arvinmeritor 2007_Q2_Earnings_Slides_Final

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arvinmeritor 2007_Q2_Earnings_Slides_Final

  1. 1. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 FY 2007 Second Quarter Earnings Presentation and Performance Plus Update Chip McClure, Chairman, CEO & President Jim Donlon, Senior Vice President & CFO Jay Craig, Vice President and Controller Carsten Reinhardt, President, CVS Phil Martens, President, LVS May 1, 2007 1
  2. 2. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Forward-Looking Statements This presentation 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,” “will” 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 cycles and conditions; the demand for commercial, specialty and light vehicles for which the company supplies products; risks inherent in operating abroad (including foreign currency exchange rates and potential disruption of production and supply due to terrorist attacks or acts of aggression); availability and cost of raw materials, including steel; OEM program delays; demand for and market acceptance of new and existing products; successful development of new products; reliance on major OEM customers; labor relations of the company, its suppliers and customers, including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial condition of the company’s suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our suppliers; potential difficulties competing with companies that have avoided their existing contracts in bankruptcy and reorganization proceedings; successful integration of acquired or merged businesses; the ability to achieve the expected annual savings and synergies from past and future business combinations and the ability to achieve the expected benefits of restructuring actions; success and timing of potential divestitures; potential impairment of long-lived assets, including goodwill; competitive product and pricing pressures; the amount of the company’s debt; the ability of the company to continue to comply with covenants in its financing agreements; the ability of the company to access capital markets; 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; rising costs of pension and other post-retirement benefits and possible changes in pension and other accounting rules; 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 SEC. 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. 2
  3. 3. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Chip McClure Chairman and CEO Overview 3
  4. 4. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Highlights • Earned $0.17 per share from continuing operations before special items • Emissions Technologies business now reported in discontinued operations; Aftermarket Ride Control in continuing operations • FY 2007 EPS guidance before special items reduced to a range of $0.70 to $0.80 • Performance Plus will achieve $150 million with restructuring and cost reductions alone by 2009 4
  5. 5. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Second Quarter 2007 Summary CVS BUSINESS GROUP • Lighter than expected trailer builds and softer demand for Aftermarket products • Freight and tonnage lower • Housing down • Economy soft • Higher truck volume issues in Europe • Stretched supply chain • Quality actions LVS BUSINESS GROUP • Higher margins • Improvements in operating performance paying off • Stronger mix of European/Asia Pacific sales • Chassis Systems reinforced with the addition of Gabriel Ride Control • Electronic ride control development well underway positioning Chassis Systems for future growth 5
  6. 6. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Status of Emissions Technologies Sale • Transaction is on track to close this quarter • Received anti-trust approvals from all jurisdictions • All major elements of the deal are as reported on February 2 • Proceeds to be used to improve balance sheet and fund restructuring and growth initiatives 6
  7. 7. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Profitable Growth Strategy Sharpen focus on core areas for sustainable, profitable growth Increase Globalization • Triple sales in Asia with Asian OEMs within five years • $1B+ added sales in Asia Pacific • $1B in sourcing • Establish healthy mix of local OEMs and global OEMs in region • Grow technical and product development within China and India • Build new technical center in Shanghai, China • Double size of technical center in Bangalore, India • Appointed dedicated full-time leader • President of Asia Pacific – Rakesh Sachdev • Opened a wholly-owned facility in Wuxi Positioned for Growth 7
  8. 8. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Profitable Growth Strategy Sharpen focus on core areas for sustainable, profitable growth Deliver Value to Customers • Increase systems, controls and electronics capabilities Introduce New and Enhanced Technologies • Generate compelling new “gotta have” products that create exceptional value for customers Triple Aftermarket Sales • Organic growth • Bolt-on acquisitions • Global expansion • Remanufactured products Positioned for Growth 8
  9. 9. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 2008-2009 Opportunities Success factors… Market Addressing Pension and Healthcare Issues • Rebounding truck volumes ahead of 2010 emissions • Changed U.S. retirement plan change effective Jan. 1, 2008 • Implemented consumer-driven Launched Performance healthcare initiatives in Jan. Plus Initiatives 2007 • Significant cost savings Solid Balance Sheet • Improve operating efficiency • Develop products and • Reduced debt technologies • Increased liquidity Restructuring Diversified • Enhanced global footprint • Customer base • Consolidate LVS/CVS • Global presence engineering facilities • Product portfolio • Overhead Sound Investment 9
  10. 10. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Jim Donlon Chief Financial Officer Q2 Results & 2007 Outlook 10
  11. 11. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Second Quarter Income Statement from Continuing Operations – Before Special Items (1) (in millions, except per share amounts) Three Months Ended March 31, Better/(Worse) 2007 2006 $ % Sales $ 1,627) $ 1,629) $ (2) 0% Cost of Sales (1,490) (1,477) (13) -1% GROSS MARGIN 137) 152) (15) -10% SG&A (99) (89) (10) -11% OPERATING INCOME 38) 63) (25) -40% Equity in Earnings of Affiliates 7) 7) -) 0% Interest Expense, Net and Other (28) (35) 7) 20% INCOME BEFORE INCOME TAXES 17) 35) (18) -51% Provision for Income Taxes (2) (7) 5) 71% Minority Interests (3) (4) 1) 25% INCOME FROM CONTINUING OPERATIONS $ 12) $ 24) $ (12) -50% DILUTED EARNINGS PER SHARE Continuing Operations $ 0.17) $ 0.34) $ (0.17) -50% 11 (1) See Appendix – “Non-GAAP Financial Information”
  12. 12. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Segment EBITDA Before Special Items (1) Quarter Ended March 31, (in millions) Better/(Worse) 2007 2006 $ % EBITDA Light Vehicle Systems $ 30) $ 16) $ 14) 88% Commercial Vehicle System 59) 88) (29) -33% Segment EBITDA 89) 104) (15) -14% Unallocated Corporate Costs (1) -) (1) -100% ET Corporate Allocations (11) (6) (5) -83% Total EBITDA $ 77) $ 98) $ (21) -21% EBITDA Margins Light Vehicle Systems (2) 5.2% 2.8% 2.4 pts Commercial Vehicle System 5.5% 8.3% -2.8 pts Segment EBITDA Margins 5.4% 6.4% -1.0 pts Total EBITDA Margins 4.7% 6.0% -1.3 pts (1) See Appendix – “Non-GAAP Financial Information” 12 (2) Adjusted to reflect the impact of reduced volumes in our Brussels operation
  13. 13. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Income Statement Special Items Walk Ride Control Before Fair Value Production Debt Tax GAAP Special Items Restructuring Adjustment Disruptions Extinguishment Impact Q2 2007 Q2 2007 Sales $ 1,627 $ - $ - $ - $ - $ - $ 1,627 Gross Margin 143 - - (6) - - 137 Operating Income 17 37 (10) (6) - - 38 Income (Loss) Before Income Taxes (10) 37 (10) (6) 6 - 17 Income (Loss) From Continuing Operations (13) 23 (6) (4) 4 8 12 DILUTED EARNINGS (LOSS) PER SHARE Continuing Operations $ (0.19) $ 0.32 $ (0.08) $ (0.05) $ 0.06 $ 0.11 $ 0.17 Diluted Shares Outstanding 70.2 71.2 71.2 71.2 71.2 71.2 71.2 EBITDA Light Vehicle Systems $ 8 $ 29 $ (10) $ 3$ - $ - $ 30 Commercial Vehicle Systems 60 8 - (9) - - 59 Segment EBITDA 68 37 (10) (6) - - 89 Unallocated Corporate Costs (1) - - - - - (1) (11) - - - - - (11) ET Corporate Allocations $ 56 $ 37 $ (10) $ (6) $ - $ - $ 77 Total EBITDA 13
  14. 14. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Discontinuation of Emissions Technologies In millions; excludes asset impairment 1H After Divestiture 1H Before Divestiture Revenue COGS 38 Continuing ET Specific SG&A Operations Corporate Costs (18) Corporate Costs (18) x EBITDA 20 EBITDA (18) Revenue Discontinued COGS 38 Operations ET Specific SG&A EBITDA 0 EBITDA 38 14
  15. 15. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Discontinued and Held-for-Sale Operations Emissions In millions LVA Europe Technologies Assets $ 1,103 $ 139 Liabilities 740 65 Net Assets $ 363 $ 74 Memo: 2006 Sales $ 2,942 $ 171 15
  16. 16. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Free Cash Flow (1) Quarter Ended In millions March 31, 2007 2006 Income (Loss) from Continuing Operations $ (13) $ 32 Net Spending (D&A less Capital Expenditures) 6 9 Pension and Retiree Medical Net of Contributions (63) 12 Performance Working Capital (2) 11 (56) Off Balance Sheet Securitization and Factoring 17 5 Restructuring, Disc. Ops. and Other (29) (67) Free Cash Flow $ (71) $ (65) (1) See Appendix – “Non-GAAP Financial Information” (2) Change in payables less changes in receivables, inventory and customer tooling 16
  17. 17. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Global Pension Plan Funded Status In millions 2006 Year-End Underfunded Status $ (409) Discount Rate (-50 bps in U.S and Canada) (85) UK Elective Contribution (1) 40 Other Plan Year Activity (2) 124 Plan Freeze 30 ET Divestiture 35 Estimated 2007 Underfunded Status $ (265) (1) $10 million pull-ahead and $30 million incremental 2007 contributions applied to significantly reduce underfunding levy over next six years (2) Includes other plan contributions and asset returns net of interest and service cost 17
  18. 18. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Fiscal Year 2007 Outlook Continuing Operations Before Special Items FY 2007 Full Year Outlook (1) (in millions except tax rate and EPS) ̶ Sales $ 6,000 $ 6,200 ̶ EBITDA 275 295 ̶ Interest Expense (95) (105) ̶ Effective Tax Rate 8% 12% Income from Continuing ̶ $ 50 $ 57 Operations ̶ Diluted Earnings Per Share 0.70 0.80 ̶ Free Cash Flow 50 100 (1) Excluding gains or losses on divestitures, restructuring costs, and other special items 18
  19. 19. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 FY 2007 Outlook vs. Prior Continuing Operations Before Special Items Sales Estimated (millions) EPS (1) Previous Guidance $5,900 – $6,100 $1.00 – $1.10 Weaker North America Truck Market (50) – (75) (0.10) – (0.15) Lower Achievement of NA Offsets (25) – (50) (0.05) – (0.10) Stronger European Truck Volumes 125 – 175 0.10 – 0.15 Lower EU Productivity & Volume Penalties (0.15) – (0.20) Unrecovered Commodity Cost Increases (0.05) Updated FY 2007 Guidance Range $6,000 – $6,200 $0.70 – $0.80 (1) Excluding gains or losses on divestitures, restructuring costs, and other special items 19
  20. 20. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Jay Craig Controller • Performance Plus Overview • Overhead 20
  21. 21. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 How is the Program Structured? Goal Top Quartile Financial Performance Among Peer Companies Steering Committee Corporate Officers Operational Excellence Commercial Excellence Approach Cost Improvements Revenue Enhancement Product Strategy & Aftermarket Materials Mfg. Overhead ER&D Growth C. P. Martens & Sponsors C. Reinhardt J. Craig P. Martens J. Craig Reinhardt M. Lehmann Talent Excellence Foundation Sponsor: R. Ostrov Program Office Sponsors: J. Craig and J. Donlon 21
  22. 22. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Project Approach and Timing Design Set Targets Implement Improvement Initiatives Initiatives Time Span Nov. – Dec. 2006 Jan. – Dec. 2007 Jan. 2007 – Dec. 2009 • Implement initiatives • Generate/identify • Set overall work improvement module targets Main • Track realization of measures potential • Plan work modules in Tasks • Assign responsibility detail • Institutionalize tools and and timeline methods • Create baseline and • Implement quick tracking approach wins 22
  23. 23. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Performance Plus Profit Improvements Run rate by 2009 in millions Base Risk Net COST Reduce 8%-10% $200-300 $150 Elements ~$350-$450 $5 Billion Base (Addressable Costs) REVENUE Grow $1.2 Billion ~$50-$150 TBD TBD 7-13% Margins Elements Improvement ~$400-$600 23
  24. 24. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Performance Plus High-Confidence Improvement – Adjusted for Emissions Technology EBITDA Before Special Items 2006 2007 2008 2009 Updated $365 $275-$295 $335-$380 $385-$445 Baseline High-Confidence 75 150 Cost Savings Growth Actions TBD TBD Total $365 $275-$295 $410-$455 $535-$595 24
  25. 25. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Performance Plus Restructuring North (millions except plants) Europe Total America Restructuring Expense $170 $155 $325 Restructuring Cash $155 $125 $280 Number of Plants Affected 9 4 13 Cumulative Annual Run- $80 - 85 $50 - 55 $130 - $140 Rate Benefits by 2012 25
  26. 26. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Calendarization of Expenses and Benefits (millions) 2007 2008 2009 Total Restructuring Expense $65 $115 $100 $325 Restructuring Cash $50 $100 $80 $280 Cumulative Annual Run- $5 $25-$30 $75-$80 $130-$140 Rate Benefits by 2011 26
  27. 27. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Detailed Cost Reduction Targets Cost Reductions (millions) 2008 2009 Overhead $ 65 $ 100 Materials 100 200 Manufacturing (20) 65 Risk (70) (215) High Confidence Net of Risk $ 75 $ 150 27
  28. 28. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Progress to Revenue Improvement Target Revenue growth in millions by 2010 Target Identified $1,000 Initiatives Being $400 Implemented $0 $200 $400 $600 $800 $1,000 $1,200 28
  29. 29. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Operational Excellence Overhead Material Manufacturing Optimization 29
  30. 30. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Operational Excellence • Shared Services • Integration of staffs and consolidation of corresponding facilities • Purchased services • Utilities • Legal services • Consulting, auditing and transaction fees • Waste disposal Overhead 30
  31. 31. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Overhead In millions 2009 EBITDA Lever / Sub-Team Opportunities Target - Travel and Entertainment Non-Manufacturing $35 – $40 - Reduction in Energy Consumption - Temp Labor - Supplier Consolidation - Re-bid Contracts Indirect Materials 10 – 20 - Demand Management - Commonization (SKU Reduction) - Outsourcing Activity / Process - Outsourcing 45 – 50 Labor - Foot Print Rationalization Total $90 - $110 31
  32. 32. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Temp Labor Benchmarking Data Indicates a 9-19% Savings Opportunity • Supplier Consolidation Total run-rate savings of $4M - 10M • Reduce light industrial labor $US Millions suppliers from over 38 to 2-3 preferred suppliers 4 - 10 • Reduce non industrial labor suppliers from over 47 to 2-3 preferred suppliers 2-5 • Implement immediate transition to new suppliers to maximize 2-5 savings • Demand Management • Standardize job titles to ensure “not to exceed” rates • Ensure correct jobs are chosen for each request Total Supplier Demand Savings Consolidation Management • Reduce overtime through better capacity planning 32
  33. 33. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Non-Production Materials Loctite part with annual 1 Eliminate pricing variation spend of $570 K • Identical part numbers -20% 4,980 • Utilize lowest cost supplier 4,462 3,971 • Incremental opportunity for volume discount 2 Standardize or substitute parts Supplier 1 Supplier 2 Manufacturer Part substitution: clear safety glasses • Different items with similar function 5.65 • Examples include cutting tools, abrasives, hand tools, fasteners 69% 3.60 3 Manage demand 1.76 • Inventory tracking techniques • Vendor management Part 1 Part 2 Part 3 33
  34. 34. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Carsten Reinhardt President, CVS • Material Optimization • Manufacturing 34
  35. 35. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Operational Excellence • Consolidate purchasing activities to increase scale • Renegotiate rigorously for cost reductions • Fully utilize value analysis/ value engineering tools • Identify, qualify and source leading cost competitive suppliers • Concentrate business with Material key supplier partners Optimization 35
  36. 36. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Material Optimization In millions Lever / Sub- 2009 EBITDA Opportunities Team Target - Material / process standardization - Design improvements for lower cost Design $70 – $75 - Key tools: competitive teardowns and Optimization supplier conferences - Leverage spend across regions and product lines to gain scale 55 – 60 LCCC Sourcing - Invest time and resources to develop world- class suppliers - Understand detailed supplier cost structure and “should-be” costs Clean-Sheet 40 – 45 - Take a total cost approach Negotiations - Transparent and stable relationships with suppliers to jointly eliminate waste - Reduce freight rates across all modes 25 – 30 Freight - Reduce frequency, costly modes, expedites Total $190 – $210 36
  37. 37. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Completing Wave 1 of 3 (2/3 of Opportunities) Today Wave 1 Axles Wave 2 Apertures Brakes Wave 3 Freight Wheels Trailers Suspension Aftermarket Other CVS Ongoing implementation Axles 33% Brakes 9% Trailers 7% Percent of Apertures 25% Wheels 1% Aftermarket 7% opportunity Freight 8% Suspension 3% Other CVS 7% 66% Planned Early January Mid May End July start date 37
  38. 38. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Progress on Opportunity Levers Opportunity Progress to date Potential 35 % • 12 ‘Teardowns’ focused on different axle models 1 Design 30+ Idea Generation Sessions (IGS) with current Optimization suppliers and Internal Resources • 200+ ideas generated • More than 150 ideas finalized to be pursued • RFQs to ‘short-listed’ suppliers for 25+ components 30 % 2 LCCC • 200 ‘new’ suppliers being assessed Sourcing • Supplier workshops in India, China and Mexico in Addition to NA and Europe • Clean-sheet assessments completed for 20+ 20 % 3 Clean-Sheet components to understand ‘should be’ cost Negotiations • Information requested from all key suppliers • Discussions on-going to close gaps • Analyzed rates for all shipments for harmonization 15 % 4 • Kicked off repackaging efforts to maximize shipping Freight density on selected components Total 100 % 38
  39. 39. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Competitive Teardowns 1 39
  40. 40. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Thrust Bearing and Composite Bushing 1 Current Part (Europe) Proposed Part • 6 different parts • 2 parts (add bushings) • Total cost $75 • Total estimated cost $25 • Approx. volume – 100,000 Potential Annual Savings: $5 Million 40
  41. 41. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 1 North America Shift Forks • 1.63 lbs • 1.39 lbs • 1.26 lbs • 3.75 $/lbs • 2.79 $/lbs • 4.84 $/lbs • Material: D25-1 • Material: D25-2 • Material: D25-2 • Nitro carburized • Induction hardened • Nitro carburized Potential Annual Savings: $650 K 41
  42. 42. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 LCCC Opportunity by Commodity 2 HCC LCCC Axles Brakes 100% 100% Casting 87% 69% 13% 31% Forging 66% 73% 34% 27% Steel 87% 100% 13% 0% Bearings 75% 100% 25% 0% Stampings 58% 100% 42% 0% Other 57% 85% 43% 15% 42
  43. 43. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Clean-Sheet Negotiations for Example Part 3 Ring Gear USD per unit Key Insights Detailed understanding of $76.77 the cost components that -15% make up the total ‘price’ $64.99 Key assumptions Profit Internal process expertise • Blank weight being sought to understand • Blank Material the ‘ideal’ processes and Overhead and rate ‘should be’ cost • Profit as % ROIC Labor • Annual volume ‘Cost transparency’ being • Region of sought from all current Material production for suppliers to understand and labor rate eliminate ‘waste’ from the • Labor OEE value chain • Equip OEE Current Clean Price Sheet Potential Annual Savings: $700 K 43
  44. 44. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Three Key Levers for Freight Cost 4 Price Management for Full Truck Loads Eliminate outliers • Reduce freight Price rates across all modes of Management transportation 2. Reduce average rates (selectively re- 1. Harmonize rates bid routes) (lane by lane, carrier • Ship less frequently by carrier) • Select optimal Demand mode Management • Maximize freight density • Redesign logistics Performance organization • Track compliance Management and key metrics 44
  45. 45. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Wave 1 Ideas Alone Exceed Target Risk-adjusted Values for Initiatives Identified through April 26 Target Freight Apertures Axles Key Highlights • Dedicated sub-teams focused on all three areas • Weekly tracking of performance for each team • Teams generating more ideas than the target to account for risk 45
  46. 46. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Operational Excellence • Optimize footprint • Improve equipment utilization • Fully institutionalize Six Sigma and lean principles • Leverage new technologies for world-class efficiency • Improve supply logistics and flow Manufacturing 46
  47. 47. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Manufacturing Optimization In millions 2009 EBITDA Lever / Sub-Team Opportunities Target Restructuring $35 – $40 - Optimize manufacturing footprint - Improve productivity through consistent Lean 25 – 30 implementation of lean manufacturing principles Total $60 - $70 47
  48. 48. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Footprint Restructuring Highlights (Excludes ER&D and Overhead Actions) • Affects 13 plants in North America and Europe • Expected to affect 2,400 employees in high-cost sites (of the 2,800 for all restructuring activities), while creating 800 positions in low-cost sites • Restructuring costs of $250 million • Annual run-rate savings of $45-55 million by 2009 (excludes one-time transition costs not in restructuring) and $85-90 million by 2011 • Payback of 2.8 years is longer than 2005 program because the easiest actions were done first 48
  49. 49. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Standardized Lean Transformation Is Underway • Developed production system using following guiding principles • Single production system Management across CVS and LVS systems • Standard processes and Operating systems performance metrics Mindsets, • Capture in a “playbook” Behaviors & Capabilities • Build organization capability 49
  50. 50. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Lean Transformation at Fletcher, NC Plant • Early productivity 5% productivity gain Fletcher Total Plant Productivity Percent Start of lean program improvements evident 45 across Fletcher facility 43 in week 11 of 23 of lean transformation 41 • Capacity improvements 39 will position plant to 37 capitalize on future 35 market upswing -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 Weeks • Example improvement 6% productivity gain levers include Assembly Line Productivity Percent 65 • Strong performance management system 60 • Bottleneck breaking 55 • Standard work • Line balancing 50 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 Actual Weeks Annual Operating Plan 50
  51. 51. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Investing in Future Production Technology • Exiting several non-core manufacturing processes • Investing in leading technology for core processes • Example: Gear production process will be the global benchmark Traditional Near Net forging forging Investing in CNC process to enable Near Net forging 51
  52. 52. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 North America Class 8 Volumes (Thousands of vehicles) FY2007 = 224K vehicles FY2008 = 250K vehicles 310 89 70 70 71 220 60 50 36 28 FY2009 FY2010 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 CY2007 = 185K Vehicles 52
  53. 53. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 ATA Truck Tonnage Index Monthly Index Seasonally Adjusted; 2000 = 100.0 3 MMA Monthly Linear (3 MMA) 130 120 110 100 90 80 97 99 01 03 05 07 n- n- n- n- n- n- Ja Ja Ja Ja Ja Ja Ton-Miles Have Softened Recently, but Trend Remains Positive 53
  54. 54. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Factors Affecting 2008-2009 Upturn Tonnage Trends Improving 3.3 3.3 4.9 3.2 Industrial Real 3.4 2.6 2.3 3.7 Production(1) GDP 2.6 2.1 Growth(1) '05 '06 '07 '08 '09 '05 '06 '07 '08 '09 8.0 7.9 1.9 8.0 1.6 2.1 Housing Fleet 7.9 1.5 1.5 Starts(1) Age(2) 7.7 '05 '06 '07 '08 '09 '05 '06 '07 '08 '09 Operating Light 16.8 17.3 Cost of Vehicle 16.4 16.4 16.5 2005 Truck Sales(1) '05 '06 '07 '08 '09 '05 '06 '07 '08 '09 54 (1) (2) Global Insight April 2007 MacKay & Co.
  55. 55. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 North America Class 8 Truck Market Outlook CY in thousands 2006 2007 2008 2009 Industry Analysts (3) 359 222 278 351 Industry Participants (23) 359 209 262 332 ArvinMeritor 359 185 272 326 55
  56. 56. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Global Medium and Heavy Truck Demand Europe Asia/Pacific • Truck demand very strong in • World’s largest market for 2007 medium and heavy trucks • Economic growth continues • Market volumes continue at robust pace • EU expansion includes 9 new countries with aggressive fleet • Regional economic growth very modernization robust even if it slows somewhat • Market continues to be insulated • Economic growth in China from significant technology continues to lead the world at introductions, i.e. Euro 4 (’06) 10%+ rate and Euro 5 (’09) • Industrial production remains • Major customers bullish on strong despite slight expected volume projections reductions in growth rate in India and China for 2008 and 2009 56
  57. 57. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Phil Martens President, LVS • Product Strategy & Growth • Engineering, Research & Development 57
  58. 58. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Commercial Excellence Aftermarket Engineering Product Strategy Research and & Development Growth 58
  59. 59. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Commercial Excellence • Grow profitability by increasing revenues and margins • Right products • Right technologies • Right global markets • Grow systems capabilities globally Product Strategy & Growth 59
  60. 60. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Strategic Imperatives of Growth Pre-Requisite: Clear Focus on Operational Excellence 1. Increase value added through greater systems capability 2. Expand through new product introductions 3. Balance business exposure to deep cycles in OE truck markets 60
  61. 61. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 LVS EBITDA Margin Improvement Showcases Improving Operational Excellence Fiscal Q2 2007 Compared to Fiscal Q2 2006 EBITDA Margin (1) Fiscal Q2 2006 2.8 % 1.6 Cost Reductions Net of Pricing North America Volume (1.1) Other Volume 1.5 Other Improvements 0.4 Net Improvement 2.4% Fiscal Q2 2007 5.2% (1) Excluding gains or losses on divestitures, restructuring costs, and other special items 61
  62. 62. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Focus on Value-Added Products Functionality/ Features Black Box/ Proprietary Knowledge Potential Cross-System Cross-System Integration Integration Electronic Electronic Customer Value Full System Control/ Full System Control/ Integration Feature Integration Feature Enhancement Enhancement Modules/ Modules/ Sub- Sub- Assemblies Assemblies Mechanical Mechanical Goal: Transition from Components/ Components/ Commodity to Integration Commodities Commodities Strategies to Maximize Returns Projected Movement Over Time Supplier Value 62
  63. 63. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Business Units Now Organized by Systems to Drive Synergies and New Product Development Doors Electronic Motion Aperture Roofs Systems Electronics Adjacencies and Suspension controls Stability Vehicle Chassis Wheels that Systems enhance Braking system Axles Propulsion performance Drivetrain Drivelines Hybrid Drives 63
  64. 64. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Organizational Synergies Accelerating New Product Introductions 2008 2009 2010 HIP NAL LER EDCM HGL PSD PTS Apertures NAM NEM ROL LFI 15 new 15 new CG programs in programs in AST 2008 2008 10 additional 10 additional Chassis LVCP programs in AA programs in ARC 2009-2010 ELvl AS 2009-2010 30% of Apertures AD LVMD 30% of Apertures sales from new sales from new products by 2010 products by 2010 Wheels 780 HVA HVA CLAD CC EUF 64
  65. 65. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Chassis Systems Functional Integration– Clear Focus on Vehicle Stability 1 Front and Rear Cross-Car Modules - Complete system 2 integration and assembly for JIT delivery to OEM’s 3 Air Suspension Systems - System integration and foundation for innovations such as active and package constrained air suspension systems 3 4 Active Roll Control Systems - 1 • Hydraulically controlled stabilizer bar systems provide increased safety and improved ride and handling • Self contained system reduces complexity and allows for easier packaging 5 4 5 Adaptive Damping Systems - Modular to a standard damper, the in-piston, continuously variable 2 shock or strut improves ride and handling 65
  66. 66. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Active Roll Control • Actively adjusts stabilizer bar rate using hydraulics • Benefits • Improves ride and handling capability • Increases safety Single Wheel Bump • Induce negative roll torque Active Roll Standard • Provides roll damping Control • Integrates into stability control systems • Lower system complexity • Easier to package Cornering • System is scalable; adjustable, adaptive or active Active Roll Standard Control • Development contract with a major OEM • Concept ready: 3Q/2008 66
  67. 67. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Balance Exposure to Deep Cycles in OE Truck Markets • Aggressively expand in Asia • Capitalize on strong aftermarket distribution capability and specialty vehicle opportunities • Grow LVS globally with selected OEMs • LVS 2010 backlog of $550 million (26%) • Additional high-confidence opportunities 67
  68. 68. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 $1 Billion Identified Growth Initiatives • LVS New Products 30% • Chassis systems: wheels, electronic ride control • Apertures: joint product development (roofs/doors) • Asia/Pacific 20% • Increased China LVS OEM growth • Global program awards manufactured in Asia • Specialty and Trailer 20 % • Strong organic growth • Aftermarket/Other 30 % • Global expansion underway • Strong remanufacturing operations • 100% Clear Focus on Higher Margin Products and Growth in Asia 68
  69. 69. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Delivering New Products: Independent Axle Suspension System • Mine Resistant Ambush Protected (MRAP) Vehicle • Accelerated program to add 4,100 (initial contract) armoured 4x4s and 6x6s into theatre • Opportunity for up to $16 million incremental sales in 2008 and 2009 • Of the 9 OEMs bidding on the business, ArvinMeritor is the potential axle supplier on 4 of the long-term proposals 69
  70. 70. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Commercial Excellence • Achieve and sustain a competitive cost and technology position • Deliver “gotta have” products with increased focus on value add • Consolidate and leverage corporate technical capabilities to increase speed to market Engineering Research and Development 70
  71. 71. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Systems Integration Strategy • What it is not... • Full-service supplier initiative • Outsourcing of engineering by OEMs • What it is… • For mature markets: • High-tech cross-systems capability to develop new product solutions that customer will value • Greater controls and electronics capability • For developing markets: • Helping local OEMs gain the full cost benefits of modularization and mechanical integration 71
  72. 72. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 What Does Controls and Electronics Capability Mean? 60% 30% 10% Effort: Describe HOW to UNDERSTAND the Dynamic System Control the System (models, requirements) (algorithms) Module w/ Part Number 72
  73. 73. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 One Product Development System LVS Product CVS Product Development • Accelerated development of Development new technologies Program Management Office LVS Program CVS Program • Focus on Electronics/ Management Management Controls Engineering Office of Engineering Technology • Shared governance Exp. Mech. & Test Labs Technical • Global engineering Planning Anal. Mech. & expansion CAE Engineering Process • Common product Materials Engineering Electronics/ development/technology Controls Engineering Engineering process Services China Technical Center India Technical Center Government Programs 73
  74. 74. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Delivering New Products: Common Apertures Motor • Program Need: Single apertures motor in time for ‘09 customer programs • Compact design • Integral electronics for Asian customers • ARM One PD approach: Shared test labs, application groups, advanced engineering, engineering process • Consolidation of roof/door engineering into one Apertures Engineering activity leveraging the new ARM One PD System • Annual savings: $5 million target 74
  75. 75. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Delivering New Products: Wal-Mart Hybrid Development • ArvinMeritor Provides • Wal-Mart Provides • Systems Integration • Overall Sponsorship • Engineering, Design, and • Funding for Prototype Installation Components • Specification & Sourcing of • Selection of Additional Alternative Power System & Partners Suppliers • Engine • Vehicle Retrofit (6x4 Base) • Vehicle Manufacturer Pilot Vehicle Available January 2009 75
  76. 76. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Global Engineering – Maximizing Synergies & Development Effectiveness • Growth in Asia will be supported with comprehensive engineering and test capabilities • By 2012 over 50% of Engineering to be located in Asia – a 150% increase • China to be focused on Chassis/Apertures; India to be more Axle/Brake focused and to include electronic controls development • LVS/CVS Product Development VP’s leading Global Engineering integration process 76
  77. 77. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 China Engineering Center • Site of Regional Headquarters, Engineering and Testing Center • Shanghai Xinzhuang Industry Park (SHXIP) • 5.9 acres approximately 10 miles from downtown • Capacity is up to 150 engineers and 200 business personnel • 178,000 square feet including testing facilities and equipment • Will support all ARM businesses maximizing synergies 77
  78. 78. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Product Development – Moving Forward • “One ArvinMeritor” Product Development system focused on Global synergies • Electronic Motors/Electronic Control systems common focus • Technical Acquisitions aimed at accelerating controls/software development under study • Global capability being expanded real time to support new product introductions and growth initiatives • Underlying competencies in engineering delivery being strengthened to support cost reduction efforts. • Focus on quality paramount in all technical areas. 78
  79. 79. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Jay Craig Controller • Aftermarket 79
  80. 80. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Commercial Excellence • ArvinMeritor has strong position in North America commercial vehicle aftermarket and remanufacturing segment • High margin products that we can expand rapidly • Rest of world promises significant growth opportunities Aftermarket 80
  81. 81. FY 2007 Second Quarter Earnings and Performance Plus Update May 1, 2007 Global Aftermarket Growth Strategy Europe Asia North America • Market size: $3.4 billion • Market size: $3.3 billion • Market size: $2.8 billion • Growth strategy: Sustain rapid growth • Growth strategy: Accelerate growth • Growth strategy: by intensifying sales and marketing by gaining share and addressing • Build foundation for growth in efforts in product segments that are new markets, enabled by both 3-5 years through both organic organic and inorganic investments • Financially attractive: Profitable and inorganic investments and large headroom for growth • Example initiatives • Expand sourcing presence in • Fit with ARM’s “right to play”: • Products: Expand all-makes and Asia to supply cost-competitive Strong reputation and product remanufacturing programs to products to N. America and expertise, large installed base increase product coverage Europe • Key segments for growth include: • Geography: Increase presence in Eastern Europe • Customers: Target new Remanufacturing customer segments beyond traditional truck/trailer fleets (e.g., Gearing bus/coach, etc.) Driveline Shocks Hydraulic Brake l ARM sales 81 Remaining market

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