July 28, 2005
FY 2005 3rd Quarter
Earnings Conference Call
Chip McClure, President, Chairman and CEO
Jim Donlon, Senior Vice President and CFO
Rakesh Sachdev, Senior Vice President Corporate Strategy
Forward-Looking Statements FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 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 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 3rd Quarter Income Statement (in millions, except per share amounts) 2005 2004 $ % Sales 2,411 $ 2,099 $ 312 $ 15% Cost of Sales (2,210) (1,913) (297) -16% GROSS MARGIN 201 186 15 8% SG&A (104) (100) (4) -4% Restructuring Costs (7) (4) (3) OPERATING INCOME 90 82 8 10% Equity in Earnings of Affiliates 7 5 2 40% Interest Expense, Net and Other (31) (26) (5) -19% INCOME BEFORE INCOME TAXES 66 61 5 8% Provisions for Income Taxes (18) (16) (2) -13% Minority Interests (4) (3) (1) -33% Income From Continuing Operations 44 42 2 5% Income from Discontinued Operations 2 9 (7) -78% NET INCOME 46 $ 51 $ (5) $ -10% DILUTED EARNINGS PER SHARE Continuing Operations 0.64 $ 0.61 $ 0.03 $ 5% Discontinued Operations 0.02 0.13 (0.11) -85% Diluted EPS 0.66 $ 0.74 $ (0.08) $ -11% Three Months Ended June 30, Better/(Worse) 3 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Restructuring Actions Annual savings estimated at $50 – $60 million. ($ In Millions) LVS CVS Total 1Q 2Q 3Q YTD New Actions Salaried reduction in force 10 $ 13 $ 23 $ - $ 23 $ - $ 23 $ Facility rationalization Employee severance 47 6 53 - 16 5 21 Shutdown costs and other 27 9 36 - - - - Total facility rationalization 74 15 89 - 16 5 21 Asset impairments 23 - 23 - 23 1 24 Total New Actions 107 $ 28 $ 135 $ - $ 62 $ 6 $ 68 $ Total Previous Actions 16 - 16 10 2 1 13 Total Estimated Restructuring Costs 123 $ 28 $ 151 $ 10 $ 64 $ 7 $ 81 $ Total Estimated Costs Total Recorded Fiscal 2005 4 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Segment Sales (in millions) 2005 2004 $ % Light Vehicle Systems North America 545 $ 511 $ 34 $ 7% Europe 612 603 9 1% South America 65 45 20 44% Asia-Pacific and Other 71 78 (7) -9% Total Sales 1,293 1,237 56 5% Commercial Vehicle Systems North America 682 530 152 29% Europe 304 225 79 35% South America 61 35 26 74% Asia-Pacific and Other 71 72 (1) -1% Total Sales 1,118 862 256 30% Reported Sales 2,411 $ 2,099 $ 312 $ 15% Better/(Worse) Quarter Ended June 30, 5 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Segment Operating Income (in millions) 2005 (1) 2004 $ % Operating Income Light Vehicle Systems 25 $ 33 $ (8) $ -24% Commercial Vehicle Systems 73 49 24 49% Segment Operating Income 98 82 16 20% Unallocated Corporate Costs (2) - (2) Operating Income 96 $ 82 $ 14 $ 17% Operating Margins Light Vehicle Systems 1.9% 2.7% (0.8) Commercial Vehicle Systems 6.5% 5.7% 0.8 Segment Operating Margins 4.1% 3.9% 0.2 Total Operating Margins 4.0% 3.9% 0.1 (1) Before restructuring costs announced in May 2005. Better/(Worse) Quarter Ended June 30, 6 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Balance Sheet Highlights (in millions) 06/30/05 03/31/05 12/31/04 09/30/04 06/30/04 Cash 180 $ 99 $ 91 $ 132 $ 122 $ Short-term Debt 40 $ 7 $ 7 $ 3 $ 3 $ Long-term Debt 1,472 1,537 1,516 1,487 1,585 Total Debt 1,512 $ 1,544 $ 1,523 $ 1,490 $ 1,588 $ Minority Interests 58 59 62 61 60 Equity 1,032 1,062 1,170 988 1,124 Total Debt to Capital 58% 58% 55% 59% 57% Factored Receivables 23 15 - 10 9 Securitized Receivables 156 65 1 32 142 Net Debt (1) 1,484 1,504 1,396 1,364 1,588 Working Capital (2) 413 465 469 293 553 Working Capital % of Sales (3) 4.6% 5.1% 4.6% 5.3% 6.7% (1) (2) (3) Calculated using quarterly average working capital and current quarter annualized sales. Net debt is calculated as total debt less fair value of interest rate swaps plus factored and securitized receivables less cash. Includes accounts receivable securitization and factored receivables and excludes cash, short-term debt, and assets and liabilities of discontinued operations. 7 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Cash Flow Highlights (in millions) 2005 2004 OPERATING ACTIVITIES Income from continuing operations 44 $ 42 $ Adjustments to income from continuing operations: Depreciation and amortization 44 43 Pension and retiree medical expense 27 33 Pension and retiree medical contributions (95) (141) Proceeds from termination of interest rate swaps 22 - Other non-cash adjustments (3) 4 Changes in assets and liabilities 70 13 Cash flows provided by (used for) continuing operations 109 (6) Cash flows provided by (used for) discontinued operations (17) 45 Cash provided by operations (excluding securitization and factoring) 92 39 Changes in receivables securitization and factoring 99 (88) CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 191 $ (49) $ INVESTING ACTIVITIES Capital expenditures (39) $ (34) $ Other investing cash flows 3 13 Net investing cash flows used for discontinued operations (2) (3) CASH USED FOR INVESTING ACTIVITIES (38) $ (24) $ FINANCING ACTIVITIES Net change in debt (66) $ 82 $ Cash dividends (7) (7) CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (73) $ 75 $ Three Months Ended June 30, 8 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Light Vehicle Systems Net New Business Implied Actual Annual 2004 2005 2006 2007 2008 Cumulative Growth 4,818 $ 312 $ 16 $ 4 $ 185 $ 517 $ 2.6% Sales (in millions) Incremental 9 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 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 86 71 310 307 2004 Actual 47 54 63 71 235 262 Change 57% 46% 37% 0% 32% 17% Western Europe - Heavy & Medium Trucks 2005 Outlook 96 108 116 100 420 435 2004 Actual 95 93 98 90 376 377 Change 1% 16% 18% 11% 12% 15% (1) - Includes U.S., Canada and Mexico Source: Western Europe - Global Insight Fiscal Year Ended September 30 10 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 FY 2005 Light Vehicle Production Outlook (in millions) Calendar Q1 Q2 Q3 Q4 Full Year Year North America 2005 Outlook 3.8 4.0 4.1 3.7 15.6 15.7 2004 Actual 3.9 4.2 4.2 3.6 15.9 15.8 Change -3% -5% -2% 3% -2% -1% Western Europe (1) 2005 Outlook 4.1 4.2 4.4 3.7 16.4 16.6 2004 Actual 4.3 4.3 4.6 3.7 16.9 16.7 Change -5% -2% -4% 0% -3% -1% (1) - Includes Czech Republic Source: CSM Worldwide, Inc. Fiscal Year Ended September 30 11 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 FY 2004 Results and FY 2005 Outlook – Continuing Operations (in millions, except EPS) FY 2004 Full Year Sales 8,033 $ 8,750 $ - 8,825 $ Operating Margin 3.2% 2.5% - 2.8% Interest Expense (107) (123) - (122) 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 $0.72 of restructuring charges, which were recorded in the nine months ended June 30, 2005. 12 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 FY 2005 Cash Flow Outlook (in millions) Income From Continuing Operations 97 $ - 110 $ Adjustments to Income Depreciation and Other Amortization 180 - 185 Pension and Retiree Medical Expense 110 - 110 Pension and Retiree Medical Contributions (166) - (166) Changes in Assets and Liabilities (141) - (174) Cash Provided by Operations 80 - 65 Capital Expenditures (155) - (165) Free Cash Flow (75) $ - (100) $ Net Proceeds from Acquisitions and Divestitures 171 $ - 171 $ Cash Dividends ($0.40 per share) (28) $ - (28) $ 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 13 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Non-GAAP Financial Information 14 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Use of Non-GAAP Financial Information In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) Management believes that the non-GAAP financial measures used in this presentation are useful to both management and These non-GAAP measures should not be considered a substitute for the reported results prepared in accordance with GAAP. Set forth on the following slides are reconciliations of these non-GAAP financial measures, if applicable, to the most directly 15 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Non-GAAP Financial Information – Net Debt (in millions) 06/30/05 03/31/05 12/31/04 09/30/04 06/30/04 Short-term debt 40 $ 7 $ 7 $ 3 $ 3 $ Long-term debt 1,472 1,537 1,516 1,487 1,585 Total Debt 1,512 1,544 1,523 1,490 1,588 Less: Fair value of interest rate swaps (8) (21) (37) (36) (29) Less: Unamortized gain on swap termination (19) - - - - Plus: Receivable securitization 156 65 1 32 142 Plus: Factored receivables 23 15 - 10 9 Subtotal 1,664 1,603 1,487 1,496 1,710 Less: Cash (180) (99) (91) (132) (122) Net Debt 1,484 $ 1,504 $ 1,396 $ 1,364 $ 1,588 $ 16 FY 2005 3rd Quarter Earnings Conference Call July 28, 2005 Non-GAAP Financial Information – 3rd Qtr FY 05 Results before Special Items Q3 FY 05 Reported Restructuring Q3 FY05 Adjusted Sales 2,411 $ - $ 2,411 $ Gross Margin 201 - 201 Operating Income 90 6 96 Income from Continuing Operations 44 4 48 Diluted Earnings Per Share - Continuing Operations 0.64 $ 0.06 $ 0.70 $ Guidance $0.60 - $0.70 Segment Operating Income LVS Operating Income 20 $ 5 $ 25 $ CVS Operating Income 72 1 73 Segment Operating Income 92 6 98 Unallocated Corporate Costs (2) - (2) Total Operating Income 90 $ 6 $ 96 $ Operating Margins LVS 1.5% 1.9% CVS 6.4% 6.5% Segment Operating Margins 3.8% 4.1% Total Operating Margins 3.7% 4.0% 17
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.
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.
comparable financial measures calculated and presented in accordance with GAAP.