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| MTOR > SEC Filings for MTOR > Form 10-Q on 1-Feb-2013 | All Recent SEC Filings |
1-Feb-2013
Quarterly Report
Three Months Ended December
31, Percent
2012 2011 Change
Estimated Commercial Truck (in thousands)
North America, Heavy-Duty Trucks 57 75 (24 )%
North America, Medium-Duty Trucks 45 41 10 %
Western Europe, Heavy- and Medium-Duty Trucks 95 112 (15 )%
South America, Heavy- and Medium-Duty Trucks 38 62 (39 )%
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We expect production volumes in North America and Europe to soften compared to
the levels experienced in fiscal year 2012. Beginning in second quarter of
fiscal year 2012, production volumes in South America declined significantly as
the industry transitioned to tighter emission standard requirements for
commercial vehicles. The recovery of production volumes has been slower than
previously expected although we expect a modest improvement beginning in the
second quarter of fiscal year 2013. Production volumes in the Asia-Pacific
region, more specifically China and India, have decreased compared to levels
experienced in fiscal year 2012, and there is no certainty as to when these
volumes will return to the levels previously experienced.
Industry-Wide Issues
Our business continues to address a number of other challenging industry-wide
issues including the following:
• Uncertainty around the global market outlook;
• Volatility in price and availability of steel, components and other commodities;
• Disruptions in the financial markets and their impact on the availability and cost of credit;
• Higher energy and transportation costs;
• Impact of currency exchange rate volatility;
• Consolidation and globalization of OEMs and their suppliers; and
• Significant pension and retiree medical health care costs.
Other
Other significant factors that could affect our results and liquidity in fiscal
year 2013 include:
• Significant contract awards or losses of existing contracts or failure to
negotiate acceptable terms in contract renewal negotiations including,
without limitation, negotiations with our largest customer, Volvo, which
are ongoing regarding our contract with Volvo covering axle supply in
Europe, South America and Asia, which is scheduled to expire in October
2014;
• 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;
• Ability to work with our customers to manage rapidly changing production volumes;
• Ability to recover and timing of recovery of steel price and other cost increases from our customers;
• Any unplanned extended shutdowns or production interruptions by us, our customers or our suppliers;
• A significant deterioration or slowdown in economic activity in the key markets in which we operate;
• Higher than planned price reductions to our customers;
• Potential price increases from our suppliers;
• Additional restructuring actions and the timing and recognition of restructuring charges;
• Higher than planned warranty expenses, including the outcome of known or potential recall campaigns;
• Our ability to implement planned productivity, cost reduction, and other margin improvement initiatives; and
• Restrictive government actions by foreign countries (such as restrictions on transfer of funds and trade protection measures, including export duties and quotas and customs duties and tariffs).
NON-GAAP FINANCIAL MEASURES
In addition to the results reported in accordance with accounting principles
generally accepted in the United States (GAAP), we have provided information
regarding non-GAAP financial measures. These non-GAAP financial measures include
Adjusted income (loss) from continuing operations and Adjusted diluted earnings
(loss) per share from continuing operations, Adjusted EBITDA, Adjusted EBITDA
margin, Free cash flow and Free cash flow from continuing operations before
restructuring payments.
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 Adjusted EBITDA and Adjusted income (loss) from
continuing operations are meaningful measures of performance as they are
commonly utilized by management and investors to analyze ongoing operating
performance and entity
valuation. Management, the investment community and banking institutions
routinely use Adjusted EBITDA and Adjusted EBIDA margins, together with other
measures, to measure operating performance in our industry. Further, management
uses Adjusted EBITDA for planning and forecasting future periods. In addition,
we use Segment EBITDA as the primary basis to evaluate the performance of each
of our reportable segments. Management believes that Free cash flow is useful in
analyzing our ability to service and repay debt.
Adjusted income (loss) from continuing operations and 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 below are reconciliations of
these non-GAAP financial measures to the most directly comparable financial
measures calculated in accordance with GAAP.
Adjusted income (loss) from continuing operations and Adjusted diluted earnings
(loss) per share are reconciled to loss from continuing operations and diluted
loss per share below (in millions, except per share amounts).
Three Months Ended
December 31,
2012 2011
Adjusted income (loss) from continuing operations $ (11 ) $ 11
Restructuring costs, net of tax (5 ) (24 )
Loss from continuing operations $ (16 ) $ (13 )
Adjusted diluted earnings (loss) per share from
continuing operations $ (0.11 ) $ 0.12
Impact of adjustments on diluted loss per share (0.06 ) (0.25 )
Diluted loss per share from continuing operations $ (0.17 ) $ (0.13 )
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Free cash flow and Free cash flow from continuing operations before restructuring payments are reconciled to cash flows provided by (used for) operating activities below (in millions).
Three Months Ended
December 31,
2012 2011
Cash provided by (used for) operating activities -
continuing operations $ (81 ) $ 8
Capital expenditures - continuing operations (15 ) (25 )
Free cash flow - continuing operations (96 ) (17 )
Cash 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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MERITOR, INC.
Adjusted EBITDA is reconciled to net income attributable to Meritor, Inc. in
"Results of Operations" below.
Results of Operations
The following is a summary of our financial results is (in millions, except per
share amounts):
Three Months Ended
December 31,
2012 2011
SALES:
Commercial Truck & Industrial $ 715 $ 975
Aftermarket & Trailer 203 218
Intersegment Sales (27 ) (34 )
SALES $ 891 $ 1,159
SEGMENT EBITDA:
Commercial Truck & Industrial $ 34 $ 61
Aftermarket & Trailer 13 17
SEGMENT EBITDA 47 78
Unallocated legacy and corporate costs, net (1) (1 ) 1
ADJUSTED EBITDA 46 79
Interest expense, net (29 ) (24 )
Provision for income taxes (10 ) (20 )
Depreciation and amortization (16 ) (17 )
Restructuring costs (6 ) (24 )
Loss on sale of receivables (1 ) (3 )
Noncontrolling interests - (4 )
LOSS FROM CONTINUING OPERATIONS, attributable to
Meritor, Inc. $ (16 ) $ (13 )
LOSS FROM DISCONTINUED OPERATIONS, net of tax,
attributable to Meritor, Inc. (5 ) (9 )
NET LOSS attributable to Meritor, Inc. $ (21 ) $ (22 )
DILUTED LOSS PER SHARE Attributable to Meritor,
Inc.
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
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(1) Unallocated legacy and corporate costs represent items that are not directly related to our business segments and include pension and retiree medical costs associated with sold businesses and other legacy costs for environmental and product liability matters. In addition, the first quarter of fiscal year 2012, unallocated legacy and corporate includes a gain of approximately $3 million on sale of certain passive investments.
MERITOR, INC.
Three Months Ended December 31, 2012 Compared to Three Months Ended December 31,
2011
Sales
The following table reflects total company and business segment sales for the
three months ended December 31, 2012 and 2011. The reconciliation is intended to
reflect the trend in business segment sales and to illustrate the impact that
changes in foreign currency exchange rates, volumes and other factors had on
sales. Business segment sales include intersegment sales (in millions).
Dollar Change Due To
December 31, Dollar % Volume /
2012 2011 Change Change Currency Other
Sales:
Commercial Truck & Industrial $ 715 $ 975 $ (260 ) (27 )% $ (16 ) $ (244 )
Aftermarket & Trailer 203 218 (15 ) (7 )% (2 ) (13 )
Intersegment Sales (27 ) (34 ) 7 (21 )% 2 5
TOTAL SALES $ 891 $ 1,159 $ (268 ) (23 )% $ (16 ) $ (252 )
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Commercial Truck & Industrial sales were $715 million in the first quarter of
fiscal year 2013, down 27 percent compared to the first quarter of fiscal year
2012, reflecting lower OE production volumes in all regions. North American
industry-wide production volumes for heavy-duty trucks decreased 24 percent in
the first quarter of fiscal year 2013 as compared to the same period a year ago.
In addition, we experienced lower sales in South America and Europe as
industry-wide production volumes in these regions were down 39 percent and 15
percent, respectively. Also, the step-down in production in our China
off-highway business unfavorably impacted sales. Furthermore, the effects of
foreign currency exchange rates decreased sales by $16 million compared to the
same period a year ago as the U.S. dollar strengthened against other currencies
compared to the prior year.
Aftermarket & Trailer sales were $203 million in the first quarter of fiscal
year 2013, down from $218 million in the first quarter of fiscal year 2012. The
decrease in sales is primarily due to lower sales of core aftermarket
replacement products, primarily in North America.
Cost of Sales and Gross Profit
Cost of sales primarily represents materials, labor and overhead production
costs associated with the company's products and production facilities. Cost of
sales for the three months ended December 31, 2012 was $808 million compared to
$1,053 million in the prior year, representing a decrease of 23 percent. The
decrease in costs of sales is primarily due to lower sales, which decreased by
23 percent, and the lower fixed costs resulting from the rationalization of our
European manufacturing footprint in fiscal year 2012 as well as improvements in
our operations. Total cost of sales was approximately 91 percent of sales for
the three month periods ended December 31, 2012 and 2011.
The following table summarizes significant factors contributing to the
changes in costs of sales during first quarter of fiscal year 2013 compared to
the same quarter in the prior year (in millions):
Cost of Sales
Quarter ended December 31, 2011 $ 1,053
Volume, mix and other, net (229 )
Foreign exchange (16 )
Quarter ended December 31, 2012 $ 808
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Changes in the components of cost of sales year over year are summarized as
follows (in millions):
Lower material costs $ 200 Lower labor and overhead costs 46 Other, net (1 ) Total decrease in costs of sales $ 245 |
Material costs represent the majority of our cost of sales and include raw
materials, composed primarily of steel and purchased components. Material costs
for the three months ended December 31, 2012 decreased by approximately $200
million compared to the same period last year primarily as a result of lower
sales. In addition, global steel prices were lower in the first quarter of
fiscal year 2013 as compared to the first quarter of fiscal year 2012.
Labor and overhead costs decreased by $46 million compared to the same period
in the prior year. The decrease was primarily due to lower sales in the first
quarter of fiscal year 2013. In addition, savings associated with the
rationalization of our European manufacturing operations, including the sale of
our facility in France in fiscal year 2012, as well as continuous improvement
initiatives contributed to the decrease in labor and overhead costs.
Gross profit for the three months ended December 31, 2012 was $83 million
compared to $106 million in the same period last year. Gross profit, as a
percentage of sales, for the quarter ended December 31, 2012 was 9.3 percent
compared to 9.1 percent for the three months ended December 31, 2011. Gross
margins improved in the first quarter of fiscal year 2013 primarily due to
improvements in Commercial Truck pricing and rationalization of the European
manufacturing footprint.
Other Income Statement Items
Selling, general and administrative expenses for the three months ended
December, 2012 and 2011 are summarized as follows (in millions):
Three Months Ended Three Months Ended
December 31, 2012 December 31, 2011 Increase (Decrease)
SG&A Amount % of sales Amount % of sales
Loss on sale of
receivables $ (1 ) (0.1 )% $ (3 ) (0.3 )% $ (2 ) (0.2)pts
Short- and long-term
variable
compensation (5 ) (0.6 )% (5 ) (0.4 )% - 0.2pts
All other SG&A (56 ) (6.2 )% (57 ) (4.9 )% (1 ) 1.3pts
Total SG&A $ (62 ) (6.9 )% $ (65 ) (5.6 )% $ (3 ) 1.3pts
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All other SG&A represents normal selling, general and administrative expense
and was relatively flat in total. The increase in all other SG&A as a percentage
of sales compared to the first quarter of fiscal year 2012 was due to lower
sales in the current year.
Restructuring costs of $6 million were recorded during the quarter ended
December 31, 2012 compared to $24 million a year ago. Our Commercial Truck &
Industrial segment recognized $2 million of restructuring costs in the first
quarter of fiscal year 2013 primarily related to employee severance costs
related to our variable labor headcount reduction. Our Aftermarket & Trailer
segment recognized $4 million of restructuring cost during the first quarter of
fiscal year 2013 primarily related to the remanufacturing consolidation program.
During the first quarter of fiscal year 2012, we recognized restructuring costs
of $23 million in our Commercial Truck segment in connection with the January
2012 sale of our manufacturing facility in France to Renault Trucks SAS. These
costs include non-cash charges of $19 million, of which $17 million relates to
impairments for assets held for sale at December 31, 2011. In addition, we
recognized $4 million of costs associated with employee headcount reductions and
facility rationalization actions.
Operating income for the first quarter of fiscal year 2013 was $14 million,
compared to $16 million in the prior year. Key items impacting operating income
are discussed above.
Equity in earnings of affiliates was $9 million in the first quarter of
fiscal year 2013, compared to $15 million in the same period in the prior year.
The decrease is primarily due to lower earnings from our affiliates in North and
South America reflecting weaker truck markets in those regions.
Interest expense, net for the first quarter of fiscal year 2013 was $29
million, compared to $24 million in the prior year. During the quarter ended
December 31, 2012, the company repurchased approximately $245 million of $300
million principal amount of the 4.625% convertible notes due 2026. We recognized
a $5 million loss on debt extinguishment associated with the repurchase.
Provision for income taxes was $10 million in the first quarter of fiscal year
2013 compared to $20 million in the first quarter of fiscal year 2012. The
reduction to tax expense for the three months ended December 31, 2012 was
primarily attributable to lower earnings in jurisdictions in which we recognize
tax expense.
Loss from continuing operations (before noncontrolling interests) for the first
quarter of fiscal year 2013 was $16 million, compared to a loss of $9 million,
in the prior year. The reasons for the deterioration are discussed above.
Loss from discontinued operations was $5 million in the first quarter of
fiscal year 2013, compared to $9 million in the same period in the prior year.
Loss from discontinued operations for the three months ended December 31, 2012
and 2011 primarily relates to changes in estimates and adjustments related to
certain assets and liabilities retained from previously divested businesses and
indemnities provided at the time of sale of sale.
Net loss attributable to Meritor, Inc. was $21 million for the first quarter
of fiscal year 2013 compared to a loss of $22 million in the first quarter of
fiscal year 2012. Various factors impacting the net loss are previously
discussed.
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 expense and asset impairment charges. We use Segment EBITDA as the
primary basis for the Chief Operating Decision Maker (CODM) to evaluate the
performance of each of our reportable segments. On November 12, 2012, the
company announced a revised management reporting structure resulting in two
business segments. Prior period segment financial information has been recast to
reflect the revised reporting structure.
The following table reflects Segment EBITDA and Segment EBITDA margins for
the three months ended December 31, 2012 and 2011 (dollars in millions).
Segment EBITDA Segment EBITDA Margins
December 31, December 31,
2012 2011 $ Change 2012 2011 Change
Commercial Truck & Industrial $ 34 $ 61 $ (27 ) 4.8 % 6.3 % (1.5)pts
Aftermarket & Trailer 13 17 (4 ) 6.4 % 7.8 % (1.4)pts
Segment EBITDA $ 47 $ 78 $ (31 ) 5.3 % 6.7 % (1.4)pts
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Significant items impacting year-over-year Segment EBITDA include the
following:
. . . |
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