FY 2005 2nd Quarter
Earnings Conference Call
Chip McClure, President, Chairman and CEO
Jim Donlon, Senior Vice President and CFO
Rakesh Sachdev, Senior Vice President Corporate Strategy
May 3, 2005
1
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; the financial condition of the company’s suppliers and customers, including
potential bankruptcies; 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
2nd Quarter Income Statement
(in millions, except per share amounts)
2005
2004
$
%
Sales
2,276
$
1,996
$
280
$
14%
Cost of Sales
(2,124)
(1,825)
(299)
-16%
GROSS MARGIN
152
171
(19)
-11%
SG&A
(100)
(99)
(1)
-1%
Gain on Divestitures
-
20
(20)
Customer Bankruptcy
(5)
-
(5)
Environmental Remediation Costs
(6)
(8)
2
Restructuring Costs
(64)
(6)
(58)
OPERATING INCOME (LOSS)
(23)
78
(101)
-129%
Equity in Earnings of Affiliates
7
5
2
40%
Interest Expense, Net and Other
(30)
(25)
(5)
-20%
INCOME (LOSS) BEFORE INCOME TAXES
(46)
58
(104)
-179%
Benefits (Provisions) for Income Taxes
13
(15)
28
187%
Minority Interests
(2)
(3)
1
33%
Income (Loss) From Continuing Operations
(35)
40
(75)
-188%
Income from Discontinued Operations
2
1
1
100%
NET INCOME (LOSS)
(33)
$
41
$
(74)
$
-180%
DILUTED EARNINGS (LOSS) PER SHARE
Continuing Operations
(0.51)
$
0.58
$
(1.09)
$
-188%
Discontinued Operations
0.03
0.01
0.02
200%
Diluted EPS
(0.48)
$
0.59
$
(1.07)
$
-181%
Three Months Ended March 31,
Better/(Worse)
3
Restructuring Actions
Annual savings estimated at $50 – $60 million.
($ in millions)
LVS
CVS
Total
1Q
2Q
YTD
New Actions
Salaried reduction in force
10
$
13
$
23
$
-
$
23
$
23
$
Facility rationalization
Employee severance
47
6
53
-
16
16
Shutdown costs and other
27
9
36
-
-
-
Total facility rationalization
74
15
89
-
16
16
Asset impairments
23
-
23
-
23
23
Total New Actions
107
28
135
-
62
62
Total Previous Actions
16
-
16
10
2
12
Total Estimated Restructuring Costs
123
$
28
$
151
$
10
$
64
$
74
$
Total Estimated Costs
Total Recorded Fiscal 2005
4
Segment Sales
(in millions)
2005
2004
$
%
Light Vehicle Systems
North America
537
$
511
$
26
$
5%
Europe
576
606
(30)
-5%
South America
60
44
16
36%
Asia-Pacific and Other
71
66
5
8%
Total Sales
1,244
1,227
17
1%
Commercial Vehicle Systems
North America
618
471
147
31%
Europe
298
210
88
42%
South America
52
29
23
79%
Asia-Pacific and Other
64
59
5
8%
Total Sales
1,032
769
263
34%
Reported Sales
2,276
$
1,996
$
280
$
14%
Better/(Worse)
Quarter Ended March 31,
5
Segment Operating Income
Total Operating Margins
2.4%
3.3%
(0.9)
(in millions)
2005
2004
$
%
Operating Income
Light Vehicle Systems
(54)
$
50
$
(104)
$
-208%
Commercial Vehicle Systems
37
36
1
3%
Segment Operating Income
(17)
86
(103)
-120%
Environmental Remediation Costs
(6)
(8)
2
25%
Operating Income
(23)
$
78
$
(101)
$
-129%
Operating Margins
Light Vehicle Systems
-4.3%
4.1%
(8.4)
Commercial Vehicle Systems
3.6%
4.7%
(1.1)
Segment Operating Margins
-0.7%
4.3%
(5.0)
Total Operating Margins
-1.0%
3.9%
(4.9)
Operating Margins Before Special Items
Light Vehicle Systems
0.3%
2.4%
(2.1)
Commercial Vehicle Systems
4.8%
4.7%
0.1
Better/(Worse)
Quarter Ended March 31,
6
Balance Sheet Highlights
(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.
(in millions)
03/31/05
12/31/04
09/30/04
06/30/04
03/31/04
Cash
99
$
91
$
132
$
122
$
119
$
Short-term Debt
7
$
7
$
3
$
3
$
2
$
Long-term Debt
1,537
1,516
1,487
1,585
1,527
Total Debt
1,544
$
1,523
$
1,490
$
1,588
$
1,529
$
Minority Interests
59
62
61
60
64
Equity
1,062
1,170
988
1,123
1,076
Total Debt to Capital
58%
55%
59%
57%
57%
Factored Receivables
15
-
10
9
16
Securitized Receivables
65
1
32
142
225
Net Debt (1)
1,504
1,396
1,364
1,588
1,600
Working Capital (2)
465
469
293
553
570
Working Capital % of Sales (3)
5.1%
4.6%
5.3%
6.7%
7.2%
7
$
Six Months Ended
(in millions)
2005
2004
OPERATING ACTIVITIES
Income (loss) from continuing operations
Adjustments to income (loss) from continuing operations:
Depreciation and amortization
93
95
Other non-cash adjustments
54
(30)
Pension and retiree medical expense
55
66
Pension and retiree medical contributions
(46)
(44)
Changes in assets and liabilities
(244)
(84)
Net cash flows provided by (used for) continuing operations
(111)
58
Net cash flows provided by (used for) discontinued operations
(130)
3
Cash provided by (used for) operations (excluding securitization and factoring)
(241)
61
Changes in receivables securitization and factoring
38
(27)
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Other investing cash flows provided by continuing operations
Net investing cash flows provided by (used for) discontinued operations
159
(7)
CASH PROVIDED BY INVESTING ACTIVITIES
107
18
$
FINANCING ACTIVITIES
Net change in debt
Proceeds from exercise of stock options
5
5
Cash dividends
(14)
(14)
CASH PROVIDED BY FINANCING ACTIVITIES
$
March 31,
Cash Flow Highlights
$
(23)
55
$
$
(203)
34
$
$
(63)
(63)
$
11
88
$
68
(32)
$
$
59
(41)
8
Light Vehicle Systems Net New Business
Implied
Actual
Annual
2004
2005
2006
2007
2008
Cumulative
Growth
January 2005 Guidance
4,818
$
260
$
(20)
$
-
$
130
$
370
$
1.9%
Pass Through Sales
-
30
(3)
27
23
77
Other Changes, Net (1)
-
1
23
23
6
53
Revised Guidance
4,818
$
291
$
-
$
50
$
159
$
500
$
2.5%
(1) Primarily Emissions Technologies
Sales (in millions)
Incremental
9
FY 2005 Commercial Vehicle Production Outlook
(in thousands)
Calendar
Q1
Q2
Q3
Q4
Full Year
Year
North America - Class 8 Trucks (1)
2005 Outlook
74
79
80
74
307
304
2004 Actual
47
54
63
71
235
262
Change
57%
46%
27%
4%
31%
16%
Western Europe - Heavy & Medium Trucks
2005 Outlook
96
108
117
100
421
425
2004 Actual
95
93
98
90
376
377
Change
1%
16%
19%
11%
12%
13%
(1) - Includes U.S., Canada and Mexico
Source: Western Europe - Global Insight
Fiscal Year Ended September 30
10
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
3.6
15.6
15.7
2004 Actual
3.9
4.2
4.2
3.6
15.9
15.8
Change
-3%
-5%
0%
0%
-2%
-1%
Western Europe (1)
2005 Outlook
4.2
4.3
4.6
3.8
16.9
17.1
2004 Actual
4.3
4.3
4.6
3.7
16.9
16.8
Change
-2%
0%
0%
3%
0%
2%
(1) - Includes Czech Republic
Source: CSM Worldwide, Inc.
Fiscal Year Ended September 30
11
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
$
(30)
-
(5)
Commercial Vehicle Systems
3,215
800
-
825
770
820
Sales
8,033
$
8,803
$
-
8,853
$
Operating Margin
3.2%
2.6%
-
2.8%
Interest Expense
(107)
(120)
-
(119)
Effective Tax Rate
25%
27%
-
27%
Income from Continuing Operations
127
$
97
$
-
110
$
Diluted Earnings Per Share
1.85
$
1.40
$
-
1.60
$
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. Outlook also excludes $0.10 per diluted share of customer bankruptcy write offs, $0.06 per diluted
share of environmental remediation costs and $0.65 of restructuring charges, each of which were recorded in the second
quarter of fiscal 2005.
12
FY 2004 3rd Quarter Results and FY 2005 3rd Quarter Outlook –
Continuing Operations
(in millions, except EPS)
FY 2004
3rd Quarter
Sales
2,099
$
-
2,099
$
Light Vehicle Systems
1,237
$
40
-
50
Commercial Vehicle Systems
862
225
-
230
265
-
280
Sales
2,099
$
2,364
$
-
2,379
$
Operating Margin
4.0%
3.7%
-
4.0%
Interest Expense
(26)
(30)
-
(31)
Effective Tax Rate
27%
27%
-
27%
Income from Continuing Operations
42
$
42
$
-
49
$
Diluted Earnings Per Share
0.61
$
0.60
$
-
0.70
$
(1) Outlook does not include the impact of any future acquisitions or divestitures, or the impact of additional restructuring actions.
FY 2005
3rd Quarter Outlook (1)
13
FY 2005 Cash Flow Outlook – Continuing Operations
(in millions)
Income From Continuing Operations
97
$
-
110
$
Adjustments to Income
Depreciation and Other Amortization
190
-
195
Pension and Retiree Medical Expense
110
-
110
Pension and Retiree Medical Contributions
(160)
-
(170)
Changes in Assets and Liabilities
(157)
-
(180)
Cash Provided by Operations
80
-
65
Capital Expenditures
(155)
-
(165)
Free Cash Flow
(75)
$
-
(100)
$
Net Proceeds from Acquisitions and Divestitures (1)
195
$
-
195
$
Cash Dividends ($0.40 per share)
(28)
$
-
(28)
$
(1) Includes sale of Roll Coater and the Automotive Stamping and Components businesses.
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
14
Non-GAAP Financial Information
15
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 income from continuing operations,
diluted earnings per share and segment operating income and margins before special items which are non-GAAP financial
measures. These non-GAAP measures are defined as reported income or loss from continuing operations, reported diluted
earnings or loss per share and segment operating income plus or minus special items. Other non-GAAP financial 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.
These non-GAAP measures should not be considered a substitute for the reported results prepared in accordance with GAAP.
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.
16
Non-GAAP Financial Information – Net Debt
(in millions)
03/31/05
12/31/04
09/30/04
06/30/04
03/31/04
Short-term debt
7
$
7
$
3
$
3
$
2
$
Long-term debt
1,537
1,516
1,487
1,585
1,527
Total Debt
1,544
1,523
1,490
1,588
1,529
Less:
Fair value of interest rate swaps
(21)
(37)
(36)
(29)
(51)
Plus:
Receivable securitization
65
1
32
142
225
Plus:
Receivable factorization
15
-
10
9
16
Subtotal
1,603
1,487
1,496
1,710
1,719
Less:
Cash
(99)
(91)
(132)
(122)
(119)
Net Debt
1,504
$
1,396
$
1,364
$
1,588
$
1,600
$
Net debt is calculated as total debt less fair value of interest rate swaps plus factored and securitized receivables less cash.
17
$
Non-GAAP Financial Information –
2nd Qtr FY 05 Results before Special Items
Q2 FY 05
Reported
Customer
Bankruptcy
Environmental
New
Restructuring
Actions
Q2 FY05
Adjusted
Sales
2,276
$
-
-
$
-
$
2,276
$
Gross Margin
152
4
-
-
156
Operating Income (Loss)
(23)
9
6
62
54
Income (Loss) from Continuing Operations
(35)
7
4
45
21
Diluted Earnings (Loss) Per Share -
Continuing Operations
(0.51)
$
0.10
$
0.06
$
0.65
$
0.30
$
Guidance
$0.30 - $0.35
Segment Operating Income (Loss)
LVS Operating Income (Loss)
(54)
$
9
$
49
$
4
$
CVS Operating Income (Loss)
37
-
-
13
50
Segment Operating Income (Loss)
(17)
9
-
62
54
Environmental remediation costs
(6)
-
6
-
-
Total Operating Income (Loss)
(23)
$
9
$
6
$
62
$
54
$
Operating Margins
LVS
-4.3%
0.3%
CVS
3.6%
4.8%
Segment Operating Margins
-0.7%
Total Operating Margins
-1.0%
2.4%
18
Non-GAAP Financial Information –
2nd Qtr FY 04 Results before Special Items
Q2 FY 04
Reported
Gain on Sale
of Business
Environmental
Q2 FY04
Adjusted
Sales
1,996
$
-
$
-
$
1,996
$
Gross Margin
171
-
-
171
Operating Income (Loss)
78
(20)
8
66
Income (Loss) from Continuing
Operations
40
(15)
6
31
Diluted Earnings (Loss) Per Share -
Continuing Operations
0.58
$
(0.22)
$
0.09
$
0.45
$
Segment Operating Income (Loss)
LVS Operating Income (Loss)
50
$
(20)
$
-
$
30
$
CVS Operating Income (Loss)
36
-
-
36
Segment Operating Income (Loss)
86
(20)
-
66
Environmental remediation costs
(8)
-
8
-
Total Operating Income (Loss)
78
$
(20)
$
8
$
66
$
Operating Margins
LVS
4.1%
2.4%
CVS
4.7%
4.7%
Segment Operating Margins
4.3%
Total Operating Margins
3.9%
3.3%
19
20