SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 30, 2003
Commission file number 1-15983
ArvinMeritor, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 38-3354643
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2135 West Maple Road, Troy, Michigan 48084-7186
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(248) 435-1000
- --------------------------------------------------------------------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
68,477,716 shares of Common Stock, $1.00 par value, of ArvinMeritor, Inc. were
outstanding on April 30, 2003.
ARVINMERITOR, INC.
INDEX
Page
No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Statement of Consolidated Income - - Three Months
and Six Months Ended March 31, 2003 and 2002......................... 2
Consolidated Balance Sheet - -
March 31, 2003 and September 30, 2002................................ 3
Condensed Statement of Consolidated Cash Flows - -
Six Months Ended March 31, 2003 and 2002............................. 4
Notes to Consolidated Financial Statements........................... 5
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition.......................... 23
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................................... 30
Item 4. Controls and Procedures................................................... 30
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings......................................................... 31
Item 2. Changes in Securities and Use of Proceeds................................. 31
Item 4. Submission of Matters to a Vote of Security Holders....................... 32
Item 5. Other Information......................................................... 33
Item 6. Exhibits and Reports on Form 8-K.......................................... 34
Signatures...................................................................................... 35
Certifications.................................................................................. 36
Part I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ARVINMERITOR, INC.
STATEMENT OF CONSOLIDATED INCOME
(in millions, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ ------------------------
2003 2002 2003 2002
-------- -------- -------- --------
(Unaudited)
Sales.......................................................... $ 1,993 $ 1,687 $ 3,702 $ 3,253
Cost of sales.................................................. (1,805) (1,511) (3,340) (2,923)
-------- -------- -------- --------
GROSS MARGIN................................................... 188 176 362 330
Selling, general and administrative......................... (114) (94) (215) (185)
Restructuring costs......................................... (11) - (11) (15)
-------- -------- -------- --------
OPERATING INCOME............................................... 63 82 136 130
Equity in earnings (losses) of affiliates................... 1 (1) 2 (1)
Interest expense, net and other............................. (27) (25) (52) (53)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES..................................... 37 56 86 76
Provision for income taxes.................................. (12) (18) (28) (24)
Minority interests.......................................... (1) (3) (2) (6)
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE................................. 24 35 56 46
Cumulative effect of accounting change...................... - - - (42)
-------- -------- -------- --------
NET INCOME..................................................... $ 24 $ 35 $ 56 $ 4
======== ======== ======== ========
BASIC EARNINGS PER SHARE
Before cumulative effect of accounting change............... $ 0.36 $ 0.53 $ 0.84 $ 0.70
Cumulative effect of accounting change...................... - - - (0.64)
-------- -------- -------- --------
Basic earnings per share.................................... $ 0.36 $ 0.53 $ 0.84 $ 0.06
======== ======== ======== ========
DILUTED EARNINGS PER SHARE
Before cumulative effect of accounting change............... $ 0.36 $ 0.52 $ 0.83 $ 0.69
Cumulative effect of accounting change...................... - - - (0.63)
-------- -------- -------- --------
Diluted earnings per share.................................. $ 0.36 $ 0.52 $ 0.83 $ 0.06
======== ======== ======== ========
Basic average common shares outstanding........................ 66.9 66.1 66.9 65.9
======== ======== ======== ========
Diluted average common shares outstanding...................... 67.5 67.0 67.5 66.4
======== ======== ======== ========
Cash dividends per common share................................ $ 0.10 $ 0.10 $ 0.20 $ 0.20
======== ======== ======== ========
See notes to consolidated financial statements.
2
ARVINMERITOR, INC.
CONSOLIDATED BALANCE SHEET
(in millions)
March 31, September 30,
2003 2002
----------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 121 $ 56
Receivables (less allowance for doubtful accounts:
March 31, 2003, $20 and September 30, 2002, $18) .................... 1,069 1,251
Inventories................................................................. 507 458
Other current assets........................................................ 266 211
------- -------
TOTAL CURRENT ASSETS.................................................... 1,963 1,976
------- -------
NET PROPERTY..................................................................... 1,300 1,179
GOODWILL......................................................................... 900 808
OTHER ASSETS..................................................................... 638 688
------- -------
TOTAL ASSETS............................................................ $ 4,801 $ 4,651
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Short-term debt............................................................. $ 9 $ 15
Accounts payable............................................................ 1,214 1,123
Accrued compensation and benefits........................................... 245 283
Accrued income taxes........................................................ 48 65
Other current liabilities................................................... 251 257
------- -------
TOTAL CURRENT LIABILITIES............................................... 1,767 1,743
------- -------
LONG-TERM DEBT................................................................... 1,435 1,435
ACCRUED RETIREMENT BENEFITS...................................................... 476 512
OTHER LIABILITIES................................................................ 133 123
MINORITY INTERESTS............................................................... 66 58
PREFERRED CAPITAL SECURITIES..................................................... 39 39
SHAREOWNERS' EQUITY:
Common stock (March 31, 2003, 71.0 shares issued and 68.5 outstanding;
September 30, 2002, 71.0 shares issued
and 67.9 outstanding).................................................. 71 71
Additional paid-in capital.................................................. 557 554
Retained earnings........................................................... 573 530
Treasury stock (March 31, 2003, 2.5 shares;
September 30, 2002, 3.1 shares) ....................................... (37) (46)
Unearned compensation....................................................... (17) (12)
Accumulated other comprehensive loss........................................ (262) (356)
------- -------
TOTAL SHAREOWNERS' EQUITY............................................... 885 741
------- -------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY............................... $ 4,801 $ 4,651
======= =======
See notes to consolidated financial statements.
3
ARVINMERITOR, INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(in millions)
Six Months Ended
March 31,
------------------------
2003 2002
------- -------
(Unaudited)
OPERATING ACTIVITIES
Income before cumulative effect of accounting change............................... $ 56 $ 46
Adjustments to arrive at cash provided by operating activities:
Depreciation and amortization..................................................... 103 94
Restructuring costs, net of expenditures.......................................... 9 10
Pension and retiree medical expense............................................... 48 39
Pension and retiree medical contributions......................................... (102) (69)
Changes in receivable securitization.............................................. 145 -
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures and foreign currency adjustments...................... (23) 18
------- -------
CASH PROVIDED BY OPERATING ACTIVITIES............................................... 236 138
------- -------
INVESTING ACTIVITIES
Capital expenditures.............................................................. (69) (64)
Proceeds from disposition of assets............................................... 42 -
Acquisition of business .......................................................... (69) -
Other investing activities........................................................ (22) (21)
------- -------
CASH USED FOR INVESTING ACTIVITIES.................................................. (118) (85)
------- -------
FINANCING ACTIVITIES
Net decrease in revolving debt.................................................... (50) (442)
Proceeds from issuance of notes................................................... - 394
Purchase of preferred capital securities.......................................... - (18)
Proceeds from exercise of stock options........................................... - 17
Cash dividends.................................................................... (13) (13)
------- -------
CASH USED FOR FINANCING ACTIVITIES.................................................. (63) (62)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................. 10 -
------- -------
CHANGE IN CASH AND CASH EQUIVALENTS................................................. 65 (9)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 56 101
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... $ 121 $ 92
======= =======
See notes to consolidated financial statements.
4
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
ArvinMeritor, Inc. (the company or ArvinMeritor) is a leading global
supplier of a broad range of integrated systems, modules and components
serving light vehicle, commercial truck, trailer and specialty original
equipment manufacturers and certain aftermarkets. The company also provides
coil coating applications to the transportation, appliance, construction
and furniture industries. The consolidated financial statements are those
of the company and its consolidated subsidiaries.
In the opinion of the company, the unaudited financial statements contain
all adjustments, consisting solely of adjustments of a normal, recurring
nature, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. These statements
should be read in conjunction with the company's financial statements
included in the Annual Report on Form 10-K for the fiscal year ended
September 30, 2002. The results of operations for the three and six months
ended March 31, 2003, are not necessarily indicative of the results for the
full year.
The company's fiscal year ends on the Sunday nearest September 30. The
company's fiscal quarters end on the Sundays nearest December 31, March 31,
and June 30. The second quarter of fiscal 2003 and 2002 ended on March 30,
2003, and March 31, 2002, respectively. All year and quarter references
relate to the company's fiscal year and fiscal quarters unless otherwise
stated.
For each interim reporting period the company makes an estimate of the
effective tax rate expected to be applicable for the full fiscal year. The
rate so determined is used in providing for income taxes on a year-to-date
basis.
Certain prior period amounts have been reclassified to conform with current
period presentation.
2. Earnings per Share
Basic earnings per share are based upon the weighted average number of
shares outstanding during each period. Diluted earnings per share assumes
the exercise of common stock options and the impact of restricted stock
when dilutive.
A reconciliation of basic average common shares outstanding to diluted
average common shares outstanding is as follows (in millions):
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- ---------------------
2003 2002 2003 2002
------ ------ ------ ------
Basic average common shares outstanding................ 66.9 66.1 66.9 65.9
Impact of restricted stock............................. 0.6 0.4 0.6 0.3
Impact of stock options................................ - 0.5 - 0.2
---- ---- ---- ----
Diluted average common shares outstanding.............. 67.5 67.0 67.5 66.4
==== ==== ==== ====
5
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. New Accounting Standards
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets." The new standard
requires one model of accounting for long-lived assets to be disposed of,
and broadens the definition of discontinued operations to include a
component of a segment. The company adopted this standard effective October
1, 2002. The adoption of SFAS 144 did not have a significant impact on the
company's financial position or results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," which nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in
Restructuring)." The new standard requires a liability for a cost
associated with an exit or disposal activity to be recognized and measured
initially at its fair value in the period in which the liability is
incurred, rather than at the time of commitment to an exit plan. The
company adopted this standard for exit or disposal activities initiated
after December 31, 2002.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires a
guarantor to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation it assumes under the guarantee. This
requirement applies to guarantees issued after December 31, 2002.
Guarantees issued prior to January 1, 2003, are not subject to liability
recognition but are subject to expanded disclosure requirements. Disclosure
of residual value guarantees under certain leases is included in Note 14
and information related to indemnification agreements is included in Note
17. Disclosure related to the company's product warranty obligations is
included in Note 12.
6
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, Consolidated Financial Statements."
This interpretation provides guidance on the identification of variable
interest entities and may require consolidation based on these new rules.
FIN 46 applies immediately to variable interest entities created after
January 31, 2003, and in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise
holds a variable interest that it acquired before February 1, 2003. The
company is currently in the process of determining if certain entities,
related to the company's accounts receivable securitization program and
certain leases, are variable interest entities. Information related to the
company's accounts receivable securitization program is included in Note 8,
and information related to the company's leases is included in Note 14.
4. Accounting for Stock Options
Effective October 1, 2002, the company voluntarily changed to the fair
value method of accounting for its stock-based compensation plans and began
expensing the fair value of stock options. In December 2002, the FASB
issued Statement of Financial Accounting Standards No. 148 (SFAS 148),
"Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123." SFAS 148 provides alternative methods
of transition for a voluntary change to the fair value method. The company
has elected the modified prospective method, which allows for the
recognition of compensation expense for the non-vested portion of
previously issued stock options, as well as for new grants of stock
options. The company recorded compensation expense for the six months ended
March 31, 2003, of $3 million ($2 million after-tax, or $0.03 per diluted
share). If the fair value method had been applied, for the six months ended
March 31, 2002, the company would have recorded compensation expense of $2
million ($1 million after-tax, or $0.01 per diluted share).
7
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Goodwill Impairment
Effective October 1, 2001, the company adopted Statement of Financial
Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible
Assets," which requires goodwill to be subject to an annual impairment
test, or more frequently, if certain indicators arise, and also eliminated
goodwill amortization. Upon adoption of SFAS 142 the company recorded an
impairment loss on goodwill as a cumulative effect of accounting change for
its coil coating operations (classified as "Other" for segment reporting)
of $42 million ($42 million after-tax, or $0.63 per diluted share) in the
six months ended March 31, 2002. Changes in the carrying value of goodwill
since September 30, 2002 are disclosed in Note 19.
6. Acquisitions and Divestitures
In 1998, the company acquired a 49-percent interest in a German joint
venture, Zeuna Staerker GmbH & Co. KG (Zeuna Staerker), an air and
emissions systems company. In the second quarter of fiscal 2003, the
company purchased the remaining 51-percent interest in Zeuna Staerker for a
purchase price of $69 million, net of cash acquired of $8 million. At March
31, 2003, the company has recorded $84 million of goodwill associated with
the initial purchase price allocation and expects to finalize the purchase
price allocation by September 30, 2003. The company expects incremental
sales from the Zeuna Staerker acquisition of approximately $550 million in
fiscal 2003.
The company completed the sale of net assets related to the manufacturing
and distribution of its off-highway planetary axle products in the second
quarter of fiscal 2003, and recognized a gain of $2 million ($1 million
after-tax, or $0.01 per diluted share). Sales of the off-highway planetary
axle products were approximately $90 million in fiscal 2002.
7. Restructuring Costs
The company has approved plans for workforce reductions and facility
consolidations in its Light Vehicle Systems (LVS) business segment. These
measures follow the management realignment of the company's LVS business
and are also intended to address the competitive challenges in the
automotive supplier industry. During the second quarter of fiscal 2003, the
company recorded restructuring costs totaling $11 million ($7 million
after-tax, or $0.10 per diluted share). These costs included severance and
other employee termination costs of $6 million related to a reduction of
approximately 165 salaried employees and 275 hourly employees and $5
million related to asset impairments. At March 31, 2003, $4 million of
restructuring reserves relating to severance payments remained in the
consolidated balance sheet.
In the second quarter of fiscal 2003, the company also recorded
restructuring costs of $3 million that were incurred as a result of the
acquisition of the remaining 51-percent interest in Zeuna Staerker. These
costs relate to severance and other termination benefits associated with 57
employees. The acquisition was accounted for utilizing the purchase method
of accounting and these restructuring costs were reflected in the purchase
price allocation. At March 31, 2003, $3 million of restructuring reserves
remained in the consolidated balance sheet.
8
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the first quarter of fiscal 2002, the company recorded a restructuring
charge of $15 million ($10 million after-tax, or $0.15 per basic and
diluted share) for severance and other employee costs related to a net
reduction of approximately 450 employees. All employees have been
terminated under this restructuring action, and $3 million of restructuring
reserves relating to severance payments remained in the consolidated
balance sheet at March 31, 2003.
The changes in the restructuring reserves are as follows (in millions):
Employee
Termination Asset
Benefits Impairments Total
----------- ----------- -----
Balance at September 30, 2002....................... $ 9 $ - $ 9
Activity during the period:
Charges to expense............................... 6 5 11
Purchase accounting adjustment................... 3 - 3
Asset write-offs................................. - (5) (5)
Cash payments.................................... (8) - (8)
----- ----- ----
Balance at March 31, 2003........................... $ 10 $ - $ 10
===== ===== ====
8. Asset Securitization
The company sells substantially all of the trade receivables of certain
U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly
owned, bankruptcy-remote, special purpose subsidiary. ARC has entered into
an agreement to sell an undivided interest in up to $250 million of
eligible receivables, as defined, to certain bank conduits that fund their
purchases through the issuance of commercial paper. As of March 31, 2003
and September 30, 2002 the company had utilized $250 million and $105
million, respectively, of the U.S. accounts receivable securitization
facility. As of March 31, 2003 and September 30, 2002 the banks had a
preferential interest in $146 million and $201 million, respectively, of
the remainder of the receivables held at ARC to secure the obligation under
the U.S. accounts receivable securitization facility.
Zeuna Staerker has entered into an agreement to sell an undivided interest
in up to euro 50 million of eligible trade receivables, as defined, to a
bank that funds its purchases through the issuance of commercial paper. As
a result of the company's acquisition of the remaining 51-percent interest
in Zeuna Staerker, the company consolidated this accounts receivable
securitization program. As of March 31, 2003, the company had utilized $40
million of the euro accounts receivable securitization facility. As of
March 31, 2003, the banks had a preferential interest in $6 million, of the
remainder of the receivables held at Zeuna Staerker to secure the
obligation under the asset securitization facility.
9
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The company has no retained interest in the receivables sold, but does
perform collection and administrative functions. The receivables under
these programs were sold at fair market value and a discount on the sale
was recorded in interest expense, net and other. A discount of $2 million
and $4 million was recorded for the six months ended March 31, 2003 and
2002, respectively. The gross amount of proceeds received from the sale of
receivables under these programs was approximately $1,106 million and
$1,141 million for the six months ended March 31, 2003 and 2002,
respectively. The U.S. accounts receivable securitization program matures
in September 2003 and the company expects to renew the facility at that
time. The euro accounts receivable securitization program matures in March
2005.
If the company's credit ratings are reduced to certain levels, or if
certain receivables performance-based covenants are not met, it would
constitute a termination event, which, at the option of the banks, could
result in termination of the facilities. At March 31, 2003, the company was
in compliance with all covenants.
9. Inventories
Inventories are summarized as follows (in millions):
March 31, September 30,
2003 2002
--------- -------------
Finished goods.............................................. $ 226 $ 207
Work in process............................................. 131 131
Raw materials, parts and supplies........................... 194 171
-------- --------
Total................................................. 551 509
Less: allowance to adjust the carrying value of
certain inventories to a LIFO basis....................... (44) (51)
-------- --------
Inventories........................................... $ 507 $ 458
======== ========
10. Other Current Assets
Other Current Assets are summarized as follows (in millions):
March 31, September 30,
2003 2002
-------- ------------
Current deferred income taxes............................... $ 121 $ 116
Customer reimbursable tooling and engineering............... 68 33
Asbestos-related recoveries................................. 20 20
Prepaid and other........................................... 57 42
-------- -------
Other Current Assets................................... $ 266 $ 211
======== =======
10
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Other Assets
Other Assets are summarized as follows (in millions):
March 31, September 30,
2003 2002
--------- -------------
Long-term deferred income taxes............................. $ 192 $ 187
Prepaid pension costs....................................... 106 98
Investments in affiliates................................... 82 167
Asbestos-related recoveries................................. 50 39
Fair value of interest rate swaps........................... 49 48
Net capitalized software costs.............................. 44 44
Trademarks.................................................. 23 23
Patents and licenses (less accumulated
amortization: March 31, 2003, $6 and
September 30, 2002, $5)................................... 11 11
Other....................................................... 81 71
--------- -------
Other Assets........................................... $ 638 $ 688
========= =======
The company's trademarks, which were determined to have an indefinite life,
are not amortized, and patents and licenses are amortized over their
contractual lives. The company anticipates amortization expense for patents
and licenses of approximately $2 million per year for fiscal years 2003
through 2004 and approximately $1 million per year for fiscal years 2005
through 2007.
12. Other Current Liabilities
Other Current Liabilities are summarized as follows (in millions):
March 31, September 30,
2003 2002
--------- -------------
Accrued product warranties.................................. $ 83 $ 89
Accrued taxes other than income taxes....................... 37 37
Asbestos-related reserves................................... 20 20
Accrued interest expense.................................... 12 12
Accrued restructuring ...................................... 10 9
Environmental reserves...................................... 5 8
Other....................................................... 84 82
-------- -------
Other Current Liabilities.............................. $ 251 $ 257
======== =======
11
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The company's Commercial Vehicle Systems (CVS) and Light Vehicle
Aftermarket (LVA) segments record product warranty costs at the time of
shipment of products to customers. Warranty reserves are based on several
factors including past claims experience, sales history, product
manufacturing and engineering changes, industry developments and various
other considerations. In addition, liabilities for product recall campaigns
are recorded at the time the company's obligation is known and can be
reasonably estimated. As of March 31, 2003 and September 30, 2002, accrued
product warranties included a liability related to a recall campaign
associated with TRW model 20-EDL tie rod ends (see Note 17).
The company's LVS segment records product warranty liabilities based on its
individual customer agreements. Product warranties are recorded for known
warranty issues when amounts related to such issues are probable and
reasonably estimable. In addition, the company records product warranty
liabilities for amounts expected to be paid under warranty-sharing
agreements with its customers.
A summary of the changes in accrued product warranties is as follows (in
millions):
Six Months Ended
March 31,
-----------------
2003 2002
------ ------
Balance at September 30.................................................. $ 89 $ 92
Accruals for product warranties.......................................... 16 11
Increase in product warranties due to acquisition........................ 8 -
Payments made............................................................ (32) (31)
Change in estimates...................................................... 2 1
----- -----
Balance at March 31...................................................... $ 83 $ 73
===== =====
13. Other Liabilities
Other Liabilities are summarized as follows (in millions):
March 31, September 30,
2003 2002
--------- -------------
Asbestos-related reserves................................................ $ 56 $ 46
Environmental reserves................................................... 26 26
Other.................................................................... 51 51
----- -----
Other Liabilities................................................... $ 133 $ 123
===== =====
12
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. Long-Term Debt
Long-Term Debt, net of discount where applicable, is summarized as follows
(in millions):
March 31, September 30,
2003 2002
--------- -------------
6 5/8 percent notes due 2007........................................ $ 199 $ 199
6 3/4 percent notes due 2008........................................ 100 100
7 1/8 percent notes due 2009........................................ 150 150
6.8 percent notes due 2009.......................................... 499 499
8 3/4 percent notes due 2012........................................ 400 400
Bank revolving credit facilities.................................... - 27
Lines of credit and other........................................... 47 27
Fair value adjustment of notes...................................... 49 48
------ ------
Subtotal......................................................... 1,444 1,450
Less: current maturities............................................ (9) (15)
------ ------
Long-Term Debt................................................ $1,435 $1,435
====== ======
Credit Facilities and Lines of Credit
The company has two unsecured credit facilities, which mature on June 27,
2005: a three-year, $400-million revolving credit facility and a five-year,
$750-million revolving credit facility. Borrowings are subject to interest
based on quoted LIBOR rates plus a margin, and a facility fee, both of
which are based upon the company's credit rating. At March 31, 2003, the
margin over the LIBOR rate was 105 basis points, and the facility fee was
20 basis points. The company also has a $50-million uncommitted line of
credit.
Interest Rate Swap Agreements
The company entered into two interest rate swap agreements in March 2002.
These swap agreements, in effect, converted $300 million notional amount of
the company's 8 3/4 percent notes and $100 million notional amount of the
6.8 percent notes to variable interest rates. The fair value of the swaps
was $49 million and $48 million as of March 31, 2003 and September 30,
2002, respectively, and is recorded in Other Assets, with an offsetting
amount recorded in Long-Term Debt. The swaps have been designated as fair
value hedges and the impact of the changes in their fair values is offset
by an equal and opposite change in the carrying value of the related notes.
Under the terms of the swap agreements, the company receives a fixed rate
of interest of 8.75 percent and 6.8 percent on notional amounts of $300
million and $100 million, respectively, and pays variable rates based on
three-month LIBOR plus a weighted-average spread of 2.51 percent. The
payments under the agreements coincide with the interest payment dates on
the hedged debt instruments, and the difference between the amounts paid
and received is included in interest expense, net and other.
13
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Leases
The company has entered into agreements to lease certain manufacturing and
administrative facilities as well as aircraft. These assets are held by
special purpose entities, which were established and are owned by
independent third parties who provide financing through debt and equity
participation. These leases are accounted for as operating leases, and the
lease payments are charged to operating income. The assets and the related
obligations are excluded from the consolidated balance sheet, and the
special purpose entities are not consolidated. At March 31, 2003 and
September 30, 2002, the original cost of the assets under such arrangements
was $123 million and $120 million, respectively.
Certain of these leases contain residual value guarantees that obligate the
company, not the third party owners, to absorb a portion of the losses of
the special purpose entities. At March 31, 2003, the company's residual
value guarantees associated with these leases, which represents the maximum
exposure to loss, were $53 million.
Covenants
The credit facilities require the company to maintain a total net debt to
earnings before interest, taxes, depreciation and amortization (EBITDA)
ratio of 3.25x and a minimum fixed charge coverage ratio (EBITDA less
capital expenditures to interest expense) of 1.50x. In addition, certain
operating leases require the company to maintain financial ratios that are
similar to those required under the company's credit facilities. At March
31, 2003, the company was in compliance with all covenants.
15. Financial Instruments
The company's financial instruments include cash and cash equivalents,
short-term debt, long-term debt, preferred capital securities, interest
rate swaps, and foreign exchange contracts. The company uses derivatives
for hedging and non-trading purposes in order to manage its interest rate
and foreign exchange rate exposures. The company's interest rate swap
agreements are discussed in Note 14.
14
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Foreign Exchange Contracts
The company uses foreign exchange contracts to offset the effect of
exchange rate fluctuations on foreign currency denominated payables and
receivables. These contracts help minimize the risk of loss from changes in
exchange rates and are generally of short duration (less than three
months). The company has elected not to designate the foreign exchange
contracts as hedges, therefore, changes in the fair value of the foreign
exchange contracts are recognized in operating income. The net income
impact of recording these contracts at fair value in the three and six
months ended March 31, 2003 and 2002 did not have a significant effect on
the company's results of operations. As of March 31, 2003 and September 30,
2002, the fair value of foreign exchange contracts was not material. It is
the policy of the company not to enter into derivative instruments for
speculative purposes.
Fair Value
Fair values of financial instruments are summarized as follows (in
millions):
March 31, September 30,
2003 2002
--------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- -------- -------
Cash and cash equivalents.......................... $ 121 $ 121 $ 56 $ 56
Short-term debt.................................... 9 9 15 15
Long-term debt..................................... 1,435 1,417 1,435 1,433
Preferred capital securities....................... 39 38 39 40
Interest rate swaps - asset........................ 49 49 48 48
Cash and cash equivalents - All highly liquid investments purchased with
maturity of three months or less are considered to be cash equivalents. The
carrying value approximates fair value because of the short maturity of
these instruments.
Short-term debt - The carrying value of short-term debt approximates fair
value because of the short maturity of these borrowings.
Long-term debt and preferred capital securities - Fair values are based on
the company's current incremental borrowing rate for similar types of
borrowing arrangements.
Interest rate swaps - Fair values are estimated by obtaining quotes from
external sources.
15
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16. Accrued Retirement Benefits
Accrued Retirement Benefits consisted of the following (in millions):
March 31, September 30,
2003 2002
--------- -------------
Accrued retirement medical liability........................ $ 301 $ 309
Accrued pension liability................................... 201 231
Other....................................................... 34 32
-------- ----------
Subtotal................................................ 536 572
Less: current liability..................................... (60) (60)
-------- ----------
Accrued Retirement Benefits $ 476 $ 512
======== ==========
17. Contingencies
Environmental
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes and other
activities affecting the environment have, and will continue to have, an
impact on the manufacturing operations of the company. The process of
estimating environmental liabilities is complex and dependent on physical
and scientific data at the site, uncertainties as to remedies and
technologies to be used and the outcome of discussions with regulatory
agencies. The company records liabilities for environmental issues in the
accounting period in which its responsibility is established and the cost
can be reasonably estimated. At environmental sites in which more than one
potentially responsible party has been identified, the company records a
liability for its allocable share of costs related to its involvement with
the site, as well as an allocable share of costs related to insolvent
parties or unidentified shares. At environmental sites in which
ArvinMeritor is the only potentially responsible party, the company records
a liability for the total estimated costs of remediation before
consideration of recovery from insurers or other third parties.
16
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The company has been designated as a potentially responsible party at 8
Superfund sites, excluding sites as to which the company's records disclose
no involvement or as to which the company's potential liability has been
finally determined. Management estimates the total reasonably possible
costs the company could incur for the remediation of Superfund sites at
March 31, 2003, to be approximately $34 million, of which $13 million is
recorded as a liability. In addition to the Superfund sites, various other
lawsuits, claims and proceedings have been asserted against the company,
alleging violations of federal, state and local environmental protection
requirements, or seeking remediation of alleged environmental impairments,
principally at previously disposed-of properties. For these matters,
management has estimated the total reasonably possible costs the company
could incur at March 31, 2003, to be approximately $49 million, of which
$18 million is recorded as a liability. Following are the components of the
Superfund and Non-Superfund environmental reserves (in millions):
March 31, September 30,
2003 2002
--------- -------------
Superfund sites................................................ $ 13 $ 13
Non-Superfund sites............................................ 18 21
-------- ---------
Environmental reserves.................................... $ 31 $ 34
======== =========
A portion of the environmental reserves is included in current liabilities
with the majority of the amount recorded in noncurrent liabilities (see
Notes 12 and 13).
The actual amount of costs or damages for which the company may be held
responsible could materially exceed the foregoing estimates because of
uncertainties, including the financial condition of other potentially
responsible parties, the success of the remediation and other factors that
make it difficult to accurately predict actual costs. However, based on
management's assessment, the company believes that its expenditures for
environmental capital investment and remediation necessary to comply with
present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a
material adverse effect on the company's business, financial condition or
results of operations. In addition, in future periods, new laws and
regulations, advances in technology and additional information about the
ultimate clean up remedy could significantly change the company's
estimates. Management cannot assess the possible effect of compliance with
future requirements.
Asbestos
Maremont Corporation (Maremont, a subsidiary of the company) and many
other companies are defendants in suits brought by individuals claiming
personal injuries as a result of exposure to asbestos-containing products.
Maremont manufactured friction products containing asbestos from 1953
through 1977, when it sold its friction product business. Arvin acquired
Maremont in 1986.
17
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Maremont's asbestos-related reserves and corresponding asbestos-related
recoveries are summarized as follows (in millions):
March 31, September 30,
2003 2002
--------- -------------
Unbilled committed settlements.............................. $ 9 $ 9
Pending claims.............................................. 61 50
Shortfall and other ........................................ 6 7
-------- --------
Asbestos-related reserves.............................. $ 76 $ 66
======== ========
Asbestos-related recoveries................................. $ 70 $ 59
======== ========
A portion of the asbestos-related recoveries and reserves are included in
current assets and liabilities, with the majority of the amounts recorded
in noncurrent assets and liabilities (see Notes 10 through 13).
The unbilled committed settlements reserve relates to committed settlements
that Maremont agreed to pay when Maremont participated in the Center for
Claims Resolution (CCR). Maremont shared in the payments of defense and
indemnity costs of asbestos-related claims with other CCR members. The CCR
handled the resolution and processing of asbestos claims on behalf of its
members until February 1, 2001, when it was reorganized and discontinued
negotiating shared settlements. There were no significant billings to
insurance companies related to committed settlements in the six months
ended March 31, 2003.
Upon dissolution of the CCR in February 2001, Maremont began handling
asbestos-related claims through its own defense counsel and is committed to
examining the merits of each asbestos-related claim. Maremont had
approximately 47,900 and 37,500 pending asbestos-related claims at March
31, 2003 and September 30, 2002, respectively. Although Maremont has been
named in these cases, in the cases where actual injury has been alleged,
very few claimants have established that a Maremont product caused their
injuries. For purposes of establishing reserves for pending
asbestos-related claims, Maremont estimates its defense and indemnity costs
based on the history and nature of filed claims to date and Maremont's
experience. At September 30, 2001, Maremont did not have sufficient history
apart from the CCR to estimate its asbestos-related reserves and used the
experience factors developed by the CCR. As of March 31, 2003 and September
30, 2002, Maremont developed experience factors for indemnity and
litigation costs using data on actual experience in resolving claims since
February 2001 and its assessment of the nature of the claims. Billings to
insurance companies for indemnity and defense costs of resolved cases were
$7 million in the six months ended March 31, 2003.
18
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Several former members of the CCR have filed for bankruptcy protection, and
these members have failed, or may fail, to pay certain financial
obligations with respect to settlements that were reached while they were
CCR members. Maremont is subject to claims for payment of a portion of
these defaulted member shares (shortfall). In an effort to resolve the
affected settlements, Maremont has entered into negotiations with
plaintiffs' attorneys, and an estimate of Maremont's obligation for the
shortfall is included in the total asbestos-related reserves. In addition,
Maremont and its insurers are engaged in legal proceedings to determine
whether existing insurance coverage should reimburse any potential
liability related to this issue. Payments by the company related to
shortfall and other were $1 million in the six months ended March 31, 2003.
Maremont has insurance that reimburses a substantial portion of the costs
incurred defending against asbestos-related claims. The coverage also
reimburses Maremont for any indemnity paid on those claims. The coverage is
provided by several insurance carriers based on the insurance agreements in
place. Based on its assessment of the history and nature of filed claims to
date, and of Maremont's insurance carriers, management believes that
existing insurance coverage is adequate to cover substantially all costs
relating to pending and future asbestos-related claims.
The amounts recorded for the asbestos-related reserves and recoveries from
insurance companies are based upon assumptions and estimates derived from
currently known facts. All such estimates of liabilities for
asbestos-related claims are subject to considerable uncertainty because
such liabilities are influenced by variables that are difficult to predict.
If the assumptions with respect to the nature of pending claims, the cost
to resolve claims and the amount of available insurance prove to be
incorrect, the actual amount of Maremont's liability for asbestos-related
claims, and the effect on the company, could differ materially from current
estimates.
Maremont has not accrued reserves for unknown claims that may be asserted
against it in the future. Maremont does not have sufficient information to
make a reasonable estimate of its potential liability for asbestos-related
claims that may be asserted against it in the future.
Product Recall Campaign
The company has recalled certain of its commercial vehicle axles equipped
with TRW model 20-EDL tie rod ends because of potential safety-related
defects in those ends. TRW, Inc. (TRW) manufactured the affected tie rod
ends from June 1999 through June 2000 and supplied them to the company for
incorporation into its axle products.
TRW commenced recall campaigns in August 2000 and June 2001, covering 24
weeks of production, due to a purported manufacturing anomaly identified by
TRW. However, after an analysis of field returns and customer reports of
excessive wear, ArvinMeritor concluded that the defect was based on the
design of a bearing used in the ball socket, which is part of the tie rod
end, and not on the purported anomaly in the manufacturing process. The
company reported its finding to the National Highway Transportation Safety
Administration in April 2002 and expanded the recall campaign to cover all
of its axle products that had incorporated TRW model 20-EDL tie rod ends.
19
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ArvinMeritor estimates the cost of its expanded recall of TRW model 20-EDL
tie rod ends to be approximately $17 million. The company believes that it
is entitled to reimbursement by TRW for its costs associated with the
campaign. On May 6, 2002, the company filed suit against TRW in the U.S.
District Court for the Eastern District of Michigan, claiming breach of
contract and breach of warranty, and seeking compensatory and consequential
damages in connection with the recall campaign. The company recorded a
liability and offsetting receivable for the estimated cost of its expanded
recall campaign. As of March 31, 2003 and September 30, 2002, the company
had recorded a receivable from TRW for $17 million. The company has also
recorded accrued product warranty reserves of $11 million and $15 million,
net of claims paid to date, as of March 31, 2003 and September 30, 2002,
respectively. See Note 12 for additional information related to the
company's accrued product warranties.
In addition, the company has recorded a receivable of $6 million and $4
million as of March 31, 2003 and September 30, 2002, respectively, from TRW
for reimbursement of customer claims paid to date that are covered by TRW's
recall campaign.
Indemnifications
The company has provided indemnifications in conjunction with certain
transactions, primarily divestitures. These indemnities address a variety
of matters, which may include: environmental, tax, asbestos, and
employment-related matters. The periods of indemnification vary in duration
and often are not explicitly defined. The overall maximum amount of the
obligation under such indemnifications cannot be reasonably estimated. The
company is not aware of any claims or other information that would give
rise to material payments under such indemnities.
Other
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against the company, relating to the conduct of the
company's business, including those pertaining to product liability,
intellectual property, safety and health, and employment matters. Although
the outcome of litigation cannot be predicted with certainty, and some
lawsuits, claims or proceedings may be disposed of unfavorably to the
company, management believes the disposition of matters that are pending
will not have a material adverse effect on the company's business,
financial condition or results of operations.
18. Comprehensive Income
Comprehensive income is summarized as follows (in millions):
Three Months Ended Six Months Ended
March 31, March 31,
------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income................................................ $ 24 $ 35 $ 56 $ 4
Foreign currency translation.............................. 32 (15) 94 (4)
---- ---- ---- ----
Comprehensive income...................................... $ 56 $ 20 $150 $ -
==== ==== ==== ====
20
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
19. Business Segment Information
The company has three reportable operating segments: Light Vehicle Systems
(LVS), Commercial Vehicle Systems (CVS), and Light Vehicle Aftermarket
(LVA). LVS is a major supplier of air and emission systems, aperture
systems (roof and door systems and motion control products), and
undercarriage systems (suspension and ride control systems and wheel
products) for passenger cars, light trucks and sport utility vehicles to
original equipment manufacturers. CVS supplies drivetrain systems and
components, including axles and drivelines, braking systems, suspension
systems and exhaust, ride control and filtration products, for medium- and
heavy-duty trucks, trailers and off-highway equipment and specialty
vehicles. LVA supplies exhaust, ride control and filter products to the
light vehicle aftermarket. Business units that are not focused on
automotive products are classified as "Other." The company's coil coating
operation is included in this classification.
Segment information is summarized as follows (in millions):
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- ----------------------
2003 2002 2003 2002
------- ------ ------- -------
Sales:
Light Vehicle Systems.......................... $ 1,164 $ 904 $ 2,067 $ 1,750
Commercial Vehicle Systems..................... 589 532 1,161 1,015
Light Vehicle Aftermarket...................... 204 214 401 414
Other.......................................... 36 37 73 74
------- ------ ------- -------
Sales......................................... $ 1,993 $1,687 $ 3,702 $ 3,253
======= ====== ======= =======
Operating Income:
Light Vehicle Systems.......................... $ 29 $ 52 $ 71 $ 89
Commercial Vehicle Systems..................... 29 16 53 21
Light Vehicle Aftermarket...................... 6 13 12 21
Other.......................................... (1) 1 - (1)
------- ------ ------- -------
Operating income.............................. 63 82 136 130
Equity in earnings (losses) of affiliates......... 1 (1) 2 (1)
Interest expense, net and other................... (27) (25) (52) (53)
------- ------ ------- -------
Income before income taxes........................ 37 56 86 76
Provision for income taxes........................ (12) (18) (28) (24)
Minority interests................................ (1) (3) (2) (6)
------- ------ ------- -------
Income before cumulative effect of
accounting change............................... $ 24 $ 35 $ 56 $ 46
======= ====== ======= =======
21
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The carrying value of goodwill for the company's segments is summarized as
follows (in millions):
March 31, September 30,
2003 2002
--------- -------------
Light Vehicle Systems......................................... $ 311 $ 225
Commercial Vehicle Systems.................................... 413 408
Light Vehicle Aftermarket..................................... 176 175
Other......................................................... - -
-------- -------
Goodwill ............................................... $ 900 $ 808
======== =======
A summary of the changes in the carrying value of goodwill is as follows
(in millions):
Six Months Ended
March 31,
--------------------
2003 2002
------ -------
Balance at September 30....................................... $ 808 $ 835
Goodwill resulting from Zeuna Staerker........................ 84 -
Impairment loss............................................... - (42)
Foreign currency translation.................................. 8 (5)
------ ------
Balance at March 31........................................... $ 900 $ 788
====== ======
22
ARVINMERITOR, INC.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- ----------------------
2003 2002 2003 2002
------- ------- ------- -------
Sales:
Light Vehicle Systems.................................... $ 1,164 $ 904 $ 2,067 $ 1,750
Commercial Vehicle Systems............................... 589 532 1,161 1,015
Light Vehicle Aftermarket................................ 204 214 401 414
Other.................................................... 36 37 73 74
------- ------- ------- -------
SALES.................................................... $ 1,993 $ 1,687 $ 3,702 $ 3,253
======= ======= ======= =======
Operating Income:
Light Vehicle Systems.................................... $ 29 $ 52 $ 71 $ 89
Commercial Vehicle Systems............................... 29 16 53 21
Light Vehicle Aftermarket................................ 6 13 12 21
Other.................................................... (1) 1 - (1)
------- ------- ------- -------
OPERATING INCOME............................................ 63 82 136 130
Equity in earnings of affiliates............................ 1 (1) 2 (2)
Interest expense, net and other............................. (27) (25) (52) (53)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES.................................. 37 56 86 76
Provision for income taxes.................................. (12) (18) (28) (24)
Minority interests.......................................... (1) (3) (2) (6)
------- ------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE..................................... 24 35 56 46
Cumulative effect of accounting change .................. - - - (42)
------- ------- ------- -------
NET INCOME.................................................. $ 24 $ 35 $ 56 $ 4
======= ======= ======= =======
DILUTED EARNINGS PER SHARE:
Before cumulative effect of accounting change............ $ 0.36 $ 0.52 $ 0.83 $ 0.69
Cumulative effect of accounting change................... - - - (0.63)
------- ------- ------- -------
Diluted earnings per share............................... $ 0.36 $ 0.52 $ 0.83 $ 0.06
======= ======= ======= =======
DILUTED AVERAGE COMMON SHARES OUTSTANDING................... 67.5 67.0 67.5 66.4
======= ======= ======= =======
23
ARVINMERITOR, INC.
Fiscal 2003 Second Quarter Compared to Fiscal 2002 Second Quarter
Total Company
Sales for the second quarter of fiscal 2003 were $1,993 million, an increase of
$306 million, or 18 percent, as compared to last year's second quarter. The
company's acquisition of the remaining 51-percent interest in Zeuna Staerker
added sales of $198 million in the second quarter and favorable foreign currency
translation, primarily from the stronger euro, also increased sales by
approximately $100 million. Without these items, sales would have been
essentially flat, as compared to the second quarter of fiscal 2002.
Operating income for the second quarter of fiscal 2003 was $63 million, compared
to $82 million in the same period last year. Restructuring costs of $11 million
associated with the LVS segment were recorded in the second quarter of fiscal
2003. For additional information concerning the company's restructuring
programs, see Note 7 of the Notes to Consolidated Financial Statements and
the discussion under the heading OUTLOOK below. Operating margin declined to 3.2
percent, from 4.9 percent in the second quarter of fiscal 2003.
Equity in earnings of affiliates for the second quarter of fiscal 2003 was up $2
million compared to the same period last year. Interest expense, net and other
of $27 million was up slightly from $25 million in last year's second quarter.
The effective tax rate was 32 percent in the second quarter of fiscal years 2003
and 2002.
Net income for the second quarter of fiscal 2003 was $24 million, or $0.36 per
diluted share, a decline of $11 million, as compared to last year's second
quarter net income of $35 million, or $0.52 per diluted share. Net income for
the second quarter of fiscal 2003 included restructuring costs of $7 million
after-tax, or $0.10 per diluted share.
Business Segments
Light Vehicle Systems (LVS) sales were $1,164 million, up $260 million, or 29
percent, from the second quarter of fiscal 2002. The acquisition of Zeuna
Staerker added sales of $198 million and foreign currency translation favorably
impacted sales by approximately $70 million, as compared to the prior year.
Operating income was $29 million, a decrease of $23 million from last year's
second quarter. LVS continues to implement cost reduction initiatives to address
the competitive challenges in the automotive supplier industry. During the
second quarter of fiscal 2003, LVS recorded restructuring costs of $11 million
associated with workforce reductions and facility closures, partially offset by
savings of $2 million. Higher steel and other costs associated with steel
shortages also negatively impacted operating income by $5 million in the second
quarter of fiscal 2003. Operating margin was 2.5 percent, down from 5.8 percent
in last year's second quarter.
24
ARVINMERITOR, INC.
Commercial Vehicle Systems (CVS) sales were $589 million, up $57 million,
or 11 percent, from last year's second quarter. Favorable currency translation
increased sales by approximately $20 million, as compared to last year's second
quarter. Operating income increased to $29 million, up from $16 million in the
second quarter of fiscal 2002, and operating margin improved to 4.9 percent, up
from 3.0 percent in last year's second quarter. Higher North American Class 8
truck and trailer production was the major factor behind the sales and operating
income improvement. During the second quarter of fiscal 2003, CVS sold net
assets related to its off-highway planetary axle products and recognized a
pre-tax gain on the sale of $2 million. Sales of off-highway planetary axle
products were approximately $25 million in second quarter of fiscal 2002. The
decline in sales due to the disposition of the off-highway planetary axle
products was substantially offset by the favorable sales impact of foreign
currency translation.
Light Vehicle Aftermarket (LVA) sales were $204 million, down $10 million, from
last year's second quarter. These results include sales of $4 million from the
consolidation of a joint venture in Venezuela as of October 1, 2002. Foreign
currency translation also favorably impacted sales by approximately $10 million
in the second quarter of fiscal 2003. Excluding these items, sales were down 11
percent from last year's second quarter as a result of weak demand across all
LVA product lines. Operating income was $6 million, a decline of $7 million from
last year's second quarter, and operating margin fell to 2.9 percent, from 6.1
percent in the prior year's second quarter. Lower sales volume and customer
pricing pressures drove the operating income decline.
Six Months Ended March 31, 2003 Compared to Six Months Ended March 31, 2002
Total Company
For the first six months of fiscal 2003, sales were $3,702 million, up $449
million, or 14 percent, compared to the same period last year. The company's
acquisition of the remaining 51-percent interest in Zeuna Staerker added sales
of $198 million and foreign currency translation also favorably impacted sales
by approximately $150 million. Excluding these favorable items, sales would have
been up by approximately $100 million. The company's CVS segment drove the sales
increase.
Operating income for the first six months of fiscal 2003 was $136 million, an
increase of $6 million, compared to the same period last year, reflecting an
operating margin of 3.7 percent, down from 4.0 percent. Operating income in the
first six months of fiscal 2003 and 2002 includes restructuring costs of $11
million and $15 million, respectively. Restructuring costs in the first six
months of fiscal 2003 related to workforce reductions and facility closures in
the company's LVS segment. The restructuring charge of $15 million recorded in
the first six months of fiscal 2002 related to employee and other severance
costs for approximately 450 salaried employees. For additional information
concerning the company's restructuring programs, see Note 7 of the Notes to
Consolidated Financial Statements.
Equity in earnings of affiliates for the first six months of fiscal 2003 was up
$3 million compared to the same period last year, primarily due to higher
earnings from commercial vehicle affiliates. Interest expense, net and other of
$52 million was down slightly from $53 million in the same period last year. The
effective tax rate was 32 percent in the first six months of fiscal 2003 and
2002.
25
ARVINMERITOR, INC.
Income before cumulative effect of accounting change for the first six months of
fiscal 2003 was $56 million, or $0.83 per diluted share, up from $46 million, or
$0.69 per diluted share, in the same period last year. Effective October 1,
2001, the company adopted Statement of Financial Accounting Standards No. 142
(SFAS 142), "Goodwill and Other Intangible Assets." Upon adoption of SFAS 142,
the company recorded an impairment loss on goodwill as a cumulative effect of
accounting change of $42 million ($42 million after-tax, or $0.63 per diluted
share) in fiscal 2002. Net income in the first six months of fiscal 2002 was $4
million, or $0.06 per diluted share.
Business Segments
LVS sales were $2,067 million, up $317 million, or 18 percent, from the first
six months of fiscal 2002. Foreign currency translation favorably impacted sales
by approximately $100 million, as compared to the prior year, and the
acquisition of Zeuna Staerker added sales of $198 million. Operating income was
$71 million, a decrease of $18 million from the first six months of fiscal 2002.
Higher steel and other costs associated with steel shortages negatively impacted
operating income by $10 million in the first six months of fiscal 2003.
Restructuring costs were $11 million and $7 million, respectively, in the first
six months of fiscal 2003 and 2002. LVS operating margin declined to 3.4
percent, down from 5.1 percent for the same period last year.
CVS sales were $1,161 million, up $146 million, or 14 percent, from the last
year's first six months. Foreign currency translation increased sales by
approximately $35 million, as compared to the first six months of fiscal 2002.
This increase was partially offset by a decline in sales of approximately $25
million resulting from the disposition of the assets related to the off-highway
planetary axle products. Higher North American Class 8 truck and trailer
production drove the sales improvement. CVS operating income increased to $53
million, compared to $21 million in the first six months of fiscal 2003, and
operating margin was 4.6 percent, up from 2.1 percent in the same period last
year. The operating income improvement is largely attributable to the higher
sales volume. CVS recorded restructuring costs of $6 million in the first six
months of fiscal 2002.
LVA sales were $401 million for the first six months of fiscal 2003, down $13
million, from $414 million in the same period last year. Favorable foreign
currency translation increased sales by approximately $15 million and the
consolidation of a joint venture in Venezuela as of October 1, 2002 added sales
of $10 million. Without these items, sales were down about nine percent in the
first six months of fiscal 2003 reflecting weak demand in the exhaust and ride
control product lines. LVA operating income was $12 million, as compared to $21
million in last year's first six months. Lower sales volume and customer pricing
pressures were the major factors behind the operating income decline. Operating
margin fell to 3.0 percent, from 5.1 percent in the first six months of fiscal
2002.
OUTLOOK
The company's fiscal 2003 outlook for light vehicle production is 15.8 million
vehicles in North America and 16.5 million vehicles in Western Europe. The
company expects North American Class 8 truck production of 166,000 units in
fiscal 2003. Western European heavy- and medium-duty truck production is
estimated at 348,000 units for fiscal 2003.
26
ARVINMERITOR, INC.
Effective October 1, 2002, the company voluntarily changed to the fair value
method of accounting for its stock-based compensation plans and began expensing
the fair value of stock options. See Note 4 of the Notes to Consolidated
Financial Statements for additional information. For fiscal 2003, the company
expects to record compensation expense for stock options of $7 million ($5
million after-tax, or $0.07 per diluted share).
The company has approved plans for a workforce reduction of approximately 300
salaried employees, as well as, facility consolidations affecting an additional
275 hourly employees in its LVS business. These measures follow the management
realignment of the company's LVS businesses and are also intended to address the
competitive challenges in the automotive supplier industry. Additionally, the
company has approved plans for a workforce reduction of approximately 100
salaried employees and a facility closure in its LVA business. These actions are
a result of weak demand in the exhaust aftermarket business. During the second
quarter, the company recorded restructuring costs of $11 million, partially
offset by savings of $2 million, related to these actions. For the full year of
fiscal 2003, the company expects to record restructuring costs of approximately
$18 million and to generate savings of approximately $12 million related to
these actions. The annual pretax savings from these initiatives are estimated at
approximately $30 million.
Other factors that could affect the company's results for the full fiscal year
include the impact of currency fluctuations on sales and operating income, which
is difficult to predict. In addition, the company is experiencing rising steel
prices and currently expects higher steel prices and steel-related costs of
approximately $23 million in fiscal 2003, as compared to fiscal 2002.
FINANCIAL CONDITION
See Condensed Statement of Consolidated Cash Flows for additional detail on the
company's cash flows.
Operating Activities - Cash provided by operating activities was $236 million
for the first six months of fiscal 2003, an increase of $98 million, as compared
to the same period in fiscal 2002. The increase in operating cash flow is
largely attributable to the sales of receivables of $145 million in the first
six months of fiscal 2003. The company increased the balance outstanding under
its U.S. accounts receivable securitization facility and used the cash to fund
the acquisition of the remaining 51-percent interest in Zeuna Staerker and to
reduce debt under its revolving credit facility (see discussion below).
Investing Activities - Cash used for investing activities was $118 million for
the first six months of fiscal 2003 compared to $85 million in the same period
last year. Capital expenditures were $69 million in the first six months of
fiscal 2003, as compared to $64 million in the same period last year. Investing
activities in the first six months of fiscal 2003 includes proceeds of $42
million from the disposition of assets. In the first six months of fiscal 2003,
the company used cash of $69 million (net of cash acquired) for the acquisition
of Zeuna Staerker. Cash used for other investing activities was $22 million in
the first six months of fiscal 2003, compared to $21 million in the same period
in the prior year.
27
ARVINMERITOR, INC.
Financing Activities - Cash used for financing activities in the first six
months of fiscal 2003 was $63 million, compared to $62 million in the same
period last year. During the first six months of fiscal 2003 the company reduced
revolving debt by $50 million and paid dividends of $13 million. During the
first six months of fiscal 2002, the company completed a public offering of debt
securities and proceeds from the notes of $394 million were used to pay
outstanding indebtedness under the company's revolving credit facilities. The
company reduced revolving debt and preferred capital securities by $460 million
and paid dividends of $13 million in the first six months of fiscal 2002.
LIQUIDITY
The company is contractually obligated to make certain payments as disclosed in
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operation - Liquidity in the company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2002, which is incorporated in this Form 10-Q by
reference.
Revolving and Other Debt - As discussed in Note 14 of the Notes to Consolidated
Financial Statements, the company has two unsecured credit facilities, which
mature on June 27, 2005: a three-year, $400-million revolving credit facility
and a five-year, $750-million revolving credit facility. The company also has a
$50-million uncommitted line of credit.
The credit facilities require the company to maintain a total net debt to
earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of
3.25x and a minimum fixed charge coverage ratio (EBITDA less capital
expenditures to interest expense) of 1.50x. Non-compliance with these covenants
would constitute an event of default, and could allow lenders to suspend
additional borrowings and accelerate repayment of outstanding borrowings. At
March 31, 2003, the company was in compliance with all covenants.
Under a shelf registration filed with the SEC in April 2001, the company has
$150 million of debt securities remaining unissued.
Leases - As discussed in Note 14 of the Notes to Consolidated Financial
Statements, certain operating leases require the company to maintain financial
ratios that are similar to those required by the company's revolving credit
agreements. Non-compliance with these covenants could result in termination of
the agreements and acceleration of the company's obligations. At March 31, 2003,
the company was in compliance with all covenants.
28
ARVINMERITOR, INC.
Accounts Receivable Securitization Facilities - As discussed in Note 8 of the
Notes to Consolidated Financial Statements, the company participates in accounts
receivable securitization facilities to enhance financial flexibility and lower
interest costs. ArvinMeritor Receivables Corporation (ARC), a wholly owned
subsidiary of the company, has entered into an agreement to sell an undivided
interest in up to $250 million of U.S. trade receivables to certain bank
conduits. Zeuna Staerker has entered into an agreement to sell an undivided
interest in up to euro 50 million of trade receivables to a bank. As of March
31, 2003, the company had utilized $250 million of the U.S. accounts receivable
securitization facility and $40 million of the euro accounts receivable
securitization facility. The U.S. accounts receivable securitization program
matures in September 2003 and the company expects to renew the facility at that
time. The euro accounts receivable securitization program matures in March 2005.
If the company's credit ratings are reduced to certain levels, or if certain
receivables performance-based covenants are not met, it would constitute a
termination event, which, at the option of the banks, could result in
termination of the facilities. While no assurances can be given, management
believes that the company would be able to renegotiate the programs; however,
the company might incur higher costs or be required to make other financial
concessions. At March 31, 2003, the company was in compliance with all
covenants.
During the second quarter of fiscal 2003, Standard & Poors (S&P) placed the
company on negative credit watch, indicating that the company's current credit
rating of BBB- is under review. The action by S&P has no immediate impact on the
company's revolving credit facilities, accounts receivable securitization
facilities or other debt. In the event of a downgrade by S&P, the company would
continue to have adequate available liquidity through its bank revolving credit
facilities, which mature on June 2005.
CRITICAL ACCOUNTING POLICIES
See the information concerning the company's critical accounting policies
included under Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operation - Critical Accounting Policies in the
company's Annual Report on Form 10-K for the fiscal year ended September 30,
2002, which is incorporated in this Form 10-Q by reference.
NEW ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements are discussed in Notes 3 through 5 of the Notes to
Consolidated Financial Statements.
29
ARVINMERITOR, INC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The company is exposed to foreign currency exchange rate risk related to its
transactions denominated in currencies other than the U.S. dollar and interest
rate risk associated with the company's debt.
The impact the euro and other currencies will have on the company's sales and
operating income is difficult to predict in the upcoming year. The company uses
foreign exchange contracts to offset the effect of exchange rate fluctuations on
foreign currency denominated payables and receivables to help minimize the risk
of loss from changes in exchange rates (see Note 15 of the Notes to Consolidated
Financial Statements). The company also uses interest rate swaps to offset the
effects on interest rate fluctuations on the fair value of its debt portfolio
(see Note 14 of the Notes to Consolidated Financial Statements). It is the
policy of the company not to enter into derivative instruments for speculative
purposes, and therefore the company holds no derivative instruments for trading
purposes.
The company has performed a sensitivity analysis assuming a hypothetical
10-percent adverse movement in foreign currency exchange rates and interest
rates applied to the underlying exposures described above. As of March 31, 2003,
the analysis indicated that such market movements would not have a material
effect on the company's business, financial condition or results of operations.
Actual gains or losses in the future may differ significantly from that
analysis, however, based on changes in the timing and amount of interest rate
and foreign currency exchange rate movements and the company's actual exposures.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, within the
90 days prior to the date of this report, the company carried out an evaluation
under the supervision and with the participation of ArvinMeritor's management,
including Larry D. Yost, Chairman of the Board and Chief Executive Officer, and
S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial Officer, of
the effectiveness of the design and operation of the company's disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer have concluded that the company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed in the reports the company files or submits under the Securities
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
There have been no significant changes in ArvinMeritor's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of that evaluation.
In connection with the rule, the company is in the process of further reviewing
and documenting its disclosure controls and procedures, including the company's
internal controls and procedures for financial reporting, and may from time to
time make changes aimed at enhancing their effectiveness and ensuring that the
company's systems evolve with the business.
30
ARVINMERITOR, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported under the heading "Item 3. Legal Proceedings" in the
company's Annual Report on Form 10-K for the fiscal year ended September 29,
2002 ("Form 10-K"), on July 17, 1997 Eaton Corporation filed suit against the
company in the U.S. District Court in Wilmington, Delaware, asserting
infringement of Eaton's U.S. Patent No. 4850236 covering certain aspects of
heavy-duty truck transmissions, by the company's Engine Synchro Shift(TM)
transmission for heavy-duty trucks, and seeking damages and injunctive relief.
As discussed in the Form 10-K: (a) on July 1, 1998, a jury rendered a verdict in
favor of Eaton and awarded compensatory damages in an amount equal to 13% of
total product sales; (b) in a separate phase of the trial held without a jury,
on February 9, 2001, the judge ruled against the company with respect to its
allegations that Eaton had engaged in inequitable conduct in obtaining its
patent and that the patent was therefore unenforceable; (c) on September 19,
2001, the judge granted Eaton's request for a permanent injunction against the
company's manufacturing or selling the Engine SynchroShift(TM) transmission and
any "colorable variations"; (d) on October 11, 2001, the judge entered an order
granting damages to Eaton in the amount of $2.9 million, plus post-judgment
interest; and (e) on October 11, 2001, the judge denied the company's motions
for a new trial and for judgment as a matter of law. The company appealed these
judgments and orders to the United States Court of Appeals for the Federal
Circuit ("Federal Circuit").
On March 27, 2003, after de novo review of the District Court's interpretation
of Eaton's claims and the facts of the case, the Federal Circuit reversed the
District Court's judgment that the company had infringed Eaton's patent and
vacated the award of damages and the entry of a permanent injunction against the
company. The Court of Appeals affirmed the District Court's judgment of patent
validity and no inequitable conduct by Eaton. Eaton filed a request for
rehearing with the Federal Circuit on April 11, 2003, asserting that the case
should be remanded to the District Court for consideration of whether the
company had infringed Eaton's patent under the Federal Circuit's new claim
interpretation. The Federal Circuit denied Eaton's request for rehearing on May
12, 2003.
Based on advice of M. Lee Murrah, Esq., Chief Intellectual Property Counsel of
the company, management believes the company's truck transmissions do not
infringe Eaton's patent. The company intends to continue to defend this suit
vigorously.
Item 2. Changes in Securities and Use of Proceeds
On January 2, 2003, the company issued 1,368 shares of Common Stock to two
non-employee directors of the company, pursuant to the terms of the company's
Directors Stock Plan, in lieu of cash payment of the quarterly retainer fee for
board service. In addition, on February 19, 2002, the company issued 1,000
shares of Common Stock to each of the ten non-employee directors of the company
pursuant to the terms of the Directors Stock Plan. In each case, the issuance of
these securities was exempt from registration under the Securities Act of 1933,
as a transaction not involving a public offering under Section 4(2).
31
ARVINMERITOR, INC.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareowners of the company was held February 19, 2003. The
following matters were voted on and received the specified number of votes in
favor, votes withheld or against, abstentions and broker non-votes:
(i) Election of directors: The following individuals were elected
to the Board of Directors, with terms expiring at the annual
meeting of shareowners in the years noted. The number of
shares noted below voted in favor of their election or were
withheld. Abstentions and broker non-votes were not
applicable.
NAME OF NOMINEE VOTES IN FAVOR VOTES WITHHELD TERM ENDING
Joseph B. Anderson, Jr. 53,618,605 2,044,984 2006
Victoria B. Jackson 50,979,120 4,684,469 2006
William D. George, Jr. 51,670,276 3,993,313 2005
James E. Marley 51,645,456 4,018,133 2006
James E. Perrella 42,000,931 13,662,658 2006
(ii) Appointment of auditors: The shareowners approved the selection
of Deloitte & Touche LLP as the company's auditors. A total of
49,541,745 votes were cast in favor, 5,831,756 votes were cast
against, and 290,088 votes abstained from voting. Broker
non-votes were not applicable.
32
ARVINMERITOR, INC.
Item 5. Other Information.
Cautionary Statement
This Quarterly Report on Form 10-Q contains statements relating to future
results of the company (including certain projections and business trends) that
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are typically identified by words
or phrases such as "believe," "expect," "anticipate," "estimate," "should," "are
likely to be" and similar expressions. 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; the
availability and cost of raw materials; OEM program delays; demand for and
market acceptance of new and existing products; successful development of new
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; 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 other filings of the company with the Securities and Exchange
Commission. See also "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Quantitative and Qualitative
Disclosures about Market Risk" herein. These forward-looking statements are made
only as of the date hereof, and the company undertakes no obligation to update
or revise the forward-looking statements, whether as a result of new
information, future events or otherwise, except as otherwise required by law.
33
ARVINMERITOR, INC.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10a - Second Amendment to Second Amended and Restated Receivables Sale
Agreement, dated as of March 25, 2003, among ArvinMeritor Receivables
Corporation, the company, the Purchaser Agents named therein and Credit
Lyonnais, acting through its New York Branch, as Agent.
10b - Second Amended and Restated Receivables Purchase Agreement, dated as
of March 10, 2003, among Zeuna Staerker, Galleon Capital Corporation, as
Purchaser, State Street Global Markets LLC, as Administrator, and State
Street Bank and Trust Company, as Relationship Bank.
12 - Computation of ratio of earnings to fixed charges.
23 - Consent of M. Lee Murrah, Esq., Chief Intellectual Property Counsel of
the company.
99a - Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99b - Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K.
The company filed a Current Report on Form 8-K on April 23, 2003, reporting
under "Item 12. Results of Operations and Financial Condition," that the company
had issued a press release reporting its financial results for the fiscal
quarter ended March 31, 2003, and filing the press release as an exhibit under
"Item 7. Financial Statements and Exhibits."
34
ARVINMERITOR, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARVINMERITOR, INC.
Date: May 13, 2003 By: /s/ V. G. Baker, II
-------------------
V. G. Baker, II
Senior Vice President
and General Counsel
(For the registrant)
Date: May 13, 2003 By: /s/ D. S. Bullock
-----------------
D. S. Bullock
Vice President and Controller
(Chief Accounting Officer)
35
ARVINMERITOR, INC.
CERTIFICATIONS
I, Larry, D. Yost, Chairman of the Board and Chief Executive Officer of
ArvinMeritor, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of ArvinMeritor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Larry D. Yost
------------------------------------
Larry D. Yost, Chairman of the Board
and Chief Executive Officer
36
ARVINMERITOR, INC.
I, S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial
Officer of ArvinMeritor, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of ArvinMeritor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ S. Carl Soderstrom, Jr.
---------------------------
S. Carl Soderstrom, Jr.
Senior Vice President and Chief Financial Officer
37
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBITS
10a Second Amendment to Second Amended and Restated Receivables Sale
Agreement, dated as of March 25, 2003, among ArvinMeritor
Receivables Corporation, the company, the Purchaser Agents named
therein and Credit Lyonnais, acting through its New York Branch,
as Agent.
10b Second Amended and Restated Receivables Purchase Agreement, dated
as of March 10, 2003, among Zeuna Staerker, Galleon Capital
Corporation, as Purchaser, State Street Global Markets LLC, as
Administrator, and State Street Bank and Trust Company, as
Relationship Bank.
12 Computation of ratio of earnings to fixed charges.
23 Consent of M, Lee Murrah, Esq., Chief Intellectual Property
Counsel of the company.
99a Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99b Certification of Chief Financial Officer Pursuant to 18 USC
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.