FY 2005 1st Quarter
Earnings Conference Call
Chip McClure, President, Chairman and CEO
Rakesh Sachdev, Vice President and Controller
January 31, 2005
Forward-Looking Statements
This presentation contains “forward-looking statements” as defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are based on currently available
competitive, financial and economic data and management’s views and assumptions regarding
future events. Such forward-looking statements are inherently uncertain, and actual results may
differ materially from those projected as a result of certain risks and uncertainties, including but
not limited to global economic and market conditions; the demand for commercial, specialty and
light vehicles for which the company supplies products; risks inherent in operating abroad,
including foreign currency exchange rates and potential disruption production and supply due to
terrorist attacks or acts of aggression; availability and cost of raw materials, including steel; OEM
program delays; demand for and market acceptance of new and existing products; reliance on
major OEM customers; labor relations of the company, its customers and suppliers; successful
integration of acquired or merged businesses; achievement of the expected annual savings and
synergies from past and future business combinations; success and timing of potential
divestitures; potential impairment of long-lived assets, including goodwill; competitive product and
pricing pressures; the amount of the company’s debt; the ability of the company to access capital
markets; the credit ratings of the company’s debt; the outcome of existing and any future legal
proceedings, including any litigation with respect to environmental or asbestos-related matters; as
well as other risks and uncertainties, including but not limited to those detailed herein and from
time to time in ArvinMeritor’s Securities and Exchange Commission filings.
2
1st Quarter Income Statement
(in millions, except per share amounts)
2004
2003
$
%
Sales
2,090
$
1,924
$
166
$
9%
Cost of Sales
(1,964)
(1,775)
(189)
-11%
GROSS MARGIN
126
149
(23)
-15%
SG&A
(84)
(90)
6
7%
Restructuring Costs
(10)
(1)
(9)
-900%
Other Income (Expense)
4
(16)
20
OPERATING INCOME
36
42
(6)
-14%
Equity in Earnings of Affiliates
6
2
4
200%
Gain on Sale of Marketable Securities
-
7
(7)
Interest Expense, Net and Other
(28)
(26)
(2)
-8%
INCOME BEFORE INCOME TAXES
14
25
(11)
-44%
Provision for Income Taxes
(4)
(8)
4
50%
Minority Interests
2
(2)
4
200%
Income From Continuing Operations
12
15
(3)
-20%
Income from Discontinued Operations
6
4
2
50%
NET INCOME
18
$
19
$
(1)
$
-5%
DILUTED EARNINGS PER SHARE
Continuing Operations
0.17
$
0.22
$
(0.05)
$
-23%
Discontinued Operations
0.09
0.06
0.03
50%
Diluted EPS
0.26
$
0.28
$
(0.02)
$
-7%
Three Months Ended December 31,
Better/(Worse)
3
Segment Sales
(in millions)
2004
2003
$
%
Light Vehicle Systems
North America
515
$
500
$
15
$
3%
Europe
556
620
(64)
-10%
South America
50
41
9
22%
Asia-Pacific and Other
62
78
(16)
-21%
Total Sales
1,183
1,239
(56)
-5%
Commercial Vehicle Systems
North America
530
417
113
27%
Europe
278
189
89
47%
South America
45
28
17
61%
Asia-Pacific and Other
54
51
3
6%
Total Sales
907
685
222
32%
Reported Sales
2,090
$
1,924
$
166
$
9%
Better/(Worse)
Quarter Ended December 31,
4
Segment Operating Income
(in millions)
2004
2003
$
%
Operating Income
Light Vehicle Systems
(1)
$
27
$
(28)
$
-104%
Commercial Vehicle Systems
37
31
6
19%
Segment Operating Income
36
58
(22)
-38%
Costs for Withdrawn Tender Offer
-
(16)
16
Operating Income
36
$
42
$
(6)
$
-14%
Operating Margins
Light Vehicle Systems
-0.1%
2.2%
(2.3)
Commercial Vehicle Systems
4.1%
4.5%
(0.4)
Segment Operating Margins
1.7%
3.0%
(1.3)
Operating Margins
1.7%
2.2%
(0.5)
Better/(Worse)
Quarter Ended December 31,
5
Balance Sheet Highlights
(in millions)
12/31/04
09/30/04
06/30/04
03/31/04
12/31/03
Cash
91
$
132
$
122
$
119
$
137
$
Short-term Debt
7
$
3
$
3
$
2
$
10
$
Long-term Debt
1,516
1,487
1,585
1,527
1,571
Total Debt
1,523
$
1,490
$
1,588
$
1,529
$
1,581
$
Minority Interests
62
61
60
64
69
Equity
1,170
988
1,123
1,076
1,050
Total Debt to Capital
55%
59%
57%
57%
59%
Net Debt (1)
1,396
1,364
1,588
1,600
1,691
Factored Receivables
-
10
9
16
70
Securitized Receivables
1
32
142
225
223
Working Capital (2)
469
293
553
570
586
Working Capital % of Sales (3)
4.6%
5.3%
6.7%
7.2%
6.9%
(1)
Net debt is calculated as total debt less fair value of interest rate swaps plus factored and securitized receivables less cash.
(2)
Includes accounts receivable securitization and factored receivables and excludes cash, short-term debt, and assets and liabilities
of discontinued operations.
(3)
Calculated using quarterly average working capital and current quarter annualized sales.
6
Cash Flow Highlights
Three Months Ended
(in millions)
2004
2003
OPERATING ACTIVITIES
Income from continuing operations
12
$
15
$
Adjustments to income from continuing operations
Depreciation and amortization
46
49
Other non-cash adjustments
(4)
(10)
Pension and retiree medical expense
27
33
Pension and retiree medical contributions
(22)
(23)
Changes in assets and liabilities
(144)
(58)
Net cash flows provided by (used for) continuing operations
(85)
6
Net cash flows used for discontinued operations
(94)
(2)
Cash provided by (used for) operations (excluding securitization and factoring)
(179)
4
Changes in receivables securitization and factoring
(41)
9
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
(220)
$
13
$
INVESTING ACTIVITIES
Capital expenditures
(27)
$
(29)
$
Other investing cash flows provided by continuing operations
11
33
Net investing cash flows provided by (used for) discontinued operations
162
(2)
CASH PROVIDED BY INVESTING ACTIVITIES
146
$
2
$
FINANCING ACTIVITIES
Net change in debt
31
$
21
$
Proceeds from exercise of stock options
5
-
Cash dividends
(7)
(7)
CASH PROVIDED BY FINANCING ACTIVITIES
29
$
14
$
December 31,
7
FY 2005 Light Vehicle Production Outlook
(in millions)
Calendar
Q1
Q2
Q3
Q4
Full Year
Year
North America
2005 Outlook
3.8
4.0
4.2
3.8
15.8
15.9
2004 Actual
3.9
4.2
4.2
3.6
15.9
15.8
Change
-3%
-5%
0%
6%
-1%
1%
Western Europe (1)
2005 Outlook
4.2
4.4
4.6
3.8
17.0
17.3
2004 Actual
4.3
4.3
4.6
3.7
16.9
16.8
Change
-2%
2%
0%
3%
1%
3%
(1) - Includes Czech Republic
Source: CSM Worldwide, Inc.
Fiscal Year Ended September 30
8
FY 2005 Commercial Vehicle Production Outlook
(in thousands)
Calendar
Q1
Q2
Q3
Q4
Full Year
Year
North America - Class 8 Trucks (1)
2005 Outlook
71
77
80
74
302
305
2004 Actual
47
54
63
71
235
259
Change
51%
43%
27%
4%
29%
18%
Western Europe - Heavy & Medium Trucks
2005 Outlook
93
91
97
79
360
353
2004 Actual
95
93
98
90
376
374
Change
-2%
-2%
-1%
-12%
-4%
-6%
(1) - Includes U.S., Canada and Mexico
Source: Western Europe - Global Insight
Fiscal Year Ended September 30
9
Light Vehicle Systems Net New Business
Implied
Actual
Annual
2004
2005
2006
2007
2008
Cumulative
Growth
November 2004 Guidance
4,818
$
280
$
130
$
100
$
510
$
3%
Reduction of Pass Through Sales
-
(40)
(120)
(75)
Other Changes, Net
-
20
(30)
(25)
Revised Guidance
4,818
$
260
$
(20)
$
-
$
130
$
370
$
2%
Sales (in millions)
Incremental
10
FY 2004 Results and FY 2005 Outlook – Continuing Operations
(in millions, except EPS)
FY 2004
Full Year
Sales
8,033
$
-
8,033
$
Light Vehicle Systems
4,818
$
160
-
180
Commercial Vehicle Systems
3,215
700
-
730
860
910
Sales
8,033
$
8,893
$
-
8,943
$
Operating Margin
3.2%
2.8%
-
3.0%
Interest Expense
(107)
(113)
-
(115)
Effective Tax Rate
25%
27%
-
27%
Income from Continuing Operations
127
$
110
$
-
125
$
Diluted Earnings Per Share
1.85
$
1.60
$
-
1.80
$
Full Year Outlook (1)
FY 2005
(1) Outlook does not include the impact of any future acquisitions or divestitures, or the
impact of additional restructuring actions that will be announced in the current quarter.
11
FY 2005 Cash Flow Outlook
(in millions)
Income From Continuing Operations
110
$
-
125
$
Adjustments to Income
Depreciation and Other Amortization
195
-
200
Pension and Retiree Medical Expense
110
-
110
Pension and Retiree Medical Contributions
(160)
-
(170)
Changes in Assets and Liabilities *
(45)
-
(25)
Cash Provided by Operations
210
-
240
Capital Expenditures
(170)
-
(180)
Free Cash Flow
40
$
-
60
$
Net Proceeds from Acquisitions and Divestitures (1)
195
$
-
195
$
Cash Dividends ($0.40 per share)
(27)
$
-
(27)
$
(1) Includes sale of Roll Coater and the Automotive Stamping and Components businesses.
* Includes discontinued operations
Note: Does not include the effects of any changes in A/R securitization and factoring
or any future acquisitions or divestitures.
Full Year
FY 2005
12
FY 2004 2nd Quarter Results and FY 2005 2 nd Quarter Outlook –
Continuing Operations
(in millions, except EPS)
FY 2004
2nd Quarter
Sales
1,996
$
-
1,996
$
Light Vehicle Systems
1,227
$
60
-
65
Commercial Vehicle Systems
769
230
-
240
290
-
305
Sales
1,996
$
2,286
$
-
2,301
$
Operating Margin
3.9%
2.3%
-
2.4%
Interest Expense
(25)
(28)
-
(29)
Effective Tax Rate
26%
27%
-
27%
Income from Continuing Operations
40
$
21
$
-
24
$
Diluted Earnings Per Share
0.58
$
0.30
$
-
0.35
$
(1) Outlook does not include the impact of any future acquisitions or divestitures, or the
impact of additional restructuring actions that will be announced in the current quarter.
FY 2005
2nd Quarter Outlook (1)
13
Non-GAAP Financial Information
14
Use of Non-GAAP Financial Information
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”)
included throughout this presentation, the Company has provided information regarding certain non-GAAP financial
measures. These measures include “net debt” and “free cash flow”. Net debt is defined as total debt less the fair value
adjustment of debt due to interest rate swaps, plus securitized and factored receivables, less cash. Free cash flow represents
net cash provided by operating activities before the net change in accounts receivable securitized or factored, less capital
expenditures. The Company believes it is appropriate to exclude the net change in securitized and factored accounts
receivable in the calculation of free cash flow since the sale of receivables may be viewed as a substitute for borrowing
activity.
Management believes that the non-GAAP financial measures used in this presentation 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 net debt is an important indicator of the Company’s overall leverage and free cash flow is useful in analyzing the
Company’s ability to service and repay its debt. Further, management uses these non-GAAP measures for planning and
forecasting in future periods.
Neither, net debt nor free cash flow should be considered substitutes for debt, cash provided by operating activities or other
balance sheet or cash flow statement data prepared in accordance with GAAP or as a measure of financial position or liquidity.
In addition, the calculation of free cash flow does not reflect cash used to service debt and thus, does 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 slides are reconciliations of these non-GAAP financial measures, if applicable, to the most directly
comparable financial measures calculated and presented in accordance with GAAP.
15
Non-GAAP Financial Information – Net Debt
(in millions)
12/31/04
09/30/04
6/30/04
3/31/04
12/31/03
Total Debt
1,523
1,490
1,588
1,529
1,581
Less:
Fair value of interest rate swaps
(37)
(36)
(29)
(51)
(46)
Plus:
Receivable securitization
1
32
142
225
223
Plus:
Receivable factorization
-
10
9
16
70
Subtotal
1,487
1,496
1,710
1,719
1,828
Less:
Cash
(91)
(132)
(122)
(119)
(137)
Net Debt
1,396
$
1,364
$
1,588
$
1,600
$
1,691
$
Net debt is calculated as total debt less fair value of interest rate swaps plus factored and securitized
receivables less cash.
16
17