global markets that the company serves.
Loss from continuing operations, on a GAAP basis, was $16 million or $0.17 per diluted share, compared to a loss from continuing operations of $13 million or $0.13 per diluted share in the prior year. Loss from continuing operations includes $6 million of restructuring charges in the first quarter of fiscal year 2013. Loss from continuing operations in the prior year period includes $24 million of restructuring charges, primarily associated with the sale of the company's facility in France.
Adjusted loss from continuing operations in the first quarter of fiscal year 2013 was $11 million, or $0.11 per diluted share, compared to adjusted income from continuing operations of $11 million, or $0.12 per diluted share, a year ago.
Adjusted EBITDA was $46 million, compared to $79 million in the first quarter of fiscal year 2012. Adjusted EBITDA margin for the first quarter of fiscal year 2013 was 5.2 percent, compared with 6.8 percent for the same period last year. The decrease in Adjusted EBITDA was primarily due to lower sales, partially offset by the favorable impact of lower material costs and the North American pricing actions and European footprint rationalization that were executed in fiscal year 2012.
Free cash flow for the first quarter of fiscal year 2013 was negative $106 million compared to free cash flow of negative $20 million in the same period last year.
First-Quarter Segment Results
Commercial Truck & Industrial sales were $715 million, down $260 million from the same period last year. Segment EBITDA for the Commercial Truck & Industrial segment was $34 million for the quarter, down $27 million from the first quarter of fiscal year 2012, primarily driven by lower sales in all regions. Segment EBITDA margin was 4.8 percent, down from 6.3 percent in the first quarter of fiscal year 2012.
The company's Aftermarket & Trailer segment posted sales of $203 million, down $15 million from the same period last year, primarily due to lower volumes in North America. Segment EBITDA for Aftermarket & Trailer was $13 million, down $4 million or 24 percent from the first quarter of fiscal year 2012, and segment EBITDA margin declined to 6.4 percent from 7.8 percent in the first quarter of fiscal year 2012.
Recent Business Highlights
• | Initiated structural cost reductions that will result in the elimination of 200 positions worldwide. |
• | Rationalized organizational and reporting structure to manage under two segments - Commercial Truck & Industrial and Aftermarket & Trailer. |
• | Initiated consolidation of North American remanufacturing operations. |
• | Implemented variable labor adjustments globally. |
“These actions were necessary to drive efficiencies across the organization in alignment with the rationalization of our business segments,” said McClure.
Executive Appointments
Meritor announced today that Jay Craig is appointed senior vice president and president of Meritor's Commercial Truck & Industrial segment. Craig has been the company's senior vice president and chief financial officer with additional responsibility for Treasury, Tax, Purchasing, Information Systems, Investor Relations and Communications. McClure said, “Jay's experience and success in leading each of these disciplines, as well as his operations background previously at GMAC and at Meritor, where he successfully led the turnaround of the Body Systems business prior to its sale, makes him the perfect candidate for this position.”
Replacing Craig in his role of chief financial officer is Kevin Nowlan, Meritor's vice president and controller since 2010. Prior to that, Nowlan held roles including Treasurer and vice president of Shared Services at the company.
McClure added, “We've been diligent in building the bench strength of our management team and are confident these moves will continue to enhance the company's performance.”
Tim Bowes, who formerly held the position of vice president and president of the company's Commercial Truck & Industrial segment, has elected to leave the company.
Revised Outlook for 2013
For fiscal year 2013, the company is revising its expectations to the following results from continuing operations:
• | Revenue to be approximately $3.8 billion (previously $4 billion). |
• | Free cash flow from continuing operations before restructuring payments to be slightly negative (previously about breakeven). |
Despite these changes, the company continues to expect:
• | Adjusted EBITDA margin to be approximately 7 percent for fiscal year 2013. |
• | Adjusted earnings per share from continuing operations in the range of $0.25 to $0.35. |
For fiscal year 2013, the company anticipates the following for the entire company:
• | Capital expenditures in the range of $65 million to $75 million. |
• | Interest expense in the range of $95 million to $105 million (previously $90 million to $100 million). |
• | Cash interest in the range of $75 million to $85 million. |
• | Cash income taxes in the range of $45 million to $55 million (previously in the range of $50 million to $60 million). |
“We're executing on our 2013 priorities in the face of significant volume pressures outside North America,” said McClure. “We remain committed to driving toward meeting the needs of all our stakeholders while continuing to invest in our market leadership positions.”
First-Quarter Fiscal Year 2013 Conference Call
The company will host a telephone conference call and webcast to discuss the company's first-quarter results for fiscal year 2013 on Wednesday, Jan. 30, at 9 a.m. (ET).
To participate, call (617) 213-4847 at least 10 minutes prior to the start of the call. Please reference participant pass code 94256449 when dialing in. Investors can also listen to the conference call in real time or access a recording of the call for seven days after by visiting www.meritor.com.
To access the listen-only audio webcast, visit the Meritor website at meritor.com and select the webcast link from the home page or the investor page.
A replay of the call will be available from 11 a.m. on Jan. 30, to 11:59 p.m. on Feb. 5, by calling (888) 286-8010 (within the United States) or (617) 801-6888 for international calls. Please refer to replay pass code number 30070335.
About Meritor
Meritor, Inc. is a leading global supplier of drivetrain, mobility, braking and aftermarket solutions for commercial vehicle and industrial markets. With more than a 100-year legacy of providing innovative products that offer superior performance, efficiency and reliability, the company serves commercial truck, trailer, off-highway, defense, specialty and aftermarket customers in more than 70 countries. Meritor is based in Troy, Mich., United States, and is made up of more than 9,000 diverse employees who apply their knowledge and skills in manufacturing facilities, engineering centers, joint ventures, distribution centers and global offices in 19 countries. Common stock is traded on the New York Stock Exchange under the ticker symbol MTOR. For important information, visit the company's website at meritor.com.
Forward-Looking Statement
This press release contains statements relating to our future results (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “estimate,” “should,” “are likely to be,” “will” and similar expressions. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to reduced production for certain military programs and our ability to secure new military programs as our primary military programs wind down by design in future years; reliance on major original equipment manufacturer ("OEM") customers and possible negative outcomes from contract negotiations with our major customers, including failure to negotiate acceptable terms in contract renewal negotiations; our ability to successfully manage rapidly changing volumes in the commercial truck markets and work with our customers to adjust their demands in view of rapid changes in production levels; global economic and market cycles and conditions; availability and sharply rising costs of raw materials, including steel, and our ability to manage or recover such costs; our ability to manage possible adverse effects on our European operations, or financing arrangements related thereto, in the event one or more countries exit the European monetary union; risks inherent in operating abroad (including foreign currency exchange rates, implications of foreign regulations relating to pensions and potential disruption of production and supply due to terrorist attacks or acts of aggression); rising costs of pension and other postretirement benefits; the ability to achieve the expected benefits of restructuring actions; the demand for commercial and specialty vehicles for which we supply products; whether our liquidity will be affected by declining vehicle productions in the future; OEM program delays; demand for and market acceptance of new and existing products; successful development of new products; labor relations of our company, our suppliers and customers, including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial condition of our suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our suppliers; potential difficulties competing with companies that have avoided their existing contracts in bankruptcy and reorganization proceedings; potential impairment of long-lived assets, including goodwill; potential adjustment of the value of deferred tax assets; competitive product and pricing pressures; the amount of our debt; our ability to continue to comply with covenants in our financing agreements; our ability to access capital markets; credit ratings of our debt; the outcome of existing and any future legal proceedings, including any litigation with respect to environmental or asbestos-related matters; the outcome of actual and potential product liability, warranty and recall claims; and possible changes in accounting rules; as well as other substantial costs, risks and uncertainties, including but not limited to those detailed herein and from time to time in our Annual Report on Form 10-K for the year ended September 30, 2012 and from time to time in our other filings with the SEC. See also the following portions of our Annual Report on Form 10-K for the year ended September 30, 2012: Item 1. Business, "Customers; Sales and Marketing"; "Competition"; "Raw Materials and Supplies"; "Employees"; "Environmental Matters"; "International Operations"; and "Seasonality; Cyclicality"; Item 1A. Risk Factors; Item 3. Legal Proceedings; and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. These forward-looking statements are made only as of the respective dates on which they were made, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law.
All earnings per share amounts are on a diluted basis. The company's fiscal year ends on the Sunday nearest Sept. 30, and its fiscal quarters generally end on the Sundays nearest Dec. 31, March 31 and June 30. All year and quarter references relate to the company's fiscal year and fiscal quarters, unless otherwise stated.
Non-GAAP Measures
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included throughout this press release, the company has provided information regarding Adjusted income or loss from continuing operations, Adjusted diluted earnings per share from continuing operations, Adjusted EBITDA, Adjusted EBITDA margin, free cash flow and free cash flow from continuing operations before restructuring payments which are non-GAAP financial measures.
Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share from continuing operations are defined as reported income or loss from continuing operations and reported diluted earnings or loss per share from continuing operations before restructuring expenses, asset impairment charges and other special items as determined by management. Adjusted EBITDA is defined as income (loss) from continuing operations before interest, income taxes, depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring expenses, asset impairment charges and other special items as determined by management. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by consolidated sales. Free cash flow is defined as cash flows provided by (used for) operating activities less capital expenditures.
Management believes that the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the company's financial position and results of operations. In particular, management believes that Adjusted EBITDA and Adjusted EBITDA margin are meaningful measures of performance as they are commonly utilized by management and the investment community to analyze operating performance in our industry. Further, management uses Adjusted EBITDA for planning and forecasting future periods. Management believes that free cash flow is useful in analyzing our ability to service and repay debt.
Adjusted income (loss) from continuing operations, Adjusted diluted earnings (loss) per share from continuing operations and Adjusted EBITDA should not be considered a substitute for the reported results prepared in accordance with GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. Free cash flow should not be considered a substitute for cash provided by (used for) operating activities, or other cash flow statement data prepared in accordance with GAAP, or as a measure of financial position or liquidity. In addition, these non-GAAP cash flow measures do not reflect cash used to service debt or cash received from the divestitures of businesses or sales of other assets and thus do not reflect funds available for investment or other discretionary uses. These non-GAAP financial measures, as determined and presented by the company, may not be comparable to related or similarly titled measures reported by other companies.
Set forth on the following pages are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Segment EBITDA and EBITDA Margins
Segment EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization, noncontrolling interests in consolidated joint ventures, loss on sale of receivables, restructuring costs and asset impairment charges. We use Segment EBITDA as the primary basis for the Chief Operating Decision Maker to evaluate the performance of each of our reportable segments.
MERITOR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
Three Months Ended December 31, | |||||||
2012 | 2011 | ||||||
Sales | $ | 891 | $ | 1,159 | |||
Cost of sales | (808 | ) | (1,053 | ) | |||
GROSS MARGIN | 83 | 106 | |||||
Selling, general and administrative | (62 | ) | (65 | ) | |||
Restructuring costs | (6 | ) | (24 | ) | |||
Other operating expense | (1 | ) | (1 | ) | |||
OPERATING INCOME | 14 | 16 | |||||
Other income, net | — | 4 | |||||
Equity in earnings of affiliates | 9 | 15 | |||||
Interest expense, net | (29 | ) | (24 | ) | |||
INCOME (LOSS) BEFORE INCOME TAXES | (6 | ) | 11 | ||||
Provision for income taxes | (10 | ) | (20 | ) | |||
LOSS FROM CONTINUING OPERATIONS | (16 | ) | (9 | ) | |||
LOSS FROM DISCONTINUED OPERATIONS, net of tax | (5 | ) | (9 | ) | |||
NET LOSS | (21 | ) | (18 | ) | |||
Less: Income attributable to noncontrolling interests | — | (4 | ) | ||||
NET LOSS ATTRIBUTABLE TO MERITOR, INC. | $ | (21 | ) | $ | (22 | ) | |
NET LOSS ATTRIBUTABLE TO MERITOR, INC. | |||||||
Net loss from continuing operations | $ | (16 | ) | $ | (13 | ) | |
Loss from discontinued operations | (5 | ) | (9 | ) | |||
Net loss | $ | (21 | ) | $ | (22 | ) | |
DILUTED LOSS PER SHARE | |||||||
Continuing operations | $ | (0.17 | ) | $ | (0.13 | ) | |
Discontinued operations | (0.05 | ) | (0.10 | ) | |||
Diluted loss per share | $ | (0.22 | ) | $ | (0.23 | ) | |
Diluted average common shares outstanding | 96.7 | 94.5 | |||||
MERITOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited, In millions)
December 31, 2012 | September 30, 2012 | |||||||
ASSETS: | ||||||||
Cash and cash equivalents | $ | 139 | $ | 257 | ||||
Receivables, trade and other, net | 483 | 542 | ||||||
Inventories | 463 | 438 | ||||||
Other current assets | 56 | 61 | ||||||
TOTAL CURRENT ASSETS | 1,141 | 1,298 | ||||||
Net property | 407 | 417 | ||||||
Goodwill | 433 | 433 | ||||||
Other assets | 360 | 353 | ||||||
TOTAL ASSETS | $ | 2,341 | $ | 2,501 | ||||
LIABILITIES AND EQUITY (DEFICIT): | ||||||||
Short-term debt | $ | 23 | $ | 18 | ||||
Accounts payable | 597 | 697 | ||||||
Other current liabilities | 297 | 313 | ||||||
TOTAL CURRENT LIABILITIES | 917 | 1,028 | ||||||
Long-term debt | 1,032 | 1,042 | ||||||
Retirement benefits | 1,070 | 1,075 | ||||||
Other liabilities | 333 | 338 | ||||||
Total deficit attributable to Meritor, Inc. | (1,041 | ) | (1,023 | ) | ||||
Noncontrolling interests | 30 | 41 | ||||||
TOTAL DEFICIT | (1,011 | ) | (982 | ) | ||||
TOTAL LIABILITIES AND DEFICIT | $ | 2,341 | $ | 2,501 | ||||
MERITOR, INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
(Unaudited, In millions)
Three Months Ended December 31, | |||||||
2012 | 2011 | ||||||
Sales: | |||||||
Commercial Truck & Industrial | $ | 715 | $ | 975 | |||
Aftermarket & Trailer | 203 | 218 | |||||
Intersegment Sales | (27 | ) | (34 | ) | |||
Total sales | $ | 891 | $ | 1,159 | |||
EBITDA: | |||||||
Commercial Truck & Industrial | $ | 34 | $ | 61 | |||
Aftermarket & Trailer | 13 | 17 | |||||
Segment EBITDA | 47 | 78 | |||||
Unallocated legacy and corporate costs, net | (1 | ) | 1 | ||||
Adjusted EBITDA | 46 | 79 | |||||
Interest expense, net | (29 | ) | (24 | ) | |||
Provision for income taxes | (10 | ) | (20 | ) | |||
Depreciation and amortization | (16 | ) | (17 | ) | |||
Loss on sale of receivables | (1 | ) | (3 | ) | |||
Restructuring costs | (6 | ) | (24 | ) | |||
Noncontrolling interests | — | (4 | ) | ||||
Loss from Continuing Operations attributable to Meritor, Inc. | (16 | ) | (13 | ) | |||
Loss from Discontinued Operations attributable to Meritor, Inc. | (5 | ) | (9 | ) | |||
Net loss attributable to Meritor, Inc. | $ | (21 | ) | $ | (22 | ) | |
Adjusted EBITDA Margin (1) | 5.2 | % | 6.8 | % | |||
(1) Adjusted EBITDA margin equals Adjusted EBITDA divided by consolidated sales.
MERITOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, In millions)
Three Months Ended December 31, | |||||||
2012 | 2011 | ||||||
OPERATING ACTIVITIES | |||||||
Loss from continuing operations | $ | (16 | ) | $ | (9 | ) | |
Adjustments to income from continuing operations: | |||||||
Depreciation and amortization | 16 | 17 | |||||
Restructuring costs | 6 | 24 | |||||
Loss on debt extinguishment | 5 | — | |||||
Equity in earnings of affiliates | (9 | ) | (15 | ) | |||
Pension and retiree medical expense | 10 | 14 | |||||
Other adjustments to income from continuing operations | 4 | 4 | |||||
Dividends received from affiliates | 3 | 3 | |||||
Pension and retiree medical contributions | (15 | ) | (25 | ) | |||
Restructuring payments | (5 | ) | (7 | ) | |||
Changes in off-balance sheet accounts receivable factoring | 33 | 77 | |||||
Changes in assets and liabilities | (113 | ) | (75 | ) | |||
Operating cash flows provided by (used for) continuing operations | (81 | ) | 8 | ||||
Operating cash flows used for discontinued operations | (10 | ) | (3 | ) | |||
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES | (91 | ) | 5 | ||||
INVESTING ACTIVITIES | |||||||
Capital expenditures | (15 | ) | (25 | ) | |||
Other investing activities, net | — | 2 | |||||
Net investing cash flows used for continuing operations | (15 | ) | (23 | ) | |||
Net investing cash flows provided by discontinued operations | — | 11 | |||||
CASH USED FOR INVESTING ACTIVITIES | (15 | ) | (12 | ) | |||
FINANCING ACTIVITIES | |||||||
Repayment of notes | (233 | ) | — | ||||
Proceeds from debt issuance | 225 | — | |||||
Debt issuance costs | (5 | ) | — | ||||
Other financing activities | 1 | — | |||||
CASH USED FOR FINANCING ACTIVITIES | (12 | ) | — | ||||
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | — | 1 | |||||
CHANGE IN CASH AND CASH EQUIVALENTS | (118 | ) | (6 | ) | |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 257 | 217 | |||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 139 | $ | 211 | |||
MERITOR, INC.
ADJUSTED INCOME AND EARNINGS PER SHARE — RECONCILIATION
Non-GAAP
(Unaudited)
(In millions, except per share amounts)
Three Months Ended December 31, | |||||||
2012 | 2011 | ||||||
Loss from continuing operations attributable to Meritor, Inc. | $ | (16 | ) | $ | (13 | ) | |
Adjustments: | |||||||
Restructuring costs (net of tax) | 5 | 24 | |||||
Adjusted income (loss) from continuing operations | $ | (11 | ) | $ | 11 | ||
Diluted loss per share from continuing operations | $ | (0.17 | ) | $ | (0.13 | ) | |
Impact of adjustments on diluted earnings (loss) per share | 0.06 | 0.25 | |||||
Adjusted diluted earnings (loss) per share from continuing operations | $ | (0.11 | ) | $ | 0.12 | ||
MERITOR, INC.
FREE CASH FLOW — RECONCILIATION
Non-GAAP
(Unaudited, in millions)
Three Months Ended December 31, | |||||||
2012 | 2011 | ||||||
Cash flows provided by (used for) operating activities — continuing operations | $ | (81 | ) | $ | 8 | ||
Capital expenditures — continuing operations | (15 | ) | (25 | ) | |||
Free cash flow - continuing operations | (96 | ) | (17 | ) | |||
Cash flow used for operating activities - discontinued operations | (10 | ) | (3 | ) | |||
Free cash flow — discontinued operations | (10 | ) | (3 | ) | |||
Free cash flow — total company | $ | (106 | ) | $ | (20 | ) | |
Free cash flow - continuing operations | $ | (96 | ) | $ | (17 | ) | |
Restructuring payments - continuing operations | 5 | 7 | |||||
Free cash flow from continuing operations before restructuring payments | $ | (91 | ) | $ | (10 | ) | |
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