ArvinMeritor, Inc. (NYSE: ARM) today announced a net loss of $162 million for the third quarter ending June 30, compared to net income of $44 million for the same period a year ago. Net loss includes losses from discontinued operations of $134 million or $1.84 per diluted share, primarily related to non-cash, after-tax charges of approximately $90 million associated with the divestiture of several of the company's chassis businesses.
ArvinMeritor posted sales of $993 million, down from $1.9 billion, or 47 percent, from the same period last year (42 percent excluding effects of foreign currency). This decrease in sales is due to significantly lower production volumes in most original equipment markets globally.
EBITDA from continuing operations, before special items, was $33 million, down $79 million or 71 percent, from the same period last year. Despite sales being down nearly 50 percent in our core Commercial Vehicle Systems business, EBITDA margins in that business only declined by approximately 30 percent, due to operational improvements, the impact of restructuring and other cost reduction initiatives, and positive material performance.
Loss from continuing operations, on a GAAP basis, was $28 million or $0.39 per diluted share, compared to income from continuing operations of $48 million or $0.66 per diluted share in the prior year. Loss from continuing operations, before special items, was $18 million or $0.25 per diluted share, compared to income from continuing operations, before special items, of $54 million or $0.74 per diluted share a year ago. Special items for the quarter primarily relate to restructuring charges and non-cash charges for a valuation reserve against certain deferred tax assets. Free cash flow was $73 million in the third quarter, an increase of $211 million from the second fiscal quarter of this year. This increase is due to continued reductions in working capital levels, primarily in accounts receivable and inventory.
"Although sales are down significantly, our performance this quarter demonstrates a continued diligence to improve ArvinMeritor's liquidity position through proactive management of working capital, improved operational performance and ongoing cost reduction actions," said Chairman, CEO and President Chip McClure. "With the completion of several divestitures, we moved closer to our objective of becoming a commercial vehicle company, enabling us to focus on expanding our leadership position in both on- and off-highway markets, as demonstrated by the new contracts we announced this quarter."
While market conditions remain depressed in North America and Europe, South America and Asia Pacific continue to show signs of improvement.
For the fourth quarter of fiscal year 2009 (compared to the third fiscal quarter of 2009), the company anticipates:
- Revenue to be slightly lower, due largely to seasonal patterns
- Loss per share, before special items, to be greater
- Free cash flow, before factoring and restructuring, to be slightly negative
- Total free cash flow to be negative
"While we anticipate market conditions will remain tough through our fourth fiscal quarter, we are taking appropriate actions that should help offset the impact and allow us to remain in compliance with our year-end credit line financial covenant," said McClure. "We will continue to proactively manage working capital levels, execute key initiatives and reduce costs, while at the same time positioning the company for a recovery in our key markets."
ArvinMeritor also announced it has entered into a purchase and sale agreement to divest the entirety of its Wheels business - previously a division of the company's LVS segment - to Iochpe-Maxion, S. A. (Buyer), a Brazilian producer of wheels and frames for commercial vehicles, railway freight cars and castings. The base purchase price is $180 million; actual closing proceeds may vary depending on taxes and the net cash or debt position of the business at closing.
The closing and funding of the entire adjusted purchase price is expected to be on or before Sept. 23, prior to the end of ArvinMeritor's fourth fiscal quarter. The agreement also requires certain true-up payments for working capital and other miscellaneous adjustments, on a post-closing basis.
The completion of the transaction is subject to several conditions, including the clearance or waiver of applicable competition law waiting periods in the United States and Mexico, and the fulfillment of the buyer's committed financing. The buyer will be pursuing corporate approvals, which are required under Brazilian law.