MERITOR, INC. TROY, Mich., July 31, 2014 /PRNewswire/ -- Meritor, Inc. (NYSE: MTOR) today reported financial results for its third fiscal quarter ended June 30, 2014.
Third-Quarter Highlights
-- Sales were $986 million, down $7 million from the same period last year.
-- Net income on a GAAP basis was $234 million, compared to a net loss of
$38 million, in the same period last year. Net income included $209
million from the antitrust settlement with Eaton Corporation (including
recovery of legal fees).
-- Net income from continuing operations was $236 million, or $2.33 per
diluted share, compared to a loss of $37 million, or $0.38 per diluted
share, in the prior year. Adjusted income from continuing operations was
$28 million, or $0.28 per diluted share, compared to $33 million, or
$0.34 per diluted share, a year ago.
-- Adjusted EBITDA was $80 million, compared with $87 million in the prior
year.
-- Adjusted EBITDA margin was 8.1 percent, compared to 8.8 percent in the
same period last year.
-- Free cash flow was $71 million, compared to $28 million in the same
quarter of last year.
Third-Quarter Results
For the third quarter of fiscal year 2014, Meritor posted sales of $986 million, down $7 million or one percent from the same period last year. This decrease was primarily due to lower commercial truck production in South America and the continued step down in revenue from the Family of Medium Tactical Vehicles (FMTV) program, which more than offset higher commercial truck production in North America.
Net income from continuing operations, on a GAAP basis, was $236 million, or $2.33 per diluted share, compared to a loss from continuing operations of $37 million, or $0.38 per diluted share, in the prior year.
Adjusted income from continuing operations in the third quarter of fiscal year 2014 was $28 million, or $0.28 per diluted share, compared to $33 million, or $0.34 per diluted share, a year ago. Adjusted income from continuing operations excludes $209 million from the antitrust settlement with Eaton Corporation less reimbursement of current year legal fees.
Adjusted EBITDA was $80 million, compared to $87 million in the third quarter of fiscal year 2013. Adjusted EBITDA margin for the third quarter of fiscal year 2014 was 8.1 percent, compared to 8.8 percent in the same period last year. Lower revenue and the unfavorable mix impact of lower sales in South America and the defense business drove the lower Adjusted EBITDA and Adjusted EBITDA margin year-over-year.
Cash flow from operating activities in the third quarter of fiscal year 2014 was $85 million, compared to $36 million in the same period last year. Free cash flow for the third quarter of fiscal year 2014 was $71 million, compared to $28 million in the prior year. The improvement in both cash flow metrics is primarily due to lower pension contributions and lower cash taxes.
Third-Quarter Segment Results
Commercial Truck & Industrial sales were $761 million, down $23 million or 3 percent, compared with the same period last year. The decrease was primarily due to lower commercial truck production in South America and lower defense revenue, partially offset by higher commercial truck production in North America.
Segment EBITDA for the Commercial Truck & Industrial segment was $55 million for the quarter, down $12 million or 18 percent from the third quarter of fiscal year 2013. Segment EBITDA margin was 7.2 percent, down from 8.5 percent in the same period last year. Lower revenue and the unfavorable mix impact of lower sales in South America and the defense business drove the lower Segment EBITDA and Segment EBITDA margin year-over-year.
The Aftermarket & Trailer segment posted sales of $259 million, up $21 million or 9 percent, from the same period last year. Segment EBITDA for Aftermarket & Trailer was $26 million, up one million dollars, or 4 percent, from the third quarter of fiscal year 2013. Segment EBITDA margin was 10.0 percent, down slightly from 10.5 percent in the same period last year. The loss of earnings associated with the company's ownership interest in Suspensys, which was sold in the fourth quarter of fiscal year 2013, offset the benefit of higher revenue.
Outlook for Fiscal Year 2014
The company is raising its earnings and free cash flow guidance as follows:
-- Adjusted EBITDA margin in the range of 7.7 percent to 7.9 percent
(increased from approximately 7.7 percent).
-- Adjusted earnings per share from continuing operations in the range of
$0.65 to $0.75 (increased from the range of $0.50 to $0.60).
-- Free cash flow in the range of $50 to $75 million (increased from the
range of breakeven to $25 million).
Meritor is reaffirming its revenue guidance in the range of $3.75 billion to $3.8 billion, assuming constant currency.
The company anticipates the following:
-- Capital expenditures in the range of $65 million to $75 million (reduced
from the range of $75 million to $85 million).
-- Interest expense in the range of $95 million to $105 million (unchanged
from the prior quarter's assumptions), excluding the $21 million loss on
debt extinguishment.
-- Cash interest in the range of $80 million to $90 million (unchanged from
the prior quarter's assumptions).
-- Cash income taxes in the range of $30 million to $40 million (reduced
from the range of $40 million to $50 million).
"We are on track with our M2016 objectives," said Chairman and CEO Ike Evans. "Our year-to-date performance demonstrates the traction we're getting to achieve sustained improvement in our financial performance."
Third-Quarter Fiscal Year 2014 Conference Call
Meritor will host a conference call and webcast to discuss the company's third-quarter results for fiscal year 2014 at 8:30 a.m. (ET) Thursday, July 31, 2014.
To participate, call (617) 213-4845 10 minutes prior to the start of the call. When registering, reference passcode 99661845.
Investors can also listen to the conference call in real time or access a recording of the call for seven days after the event by visiting the investors page on meritor.com.
A replay of the call will be available from 12:30 p.m. July 31 to 11:59 p.m. Aug. 7 by calling (888) 286-8010 within the United States or (617) 801-6888 for international calls. Refer to replay passcode 92993486. To access the listen-only audio webcast, visit meritor.com and select the webcast link from the homepage or the investor page.
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 around the world. 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 18 countries. Meritor 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 future results of the company (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. SEC filings 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 through 2015; 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 and our ability to obtain new customers; the outcome of actual and potential product liability, warranty and recall claims; 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; 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 other filings of the company with the SEC. These forward-looking statements are made only as of the date hereof, and the company undertakes 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 net debt 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. Net debt, including retirement liabilities, is defined as total debt plus pension assets, pension liability, retiree medical liability and other retirement benefits less cash and cash equivalents.
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. Net debt, including retirement liabilities, is a specific financial measure which is part of our three-year plan, M2016, to reduce debt and other balance sheet liabilities.
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, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring expense 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)
Quarter Ended Nine Months Ended
June 30, June 30,
--------
2014 2013 2014 2013
---- ---- ---- ----
Sales $986 $993 $2,855 $2,792
Cost of sales (863) (884) (2,513) (2,505)
---- ---- ------ ------
GROSS MARGIN 123 109 342 287
Selling, general and administrative (54) (67) (179) (194)
Pension settlement loss - (36) - (36)
Restructuring costs - (12) (3) (29)
Other operating expense (1) - (2) (2)
--- --- --- ---
OPERATING INCOME (LOSS) 68 (6) 158 26
Equity in earnings of ZF Meritor 190 - 190 -
Equity in earnings of other affiliates 11 15 28 34
Interest expense, net (22) (45) (97) (99)
--- --- --- ---
INCOME (LOSS) BEFORE INCOME TAXES 247 (36) 279 (39)
Provision for income taxes (11) (1) (30) (18)
--- --- --- ---
INCOME (LOSS) FROM CONTINUING OPERATIONS 236 (37) 249 (57)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax (2) (1) 1 (6)
--- --- --- ---
NET INCOME (LOSS) 234 (38) 250 (63)
Less: Net Income attributable to noncontrolling interests - - (4) -
--- --- --- ---
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC. $234 $(38) $246 $(63)
==== ==== ==== ====
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
Net income (loss) from continuing operations $236 $(37) $245 $(57)
Income (loss) from discontinued operations (2) (1) 1 (6)
--- --- --- ---
Net income (loss) $234 $(38) $246 $(63)
==== ==== ==== ====
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations $2.33 $(0.38) $2.47 $(0.58)
Discontinued operations (0.02) (0.01) 0.01 (0.07)
----- ----- ---- -----
Diluted earnings (loss) per share $2.31 $(0.39) $2.48 $(0.65)
===== ====== ===== ======
Diluted average common shares outstanding 101.1 97.2 99.1 97.0
MERITOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited, in millions)
June 30, September 30,
2014 2013
---- ----
ASSETS:
-------
Cash and cash equivalents $303 $318
Receivables, trade and other, net 644 596
Inventories 441 414
Other current assets 56 56
--- ---
TOTAL CURRENT ASSETS 1,444 1,384
----- -----
Net property 411 417
Goodwill 439 434
Other assets 516 335
--- ---
TOTAL ASSETS $2,810 $2,570
====== ======
LIABILITIES AND EQUITY (DEFICIT):
---------------------------------
Short-term debt $5 $13
Accounts and notes payable 715 694
Other current liabilities 351 339
--- ---
TOTAL CURRENT LIABILITIES 1,071 1,046
----- -----
Long-term debt 1,086 1,125
Retirement benefits 861 886
Other liabilities 319 335
Total deficit attributable to
Meritor, Inc. (558) (850)
Noncontrolling interests 31 28
--- ---
TOTAL DEFICIT (527) (822)
---- ----
TOTAL LIABILITIES AND DEFICIT $2,810 $2,570
====== ======
MERITOR, INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
(Unaudited, in millions)
Quarter Ended Nine Months Ended
June 30, June 30,
2014 2013 2014 2013
---- ---- ---- ----
Sales:
Commercial Truck & Industrial $761 $784 $2,251 $2,211
Aftermarket & Trailer 259 238 699 665
Intersegment Sales (34) (29) (95) (84)
--- --- --- ---
Total sales $986 $993 $2,855 $2,792
==== ==== ====== ======
EBITDA:
Commercial Truck & Industrial $55 $67 $165 $138
Aftermarket & Trailer 26 25 67 60
--- --- --- ---
Segment EBITDA 81 92 232 198
Unallocated legacy and corporate costs, net (1) (5) (4) (7)
--- --- --- ---
Adjusted EBITDA 80 87 228 191
Interest expense, net (22) (45) (97) (99)
Provision for income taxes (11) (1) (30) (18)
Depreciation and amortization (17) (16) (50) (49)
Noncontrolling interests - - (4) -
Loss on sale of receivables (2) (2) (7) (5)
Restructuring costs - (12) (3) (29)
Antitrust settlement with Eaton, net of tax (2) 208 - 208 -
Specific warranty contingency, net of supplier recovery - (12) - (12)
Pension settlement loss - (36) - (36)
--- --- --- ---
Net Income (loss) from continuing operations attributable to Meritor, Inc. 236 (37) 245 (57)
Net Income (loss) from discontinued operations, net of tax, attributable to Meritor, Inc. (2) (1) 1 (6)
--- --- --- ---
Net income (loss) attributable to Meritor, Inc. $234 $(38) $246 $(63)
==== ==== ==== ====
Adjusted EBITDA Margin (1) 8.1% 8.8% 8.0% 6.8%
(1) Adjusted EBITDA margin equals Adjusted EBITDA divided by consolidated sales.
(2) Associated with our share of the antitrust settlement with Eaton less legal expenses incurred in fiscal year 2014.
MERITOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in millions)
Nine Months Ended
June 30,
--------
2014 2013
---- ----
OPERATING ACTIVITIES
Income (loss) from continuing operations $249 $(57)
Adjustments to income (loss) from continuing operations:
Depreciation and amortization 50 49
Restructuring costs 3 29
Loss on debt extinguishment 21 24
Equity in earnings of ZF Meritor (190) -
Equity in earnings of other affiliates (28) (34)
Pension and retiree medical expense 30 69
Other adjustments to income (loss) from continuing operations 7 4
Dividends received from affiliates 28 14
Pension and retiree medical contributions (31) (88)
Restructuring payments (6) (17)
Changes in off-balance sheet accounts receivable factoring (27) 46
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, 4 (98)
foreign currency adjustments and discontinued operations
Operating cash flows provided by (used for) continuing operations 110 (59)
Operating cash flows used for discontinued operations (7) (14)
--- ---
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 103 (73)
--- ---
INVESTING ACTIVITIES
Capital expenditures (39) (31)
Other investing activities - 1
--- ---
Net investing cash flows used for continuing operations (39) (30)
Net investing cash flows provided by discontinued operations 3 6
--- ---
CASH USED FOR INVESTING ACTIVITIES (36) (24)
--- ---
FINANCING ACTIVITIES
Proceeds from debt issuance 225 500
Repayment of notes and term loan (308) (427)
Debt issuance costs (9) (12)
Other financing activities 10 10
--- ---
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (82) 71
--- ---
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE - (3)
RATES ON CASH AND CASH EQUIVALENTS
CHANGE IN CASH AND CASH EQUIVALENTS (15) (29)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 318 257
--- ---
CASH AND CASH EQUIVALENTS AT END OF PERIOD $303 $228
==== ====
MERITOR, INC.
ADJUSTED INCOME AND EARNINGS PER SHARE - RECONCILIATION
Non-GAAP
(Unaudited)
(in millions, except per share amounts)
Quarter Ended Nine Months Ended
June 30, June 30,
2014 2013 2014 2013
---- ---- ---- ----
Income (loss) from continuing operations attributable to Meritor, Inc. $236 $(37) $245 $(57)
Adjustments (net of tax):
Antitrust settlement with Eaton (1) (208) - (208) -
Loss on debt extinguishment - 19 21 19
Restructuring costs - 12 3 27
Specific warranty contingency - 12 - 12
Pension settlement loss - 27 - 27
--- --- --- ---
Adjusted income from continuing operations $28 $33 $61 $28
=== === === ===
Diluted earnings (loss) per share from continuing operations $2.33 $(0.38) $2.47 $(0.58)
Impact of adjustments on diluted earnings (loss) per share (2.05) 0.72 (1.85) 0.87
----- ---- ----- ----
Adjusted diluted earnings per share from continuing operations $0.28 $0.34 $0.62 $0.29
===== ===== ===== =====
(1) Non-GAAP adjustment associated with our share of the antitrust settlement with Eaton less legal expenses incurred in fiscal year 2014.
MERITOR, INC.
FREE CASH FLOW - RECONCILIATION
Non-GAAP
(Unaudited, in millions)
Quarter Ended Nine Months Ended
June 30, June 30,
2014 2013 2014 2013
---- ---- ---- ----
Cash flows provided by (used for) operating activities $85 $36 $103 $(73)
Capital expenditures (14) (8) (39) (31)
--- --- --- ---
Free cash flow 71 28 64 (104)
--- --- --- ----
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