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Arvinmeritor2000 Annual Report



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  • 1. 2000 Annual Report BIGGER STRONGER FASTER
  • 3. ARVINMERITOR PROFILE We are a $7.7-billion supplier of a broad range of The new ArvinMeritor represents an ongoing pursuit integrated automotive systems, modules and to be an admired enterprise, with the industry scale components that capitalize on innovative technology and scope to successfully compete in the top tier of and engineering expertise to provide solutions that the global motor vehicle supplier industry. meet our customers’ needs. Sector Diversity % of fiscal year 2000 pro forma sales 12% Other 12% LVA 6% CVA 9% International Trucks/Trailers 17% North American Trucks/Trailers 16% European Light Vehicles 28% North American Light Vehicles ArvinMeritor LVS contributes Offering the most complete drivetrains in LVA - Light Vehicle Aftermarket CVA - Commercial Vehicle Aftermarket more than $100 to the content of the industry, ArvinMeritor CVS content most light vehicles manufactured per vehicle is more than $3,000, with a today, with a potential of $1,500. potential content of up to $17,000. LIGHT VEHICLE SYSTEMS LVS competes in three major light vehicle areas: responsive customer service further strengthen this apertures, undercarriage and exhaust. Strategic business unit. alliances and advanced engineering solutions drive LVS efforts to become a global provider of original LIGHT VEHICLE AFTERMARKET equipment integrated systems. With leading market share in each of the segments it serves, LVA is committed to providing top-notch customer service, delivery and support after the COMMERCIAL VEHICLE SYSTEMS CVS counts the top ten players in heavy- and original sale, with a growing portfolio of superior medium-duty truck and trailer original equipment as its products and strong brands. key customers. The merger adds emissions systems, ride and stability control and filtration systems to the OTHER (COIL COATING) CVS comprehensive drivetrain portfolio. Processing millions of square feet of steel every day, coil coating applies primer and finish coats on both A strong business with tremendous potential for sides of a wide metal strip. Pre-painted strips are low-investment growth, market-leading CVS then used in a variety of durable, low-maintenance aftermarket leverages a sound supply chain applications that improve insulation, energy infrastructure with solid brand recognition. A broad efficiency and weather resistance. range of products for after the original sale, as well as
  • 4. HIGHLIGHTS OF THE YEAR Letter to Shareowners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Light Vehicle Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Commercial Vehicle Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Light Vehicle Aftermarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Other (Coil Coating) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 2000 Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Corporate Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55 Pro Forma Sales Pro Forma Operating Income Pro Forma Diluted Earnings Per Share $7.5 $7.7 $8.0 $ in billions $600 $ in millions $4.00 $3.66 $3.56 7.1% 6.7% $6.3 $3.11 7.1% $6.0 $3.00 $5.6 $5.3 $400 6.2% $2.30 5.8% $4.0 $2.00 $1.85 $200 $2.0 $1.00 96 97 98 99 00 96 97 98 99 00 96 97 98 99 00 Special Items Operating income % before special items as a percent of sales FINANCIAL HIGHLIGHTS In millions, except per share amounts Pro Forma(1) Year Ended September 30, 2000 1999 1998 Sales Light Vehicle Systems $ 3,668 $ 3,474 $ 3,041 Commercial Vehicle Systems 2,926 2,941 2,425 Light Vehicle Aftermarket 950 906 686 Other 170 116 178 Total Sales $ 7,722 $ 7,491 $ 6,268 Operating income(2) $ 515 $ 531 $ 444 As a percent of sales 6.7% 7.1% 7.1% Net income(3) $ 254 $ 279 $ 236 Diluted earnings per share(3) $ 3.56 $ 3.66 $ 3.11 Diluted common shares outstanding 71.4 76.3 75.9 Cash provided by operations $ 344 $ 415 $ 383 Pre-tax interest coverage 3.9x 4.9x 5.8x Long-term debt to capitalization ratio (4) 64% 56% 45% (1) Pro forma financial information presented as if the merger had occured at the beginning of each fiscal year and reflects (a) the amortization of goodwill from the merger and the elimination of historical Arvin goodwill amortization expense; (b) the adjustment to interest expense for borrowings to fund the Arvin cash consideration and other financing costs; (c) the income tax effects of (a) and (b) above; and (d) the adjustment of shares outstanding representing the exchange of one share of Meritor common stock for 0.75 shares of ArvinMeritor common stock and one share of Arvin common stock for one share of ArvinMeritor common stock, based on the average shares outstanding for each year. (2) Operating income excludes restructuring and other charges of $30 million, $35 million and $7 million in fiscal year 2000, 1999 and 1998, respectively, and gain on sale of business and other of $89 million and $31 million in fiscal year 2000 and 1999, respectively. Operating income also excludes merger-related expenses of $70 million in fiscal year 2000. (3) Net income and earnings per share exclude the special items discussed in (2) above and non-operating one-time expenses of $3 million , $1 million and $25 million in fiscal 2000, 1999 and 1998, respectively. (4) Long-term debt to capitalization ratio based on combined results of Arvin and Meritor as of September 30 of each year presented.
  • 5. TO ARVINMERITOR SHAREOWNERS On July 7, 2000, we realized our goal to merge the strength, expertise and resources of two industry leaders into one company, thereby creating the new ArvinMeritor. Together, we will provide extraordinary value to our employees, our customers and our shareowners. With our strong leadership team, we’re meeting the future with the combined strengths of our best-in-class technologies, systems, practices and people. TOGETHER, WE’RE BIGGER. Achieving $7.7 billion in pro forma sales in fiscal year 2000, ArvinMeritor’s broad product portfolio gives us the ability to supply systems, modules and components to almost every vehicle on the road today. Above all, together, we have the diversity, balance and range of capabilities to create a sustainable competitive advantage. TOGETHER, WE’RE STRONGER. Combined, ArvinMeritor has the engineering and technological expertise and the program management capabilities to develop new systems and products, as well as the ability to move quickly when significant growth opportunities arise. We are committed to 10-percent top-line growth, as well as to increasing our earnings per Larry Yost, chairman & CEO (right) share by 15 to 18 percent annually over the business cycle. We intend Bill Hunt, vice chairman & president to achieve these goals primarily through margin expansion, driven by new higher-value products and aggressive cost-reduction initiatives. TOGETHER, WE’RE FASTER. ArvinMeritor has the resources to provide around-the-clock, cost- effective solutions and to deliver them to our customers faster, wherever they do business, around the world. Because the new ArvinMeritor is bigger, stronger and faster, we’re well on our way to becoming the supplier of choice for the global motor vehicle industry. FAS T E R F I N A N C I A L R E S U LT S F O R F I S C A L Y E A R 2 0 0 0 During the first six months, most of our businesses benefited from THE NEW ARVINMERITOR HAS strong markets. However, for the remainder of the year, we faced THE FLEXIBILITY AND FINANCIAL many challenges that were spawned by conditions that affected the STRENGTH TO SEIZE NEW entire industry. Our pro forma net income in fiscal year 2000, excluding OPPORTUNITIES AND EXPAND special items, was $254 million, nine percent lower than pro forma 1999, excluding special items. On a diluted basis, the related earnings INTO GLOBAL MARKETS. per share were $3.56 compared to $3.66 per share a year ago. Our aggressive measures to drive down costs focus sharply on delivering improved financial performance and building a stronger global Tier One supplier position. To that end, we must anticipate 1
  • 6. C R E AT I N G A W I N N I N G C U LT U R E The “You Have a Part in It” ArvinMeritor’s collaborative Since Day One, Road Tour Road Tour 2000 recognizes energy drives us toward 2000 has taken senior the essential contribution our aggressive goals. leaders to more than 70 that all ArvinMeritor ArvinMeritor sites around employees can make to the world, where they have the new company’s provided employees with future success. It also integration updates, salutes employees in met with media and their efforts to develop community representatives advanced products and listened to employees’ and solutions for concerns and ideas. ArvinMeritor customers.
  • 7. and respond quickly to economic changes. That’s why we are making considerable effort to align our cost structure with current market conditions to: • Reduce capital spending; • Act on every opportunity to improve operating efficiencies; • Adjust our salaried work force downward; • Restructure the company’s operations; and • Streamline and consolidate manufacturing facilities around the world. During ArvinMeritor’s first 100 days, our disciplined integration process helped the new company identify ways to exceed its initial expectations for 2001 cost-savings synergy targets by 33 percent. We have identified $40 million in after-tax savings so far — significantly more than our original $30-million after-tax goal. These savings will come from adopting best practices and eliminating duplication wherever possible, including in areas such as procurement and logistics, human resources, facilities, finance and manufacturing. There are still additional opportunities for significant cost savings across the business units, and we expect to trim $100 million in pre-tax costs by 2003. ArvinMeritor and GM combined technological innovation and Several industry-wide factors in the fourth quarter contributed significantly to the disappointing fiscal year 2000 results, including corporate vision to bring racing substantial softening in Class 8 commercial truck production in North technology to the street, with America, weakened light vehicle aftermarket sales, a weak euro and the first-ever, mass-produced interruptions in North American automotive production schedules. titanium exhaust system for the 2001 Corvette Z06. With formidable tasks ahead, ArvinMeritor begins the 21st century with confidence that we will provide value to our shareowners by: • Focusing on our core competencies and prudently divesting a number of non-core functions; • Generating cash through operational excellence; • Growing the business by delivering advanced technologies to our customers; and • Delivering a rate of return on invested capital above peer group averages. We also will continue our relentless efforts to drive down fixed costs, with strategies such as outsourcing non-core products; establishing a low-cost infrastructure; rationalizing and consolidating assets; and improving labor productivity and inventory turnover. ArvinMeritor also has targeted revenue enhancements to deliver an additional $450 million in sales by 2004. These new marketing opportunities were created by the merger and are incremental, not previously viable for either enterprise operating alone. 3
  • 8. EXPAND THE POTENTIAL: GETTING IN GEAR We know that the new ArvinMeritor can succeed only if we pull together and create a dynamic team. Thanks to the talent and dedicated efforts of our people, we’re doing just that. Besides meeting and exceeding many of our synergy targets, we also have streamlined and standardized systems and processes in areas that impact the entire organization, such as quality, information technology, finance, procurement and operations. We also have identified a number of exciting new marketing opportunities. Some of those, such as our undercarriage and corner module strategies, combine several Arvin and Meritor products into an integrated solution. We also will leverage Arvin’s light vehicle exhaust technology expertise to develop exhaust and emission solutions for commercial trucks — a market where Meritor traditionally holds leading market share positions. Our technical expertise drives superior responsiveness and customer service. With considerable engineering strength, ArvinMeritor continues to propel innovation and product breakthroughs to develop advanced, Last year alone — in new or affordable technologies for the global motor vehicle industry. expanded ArvinMeritor global AT THE STARTING LINE: TAKING technical centers — our ADVANTAGE OF CHANGE engineers submitted The integration of ArvinMeritor operations provides a solid more than 700 invention platform for turning challenges into opportunities. Managing a disclosures for consideration. successful integration process depends on how well people are engaged and work together toward a common goal. All parties must discover new, more effective ways to do things. And that is exactly what our team is doing. To advance the new ArvinMeritor, we established 19 integration teams who began meeting weekly, well before the July merger. Team leaders report to both of us directly. Not only are these 400 highly dedicated team members charged with determining the long- and short-term objectives for the whole enterprise, they also are responsible for eliminating waste, overlap and duplication of effort. Additionally, they are charged with developing a shared vision and purpose for the new venture. Fully accountable, the teams work closely with integration experts and track their real-time progress on a new Web-based integration tool. Change provides the catalyst for innovation. As we move forward, the ArvinMeritor continuous improvement organization — a key group that reports directly to the vice chairman — will ensure the 4
  • 9. An unsere Aktionäre: Am 7. Juli 2000 setzten wir unseren Plan in die Tat Finanzen und Produktion. In den verschiedenen Integrationsprozeß erfolgreich verläuft, müssen alle um, die Stärke, Erfahrung und Mittel zweier Geschäftsbereichen bestehen weitere Möglichkeiten Beteiligten engagiert auf ein gemeinsames Ziel Branchenführer zu einem integrierten, höchst für signifikante Kosteneinsparungen, wodurch wir mit hinarbeiten. Alle Beteiligten müssen neue, effektivere effizienten Unternehmen, dem neuen ArvinMeritor, zu einer Verringerung der Kosten vor Steuern um 100 Wege beschreiten. Und genau das tut unser Team. vereinen. Zusammen stellen wir einen enormen Wert Millionen US Dollar bis zum Jahr 2003 rechnen. Um dem neuen ArvinMeritor zum Aufstieg zu für unsere Mitarbeiter, Kunden und Aktionäre dar. Mit Verschiedene, die gesamte Industrie betreffende verhelfen, haben wir 19 Integrationsteams aufgestellt, unserem starken Führungsteam treten wir der Zukunft Faktoren im vierten Quartal waren für die die lange vor dem Zusammenschluß im Juli damit mit vereinten Kräften entgegen, mit erstklassigen enttäuschenden Ergebnisse im Finanzjahr 2000 begannen, sich wöchentlich zu treffen. Die 400 Technologien, Systemen, Verfahren und Mitarbeitern. ausschlaggebend. Zu diesen Faktoren gehören ein hochmotivierten Teammitglieder bekamen nicht nur Zusammen sind wir größer. bedeutender Rückgang in der Produktion von die Aufgabe, die lang- und kurzfristigen Ziele des Nutzfahrzeugen der Klasse 8 in Nordamerika, ein Gesamtunternehmens festzulegen, sondern auch Mit einem vorläufigen Umsatz von 7,7 Milliarden US geschwächter Ersatzteilmarkt für Personenkraftwagen, unnötige, sich überschneidende und mehrfach Dollar im Jahr 2000 verfügt ArvinMeritor über eine ein schwacher Euro und Unterbrechungen in der ausgeführte Tätigkeiten zu beseitigen. Darüber hinaus umfassendere Produktpalette, die es uns ermöglicht, planmäßigen Automobilproduktion in Nordamerika. sollen sie gemeinsame Visionen und Ziele für das Systeme, Module und Komponenten für fast alle neue Unternehmen entwerfen. Die Teams arbeiten Fahrzeuge auf unseren Straßen zu bieten. Darüber Mit gewaltigen Aufgaben für die Zukunft und in der eigenverantwortlich und eng mit Integrationsexperten hinaus sind unsere gemeinsamen Leistungen so tiefen Überzeugung, daß wir für unsere Anleger zusammen und verfolgen ihren tatsächlichen vielfältig, ausgewogen und weitreichend, daß sie einen dauerhafte Werte schaffen werden, startet Fortschritt über ein neues web-basiertes dauerhaften Wettbewerbsvorteil darstellen. ArvinMeritor in das 21. Jahrhundert. Wir werden Integrationstool. Die Leiter der jeweiligen Teams Zusammen sind wir stärker. • uns auf unsere Kernkompetenzen konzentrieren berichten wöchentlich direkt an uns beide. Vereint hat ArvinMeritor das technische und und wohlüberlegt einige nicht zum Kernbereich Änderungen wirken als Katalysator für Innovationen. technologische Know-how sowie die notwendige zählende Tätigkeiten aufgeben Auch in der Zukunft wird die “ArvinMeritor Continuous Kompetenz im Programm-Management, neue • Gewinn durch herausragende betriebliche Improvement Organization” – eine Gruppe mit Systeme und Produkte zu entwickeln und auf Leistungen erwirtschaften Schlüsselfunktion, die direkt an den Vice Chairman Wachstumsmöglichkeiten schnell zu reagieren. Auch • unsere Geschäftsaktivitäten ausweiten, indem wir berichtet, – die ständige Beobachtung und für die Zukunft haben wir uns zum Ziel gesetzt, eine unseren Kunden fortschrittlichste Technologien Umsetzung der festgelegten Verfahrensweisen und Umsatzsteigerung von 10 Prozent zu erreichen, und bieten Synergien sicherstellen. Es liegt ferner in ihrem wir beabsichtigen, den Aktiengewinn um 15 auf 18 • und eine für die Branche überdurchschnittliche Verantwortungsbereich, die offensiven Prozent in diesem Konjunkturzyklus zu erhöhen. Wir Rendite auf investiertes Kapital erreichen. Leistungskriterien, wie das ArvinMeritor Performance wollen dieses Ziel in erster Linie durch Erhöhung der Weiterhin werden wir in unseren Bemühungen nicht System (AMPS), welches auf dem wirkungsvollen Margen realisieren, durch neue, hochwertige Produkte nachlassen, die fixen Kosten auf ein niedrigeres Arvin Total Quality Production System (ATQPS) sowie konsequente Kostenreduzierung. Niveau zu bringen. Als Strategien hierfür sind zu basiert, innerhalb des Unternehmens durchzusetzen. Zusammen sind wir schneller. nennen: das Outsourcen von Produkten, die nicht zu Ein Blick voraus: wir liegen vorne ArvinMeritor ist in der Lage, rund um die Uhr zu unserem Kerngeschäft gehören, der Aufbau einer reagieren: kostengünstige Lösungen schnell und Die Geschichte von ArvinMeritor ist eine Geschichte kostengünstigen Infrastruktur, Rationalisierung und weltweit zu liefern – wo immer sie benötigt werden. des Wachstums durch integrierte Systeme und Konsolidierung des Anlagevermögens sowie die Modullösungen, die unseren Anteil an jedem Fahrzeug Verbesserung der Arbeitsproduktivität und des Weil das neue ArvinMeritor größer, stärker und und gleichzeitig unseren Marktanteil erhöhen sollen. Lagerumschlags. schneller ist, sind wir auf dem besten Wege, uns als Zusammen verfügen wir über ein erfahrenes Lieferant erster Wahl für die Kraftfahrzeugindustrie ArvinMeritor hat sich bis zum Jahr 2004 Managementteam mit herausragenden Fähigkeiten zum Marktführer zu entwickeln. Umsatzsteigerungen in Höhe von 450 Millionen US und einem weltweiten Kundenstamm sowie über die Dollar als Ziel gesetzt. Neue Marketingmöglichkeiten Finanzkraft, neue Gelegenheiten in einem immer Ergebnisse 2000 haben sich durch den Unternehmenszusammenschluß weiter zusammenwachsenden Industriezweig zu In den ersten sechs Monaten profitierte der Großteil ergeben und bedeuten einen Zuwachs, der für die nutzen. unserer Geschäftstätigkeit von gesunden Märkten. In Einzelunternehmen nicht realisierbar gewesen wäre. Wir werden auch weiterhin unseren Schwerpunkt auf der zweiten Jahreshälfte jedoch hatten wir uns Neue Wege beschreiten: die das Cash Management sowie auf die Transparenz Herausforderungen zu stellen, die die gesamte Industrie Startvoraussetzungen unserer Managementmethoden unter Beweis stellen. betrafen. Unser vorläufiger Gewinn im Finanzjahr 2000 Uns ist bewußt, daß das neue ArvinMeritor nur Erfolg Leistungsanreize und Entlohnung bleiben streng an betrug 254 Millionen US Dollar ohne außerordentliche haben kann, wenn wir gut zusammenarbeiten und ein unsere Ziele gebunden, die die Norm für die jeweilige Posten, das sind 9 Prozent weniger als im Jahr 1999. dynamisches Team bilden. Dank dem Talent und Bezugsgruppe darstellen. Der Gewinn pro Aktie (verwässert) sank auf 3,56 US Ehrgeiz unserer Mitarbeiter gehen wir genau diesen Dollar im Vergleich zu 3,66 US Dollar im Vorjahr. Gestärkt durch unsere vereinte Finanzkraft wird das Weg. Wir haben nicht nur unsere Erwartungen in die neue ArvinMeritor sowohl intern als auch extern durch Unsere konsequenten Maßnahmen zur Synergieeffekte erreicht und übertroffen, wir haben sorgsam durchdachte Partnerschaften wachsen. Kostenreduzierung konzentrieren sich stark auf das auch Systeme und Prozesse rationalisiert und Erzielen eines verbesserten Geschäftsergebnisses und vereinheitlicht, die die gesamte Organisation Wir setzen alles daran, in dieser wettbewerbsintensiven, eine stärkere Positionierung als globaler Direkt- betreffen - wie Qualität, Informationstechnologie, wertorientierten Wirtschaft in der Führungsposition zu Lieferant. Um dies zu erreichen, müssen wir Finanzen, Einkauf, Fertigung und Logistik. sein. Die höchste Priorität hat dabei für uns die wirtschaftliche Veränderungen vorhersehen und Schaffung eines dauerhaften Wertes für unsere schnell auf sie reagieren. Aus diesem Grund Dabei haben wir eine Reihe neuer, spannender Mitarbeiter, Kunden und Aktionäre. Mit Ihrer unternehmen wir große Anstrengungen, unsere Marketingmöglichkeiten entdeckt. Einige davon, andauernden Ermutigung und Unterstützung werden wir Kostenstruktur mit den heutigen Gegebenheiten des wie zum Beispiel unsere Fahrgestell- oder dieses Ziel durch konsequentes Wachstum bei Umsatz Marktes in Einklang zu bringen. Wir werden Kurvenmodul-Strategie, verbinden mehrere Arvin- und und Gewinn umsetzen. Dabei werden wir unsere • Investitionsausgaben konsequent reduzieren Meritor-Produkte zu integrierten Lösungen. Auch Erfahrung in Technik und Technologie nutzen und ein • jede Gelegenheit zur Verbesserung der werden wir Arvins Erfahrung in der Auspufftechnologie starkes und flexibles Unternehmen führen. betrieblichen Effizienz wahrnehmen für Leichtfahrzeuge nutzen, indem wir Auspuff- und • die Löhne unserer Mitarbeiter nach unten anpassen Unsere Mitarbeiter haben sich eingesetzt, um das Abgaslösungen für Nutzfahrzeuge entwickeln – einem • die Unternehmensbereiche restrukturieren und laufende Jahr zum denkwürdigsten überhaupt zu Markt, in dem Meritor traditionell Marktführer ist. • die Produktionsstätten in aller Welt rationalisieren machen. Mit “unsere Mitarbeiter” meinen wir all jene Unser technisches Know-how bringt Überlegenheit im und konsolidieren. engagierten ArvinMeritor-Mitarbeiter, die aus der Bereich Reaktionsvermögen und Kundenservice mit ganzen Welt zusammengekommen sind, um voller In den ersten einhundert Tagen des sich. Mit seinen beträchtlichen technischen Enthusiasmus ein neues Unternehmen aufzubauen. Integrationsprozesses hat ArvinMeritor Mittel und Möglichkeiten treibt ArvinMeritor immer wieder Dies ist eine außergewöhnliche Leistung – eine Wege gefunden, seine ursprünglich für 2001 Innovationen und durchschlagende Produktneuheiten Leistung, auf die wir äußerst stolz sein können. geplanten Ziele im Bereich Kosteneinsparung durch voran und entwickelt so moderne Technologien für die Synergieeffekte um 33 Prozent zu überschreiten. Das Zusammen . . . sind wir größer, sind wir stärker, sind weltweite Fahrzeugindustrie zu angemessenen bedeutet, daß wir bisher mit 40 Millionen US Dollar wir schneller. Preisen. Einsparungen nach Steuern rechnen können – weit Wir sind ArvinMeritor, und wir sind in Bewegung. An der Startlinie: von Veränderungen mehr als die angestrebten 30 Millionen US Dollar profitieren Einsparungen nach Steuern. Diese Einsparungen Der Zusammenschluß der Geschäftsbereiche von resultieren aus der Anwendung der geeignetsten Arvin und Meritor bietet die geeignete Plattform, Verfahren und der weitmöglichsten Vermeidung grundlegende Veränderungen im Rahmen dieser identischer Vorgänge. Hiervon betroffen sind vor allem Herausforderung einzuleiten. Damit ein solcher Bereiche wie Einkauf und Logistik, Personal, Anlagen,
  • 10. A LOS ACCIONISTAS DE AR VINMERITOR El 7 de julio del 2000, realizamos nuestra meta en un 33 por ciento sus metas iniciales para desarrollar tecnologías avanzadas alcanzables de sinergia de los ahorros de costos para el año 2001. perseguida largamente, de ese modo creamos la para la industria global de vehículos automotores. nueva ArvinMeritor, al unir la fuerza, la experiencia DEL INICIO: APROVECHANDO EL Eso significa que hasta ahora hemos identificado y los recursos de dos líderes de la industria bajo $40 millones de dólares en ahorros después de CAMBIO una sola compañía. Juntos, le brindaremos un descontar los impuestos - significativamente más La integración de las operaciones de ArvinMeritor valor extraordinario a nuestros empleados, a que nuestra meta original de $30 millones de provee una plataforma sólida para la transformación nuestros clientes y a nuestros accionistas. Con un dólares después de descontar los impuestos. Estos de desafíos en oportunidades. El manejo de un equipo directivo fuerte, nos enfrentamos al ahorros se realizarán por medio de la adopción de proceso de integración próspero depende de lo futuro con las fuerzas combinadas de nuestras mejores prácticas y la eliminación de duplicación comprometido que estén las personas y de lo bien donde sea posible, incluyendo áreas tales como tecnologías, sistemas, prácticas y personal que que trabajen hacia una meta común. Esto significa compras y logística, recursos humanos, plantas, representan lo mejor de su clase. que todos deben descubrir maneras nuevas y más finanzas y manufactura. Existen aún oportunidades para ahorros significativos en los costos en todas JUNTOS, SOMOS MÁS GRANDES. eficaces para llevar a cabo su cometido. Y es las unidades comerciales, y esperamos recortar Logrando ventas pro forma de $7.700 millones de exactamente lo que nuestro equipo está haciendo. $100 millones de dólares en costos antes de dólares en el año fiscal 2000, ArvinMeritor tiene descontar impuestos para el año 2003. Para adelantar la nueva ArvinMeritor, establecimos 19 una lista de productos más amplia que nos da la equipos de integración que empezaron a reunirse capacidad para suministrar sistemas, módulos o Varios factores que afectaron toda la industria en el semanalmente con mucha antelación a la fusión componentes para casi todo vehículo en cuarto trimestre contribuyeron significativamente a los realizada en el mes de julio. Los líderes de los equipos circulación en la actualidad. Sobre todo, juntos, resultados decepcionantes del año fiscal 2000, nos rinden cuenta semanalmente directamente a poseemos la diversidad, equilibrio y gama de induyendo el ablandamiento considerable en la los dos. No solamente se les encomendaron los posibilidades para crear una ventaja competitiva producción de camiones de la clase 8 en objetivos a corto y largo plazo para toda la empresa a sostenible. Norteamérica, debilitamiento del mercado de estos 400 miembros del equipo altamente dedicados, post-venta de vehículos ligeros, un euro débil e JUNTOS, SOMOS MÁS FUERTES. sino que también son responsables de la eliminación interrupciones a los programas de fabricación de En forma combinada, ArvinMeritor posee la de desperdicios, superposición de tareas y duplicación automóviles en Norteamérica. experiencia de tecnológica e ingeniería, y la de esfuerzos. Además, se les encomendó desarrollar capacidad de manejar programas para el desarrollo una visión y un propósito compartido para la nueva Con tareas formidables por delante, ArvinMeritor de nuevos sistemas y productos, así como la empresa. Los equipos totalmente responsables, comienza el siglo 21 con la confianza que le habilidad de poder actuar con rapidez cuando surgen trabajan estrechamente con expertos y siguen su proporcionaremos valor a nuestros accionistas mediante: oportunidades de crecimiento significativo. Seguimos progreso en tiempo real por medio de una ayuda nueva • El enfoque de nuestro esfuerzo en las comprometidos a lograr un crecimiento del 10 por de integración basada en el Internet. aptitudes esenciales y despojándonos ciento de primera línea, así como también aumentar prudentemente de un número de funciones no El cambio proporciona un catalizador para la los dividendos por acción en un 15 a 18 por ciento esenciales; innovación. A medida que avancemos, la anuales sobre el ciclo de negocios. Nuestro propósito • La generación de efectivo a través de excelencia organización de mejora continua de ArvinMeritor — es lograr estas metas en primer lugar por medio de operante; un grupo clave que rinde cuenta directamente al un aumento de los márgenes, impulsado por los • Aumentar el negocio mediante la oferta de Vicepresidente de la Junta de Administración — productos de mayor valor y por las iniciativas tecnología avanzada; asegurará el examen continuo y la realización de las agresivas en la reducción de costos. • La entrega de una tasa de rentabilidad sobre el mejores prácticas y sinergias identificadas. También capital invertido por encima del promedio JUNTOS, SOMOS MÁS RÁPIDOS. son responsables de impulsar estándares agresivos paritario. ArvinMeritor tiene los recursos para proporcionar de desempeño a través de toda la compañía, tal soluciones rentables durante las veinticuatro horas como el Sistema de Desempeño de ArvinMeritor También continuaremos con nuestros esfuerzos del día, y entregárselas a nuestros clientes más (AMPS), que está basado en el Sistema de Calidad implacables hacia la reducción de costos fijos, rápidamente, alrededor del mundo. Total en la Producción de Arvin (ATQPS). mediante estrategias tales como la subcontratación de productos no esenciales; el establecimiento de Ya que la nueva ArvinMeritor es más grande, y cada NO NOS VERÁN NI EL POLVO: una infraestructura de costo bajo; la racionalización vez más fuerte y más rápida, estamos bien MIRANDO HACIA EL FUTURO y consolidación del activo; y el mejoramiento de la encaminados a convertirnos en el proveedor elegido La historia de ArvinMeritor es un relato de crecimiento productividad de la mano de obra y de la rotación de la industria global de vehículos automotores. con sistemas integrados y soluciones modulares que de inventario. aumentarán nuestro contenido por vehículo y RESULTADOS FINANCIEROS PARA aumentaría nuestra participación del mercado. Juntos, ArvinMeritor también ha previsto mejoras en los EL AÑO FISCAL 2000 tenemos un equipo directivo experto, relaciones ingresos que rendirán $450 millones de dólares Durante los primeros seis meses, la mayoría de sólidas con clientes a través del mundo así como la adicionales en ventas para el año 2004. Estas nuestros negocios se beneficiaron de mercados nuevas oportunidades de mercadeo fueron creadas fuerza financiera para aprovechar las oportunidades de fuertes. Sin embargo, durante el resto del año, por la fusión y son adicionales, no eran viables una industria que está en consolidación. enfrentamos muchos desafíos generados por las anteriormente para ninguna de las empresas cuando condiciones que afectaron a toda la industria. Seguiremos demostrando importancia sólida en la operaban en forma independiente. Nuestros ingresos netos pro forma para el año fiscal gestión de caja, así como también nuestro AMPLIAR LA POTENCIALIDAD: 2000, excluyendo las partidas especiales, fueron de compromiso de comunicar nuestro planeamiento ENTRANDO EN ACCIÓN $254 millones de dólares, lo cual representa el 9 por de gestión. Los incentivos de desempeño y com- Sabemos que la nueva ArvinMeritor sólo podrá tener ciento menos que la pro forma 1999, excluyendo las pensación continuarán ligados a nuestras metas. éxito si aunamos esfuerzos y creamos un equipo partidas especiales. En forma diluida, el rendimiento Fortalecidos por una posición financiera combinada, dinámico. Gracias al talento y los esfuerzos dedicados relacionado por acción fue de $3.56 dólares la nueva ArvinMeritor planea crecer orgánicamente, de nuestra gente es esto lo que estamos haciendo. comparado con $3.66 dólares del año anterior. así como por medio de asociaciones señaladas Además de estar satisfaciendo y excediendo muchas Nuestras medidas agresivas para reducir los costos cuidadosamente. Estamos comprometidos a estar a de nuestras metas de sinergia, también hemos se enfocan sostenidamente en la entrega de un la vanguardia en una economía altamente modernizado y estandarizado los sistemas y los rendimiento financiero mejorado y en edificar una competitiva impulsada por los precios. Ante todo, procedimientos en áreas que impactan a toda la posición global más fuerte como proveedor de estamos comprometidos a entregar valor de larga organización, tales como; la calidad, la informática, las primer nivel. Con ese fin, debemos de anticipar los duración a nuestros empleados, clientes y finanzas, las compras y las operaciones. cambios económicos y responder rápidamente a accionistas. Con su estímulo y apoyo, lo lograremos También hemos identificado nuevas oportunidades ellos. Por esta razón estamos realizando un procurando el crecimiento a nivel superior y del interesantes de comercialización. Algunas de ellas, esfuerzo considerable para alinear nuestra estructura resultado final, por medio del mejoramiento de tales como nuestras estrategias del chasis y el módulo de costos con las condiciones del mercado actuales nuestra experiencia en tecnología e ingeniería, así de esquina, combinan varios productos de Arvin y para: como el mantenimiento de un negocio ágil y fuerte. Meritor para producir una solución integrada. También • Reducir las inversiones de capital; Nuestra gente ha trabajado muy duro para lograr que aprovecharemos la experiencia tecnológica de Arvin • Aprovechar cada oportunidad para mejorar los este año fuera uno de los más memorables. Al decir relativa a sistemas de escape para vehículos ligeros rendimientos operativos; “nuestra gente”, nos referimos a todos los empleados para desarrollar soluciones de escape y emisiones para • Ajuste del personal asalariado hacia abajo; de ArvinMeritor que han dedicado sus esfuerzos en camiones comerciales — un mercado en el que la • Reestructurar las operaciones de la compañía; y todo el mundo para crear con entusiasmo una nueva participación de Meritor ocupa tradicionalmente • Racionalizar y consolidar las plantas de compañía. Este es un logro extraordinario — del cual posiciones de liderazgo. fabricación todo el mundo. todos podemos estar sumamente orgullosos. Nuestra experiencia técnica impulsa un grado de Durante los primeros 100 días de existencia de reacción y servicio al cliente superior. Con una fuerza Juntos… Somos más grandes. Somos más fuertes. ArvinMeritor, nuestro proceso de integración de ingeniería considerable, ArvinMeritor sigue Somos más rápidos. Somos ArvinMeritor, y estamos disciplinado contribuyó a que la nueva compañía en marcha. propulsando la innovación y la creación de productos identificara formas de sobrepasar sus expectativas
  • 11. A L’ A T T E N T I O N D E S A C T I O N N A I R E S D ’ A R V I N M E R I T O R Le 7 juillet 2000, nous avons concrétisé notre objectif initial de 30 millions de dollars après les parties doivent découvrir de nouvelles manières objectif de longue date en fusionnant la force, impôts. Ces économies viennent de l’adoption des plus efficaces d’agir. Et c’est exactement ce que l’expertise et les ressources de deux leaders de meilleures pratiques et de l’élimination des redon- notre équipe est en train de réaliser. l’industrie au sein d’une unique entité : dances dans des domaines comme les achats et la Pour préparer le nouvel ArvinMeritor, nous avons ArvinMeritor. Ensemble, nous apportons une plus logistique, les ressources humaines, les créé 19 équipes d’intégration qui se sont réunies value extraordinaire à nos employés, clients et équipements, la finance et la production. De une fois par semaine bien avant la fusion de Juillet. actionnaires. Avec une forte équipe de manage- nombreuses opportunités nous sont encore offertes Les leaders des équipes reportent directement à ment, nous abordons le futur avec les forces dans certaines unités commerciales pour diminuer nous deux. Ces 400 collaborateurs très dévoués combinées de nos meilleurs technologies, les coûts et nous nous attendons à réduire nos sont non seulement chargés de définir les objectifs systèmes, savoir faire et employés. charges de 100 millions de dollars avant impôts à long et à court termes pour toute l’entreprise, d’ici 2003. Ensemble, nous sommes plus mais ils ont aussi la responsabilité d’éliminer le grands. Plusieurs facteurs industriels dans le quatrième gaspillage, les redondances et la duplication des Avec un chiffre d’affaire pro forma de 7.7 milliards trimestre ont contribué significativement aux efforts. De plus, ils sont chargés de développer une de dollars pour l’année fiscale 2000 et un large résultats décevants de l’année fiscale 2000 comme vision et un sens communs pour la nouvelle entité. portefeuille de produits, ArvinMeritor fournit des la forte réduction de la production de camions Entièrement responsabilisées, ces équipes systèmes, des modules et des composants sur la classe 8- commerciaux, l’affaiblissement de travaillent en étroite collaboration avec des experts quasi totalité des véhicule en circulation l’après-vente pour les véhicules légers, un Euro en intégration et elles suivent leurs progrès en aujourd’hui. Mais par dessus tout, nous avons faible et l’interruption en Amérique du nord des temps réel à l’aide d’un nouvel outil d’intégration ensemble la diversité, l’équilibre, l’étendue de programmes de production automobile. basé sur le Web. capacités nécessaires pour créer un avantage Avec de formidables enjeux a venir, ArvinMeritor Le changement est un vecteur d’innovation. Au fur compétitif soutenu. aborde le 21ième siècle avec confiance afin de et à mesure que nous avançons, l’organisation Ensemble, nous sommes plus forts. fournir une valeur sûre à nos actionnaires : d’amélioration continue d’ArvinMeritor – un groupe Uni, ArvinMeritor possède l’expertise en ingénierie et • en se focalisant sur nos compétences clé qui réfère directement au Vice-Président – en technologie et les capacités de gestion de projet fondamentales et en nous séparant prudemment assurera l’analyse et la mise en place continuelle pour développer de nouveaux systèmes et produits. des fonctions non essentielles ; des meilleures pratiques et synergies. Il est aussi Nous avons la capacité d’évoluer rapidement lorsque • en générant du cash par une efficacité de la responsabilité de ce groupe de promouvoir des opportunités de croissance se présentent. Nous opérationnelle ; partout au sein de la compagnie des standards de maintenons notre engagement à une croissance de • en fournissant un taux de retour sur performance agressifs, tels que le système de 10%, ainsi qu’à une croissance annuelle de nos gains investissement au-dessus de la moyenne. performance ArvinMeritor (AMPS), qui est basé sur par action de 15 à 18%. Nous projetons d’atteindre le puissant Système de Production Qualité Totale Nous continuerons aussi nos efforts implacables de ces objectifs grâce à une augmentation de notre (ATQPS - Arvin Total Quality Production System). réduction des coûts fixes avec des stratégies telles marge au moyen de nouveaux produits à forte valeur que la sous-traitance des produits non essentiels, la L’avenir nous appartient : Regarder ajoutée et d’initiatives majeures de réduction des mise en place d’une infrastructure aux coûts bas, la vers l’avant coûts. rationalisation et la consolidation des biens, L’histoire d’ArvinMeritor est une histoire de Ensemble, nous sommes plus l’amélioration de la productivité de la main d’œuvre croissance fondée sur des systèmes intégrés et rapides. et de la rotation des stocks. des solutions modules qui vont augmenter notre ArvinMeritor a les ressources pour fournir en contenu par véhicule et nos parts de marché. ArvinMeritor vise aussi des améliorations de permanence des solutions rentables et pour livrer Ensemble, nous avons une équipe de direction revenu pour rapporter 450 millions de dollars rapidement nos clients dans le monde entier. expérimentée,des liens forts avec nos clients supplémentaires d’ici 2004. Ces nouvelles opportu- globaux ainsi que la force financière pour profiter Parce que le nouvel ArvinMeritor est plus grand, nités de marché proviennent de la fusion et sont des opportunités d’une industrie en phase de plus fort et plus rapide, nous sommes en bonne incrémentales, n’étant pas auparavant viables pour consolidation. voie pour devenir le fournisseur incontournable de chacune des entreprises opérant séparément. l’industrie automobile mondiale. Nous allons poursuivre notre effort sur la gestion du Élargir le potentiel : Se mettre en cash ainsi que la communication de nos méthodes Résultats financiers pour l’année marche de management. Les bonus de performance et les fiscale 2000 Nous savons que le nouvel ArvinMeritor ne peut rétributions vont continuer à être fortement liés à Durant les six premiers mois, la plupart de nos réussir que si nous travaillons ensemble et créons nos objectifs. activités ont bénéficié d’un marché fort. une équipe dynamique. C’est ce que nous faisons Cependant pour le reste de l’année, nous avons grâce au talent et aux efforts dévoués de nos Renforcés par notre position financière, le nouvel fait face à des événements engendrés par des employés. En plus d’avoir atteint et dépassé la ArvinMeritor va croître de manière interne ainsi que conditions qui ont affecté l’industrie entière. Nos plupart de nos objectifs de synergie, nous avons par des partenariats soigneusement choisis. revenus pro forma nets pour l’année fiscale 2000, aussi simplifié et standardisé les systèmes et Nous nous engageons à être le leader dans cette à l’exception des évènements spéciaux, étaient processus dans des domaines qui ont un impact économie ultra-compétitive. D’abord et surtout, de 254 millions de dollars, c’est à dire 9% sur l’organisation entière, comme la qualité, la nous nous engageons à procurer un bénéfice à inférieurs à ceux de 1999. Ramenés en gain par technologie de l’information, la finance, les achats long terme à nos employées, clients et actionnaires. action, ils représentaient $3.56 comparés à $3.66 et les opérations. Avec votre encouragement et votre soutien pour l’année précédente. Nous avons aussi identifié de nombreuses et permanents, nous réaliserons ceci par la recherche Nos initiatives agressives pour réduire les coûts nouvelles opportunités de marketing. Certaines d’une croissance agressive en améliorant notre ont pour but de fournir une meilleure rentabilité d’entre elles, comme nos stratégies de châssis et expertise en technologie et ingénierie, et en financière et de se construire une position de « corner module », sont le résultat de l’association maintenant une activité à la fois forte et souple. fournisseur de premier rang. Pour cela, nous des produits Arvin et Meritor dans une solution Nos hommes et femmes ont travaillé très dur pour devons anticiper et répondre rapidement aux intégrée. Nous utiliserons aussi l’expertise d’Arvin en faire de cette année une des années les plus changements économiques. C’est pourquoi nous technologie d’échappement pour véhicules légers mémorables. Par « nos hommes et nos femmes », nous efforçons d’aligner notre structure de coûts afin de développer des solutions d’échappement et nous entendons tous les employés dévoués aux conditions du marché actuel : d’émission pour camions utilitaires, marché où d’ArvinMeritor venant du monde entier qui créerons • par une réduction des investissements ; Meritor a traditionnellement une position clé. par leur enthousiasme cette nouvelle compagnie. • par une intervention sur chaque opportunité afin Notre expertise technique nous a conduit à une C’est une réussite extraordinaire dont nous d’améliorer notre efficacité d’exploitation ; réponse et un support client supérieurs. Avec une pouvons être extrêmement fiers. • par un ajustement à la baisse de nos ressources considérable force de développement, ArvinMeritor . humaines ; Ensemble… Nous sommes plus grands. Nous continue à propulser l’innovation ainsi que des • par une restructuration des opérations du sommes plus forts. Nous sommes plus rapides. produits qui développent des technologies groupe; et avancées et accessibles pour l’industrie automobile. • par une consolidation des installations industrielles dans le monde entier. Sur la ligne de départ : Tirer parti du changement Durant les cent premiers jours d’ArvinMeritor, notre L’intégration des opérations d’ArvinMeritor est un processus d’intégration a permis à notre nouvelle exemple où des défis sont transformés en compagnie de dépasser de 33% les objectifs 2001 opportunités. Diriger avec succès un processus de réduction de coûts par synergie. Nous avons d’intégration dépend de la qualité de l’engagement déjà identifié 40 millions de dollars d’économie et du travail d’équipe vers un but commun. Toutes après impôts, chiffre nettement plus élevé que notre
  • 12. PARA OS ACIONISTAS DA AR VINMERITOR Em 7 de julho de 2000, cumprimos o nosso líquidos. Esta economia virá através da adoção de desafios em oportunidades. A administração de objetivo de unir a força, a habilidade e os melhores práticas e eliminação da duplicação, onde um processo de integração com sucesso recursos de dois líderes da indústria em uma possível, incluindo áreas tais como aprovisionamento depende da maneira como as pessoas se empresa, criando assim a nova ArvinMeritor. e logística, recursos humanos, instalações, finanças engajam e trabalham em conjunto para atingir Juntos, proporcionaremos um valor extraordinário e manufatura. Ainda há mais oportunidades para a uma meta comum. Todas as partes devem aos nossos funcionários, nossos clientes e economia significativa de custos através das descobrir maneiras novas e mais eficazes de nossos acionistas. Com nossa forte equipe de unidades comerciais, em que esperamos equilibrar realizar as coisas. E isto é exatamente o que liderança, caminhamos em direção ao futuro US$ 100 milhões em custos brutos até 2003. nossa equipe está fazendo. reunindo as forças de nossas melhores Vários fatores negativos da indústria no quarto Para promover a nova ArvinMeritor, estabelece- tecnologias, sistemas, práticas e profissionais. trimestre contribuíram significativamente para os mos 19 equipes de integração que começaram a JUNTOS, SOMOS MAIORES. resultados decepcionantes do exercício de 2000, reunir-se semanalmente bem antes da fusão em Atingindo US$ 7,7 bilhões em vendas pro forma no inclusive o abrandamento substancial na julho. Todas as semanas, os líderes das equipes exercício de 2000, a carteira bastante ampla de produção de caminhões comerciais Classe 8 na apresentam os relatórios diretamente para nós. produtos da ArvinMeritor oferece-nos, atualmente, América do Norte, o enfraquecimento nas vendas Estes 400 integrantes das equipes, altamente a capacidade de suprir sistemas, módulos e de mercado em substituição aos veículos leves, o dedicados, não somente são encarregados de componentes para praticamente qualquer veículo. enfraquecimento do euro e as interrupções na determinar os objetivos a curto e longo prazo Acima de tudo, juntos, possuímos diversidade, programação da produção automotiva para toda a empresa, mas também são equilíbrio e variedade de capacidades para adquirir norte-americana. responsáveis por eliminar o desperdício, uma vantagem sustentável e competitiva. sobreposição e repetição de esforço. Alem disso, Com uma tarefa difícil a cumprir, a ArvinMeritor são encarregados de desenvolver uma visão JUNTOS, SOMOS MAIS FORTES. entra no século XXI confiante de que nós conjunta e um propósito para a nova venture. Combinada, a ArvinMeritor possui perícia em proporcionaremos um valor significativo para Totalmente responsáveis, as equipes trabalham engenharia e tecnologia, bem como a nossos acionistas através de: de forma integrada com peritos e acompanham capacidade de administração de programas para • Centralização em nossas competências seu progresso em tempo real em uma nova desenvolver novos sistemas e produtos, além da principais e delegação prudente de diversas ferramenta de integração baseada na Web. capacidade de adaptar-se rapidamente diante de funções menores; oportunidades significativas de crescimento. • Geração de capital através de excelência A mudança propicia o catalisador para a Temos o nosso compromisso de oferecer um operacional; inovação. Conforme avançamos, a organização crescimento topo de linha de 10%, além de • Investimento na empresa aplicando-se de contínuo aperfeiçoamento ArvinMeritor – um aumentar nossos rendimentos por cota em 15 a tecnologias avançadas para nossos clientes; e grupo-chave que apresenta relatórios 18% anualmente em relação ao ciclo de • Oferecimento de uma taxa de restituição no diretamente para o vice-diretor – assegurará o negócios. Pretendemos atingir esses objetivos capital investido acima da média dos grupos exame contínuo e implementação das melhores basicamente através do aumento da margem, de parceiros. sinergias e práticas identificadas. Também é direcionada por novos produtos de valor superior responsabilidade deles promover padrões Porém, continuaremos nossos esforços e iniciativas agressivas para redução de custo. agressivos de desempenho através da empresa, implacáveis para reduzir os custos fixos, com tais como o Sistema de Desempenho JUNTOS, SOMOS MAIS RÁPIDOS. estratégias como, por exemplo, terceirização de ArvinMeritor (AMPS), que é baseado no Sistema A ArvinMeritor tem recursos para providenciar produtos secundários; estabelecimento de uma de Produção de Qualidade Total Arvin (ATQPS). soluções contínuas e lucrativas e para oferecê-las infra-estrutura de baixo custo; racionalização e a nossos clientes da forma mais rápida, em consolidação do ativo; e melhora da produtividade OBSERVE-NOS: PENSAMOS NO qualquer lugar em que eles estejam. elaborada e rotatividade de estoque. FUTURO A história da ArvinMeritor é uma história de Por ser maior, mais forte e mais rápida, a A ArvinMeritor ainda tem por objetivo aumentar a crescimento com sistemas integrados e soluções ArvinMeritor está a caminho de tornar-se o receita para oferecer mais US$ 450 milhões em modulares que deverão aumentar nossa fornecedor número um para a indústria global de vendas até 2004. Estas novas oportunidades de capacidade por veículo e nossa cota no veículos automotores. marketing foram criadas pela fusão e representam mercado. Juntos, temos uma equipe de acréscimo, não sendo anteriormente viável para administração experiente e fortes relações com RESULTADOS FINANCEIROS PARA nenhuma companhia individualmente. os clientes, aliada a uma força financeira para O EXERCÍCIO DO ANO 2000 tirar vantagem de oportunidades em uma Durante os primeiros seis meses, a maior parte dos EXPANDIR O POTENCIAL: indústria que está se tornando sólida. negócios se beneficiou através de mercados fortes. ENGRENAGEM No entanto, no restante do ano, enfrentamos muitos Nós sabemos que a nova ArvinMeritor somente Nós continuaremos a demonstrar nossa forte desafios que foram reproduzidos por condições que vai ter sucesso se trabalharmos em conjunto e ênfase na administração de capitais, assim como afetaram toda a indústria. Nossa renda líquida pro criarmos uma equipe dinâmica. Graças ao talento comunicar nossa abordagem de administração. A forma no exercício de 2000, excluindo os itens e esforços dedicados de nossos profissionais, remuneração e incentivos ao desempenho especiais, foi de US$ 254 milhões, 9% abaixo do estamos fazendo exatamente isso. Além de continuarão intimamente ligados a nossas metas. valor pro forma de 1999, excluindo-se os itens satisfazer e exceder muitas de nossas metas de especiais. Em uma base diluída, os ganhos sinergia, também aerodinamizamos e Reforçado por nossa posição financeira combina- relacionados por cota foram de US$ 3,56, compara- padronizamos os sistemas e processos em áreas da, a nova ArvinMeritor planeja crescer dos a US$ 3,66 por cota há um ano. que causam impacto em toda a organização, tais organicamente, bem como através de parcerias como qualidade, tecnologia da informação, cuidadosamente planejadas. Temos o compro- Nossas medidas agressivas para baixar os custos finanças, aprovisionamento e operações. misso de liderar o pacote nesta economia alta- concentram-se basicamente em oferecer um mente competitiva e direcionada aos valores. desempenho financeiro aprimorado e construir Identificamos, ainda, novas e interessantes Primeiramente, temos o compromisso de uma posição mais forte como o fornecedor global oportunidades de marketing. Algumas delas, tais oferecer um valor a longo prazo para nossos de Tier One. Para este fim, devemos prever e como estratégias de módulos especulativos e de funcionários, para nossos clientes e para nossos responder rapidamente a mudanças econômicas. estrutura, combinam diversos produtos Arvin e acionistas. Com nosso constante incentivo e É por isso que estamos fazendo um esforço Meritor em uma solução integrada. Nós ainda apoio, isto será feito através da busca por um considerável para alinhar nossa estrutura de cus- impulsionaremos a tecnologia de escape de crescimento de topo e base de linha, aumentan- tos com as condições atuais de mercado para: veículos leves da Arvin para desenvolver soluções do nossa perícia em tecnologia e engenharia, • Reduzir o gasto de capital; de escape e emissão para caminhões comerciais bem como mantendo a empresa forte e • Atuar em cada oportunidade para melhorar a – um mercado onde a Meritor tradicionalmente dinâmica. eficiência operacional; mantém posições de liderança de mercado. • Diminuir nossa força de trabalho assalariada; Nossos profissionais trabalharam muito para Nossa habilidade técnica direciona o serviço de • Reestruturar as operações da empresa; e tornar este ano memorável. Quando dizemos atendimento a clientes e receptividade superior. • Modernizar e consolidar as instalações de “nossos profissionais”, referimo-nos a todos os Com uma força de engenharia considerável, a fabricação no mundo. dedicados funcionários ArvinMeritor que se ArvinMeritor continua a impulsionar inovações e reuniram, vindos de toda parte do mundo para Durante os primeiros 100 dias de ArvinMeritor, descobertas de produtos para desenvolver criar, com entusiasmo, uma nova empresa. Esta é nosso processo de integração disciplinada ajudou tecnologias avançadas e viáveis para a indústria uma realização extraordinária, da qual podemos a nova empresa a identificar os meios para global de veículos motores. nos orgulhar profundamente. exceder em 33% suas expectativas iniciais das NA LINHA INICIAL: A VANTAGEM metas de sinergia econômica para 2001. Juntos… somos maiores, somos mais fortes, DE UMA MUDANÇA Identificamos US$ 40 milhões em economia somos mais rápidos, somos ArvinMeritor e A integração de operações ArvinMeritor propor- líquida até o momento – valor significativamente estamos crescendo. ciona uma plataforma sólida para transformar superior à meta original de US$ 30 milhões
  • 14. ongoing examination and implementation of the identified best practices and synergies. It is also their responsibility to push aggressive performance standards throughout the company, such as the ArvinMeritor Performance System (AMPS), which is based on the Arvin Total Quality Production System (ATQPS). WATCH OUR DUST: LOOKING AHEAD The ArvinMeritor story is a growth story with integrated systems and modular solutions that should increase our content per vehicle and grow market share. Together, we have an experienced management team, strong relationships with global customers and the financial strength to take advantage of opportunities in a consolidating industry. We will continue to demonstrate our strong emphasis on cash management, as well as to communicate our management approach. Performance incentives and compensation will continue to be closely tied to our goals. Strengthened by our combined financial position, the new ArvinMeritor plans to grow organically, as well as through carefully targeted partnerships. We are committed to lead the pack in this We continue to win new highly competitive, value-driven economy. First and foremost, we are contracts as a result of our committed to delivering long-term value to our employees, to our ability to provide integrated customers and to our shareowners. With your ongoing encouragement systems-based solutions and support, we will do this by pursuing top- and bottom-line growth, and new products to by enhancing our expertise in technology and engineering, as well as address complex issues. by maintaining a business that is strong and agile. Our people have worked very hard to make this year one of the most memorable ever. By “our people,” we mean all of those dedicated ArvinMeritor employees who have come together from all around the world to enthusiastically create a new company. This is an extraordinary accomplishment — one of which we all can be extremely proud. Together . . . We’re bigger. We’re stronger. We’re faster. We’re ArvinMeritor, and we’re on the move. Sincerely, Larry Yost Bill Hunt Chairman Vice Chairman Chief Executive Officer President December 6, 2000 5
  • 15. EMERGING INDUSTRY ARVINMERITOR TRENDS STRATEGIES Globalization Leverage Our Combined Strength Original equipment manufacturers (OEMs) are expanding to As a result of the premium-free merger, ArvinMeritor is a $7.7-billion serve both current and emerging global markets. They are global supplier. By combining our resources, strategic partnerships choosing suppliers with matching global capabilities. and talent, we have the geographic and financial scope and scale to These suppliers must provide state-of-the-art technology invest in the development of advanced technologies. With more and engineering capabilities, as well as integrated system than 150 manufacturing facilities around the world, we work where solutions and seamless customer service. our increasingly global customers need us. Our newly combined engineering team capitalizes on an unmatched ability to meet customers’ fast-changing technology needs. Joining forces has greatly extended our ability to engineer full-system solutions and opens previously untapped pathways to a new range of customers. Consolidation Improve Our Business The changing automotive industry is composed of a shrinking The ArvinMeritor Performance System (AMPS) enables us to lower number of “mega-suppliers.” Customers are cutting supplier costs and ensure top quality and delivery, as we compress product- lists and relying on only those who are the most competent, development cycles with our Concept to Customer process. We also efficient, focused and agile. In this dynamic environment, are investing in improved business and information systems to make it suppliers must anticipate customer needs to provide integrated easier to do business with us. We’ve applied a number of aggressive systems and innovative solutions. Only the most trusted partners — business development initiatives, including layered manufacturing those who can be counted on to constantly supply the highest capacity; supply-base consolidation; streamlined distribution and quality products and deliver the most value at the best price — logistics systems; and lean manufacturing. We also have increased will survive. commonality of products and material source integration. Finally, to strengthen our market positions, we continue to pursue strategic alliances and customer relationships worldwide. Engineering and Technology Bring Together Best Practices Automotive industry consolidation drives customer demand for The ArvinMeritor merger produces a blend of best practices that technology-enhanced modules and fully integrated systems, would be virtually impossible in either organization operating alone. rather than discrete parts. For OEMs, that translates into reduced The combined enterprise has the complementary technology to costs, shorter assembly time, higher quality and more durable deliver a number of innovative applications to the world’s major products. For suppliers, it means working closely with OEMs to automakers, including complete undercarriage offerings; upper combine individual components into innovative modular units or corner and cross car modules; and a first-of-its-kind titanium systems solutions. Winning suppliers must think of themselves as exhaust system. In addition, we are leveraging industry-leading system integrators, rather than as parts manufacturers. light vehicle exhaust technology for the commercial truck market. On site with OEMs or at one of our global centers of expertise, engineering teams work closely with customers to meet their needs and deliver quality systems solutions. E-Commerce Take Advantage of Change The Internet is rapidly changing the way the world conducts As an industry leader, we know the potential value that business. In the automotive industry, many new electronic e-commerce can bring to the overall efficiency of the supply options are causing players to re-examine the fundamentals of chain. That’s why ArvinMeritor has a number of Web-enabled supply chain management. Suppliers are beginning to realize initiatives in place and under development, including an online benefits from e-commerce, including the ability to lower costs customer catalog and ordering system to speed turnaround time. faster than prices; shorten time to market through compressed ArvinMeritor also was the first supplier to participate in Covisint, processing time; and reduce inventory. E-commerce also a Web-based supply exchange sponsored by global automakers. automates and simplifies procurement transactions, while The company serves on Covisint’s Customer Advisory Council boosting accuracy and response time. and was the first supplier to conduct cost-efficient, online auctions for global procurement.
  • 16. LIGHT VEHICLE SYSTEMS APERTURES AND UNDERCARRIAGE The ongoing quest of this business is to become the integrator of choice among the world’s automakers. Our pursuit is focused on four primary initiatives: passion for customers, innovative technologies, lean operations and global reach. All have contributed to positioning the business for significant growth over the next five years. WHO WE ARE . . . LVS has leading market positions in both apertures and undercarriage, with an estimated $2 billion in revenue in fiscal year 2000. Apertures include engineered products, such as sunroofs and roof systems, window regulators, latch systems, gas springs and integrated door modules. Undercarriage addresses vehicle ride control, safety and styling. Products include shock/strut components and modules, suspension systems and steel wheels. WHAT WE’VE DONE . . . During fiscal year 2000, the ArvinMeritor merger brought T H E N Our business success is based on an unparalleled together complementary technologies. That, in turn, has record of dependability and high-value delivery solutions. accelerated our ability to be a major force in such areas as chassis systems and corner modules. Working closely with customers, LVS responds to NOW increasing demand for integrated components and An intense focus on customer advocacy is embedded into our systems for light vehicles. business culture. We continually examine customer concerns and S O O N Expanding global markets — especially in Europe and needs, in order to meet them each day. South America — hold significant growth opportunities for providers of well-engineered, customer-focused WHERE WE’RE GOING . . . products. LVS is ready. A heritage of innovation — along with added post-merger size and scope — promises to pay growth dividends in a number of areas. We will: • Raise the bar and excite customers with our industry-leading door module technology. We can fully integrate LVS products, such as power window regulators, latches and electronics. • Develop access control technologies, such as the signature- feel door opening, which is winning new business and drawing wide interest from major vehicle builders. • Actively pursue original equipment (OE) manufacturer awards for corner modules (shown at right) and chassis systems. We are pursuing numerous other growth areas, such as expanded applications of sunroofs in light trucks and the continued globalization in Europe and South America. 7
  • 17. The ArvinMeritor merger LVS initiatives in lean broadens an already extensive processes and LVS portfolio of technologically measurement-based advanced aperture and quality systems are undercarriage systems. paying off in operational excellence and recognized by key customers such as DaimlerChrysler and General Motors. “We are intensely customer-focused. That obsession fuels our drive to become the global integrator of choice.” — Terry O’Rourke, president, LVS “Other suppliers may talk about high-quality and lean manufacturing. We deliver.” — Craig Stinson, president, Exhaust
  • 18. EXHAUST SYSTEMS This business is leveraging our core competencies around the world to not only maintain our long-standing position as an industry leader, but also to apply our capabilities to engineering innovations, premium products and expanded market opportunities. WHO WE ARE . . . LVS Exhaust Systems is a world-leading automotive exhaust supplier. Our success is based on an unparalleled record of dependability, delivery, value, quality and waste elimination. WHAT WE’VE DONE . . . Last year brought a number of noteworthy developments, including the launch of our new air-to-air service (Air2Air), which expands our focus to a full-air systems approach and leverages Purolator™ air induction technology and noise/vibration/harshness expertise. Also, the strength of our partnerships with Germany’s Zeuna Stärker and Japan’s Sango became increasingly evident. New business We will continue opportunities stem from our common vision and joint strategy. to leverage our Further, the establishment of a Research and Innovation (R&I) team sunroof and roof provides the framework from which to expand the business into module technology potential new markets. This initiative applies our core capabilities to lead the industry and technology network to new products and emerging trend toward technologies within, as well as outside the automotive industry. integrated full roof opening systems. Finally, our global Commercial Vehicle Systems exhaust team migrates experience and know-how from the passenger vehicle segment to address the needs of the commercial truck market. WHERE WE’RE GOING . . . In addition to being a leader in OE exhaust systems, we are well-positioned to reinforce a full-systems, full-service reputation with vehicle builders around the world. As a result, our Exhaust Systems business is poised to expand into new segments. Although in its infancy, Air2Air brings light vehicle OE customers an optimized approach to air systems management. Finally, growth driven by our partnerships is accelerating and shows great promise. Leveraging our capabilities and know-how through the R&I initiative provides an optimistic charter for expansion. 10
  • 19. COMMERCIAL VEHICLE SYSTEMS ORIGINAL EQUIPMENT ArvinMeritor’s Commercial Vehicle Systems (CVS) continues to strengthen our position as a worldwide leader in commercial vehicle drivetrain systems and components for the original equipment (OE) market. We’re doing that by further expanding and refining our product portfolio as we leverage global production, supply and service resources. The ongoing CVS strategy positions our operations to capitalize on the global consolidation of commercial truck and trailer manufacturers and suppliers and the increasing globalization of the industry. CVS also fills the growing need for technologically advanced suppliers who can provide complete systems from a single source. WHO WE ARE . . . CVS is a $2.4-billion business with operations that are complemented by joint ventures in every major region of the world. We supply a complete range of drivetrain systems and components for medium- and heavy-duty trucks, trailers, off-highway equipment and specialty T H E N CVS is well-positioned to capitalize on industry trends toward consolidation and globalization. vehicles. In Europe and North America, CVS is a market leader in virtually every segment we supply, and we are supported by an The new, fully automatic Meritor ® Tire Inflation NOW unmatched sales, service and technical support network. System by PSI (shown at far right) is just one example of how CVS technology responds to In 2000, the RHP Highway Parallelogram system — winner of the trailer customer needs. 1999 PACE™ (Premier Automotive Suppliers’ Contributions to S O O N As a result of strategic alliances and acquisitions, a Excellence) Award — was adopted as standard equipment by wider CVS portfolio will provide customers with a Wabash National Corporation, a world leader in trailer manufacturing. one-stop source for technologically advanced solutions. WHAT WE’VE DONE . . . ArvinMeritor’s tradition of market leadership through innovation continued through the year, with the introduction of a number of new products. Two of these are: • FreedomLine™ — A revolutionary transmission system that eliminates the clutch pedal. Fully automated, it electronically synchronizes engine and road speed to provide a smooth electronic shift. • Drive Axles with Unitized Wheel Ends — Integrates the bearing seals into a hub “package,” eliminating one more assembly step by the vehicle manufacturer. With improved quality and reliability, the new, leak-free package joins the popular wheel-end maintenance-free technology of CVS steer and trailer axles. 11
  • 20. Significant business awards during the year include a multi-year supply contract for axles, cam and hydraulic disc brakes, hubs, drums and ABS with the Blue Bird Corporation. Blue Bird is a leading manufacturer of school buses, commercial buses and motor coaches. We have also taken a number of cost-reducing steps during the year to further strengthen our ability to compete in an extremely demanding marketplace. WHERE WE’RE GOING . . . The global commercial vehicle industry is undergoing significant change. That change includes a decreased demand in North America and further industry consolidation. It also includes vehicle manufacturers’ increased insistence that suppliers be globally based, one-stop sources for complete systems. ArvinMeritor is well-positioned to respond successfully to these challenges: • CVS product and geographic diversity provides the stability and financial strength to balance depressed market conditions. While the market is softening in North America, demands by our European customers keep FreedomLine’s on-board computer the company’s plants in that region operating at capacity. automatically selects and shifts And, while OE production has fallen, the demand for CVS gears, based on load and driving aftermarket products has risen. conditions, providing a smooth • Aggressive cost-reduction measures, including plant electronic shift. The result is restructuring and resource rationalization targeted for 2001, improved fuel economy, reduced are supporting margin targets during market shifts. • The CVS strategy moves beyond components to modules and driver fatigue and increased safety. systems, providing ArvinMeritor OE and end-user customers with a one-stop source for critical, technologically advanced drivetrain solutions. • With our global reach — extended by the resources added through the ArvinMeritor merger — CVS can draw on manufacturing, technical and service resources in virtually every major region of the world. • ArvinMeritor’s broadly based technical expertise is focused on developing technologically innovative new components, modules and systems to meet customer needs. We intend to provide these high-quality components and systems at the lowest, most competitive cost. With our well-established lines of hydraulic disc brake systems, ABS, and steer and drive axles, CVS is poised to make major inroads in a promising, emerging market driven by the needs of e-commerce for local and urban delivery vehicles. In this environment, the demand for smaller, light-medium to medium- duty trucks will grow. CVS will be ready. 13
  • 21. Driver-friendly Safety advances such as Electronic CVS Drive Axles with developments like Stability Control and ABS combine Unitized Wheel Ends are the clutch-free with weight-reducing drivetrain virtually maintenance-free FreedomLine advances such as SteelLite X30™ and allow operators to transmission help brake drums help reduce customer increase payload by the trucking industry operating costs. reducing system weight. meet the growing need for qualified drivers. “We listen to our customers and respond to their needs — to the people who build the trucks and the people who use the trucks.” — Tom Gosnell, president, CVS
  • 22. We provide more than The development of an Internet-accessible, 100,000 products to the electronic catalog strongly positions aftermarket with a the business in the industry’s multi-channel, international fastest-growing distribution dynamic. logistics organization. “Our broad aftermarket product portfolio and efficient delivery make it easy to do business with us.” — Tom Gosnell, president, CVS
  • 23. AFTERMARKET With a global strategy to expand product offerings, grow distribution networks and increase attendant services, ArvinMeritor’s commercial vehicle aftermarket is committed to being an indispensable factor in our customers’ prosperity. WHO WE ARE . . . Commercial Vehicle Systems (CVS) has long been recognized as the premier supplier of replacement components for commercial vehicles. Further, during the past four years, CVS aftermarket has secured an international presence, offering the broadest product portfolio in the industry. WHAT WE’VE DONE . . . In fiscal year 2000, we continued a strategy of expanding our addressable market. Here are some highlights: • The integration of the Euclid acquisition, finalized in 1999, is now complete. We are positioned to further advance the brand’s strong loyalty. • The launch of a European headquarters and warehousing We’ve made industry-leading distribution center provides the infrastructure we need strides in the remanufacture of to become a premier supplier and partner in that region various components, adding to of the world. product breadth and depth at • An earlier strategic marketing alliance with Pressure Systems lower price points. International positions us as an exclusive distributor of one of the industry’s most advanced automated tire inflation systems for new and aftermarket vehicles. • Through the ArvinMeritor merger, we are migrating exhaust, filter and shock technologies, as well as strong brand names and expanded geographic reach to the commercial vehicle aftermarket. WHERE WE’RE GOING . . . Over the past year, we’ve experienced a North American growth rate of 13 percent. Moving forward, forecasts point to significant growth in the overall commercial vehicle replacement parts market, with especially bright spots in Mexico and South America. The combination of decreasing new commercial vehicle production, the business’ expanding accessible market, a growing product portfolio and enhanced service offerings point to significant growth and strong profits in the coming year. Over the next four to five years, our continued strategy of expansion is expected to double the size of our business. 16
  • 24. LIGHT VEHICLE AFTERMARKET With revenue of nearly $1 billion and a well-established global customer base, ArvinMeritor’s Light Vehicle Aftermarket (LVA) is well- positioned in a tightening marketplace that is marked by customer consolidation and longer original equipment (OE) life cycles. WHO WE ARE . . . LVA is a leading supplier of aftermarket exhaust systems; ride control products; and air, oil and fuel filters. We provide customers with some of the best-known brand names in North America and Europe. WHAT WE’VE DONE . . . Throughout fiscal year 2000, we took important measures to continue increasing our global presence. We stepped up efforts to partner with strategic customers, launch new products, increase premium product sales and grow our global alliances. Strategic highlights included: • The Toyota Quality Alliance recognizing our OE filtration systems with the Gold Award for product excellence, service and support; • Contracting to supply AC Delco shock absorbers to General T H E N We set the industry standard by delivering our Motors service outlets around the world; customers a 99-percent order fill rate. • Expanding our sales of Metal Cat, a premium catalytic converter in Europe; and We are industry leaders in service and quality. NOW • Developing a premium shock absorber for the North American performance and sport utility vehicle markets. S O O N The new year holds real opportunity to boost sales, increase market penetration and improve margins. WHERE WE’RE GOING . . . LVA continues to focus on increasing margins in shrinking markets. Gains will be based on our tradition of fast, flexible and reliable customer service, plus ArvinMeritor’s inherent quality, market coverage and brand strength. A growing e-commerce capability will further enhance our service, delivery and business performance. We also are expanding product offerings through internal development, including the introduction of premium replacement filters and shock absorbers in 2001 and through acquisitions, strategic partnering and alliances. Opportunities to expand into new markets — most notably South America and Asia/Pacific — are rapidly developing. We’re also extending our exhaust, ride control and filter product lines into the $1-billion commercial vehicle market, which until the merger had not been feasible. All of these measures are planned to offset the current market conditions in North America, while at the same time positioning LVA to grow in the global aftermarket segment. 17
  • 25. In 2000, LVA launched an We have expanded Our manufacturing Internet-based, business-to- business with our alliance with Midas business portal to streamline strategic partners, holds significant customer service. Visit us at Advance Auto Parts; potential for growth. AutoZone™; Discount Auto Parts; Kwik-Fit™; Meineke; Midas; Texaco; and Pennzoil Quaker State to address the growing retail market. “Outstanding service is critical to customers. That’s our competitive advantage.” — Dan Daniel, president, LVA
  • 26. OTHER (COIL COATING) As a principal supplier to a growing $1-billion market, ArvinMeritor’s coil coating business is taking a number of aggressive steps toward our goal of being the logical choice for innovative pre-painted coating solutions. WHO WE ARE . . . ArvinMeritor’s Roll Coater operations are the largest steel coil coater in the world, coating enough steel in one year to circle the globe four times. As the leading coil coater for the North American home appliance industry, revenue has doubled in the last 10 years. WHAT WE’VE DONE . . . During fiscal year 2000, we reorganized operations to improve processing consistency, customer service, project management and inter-functional coordination. We also have completed the integration of the state-of-the-art Hawesville, Kentucky, production facility acquired from WorldSource Coil Coating, Inc. in early 1999. This year, Don Ebert, who guided Roll Coater through its T H E N Roll Coater has posted a compounded annual growth remarkable period of growth, retired after 37 years of service. rate of 10.5 percent for the past five years. A.R. Sales, former Roll Coater chief financial officer, succeeds A business reorganization includes naming a strong NOW him as president. manufacturing vice president, establishing sales and marketing as a stand-alone function, and creating a WHERE WE’RE GOING . . . separate Business Operations group. Roll Coater has set clearly defined goals to ensure continued S O O N We will dramatically increase sales through growth and financial strength. concentrating on process excellence, customer We intend to: service improvements and product innovation. • Grow the use of pre-painted steel panels in core markets, as the quality, value and environmental advantages of the process gain increased recognition. • Leverage automotive opportunities in support of other ArvinMeritor operations, such as the fabrication of roof panels. • Penetrate the residential roofing market, as coated steel and aluminum shingles gain acceptance as a lightweight, recyclable alternative to asphalt shingles and other roofing materials. • Integrate the supply chain and expand value-added customer services. • Expand further into Mexico and markets in the southeastern U.S. By taking advantage of these emerging market opportunities, our coil coating business can further enhance its consistently strong financial performance. 19
  • 27. Roll Coater has a diversified Appointing a vice president The automotive customer base that can help of Manufacturing ensures industry is beginning ArvinMeritor benefit from maximum coordination and to recognize the market fluctuations in the process consistency across quality, value and automotive industry. all coil coating operations. environmental advantages of coil coating over in-house post-painting. “By forging close partnerships with paint manufacturers and steel producers, we discover new applications, as well as find better ways to leverage existing ones.” — A.R. Sales, president, Roll Coater
  • 28. 2000 FINANCIAL REVIEW Chief Financial Officer’s Review: Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Management’s Responsibility for Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52 Pro Forma Summary of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Pro Forma Operating Income (2) Pro Forma Sales (1) Pro Forma Capital Expenditures $10.0 $600 $400 $ in millions $ in millions $ in billions $8.0 $300 $400 $6.0 $200 $4.0 $200 $100 $2.0 98 99 00 98 99 00 98 99 00 Affiliate Sales Other Other Other Light Vehicle Aftermarket Light Vehicle Aftermarket Light Vehicle Aftermarket Commercial Vehicle Systems Commercial Vehicle Systems Commercial Vehicle Systems Light Vehicle Systems Light Vehicle Systems Light Vehicle Systems (1) Including affiliate sales (2) Business segment 21
  • 29. CHIEF FINANCIAL OFFICER’S REVIEW M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S OVERVIEW AND OUTLOOK The outlook for our major served markets around The merger of Meritor and Arvin helps to position the world is somewhat mixed. There are signs of a ArvinMeritor as a leader within the automotive modest weakening in North American and Western supply industry (see Notes 1 and 3 of Notes to European light vehicle production during fiscal 2001. Consolidated Financial Statements). Our industry Within the heavy-duty commercial truck and trailer is rapidly transforming to keep pace with the markets, we expect North American production will globalization and consolidation of the original continue to decline 30 percent or more in fiscal equipment manufacturers (OEMs), as well as the 2001, while European production is expected to be continued trends towards outsourcing by the down modestly. The light vehicle replacement OEMs and integrated systems. The increased market should remain weak over the same period. competitive pressures and complexity of the Additionally, it is difficult to predict the impact the industry presents suppliers with many challenges euro and other currencies will have on sales and and growth opportunities. We believe that the operating income in the upcoming year. While we merger of Arvin and Meritor provides enhanced remain cautious regarding the current market financial strength, flexibility and product mix, as outlook, we will continue to drive strong financial well as stronger customer and market positions, performance through aggressive ongoing that enables the company to take further cost-reduction efforts, restructuring actions and advantage of these industry trends. synergy realization programs. The company is making excellent progress in the In addition to the progress being made by our merger integration process. To date, we have merger integration teams, we are taking actions to identified projected cost-reduction synergies for align our operations with the existing and 2001 of $50 million pre-tax, or $40 million anticipated declines in some of the company’s major after-tax. This includes a $10-million annual markets. On November 8, 2000, the company recurring reduction in income taxes, which is announced restructuring actions to realign expected to contribute to the reduction of the fiscal operations at selected facilities around the world, 2001 effective tax rate to 35.5 percent. We are on with a total cost of approximately $90 million schedule to increase these cost synergies to (see Note 24 of Notes to Consolidated Financial $100 million pre-tax in 2003. Statements). The company expects these restructuring activities to reduce operating costs by With our newly merged company, we are even more about $25 million in fiscal 2001, growing to confident in our ability to meet, over a multi-year $50 million in fiscal 2002 and thereafter. period, our stated long-term financial goals to deliver annual average sales growth of 10 percent We also continually evaluate other value-enhancing and earnings per share growth of 15 to 18 percent, initiatives, such as stock repurchase programs. while maintaining a strong emphasis on cash and During the last month of fiscal 1999 and the first two investment grade ratios. quarters of fiscal 2000, Meritor purchased 5.1 million shares at an aggregate cost of approximately Our long-term goals have been established with the $125 million, or an average of $24.51 per share. recognition that the industry in which the company In July 2000, ArvinMeritor announced a program to operates has been characterized historically by repurchase up to $100 million of the company’s periodic fluctuations in overall demand for light, common stock, of which 3.1 million shares had commercial and specialty vehicles, and related been purchased at an aggregate cost of aftermarkets, resulting in corresponding fluctuations in approximately $53 million, or an average of demand for products of the company. Accordingly, the $16.98 per share through September 30, 2000. company will measure its performance against these long-term financial goals over a multi-year period. 22
  • 30. CHIEF FINANCIAL OFFICER’S REVIEW M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S (continued) FINANCIAL CONDITION In fiscal 1999, cash used for investing activities Our cash flow Operating Cash Flow — included capital expenditures of $170 million and from operations was $228 million in fiscal 2000, cash used for three acquisitions of $573 million, which was used to partially fund capital offset somewhat by $51 million of proceeds from the expenditures, dividend payments, merger-related formation of the transmission and clutch joint expenses and the repurchase of treasury stock. venture with ZF Friedrichshafen AG (ZF). In fiscal Cash flow from operations was $262 million and 1998, cash used for investing activities and capital $280 million in fiscal 1999 and 1998, respectively. expenditures was $147 million. These cash outflows The decline in cash provided by operating activities were partially offset by $17 million of proceeds in fiscal 2000 from fiscal 1999 is primarily the result received from the sale of assets. of working capital levels not being reduced Net cash provided Financing Cash Flow — commensurate with the decline in sales during the by financing activities was $38 million in fiscal 2000. fourth quarter of fiscal 2000. In addition, increased During July 2000, the company entered into two pension funding and retiree medical payments unsecured credit facilities for a total of $1.5 billion. contributed to the reduction from 1999 levels. These new credit facilities became effective on the I n v e s t i n g C a s h F l o w — Our operating cash date of the merger, replacing existing credit flow has allowed the company to fund capital agreements of Arvin and Meritor. In addition, during expenditures of $225 million in fiscal 2000, September 2000, the company instituted a $170 million in fiscal 1999 and $139 million in fiscal commercial paper program with authorized 1998. The company continues to invest in the borrowings of up to $1 billion. The net increase in property, plant and equipment needed for future debt in fiscal 2000 was $245 million. The company business requirements. Capital expenditures in made payments of $172 million for the repurchase fiscal 2000 included equipment to support new of its stock and $35 million for cash dividends. In product introductions, capacity expansion and new November 2000, the board of directors declared a production processes and costs to continue to $0.22 per share quarterly dividend payable in implement new information systems. The company December 2000. is currently evaluating additional aggressive cost Net cash provided by financing activities was and spending reduction strategies, including $441 million in fiscal 1999. This amount includes a reductions in capital spending, and expects capital $507-million increase in debt, primarily related to the expenditures in fiscal 2001 to be between February 1999 public offering of $500 million of debt $225 million and $300 million. The capital spending securities. The proceeds were used to repay existing increase in 2000 and the potential increase for indebtedness, including short-term credit facilities 2001 are primarily related to the inclusion of Arvin entered into to facilitate three acquisitions. In addition, capital expenditures for a quarter in fiscal 2000 the company made payments of $6 million for the and for a full year in fiscal 2001. repurchase of its stock, $29 million for cash dividends In fiscal 2000, cash used for investing activities and $31 million for the settlement of interest rate included the capital expenditures described above, agreements entered into in 1998 (see Note 14 of cash payments of $49 million relating to the merger Notes to Consolidated Financial Statements). between Arvin and Meritor and cash used for acquisitions of businesses and investments of $74 million. This cash used was partially offset by $148 million of proceeds from dispositions of assets, property and businesses, primarily relating to the sale of the seat adjusting systems business. 23
  • 31. Net cash used for financing activities was The company regularly considers various strategic $216 million in 1998. This amount reflects net and business opportunities, including acquisitions. payments of $129 million to reduce debt. In addition, Although no assurance can be given as to whether the company made net payments of $58 million or when any acquisitions will be consummated, if an relating to certain Canadian tax obligations and agreement were to be reached, the company could payments of $29 million for cash dividends. finance such acquisitions by issuance of additional debt or equity securities. The additional debt from The company’s Other Information — any acquisitions, if consummated, could increase long-term debt to capitalization ratio was 64 percent the company’s debt to capitalization ratio. at September 30, 2000, down from 68 percent at September 30, 1999. Pre-tax interest coverage was Based upon the company’s projected cash flow 5.0x for fiscal 2000, down from 6.3x for fiscal 1999. from operations and existing bank credit facilities, Excluding special items, pre-tax interest coverage management believes that sufficient liquidity is was 4.4x for fiscal 2000, down from 6.4x for fiscal available to meet anticipated operating, capital and 1999. On a pro forma basis, excluding special items, dividend requirements over the next 12 months. pre-tax interest coverage was 3.9x and 4.9x for fiscal 2000 and 1999, respectively. Standard & R E S U LT S O F O P E R AT I O N S Poors and Moody’s have assigned “BBB/Baa2” The merger of Arvin and Meritor was accounted for credit ratings, respectively, to the company’s long- as a purchase with Meritor designated as the term debt and “A2/P2” credit ratings, respectively, acquiror. Accordingly, the historic financial to the company’s commercial paper program. information for periods prior to July 7, 2000, reflects The company has retirement medical and defined only the results of Meritor and its consolidated benefit pension plans that cover most of its U.S. subsidiaries. The information for the period after and certain non-U.S. employees (see Notes 17 and July 7, 2000, represents the results of ArvinMeritor 18 of Notes to Consolidated Financial Statements). and its consolidated subsidiaries. All prior periods’ Retirement medical plan payments aggregated share and per share data have been restated to $49 million in fiscal 2000, $41 million in fiscal 1999 conform with the exchange of Meritor shares to and $36 million in fiscal 1998, and are expected to ArvinMeritor shares on a one Meritor share for approximate $45 million in fiscal 2001. The company 0.75 ArvinMeritor shares basis, in connection with made pension plan contributions of $40 million in the merger (see Note 3 of Notes to Consolidated fiscal 2000, $30 million in fiscal 1999 and $28 million Financial Statements). All earnings per share in fiscal 1998. Management expects to fund at least amounts are on a diluted basis. All references to the minimum pension plan contributions required by pro forma amounts assume that the merger government regulations for the various plans and occurred at the beginning of each period presented, anticipates that pension plan funding will be and does not give pro forma effect to any between $20 million and $40 million in fiscal 2001. acquisitions or divestitures made by Arvin or Meritor. 24
  • 32. CHIEF FINANCIAL OFFICER’S REVIEW M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S (continued) The following sets forth the sales, operating income pro forma amounts for each year (dollars in millions, and net income of the company for the years ended except per share amounts): September 30, 2000, 1999 and 1998, as well as Pro Forma(unaudited)(1) As Reported Year Ended September 30, 2000 1999 1998 2000 1999 1998 Sales Light Vehicle Systems $ 2,031 $ 1,575 $ 1,475 $ 3,668 $ 3,474 $ 3,041 Commercial Vehicle Systems 2,872 2,875 2,361 2,926 2,941 2,425 Light Vehicle Aftermarket 209 — — 950 906 686 Other 41 — — 178 170 116 Total Sales $ 5,153 $ 4,450 $ 3,836 $ 7,722 $ 7,491 $ 6,268 Operating income Light Vehicle Systems $ 149 $ 129 $ 86 $ 232 $ 198 $ 155 Commercial Vehicle Systems 221 232 212 231 244 224 Light Vehicle Aftermarket 6 — — 43 72 62 Other — — — 9 17 3 Segment Operating Income 376 361 298 515 531 444 Gain on sale of business and other 89 24 — 89 31 — Restructuring costs and other (26) (28) — (30) (35) (7) Merger costs (10) — — — — — Total Operating Income 429 357 298 574 527 437 Other income — 2 — — 2 (2) Equity in earnings of affiliates 29 35 28 40 45 32 Non-operating one-time items — — (31) (3) (1) (25) Interest expense, net (89) (61) (39) (142) (117) (80) Provision for income taxes (141) (129) (102) (177) (169) (135) Minority interest (10) (10) (7) (5) (7) (9) Net Income $ 218 $ 194 $ 147 $ 287 $ 280 $ 218 Diluted Earnings per Share $ 4.12 $ 3.75 $ 2.84 $ 4.02 $ 3.67 $ 2.87 Diluted Earnings per Share Before Special Items (2) $ 3.52 $ 3.73 $ 3.20 $ 3.56 $ 3.66 $ 3.11 (1) Pro forma financial information presented as if the merger had occurred at the beginning of each fiscal year and reflects (a) the amortization of goodwill from merger and the elimination of historical Arvin goodwill amortization expense; (b) the adjustment to interest expense for borrowings to fund the Arvin cash consideration and other financing costs; (c) the income tax effects of (a) and (b) above; and (d) the adjustment of shares outstanding representing the exchange of one share of Meritor common stock for 0.75 shares of ArvinMeritor common stock and one share of Arvin common stock for one share of ArvinMeritor common stock, based on the average shares outstanding for each year. (2) Special items in fiscal 2000 include gain on the sale of the seat adjusting systems business and other assets of $89 million ($54 million after-tax, or $1.01 per share), restructuring costs of $26 million ($16 million after-tax, or $0.30 per share), and merger expenses of $10 million ($6 million after-tax, or $0.11 per share). Special items in fiscal 1999 include gain on formation of the ZF Meritor joint venture of $24 million ($18 million after-tax, or $0.34 per share) and restructuring costs of $28 million ($17 million after-tax, or $0.33 per share). Special items in fiscal 1998 include interest rate settlement costs of $31 million ($19 million after-tax, or $0.36 per share). Pro forma amounts in fiscal 2000 exclude merger costs of $70 million ($58 million after-tax, or $0.81 per share). In addition to the special items discussed above, pro forma special items in fiscal 2000 include restructuring and other charges of $4 million ($3 million after-tax, or $0.04 per share), and $3 million ($2 million after-tax, or $0.03 per share) non-operating one-time items. Pro forma amounts in fiscal 1999 also include a gain on sale of affiliate of $7 million ($5 million after-tax, or $0.07 per share), restructuring and other charges of $7 million ($4 million after-tax, or $0.05 per share) and non-operating one-time items of $1 million ($1 million after-tax, or $0.01 per share). Pro forma amounts in fiscal 1998 also include restructuring and other costs of $7 million ($5 million after-tax, or $0.07 per share) and a gain in non-operating one-time items of $6 million ($6 million after-tax, or $0.08 per share). 25
  • 33. The following charts demonstrate the strength, diversity and balance of our served markets, product mix and geographic presence for the fiscal year ended September 30, 2000, as a percent of sales on a pro forma basis. Served Markets Geographic Presence Product Mix 3% Asia/Pacific and Other 3% South America 12% Other 15% Other 12% Light Vehicle Aftermarket 6% Commercial Vehicle Aftermarket 28% Europe 30% 9% Truck and Trailer Axles International Commercial and Brakes Trucks and Trailers 12% Canada/Mexico 17% North American Commercial 15% Aperture Systems Trucks and Trailers 16% European Light Vehicles 14% Undercarriage Systems 28% 26% 54% North American Light Vehicles Exhaust Systems U.S. 2000 Compared to 1999 L i g h t Ve h i c l e S y s t e m s ( LV S ) S a l e s — Sales for fiscal 2000 were $5.2 billion, LVS sales grew 29 percent, to $2.0 billion, from Sales — up $703 million, or 16 percent, over last year’s sales $1.6 billion a year ago. Fiscal 2000 sales include of $4.5 billion. Included in fiscal 2000 sales are $447 million of sales from Arvin businesses, offset $714 million of sales attributable to the merger with somewhat by $84 million of negative currency Arvin and a decrease of about $130 million due to exchange. Adjusting to exclude the sales attributable currency exchange. Excluding the impact of currency to the merger with Arvin, LVS sales would have been and the merger with Arvin, fiscal 2000 sales would 1 percent higher than fiscal 1999 sales. Market have been up 3 percent from fiscal 1999. The sale of penetration gains, principally in the door, suspension, the company’s seat adjusting systems business in wheel and seat motor lines, combined with strong November 1999 resulted in a decrease of $98 million industry volumes drove this growth, which was offset in sales year-over-year. Additionally, the company’s by the sale of the LVS seat adjusting systems transmission and clutch business contributed sales business in early fiscal 2000 and the negative impact of $166 million in fiscal 1999. The results of this of currency. On a pro forma basis, LVS sales for fiscal business are now reported as equity income, due to 2000 were $3.7 billion, up $194 million or 6 percent the formation of the ZF Meritor joint venture in fiscal from $3.5 billion in 1999. Additional market 1999. Pro forma sales, as if Arvin and Meritor had penetration gains in the exhaust business drove this operated as a merged company in all periods, were further growth. LVS sales in North America grew $7.7 billion in fiscal 2000, an increase of 3 percent 48 percent (11 percent on a pro forma basis). Sales in over pro forma 1999 sales. South America and Asia/Pacific grew 7 percent and 5 percent, respectively (up 4 percent and 6 percent on a pro forma basis, respectively). Sales in Europe were up 15 percent (down 2 percent on a pro forma basis). 26
  • 34. CHIEF FINANCIAL OFFICER’S REVIEW M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S (continued) C o m m e r c i a l Ve h i c l e S y s t e m s ( C V S ) expenses of $10 million ($6 million after-tax, or CVS reported $2.9 billion in sales of Sales — $0.11 per share). Fiscal 1999 operating income was components and systems for original equipment $357 million, and includes a restructuring charge of and the aftermarket in fiscal 2000, including $28 million ($17 million after-tax, or $0.33 per share) $17 million attributable to the merger with Arvin, and a one-time gain of $24 million ($18 million which was down slightly from fiscal 1999 sales. after-tax, or $0.34 per share) in connection with the CVS sales in North America were $2.0 billion, down formation of a transmission and clutch joint venture $148 million or 7 percent from $2.2 billion in fiscal with ZF Friedrichshafen AG. 1999. The decline in North American heavy truck Excluding the restructuring charges, merger costs and markets of approximately 7 percent drove this one-time gains from sales of businesses and assets, decline. European sales were up $103 million, or operating income would have been $376 million in 18 percent, and South American sales were up fiscal 2000, up $15 million from $361 million in fiscal $18 million, or 27 percent, while sales in the rest of 1999. This increase is attributable to the results of the world were up $24 million. On a pro forma Arvin, included in the company’s results since basis, CVS sales would have been $2.9 billion in July 7, 2000. Operating margins were 8.3 percent in fiscal 2000, down $15 million, or 1 percent, from fiscal 2000 (7.3 percent, excluding the special items), pro forma 1999 sales. versus 8.0 percent in fiscal 1999 (8.1 percent, L i g h t Ve h i c l e A f t e r m a r k e t ( LVA ) excluding the special items). On a pro forma basis, LVA sales were $209 million in fiscal Sales — excluding special items, operating income would 2000 with no sales in fiscal 1999, because this have been $515 million in fiscal 2000, down 3 percent business is attributable to Arvin and is accordingly from $531 million in fiscal 1999. Pro forma operating included in the consolidated results only from margins before special items declined from July 7, 2000, and forward. On a pro forma basis, 7.1 percent in fiscal 1999 to 6.7 percent in fiscal 2000. LVA sales in fiscal 2000 were $950 million, an LVS operating LV S O p e r a t i n g I n c o m e — increase of 5 percent, or $44 million from pro forma income was $149 million in fiscal 2000, with 1999 levels. The increase in pro forma sales is operating margins of 7.3 percent. Operating attributable primarily to the inclusion of a full year of income was up $20 million, or 16 percent, from results of the Purolator business, which was 1999, although operating margins decreased acquired by Arvin in March 1999. Purolator 90 basis points. Results from the merger with Arvin generated $318 million of pro forma sales in fiscal contributed $7 million of operating income in fiscal 2000, as compared to $203 million in pro forma 2000. Operating income increased due to the sales in fiscal 1999. These increases were partially volume contribution from higher sales and favorable offset by price reductions and product mix issues, product mix. On a pro forma basis, operating the negative impact of currency translation and a income for fiscal 2000 increased $34 million, or softening of markets in both North America and 17 percent, to $232 million. Pro forma operating Europe in the latter part of the fiscal year. margins increased from 5.7 percent in fiscal 1999 O p e r a t i n g I n c o m e — Fiscal 2000 operating to 6.3 percent in fiscal 2000. income was $429 million, up $72 million from fiscal CVS operating CVS Operating Income — 1999. In fiscal 2000, the company completed the sale income was $221 million in fiscal 2000, a decrease of its LVS seat adjusting systems business for of 5 percent from 1999. Operating margins declined approximately $135 million in cash, resulting in a by 40 basis points to 7.7 percent in fiscal 2000. one-time gain of $83 million ($51 million after-tax, or The decline in margins was driven by higher costs $0.96 per share). The seat adjusting systems due to unfavorable economics, the negative impact business had fiscal 1999 sales of approximately of currency exchange and higher warranty expenses. $130 million. Also during fiscal 2000, the company On a pro forma basis, operating income for fiscal recorded a restructuring charge of $26 million 2000 was $231 million, also down 5 percent from ($16 million after-tax, or $0.30 per share) relating to pro forma fiscal 1999. Pro forma operating margins workforce reductions and other facility-related costs of 7.9 percent also declined by 40 basis points. for the rationalization of operations and merger 27
  • 35. LVA O p e r a t i n g I n c o m e — LVA operating 1999 Compared to 1998 Sales for fiscal 1999 were $4.5 billion, income was $6 million in fiscal 2000, with operating Sales — up $614 million, or 16 percent, over fiscal 1998 margins of 2.9 percent. This business was acquired sales of $3.8 billion. as part of the merger with Arvin and is, accordingly, included in the consolidated results from LV S S a l e s — LVS sales grew $100 million, or July 7, 2000, and forward. On a pro forma basis, 7 percent, to $1.6 billion for fiscal year 1999. operating income and margins for fiscal 2000 were Market penetration gains, principally in the door, $43 million and 4.5 percent, respectively, down from suspension and seat adjusting systems product fiscal 1999 pro forma operating income of lines, combined with strong North American vehicle $72 million and related margins of 7.9 percent. The volumes drove the higher sales. This growth was decline in LVA pro forma operating income relates partially offset by weakness in European roof primarily to reduced pricing and product mix issues, systems sales and the negative impact of currency and was partially offset by increased volume. The exchange and lower vehicle volumes in South decline in operating income also reflects the soft America. LVS fiscal 1999 sales in North America market conditions experienced in late fiscal 2000 increased $127 million, or 22 percent, and sales in and consolidation of the distribution channel base. Asia/Pacific were up $21 million, or 38 percent. Sales in Europe and South America were down Equity in Earnings of Affiliates — $37 million and $11 million, respectively. Equity in earnings of affiliates was down $6 million in fiscal 2000, to $29 million, primarily as a result of C V S S a l e s — CVS reported $2.9 billion in the lower North American truck volumes. fiscal 1999 sales, an increase of $514 million, or 22 percent, over 1998. Excluding acquisitions, CVS Interest Interest Expense, Net — sales increased $119 million, or 5 percent. Record expense, net for fiscal 2000 was $89 million, up production volumes in the North American heavy $28 million from fiscal 1999 interest expense, net of truck market drove North American sales of truck $61 million. The increase is primarily attributable to axles, brakes and transmissions to $1.3 billion, an higher debt levels associated with acquisitions and increase of $245 million, or 22 percent. North the share repurchase programs. On a pro forma American sales of other CVS products were basis, fiscal 2000 interest expense, net increased $657 million, down $65 million from 1998, primarily $25 million, to $142 million, primarily as a result of as a result of lower government program sales. the share repurchase programs and acquisitions European sales, excluding acquisitions, were down made during fiscal 1999. $21 million, or 6 percent, and South American sales N e t I n c o m e — Net income for fiscal 2000 was fell $47 million, or 41 percent, while CVS sales in the $218 million, or $4.12 per share, an increase of rest of the world were up $7 million. 12 percent and 10 percent, respectively, as O p e r a t i n g I n c o m e — Fiscal 1999 operating compared with fiscal 1999 net income of income was up $59 million over fiscal 1998. $194 million, or $3.75 per share. Net income before Excluding the restructuring charge and gain on sale special items was $186 million, or $3.52 in fiscal discussed earlier, fiscal 1999 operating income of 2000, compared with 1999 net income before $361 million was up 21 percent over the prior year’s special items of $193 million, or $3.73 per share. operating income of $298 million. Operating Special items include the restructuring charges, margins, before the special items, improved to gains and merger expenses discussed earlier. On a 8.1 percent in fiscal 1999, from 7.8 percent in fiscal pro forma basis, excluding special items, fiscal 2000 1998. This improvement reflects the company’s net income was down $25 million, or 9 percent, to continued focus on process improvement and cost $254 million, with earnings per share of $3.56, reductions, offset somewhat by premium costs compared to 1999 earnings per share of $3.66. associated with meeting the record levels of demand in the North American truck markets. 28
  • 36. CHIEF FINANCIAL OFFICER’S REVIEW M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S (continued) The company’s process improvement and cost- ENVIRONMENTAL MATTERS Federal, state and local requirements relating to the reduction programs relate to (1) purchasing, which discharge of substances into the environment, the includes outsourcing non-core manufacturing and disposal of hazardous wastes and other activities using lower cost global sourcing of materials and affecting the environment have, and will continue to supply base management; and (2) manufacturing, have, an impact on the manufacturing operations of which includes shifting production to lower cost the company. To date, compliance with environmental facilities, consolidating common processes, improving requirements and resolution of environmental claims material flow and investing in capital and systems. has been accomplished without material effect on the LVS operating LV S O p e r a t i n g I n c o m e — company’s liquidity and capital resources, competitive margins improved dramatically in fiscal 1999 to position, or financial statements. 8.2 percent, from 5.8 percent in 1998. Substantial The company has been designated as a potentially savings were realized in fiscal 1999 from material responsible party at 10 Superfund sites, excluding and other cost-reduction programs. The operating sites as to which the company’s records disclose margin improvement also reflects the volume no involvement or as to which the company’s contribution from the higher sales. potential liability has been finally determined. CVS operating CVS Operating Income — Management estimates the total, reasonably income for fiscal 1999 was $232 million, an increase possible costs the company could incur for the of 9 percent over fiscal 1998. Operating margins remediation of Superfund sites at September 30, declined to 8.1 percent in fiscal 1999 from 9.0 percent 2000, to be approximately $20 million, of which in 1998. This margin decline was driven primarily probable costs of $13 million have been accrued. by an increase in premium freight costs and the use Various other lawsuits, claims and proceedings have of higher-cost alternate component suppliers to been asserted against the company, alleging meet the record demand in the North American violations of federal, state and local environmental heavy truck market. Fiscal 1999 operating margins protection requirements, or seeking remediation of were also adversely impacted by the decline of alleged environmental impairments, principally at higher-margin government program sales. previously disposed-of properties. For these Equity in Earnings of Affiliates — matters, ArvinMeritor expects that any amounts that Equity in earnings of affiliates increased $7 million may be required to be paid in excess of recorded in fiscal 1999, to $35 million, primarily as a result of reserves of $25 million will not have a material higher sales of anti-lock brakes and related systems adverse effect on the company’s financial condition. by the company’s WABCO affiliate. Based on its assessment, management believes Net income for the year was Net Income — that the company’s expenditures for environmental $194 million, or $3.75 per share, an increase of capital investment and remediation necessary to 32 percent as compared with 1998 net income of comply with present regulations governing environ- $147 million, or $2.84 per share. Net income before mental protection and other expenditures for the special items was $193 million in fiscal 1999, or resolution of environmental claims will not have a $3.73 per share, compared with 1998 net income material adverse effect on the company’s liquidity and before special items of $166 million, or $3.20 per capital resources, competitive position or financial share, an improvement of 17 percent in earnings per statements. Management cannot assess the possible share. Special items include the one-time gain effect of compliance with future requirements. related to the formation of the ZF Meritor joint venture and a restructuring charge recorded in fiscal 1999 and the one-time charge in fiscal 1998 for the settlement of interest rate agreements. 29
  • 37. AFFILIATES INTERNATIONAL OPERATIONS The company has 16 joint ventures, which are Approximately 44 percent of the company’s total accounted for under the equity method of assets as of September 30, 2000, and 37 percent of accounting. These strategic alliances provide fiscal 2000 sales were outside North America. for sales, product design, development and Management believes that international operations manufacturing in certain product and geographic have significantly benefited the financial areas. Aggregate sales of these affiliates were performance of the company. However, the $924 million, $488 million and $443 million in fiscal company’s international operations are subject to a 2000, 1999 and 1998, respectively. The increase in number of risks inherent in operating abroad. There fiscal 2000 is due to the inclusion of approximately can be no assurance that these risks will not have a $290 million in sales from Arvin’s affiliates and material adverse impact on the company’s ability to $146 million attributable to sales of the ZF Meritor increase or maintain its foreign sales or on its joint venture created in late fiscal 1999. financial condition or results of operations. During fiscal 2000, the company’s sales and operating The company’s equity in earnings of affiliates was income were both negatively impacted by $29 million in fiscal 2000, compared to $35 million in approximately $130 million and $20 million, fiscal 1999 and $28 million in fiscal 1998. Cash respectively, due to exchange rate changes. The dividends to ArvinMeritor from these joint ventures impact the euro and other currencies will have on were $32 million, $28 million and $27 million in fiscal the company’s sales and operating income is 2000, 1999 and 1998, respectively. The decrease in difficult to predict in the upcoming year. fiscal 2000 earnings of affiliates from fiscal 1999 is primarily a result of the lower North American truck On January 1, 1999, the euro became the common volumes, which resulted in lower sales and lower currency of eleven countries of the European Union. earnings of certain affiliates. The increase in equity During a three-year transition period, the present income in fiscal 1999 from fiscal 1998 relates national currencies of these eleven countries will primarily to the company’s 50 percent-owned joint become sub-units of the euro at fixed exchange venture with WABCO, a leading supplier of anti-lock rates. The European Union’s current plans call for the braking systems for North American heavy-duty transition period to be completed by July 1, 2002, commercial vehicles. This growth was attributed to at which time the euro will become the sole legal the growing use of anti-lock braking systems across tender in those participating countries. North America. The company is engaged in business in some of the countries that participate in the European Monetary Union, and sales for fiscal 2000 in these countries INCOME TAXES The company’s effective income tax rate in fiscal were approximately 17 percent of the company’s 2000 was 38.2 percent, compared to 38.8 percent in total sales. In addition, the company enters into fiscal 1999 and 40.0 percent in fiscal 1998. The tax foreign currency forward exchange contracts with rate decline in fiscal 2000 from the 1999 level was respect to several of the existing currencies that primarily due to the company’s legal entity have been subsumed into the euro and has realignment, which resulted in lower state income borrowings in participating currencies primarily taxes. Income taxes on the one-time gain related to under its revolving Credit Facility. The company has the formation of the ZF Meritor joint venture in fiscal analyzed the potential effects of the euro conversion 1999 were recorded at an effective tax rate of on competitive conditions, information technology 25 percent, due to a book-tax basis difference on and other systems, currency risks, financial assets transferred into the joint venture, which instruments and contracts, and has examined the reduced the company’s overall effective tax rate for tax and accounting consequences of euro fiscal 1999 by 1.2 percentage points, as compared conversion, and believes that the conversion will not to 1998’s effective tax rate. have a material adverse effect on its business, operations and financial condition. 30
  • 38. CHIEF FINANCIAL OFFICER’S REVIEW M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S (continued) The company is making the necessary adjustments NEW ACCOUNTING to accommodate the conversion, including PRONOUNCEMENTS There were no new accounting pronouncements modifications to its information technology systems adopted by the company in fiscal 2000 that had a and programs, pricing schedules and financial material impact on the company’s financial condition instruments. The company expects that all or results of operations. On October 1, 2000, the necessary actions will be completed in a timely company adopted Statement of Financial manner, and that the costs associated with the Accounting Standards No. 133, “Accounting for conversion to the euro will not be material. Derivative Instruments and Hedging Activities.” The adoption of this standard did not have a material QUANTITATIVE AND impact on the company (see Note 2 of Notes to QUALITATIVE DISCLOSURES Consolidated Financial Statements). ABOUT MARKET RISK The company is exposed to foreign currency exchange rate risk inherent in its purchases, sales, CAUTIONARY STATEMENT This Management’s Discussion and Analysis, as well assets and liabilities denominated in currencies as other sections of this annual report, contains other than the U.S. dollar and interest rate risk statements relating to future results of the company associated with the company’s debt. (including certain projections and business trends) The company enters into foreign currency forward that are “forward-looking statements” as defined in exchange contracts to minimize the risk of the Private Securities Litigation Reform Act of 1995. unanticipated gains and losses from currency rate Forward-looking statements are typically identified fluctuations on foreign currency commitments by words or phrases such as “believe,” “expect,” entered into in the ordinary course of business “anticipate,” “estimate,” “should,” “are likely to be” (see Note 14 of Notes to Consolidated Financial and similar expressions. Actual results may differ Statements). It is the policy of the company not to materially from those projected as a result of certain enter into derivative financial instruments for risks and uncertainties, including, but not limited to, speculative purposes, and therefore the company global economic and market conditions; the holds no derivative instruments for trading purposes. demand for commercial, specialty and light vehicles for which the company supplies products; risks The company has performed a sensitivity analysis inherent in operating abroad; OEM program delays; assuming a hypothetical 10-percent adverse demand for and market acceptance of new and movement in foreign currency exchange rates and existing products; successful development of new interest rates applied to the underlying exposures products; reliance on major OEM customers; labor described above. As of September 30, 2000, the relations of the company, its customers and analysis indicated that such market movements suppliers; successful integration of acquired or would not have a material effect on the company’s merged businesses; the failure to achieve the consolidated financial position, results of operations expected annual savings and synergies from past or cash flows. Actual gains or losses in the future and future business combinations; competitive may differ significantly from that analysis, however, product and pricing pressures; the amount of the based on changes in the timing and amount of company’s debt, as well as other risks and interest rate and foreign currency exchange rate uncertainties, such as those described under movements and the company’s actual exposures. Overview and Outlook, Environmental Matters, International Operations, and Quantitative and Qualitative Disclosures About Market Risk and those detailed herein and from time to time in the filings of the company with the Securities and Exchange Commission. 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. 31
  • 39. MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING The consolidated financial statements of ArvinMeritor, Inc. have been prepared by management, which is responsible for their integrity and objectivity. These statements have been prepared in conformity with generally accepted accounting principles of the U.S. and, where appropriate, reflect estimates based on judgements of management. The company’s system of internal controls is designed to provide reasonable assurance that company assets are safeguarded from loss or unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and properly recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles of the U.S. This system is augmented by careful selection and training of qualified personnel, proper division of responsibilities, the dissemination of written policies and procedures, and an internal audit program to monitor its effectiveness. The financial statements have been audited by Deloitte & Touche LLP, independent certified public accountants, whose report appears on page 33. The board of directors, through its audit committee consisting of six outside directors, oversees management’s financial reporting responsibilities and programs for ethical business conduct. As part of these responsibilities, the audit committee meets regularly with representatives of management, the independent accountants and the company’s general auditor. The independent accountants and the company’s general auditor have full and free access to the audit committee and meet with the committee both with and without the presence of management. Larry Yost Bill Hunt Tom Madden Chairman of the Board Vice Chairman Senior Vice President Chief Executive Officer President Chief Financial Officer 32
  • 40. INDEPENDENT AUDITORS’ REPORT TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF ARVINMERITOR, INC.: We have audited the accompanying consolidated balance sheets of ArvinMeritor, Inc. and subsidiaries (formerly Meritor Automotive, Inc. and subsidiaries – see Note 1) as of September 30, 2000 and 1999, and the related consolidated statements of income, shareowners’ equity and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ArvinMeritor, Inc. and subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Detroit, Michigan November 7, 2000 33
  • 41. STATEMENT OF CONSOLIDATED INCOME In millions, except per share amounts Year Ended September 30, 2000 1999 1998 Sales $ 5,153 $ 4,450 $ 3,836 Cost of sales 4,410 3,798 3,287 Gross Margin 743 652 549 Selling, general and administrative (348) (280) (248) Amortization expense (19) (11) (3) Restructuring costs (26) (28) — Merger expenses (10) — — Gain on sale of business and other 89 24 — Operating Income 429 357 298 Other income — 2 — Equity in earnings of affiliates 29 35 28 Interest rate settlement cost — — (31) Interest expense, net (89) (61) (39) Income Before Income Taxes 369 333 256 Provision for income taxes (141) (129) (102) Minority interests (10) (10) (7) Net Income $ 218 $ 194 $ 147 Basic and Diluted Earnings per Share $ 4.12 $ 3.75 $ 2.84 Average Common Shares Outstanding - Basic and Diluted 52.9 51.8 51.8 See Notes to Consolidated Financial Statements. 34
  • 42. CONSOLIDATED BALANCE SHEET In millions September 30, 2000 1999 Assets Current Assets Cash and cash equivalents $ 116 $ 68 Receivables (less allowance for doubtful accounts: 2000, $22; 1999, $10) 1,278 742 Inventories 583 392 Other current assets 212 130 Total current assets 2,189 1,332 Net Property 1,348 766 Net Goodwill (less accumulated amortization: 2000, $48; 1999, $35) 756 454 Other Assets 427 244 Total Assets $ 4,720 $ 2,796 Liabilities and Shareowners’ Equity Current Liabilities Short-term debt $ 183 $ 44 Accounts payable 1,058 712 Accrued compensation and benefits 203 144 Accrued income taxes 27 28 Other current liabilities 254 196 Total current liabilities 1,725 1,124 Long-Term Debt 1,537 802 Accrued Retirement Benefits 382 371 Other Liabilities 113 116 Minority Interests 96 35 Company-Obligated Mandatorily Redeemable Preferred Capital Securities 74 — Shareowners’ Equity Common stock (2000, 71.0 shares issued and 67.9 outstanding; 1999, 69.1 shares issued and 68.8 outstanding) 71 69 Additional paid-in capital 546 158 Retained earnings 466 283 Treasury stock (2000, 3.1 shares; 1999, 0.3 shares) (53) (6) Accumulated other comprehensive loss (237) (156) Total shareowners’ equity 793 348 Total Liabilities and Shareowners’ Equity $ 4,720 $ 2,796 See Notes to Consolidated Financial Statements. 35
  • 43. STATEMENT OF CONSOLIDATED CASH FLOWS In millions Year Ended September 30, 2000 1999 1998 Operating Activities Net income $ 218 $ 194 $ 147 Adjustments to net income to arrive at cash provided by operating activities: Depreciation 143 120 99 Amortization 19 11 3 Gain on sale of business and other (89) (24) — Restructuring, net of expenditures 19 23 — Deferred income taxes 32 17 (10) Pension and retiree medical expense 58 52 50 Pension and retiree medical contributions (89) (71) (64) Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency adjustments: Receivables 15 (95) (88) Inventories (10) — (34) Accounts payable (28) 45 129 Change in other working capital (66) (18) 64 Other assets and liabilities 6 8 (16) Cash Provided by Operating Activities 228 262 280 Investing Activities Capital expenditures (225) (170) (139) Acquisitions of businesses and investments, net of cash acquired (74) (573) (8) Payment of certain merger-related assumed liabilities (49) — — Proceeds from disposition of assets, property and businesses 148 51 17 Cash Used for Investing Activities (200) (692) (130) Financing Activities Net increase (decrease) in revolving and other debt 245 9 (129) Proceeds from issuance of notes — 498 — Net increase (decrease) in debt 245 507 (129) Cash dividends (35) (29) (29) Purchases of treasury stock (172) (6) — Payment of interest rate settlement cost — (31) — Distribution tax obligation, net — — (58) Cash Provided by (Used for) Financing Activities 38 441 (216) Effect of Exchange Rate Changes on Cash (18) (8) (2) Increase (Decrease) in Cash 48 3 (68) Cash at Beginning of Year 68 65 133 Cash at End of Year $ 116 $ 68 $ 65 See Notes to Consolidated Financial Statements. 36
  • 44. STATEMENT OF CONSOLIDATED SHAREOWNERS’ EQUITY In millions, except per share amounts Year Ended September 30, 2000 1999 1998 Common Stock Beginning balance $ 69 $ 69 $ 69 ArvinMeritor merger: — — Shares issued to Arvin shareowners 24 — — Conversion of outstanding Meritor shares (15) — — Cancellation of Meritor treasury stock (7) — — Ending balance 71 69 69 Additional Paid-In Capital Beginning balance 158 156 154 ArvinMeritor merger: Shares issued to Arvin shareowners and Arvin stock options converted 492 — — Conversion of outstanding Meritor shares 15 — — Cancellation of Meritor treasury stock (119) — — Other — 2 2 Ending balance 546 158 156 Retained Earnings Beginning balance 283 118 — Net income 218 194 147 Cash dividends (per share: 2000, $0.64; 1999 and 1998, $0.56) (35) (29) (29) Ending balance 466 283 118 Treasury Stock Beginning balance (6) — — Cancellation of treasury stock in connection with merger 125 — — Purchase of treasury stock (172) (6) — Ending balance (53) (6) — Accumulated Other Comprehensive Loss Beginning balance (156) (77) (72) Foreign currency translation adjustments (81) (79) (5) Ending balance (237) (156) (77) Total Shareowners’ Equity $ 793 $ 348 $ 266 Comprehensive Income Net income $ 218 $ 194 $ 147 Foreign currency translation adjustments (81) (79) (5) Total Comprehensive Income $ 137 $ 115 $ 142 See Notes to Consolidated Financial Statements. 37
  • 45. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Foreign Currency ArvinMeritor, Inc. (the company or ArvinMeritor) is a Local currencies are considered the functional leading global supplier of a broad range of currencies outside the U.S., except for subsidiaries integrated systems, modules and components located in countries with highly inflationary serving light vehicle, commercial truck, trailer and economies. For operations reporting in local specialty original equipment manufacturers and currencies, assets and liabilities are translated at certain aftermarkets. The company also provides year-end exchange rates with cumulative currency coil coating applications to the transportation, translation adjustments included as a component of appliance, construction and furniture industries. Accumulated Other Comprehensive Loss. Income and expense items are translated at average rates of On July 7, 2000, Meritor Automotive, Inc. (Meritor) exchange during the year. and Arvin Industries, Inc. (Arvin) merged into ArvinMeritor. The merger was accounted for utilizing Cash Equivalents the purchase method of accounting. The financial The company considers all highly liquid investments information for the periods prior to July 7, 2000, purchased with a maturity of three months or less to reflect the results of Meritor and its consolidated be cash equivalents. subsidiaries prior to the merger. The information for Inventories the period after July 7, 2000, represents the results Inventories are stated at the lower of cost (using LIFO, of ArvinMeritor and its consolidated subsidiaries. FIFO or average methods) or market (determined on All prior periods’ share and per share data have the basis of estimated realizable values). been restated to conform with the exchange of To o l i n g Meritor shares to ArvinMeritor shares on a one to Costs incurred by the company for certain 0.75 basis in connection with the merger with Arvin engineering and tooling projects, principally for light (see Note 3). vehicle products, for which customer reimbursement Certain prior year amounts have been reclassified to is contractually guaranteed are classified as Other conform with current year presentation. Current Assets in the accompanying Consolidated Balance Sheet. Provisions for losses are provided at the time management anticipates costs to 2. ACCOUNTING POLICIES exceed anticipated customer reimbursement. Use of Estimates Company-owned tooling is classified as property The financial statements of ArvinMeritor have and depreciated over its expected life or the life of been prepared in accordance with accounting the related vehicle platform, whichever is shorter. principles generally accepted in the U.S. that require management to make estimates and assumptions Property and Depreciation that affect the amounts reported in the financial Property is stated at cost. Depreciation of property statements. Actual results could differ from is based on estimated useful lives, generally using those estimates. the straight-line method. Significant renewals and betterments are capitalized, and replaced units are C o n s o l i d a t i o n s a n d J o i n t Ve n t u r e s written off. Maintenance and repairs, as well as The consolidated financial statements include the renewals of minor amounts, are charged to expense. accounts of the company and those majority-owned subsidiaries in which the company has control. All Intangible Assets significant intercompany accounts and transactions Goodwill represents the excess of the cost of are eliminated in consolidation. The accounts and purchased businesses over the fair value of their net results of operations of controlled subsidiaries where assets at the date of acquisition and is amortized ownership is greater than 50 percent, but less than using the straight-line method for periods not to 100 percent, are included in the consolidated results exceed 40 years. All intangibles, including patents, and are offset by a related minority interest expense trademarks and licenses, are reviewed periodically and liability recorded for the minority interest to determine whether the carrying amount of the ownership. Investments in affiliates that are not asset is impaired. Adjustments to the carrying value majority-owned and controlled are reported using the are made if the review indicates this amount will not equity method of accounting for investments. be recoverable. 38
  • 46. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S (continued) Capitalized Software New Accounting Standards Costs relating to internally developed or purchased In June 1998, the Financial Accounting Standards software are capitalized and amortized utilizing the Board (FASB) issued Statement of Financial straight-line basis over periods not to exceed seven Accounting Standards No. 133 (SFAS 133), years. These amounts are included in Other Assets “Accounting for Derivative Instruments and Hedging in the accompanying Consolidated Balance Sheet. Activities,” as amended, effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Impairment of Long-Lived Assets SFAS 133 requires that all derivatives be recognized Management periodically reviews the realizability of as either assets or liabilities in the statement of long-lived assets, based on an evaluation of financial position and be measured at fair value. The remaining useful lives, cash flows and profitability primary type of derivative financial instruments the projections. company uses is forward foreign exchange contracts Revenue Recognition to minimize the foreign currency exposure of various Revenues are recognized upon shipment of reporting locations related to certain commitments products to customers. denominated in currencies other than the location’s functional currency. The company adopted this Earnings per Share standard, as amended, effective October 1, 2000. Basic earnings per share are based upon the The adoption of this standard did not have a material weighted average number of shares outstanding impact on the financial position or results of during each year. Diluted earnings per share operations of the company. assumes the exercise of common stock options when dilutive. 3. ARVINMERITOR MERGER Environmental Matters On July 7, 2000, Meritor and Arvin merged to form The company records accruals for environmental ArvinMeritor. Under the terms of the merger issues in the accounting period in which its agreement, each share of Meritor common stock was responsibility is established and the cost can be converted into the right to receive 0.75 shares of reasonably estimated. At environmental sites in common stock of ArvinMeritor, and each share of which more than one potentially responsible party Arvin common stock was converted into the right to has been identified, the company records a liability receive one share of common stock of ArvinMeritor for its allocable share of costs related to its plus $2.00 in cash. In total, approximately 62.3 million involvement with the site, as well as an allocable shares of Meritor, 24.3 million shares of Arvin and share of costs related to insolvent parties or $48.5 million in cash were exchanged for unidentified shares. At environmental sites in which approximately 70.1 million shares of ArvinMeritor. ArvinMeritor is the only responsible party, the company records a liability for the total estimated The merger was accounted for by the purchase costs of remediation before consideration of method of accounting. Accordingly, the results of recovery from insurers or other third parties. operations of Arvin are included for the period If recovery from a third party is determined to be subsequent to the date of the merger. The total probable, the company records a receivable for the estimated merger consideration of $576 million was estimated recovery. allocated first to assets and liabilities based on their fair values as of the merger date, with the residual Stock-Based Compensation allocated to goodwill, which is being amortized on The company accounts for its stock-based a straight-line basis over 40 years. Since the compensation using the intrinsic value approach company assumed the stock options outstanding under Accounting Principles Board Opinion (APB) of Arvin, the fair value of these options was included No. 25, “Accounting for Stock Issued to in determining the fair value. The purchase price Employees,” and has adopted the disclosure-only allocation is preliminary and may be revised up to provisions of Statement of Financial Accounting one year from the date of acquisition due to Standards No. 123 (SFAS 123), “Accounting for appraisals of fixed assets, other fair value Stock-Based Compensation” (see Note 16). adjustments and the finalization of any potential plans of restructuring. 39
  • 47. A summary of the estimated fair market value of 4. ACQUISITION OF BUSINESSES During fiscal 1999, the company completed three assets and liabilities acquired is as follows: acquisitions. On December 28, 1998, the company Current assets $ 946 acquired the assets of Euclid Industries and Property, plant and equipment 610 assumed substantially all of Euclid’s liabilities. The Goodwill 329 company completed its acquisition of the heavy Other assets 246 truck axle manufacturing operations of Volvo Truck Total assets 2,131 Corporation on December 31, 1998. The purchase price for the Volvo heavy truck axle business was Current liabilities (988) approximately $135 million in cash, of which Long-term liabilities (169) $34 million is deferred at September 30, 2000. On Long-term debt and capital securities (398) January 29, 1999, the company acquired the Fair market value $ 576 Heavy Vehicle Braking Systems (HVBS) business of LucasVarity plc for approximately $400 million in The following unaudited pro forma consolidated cash. These acquisitions were accounted for by the results of operations assume that the ArvinMeritor purchase method of accounting, and accordingly, merger occurred as of the beginning of each period the results of operations of the acquired businesses and excludes merger expenses (in millions, except are included with those of the company for the per share amounts): periods subsequent to the dates of acquisition. The assets and liabilities have been recorded at fair 2000 1999 value as of the acquisition dates. The excess of the Net sales $ 7,722 $ 7,491 purchase price of these acquisitions over the fair Net income 287 280 market value of assets acquired of $424 million is Basic earnings per share 4.02 3.68 included in Net Goodwill in the accompanying Diluted earnings per share 4.02 3.67 Consolidated Balance Sheet and is being amortized on a straight-line basis over 40 years. These acquisitions would have added pro forma sales of Pro forma net income and basic and diluted earnings $173 million with no impact on net income on a per share amounts for the fiscal year ended pro forma basis in 1999, assuming the acquisitions September 30, 2000, exclude a non-recurring charge occurred at the beginning of 1999. of $70 million ($58 million after-tax, or $0.81 per share) for merger-related expenses. The pro forma adjustments are based upon available information 5. SALE OF BUSINESSES and certain assumptions that management believes In the first quarter of 2000, the company completed are reasonable. The pro forma data is not necessarily the sale of its LVS seat adjusting systems business indicative of the results of operations of ArvinMeritor for approximately $135 million cash, resulting in a that would have been achieved if the merger had in one-time gain of $83 million ($51 million after-tax, fact occurred on such dates, or the results of or $0.96 per basic and diluted share). The seat operations of ArvinMeritor for any future period. The adjusting systems business had fiscal 1999 sales of pro forma data does not give effect to any potential approximately $130 million. restructuring costs or to any potential cost savings or In the fourth quarter of 1999, a one-time gain of other synergies that could result from the merger. $24 million ($18 million after-tax, or $0.34 per share) was recorded to reflect the formation of a transmission and clutch joint venture with ZF Friedrichshafen AG (ZF). Under the terms of the joint venture agreement, the company transferred the assets of its transmission and clutch businesses into the joint venture, while ZF contributed technology and made a $51-million cash payment to the company. ArvinMeritor and ZF each own 50 percent of the joint venture. 40
  • 48. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S (continued) 6. RESTRUCTURING COSTS 7. INVENTORIES The company recorded a restructuring charge of Inventories are summarized as follows (in millions): $26 million ($16 million after-tax, or $0.30 per basic September 30, 2000 1999 and diluted share) in the third quarter of fiscal 2000. Finished goods $ 298 $ 181 The charge included severance and other employee Work in process 142 117 costs of approximately $19 million, related to a net Raw materials, parts and supplies 195 145 reduction of approximately 500 employees, with the Total 635 443 balance primarily associated with facility-related Less allowance to adjust the carrying costs from the rationalization of operations. As of September 30, 2000, approximately $6 million had value of certain inventories been paid in termination benefits, with a net (2000, $125; 1999, $135) reduction of approximately 160 employees. As of to a LIFO basis 52 51 September 30, 2000, approximately $14 million of Inventories $ 583 $ 392 the reserve remains in Other Current Liabilities in the accompanying Consolidated Balance Sheet. The 8. OTHER CURRENT ASSETS company expects the remaining restructuring Other Current Assets are summarized as follows actions will be substantially completed by the end of (in millions): the third quarter of fiscal 2001. September 30, 2000 1999 The company recorded a restructuring charge of Current deferred income taxes $28 million ($17 million after-tax, or $0.33 per basic and diluted share) in fiscal 1999. The original charge (see Note 19) $ 122 $ 83 included severance and other employee costs of Customer tooling 37 30 approximately $16 million, related to a net reduction Prepaid and other 53 17 of approximately 350 employees, with the balance Other Current Assets $ 212 $ 130 primarily associated with facility-related costs from the rationalization of operations. All restructuring 9. NET PROPERTY actions had been completed as of June 30, 2000, Net Property is summarized as follows (in millions): and have resulted in lower-than-expected severance and other employee costs of approximately September 30, 2000 1999 $2 million and higher facility-related costs of Property at cost: approximately $2 million. As of September 30, 2000, Land and land improvements $ 66 $ 33 approximately $12 million has been paid in Buildings 400 308 termination benefits for a net reduction of Machinery and equipment 1,572 1,217 approximately 500 employees, with approximately Company-owned tooling 190 194 $2 million remaining in Other Current Liabilities for Construction in progress 221 113 final termination benefits. The net reduction of Total 2,449 1,865 employees primarily related to LVS businesses. Less accumulated depreciation 1,101 1,099 These charges are included in the caption Net Property $ 1,348 $ 766 Restructuring Costs in the accompanying Statement of Consolidated Income. 41
  • 49. During July 2000, the company entered into two 10. OTHER ASSETS Other Assets are summarized as follows (in millions): unsecured credit facilities: a 364-day, $750-million credit facility which matures on June 27, 2001, with September 30, 2000 1999 the option to convert borrowings thereunder to a Long-term deferred income taxes two-year term loan, and a five-year, $750-million (see Note 19) $ 9 $ 71 revolving credit facility, which matures on Investments in affiliates 200 50 June 27, 2005. The new credit facilities became Prepaid pension costs (see Note 18) 78 66 effective on the date of the merger, canceling Net capitalized computer software costs 41 34 existing credit agreements of Arvin and Meritor, and will be used for general corporate purposes of the Patents, trademarks and licenses 38 8 company. Borrowings are subject to interest based Other 61 15 on quoted market rates plus a margin, in addition to Other Assets $ 427 $ 244 a facility fee, both of which are based on the company’s credit rating. At September 30, 2000, the 11. OTHER CURRENT LIABILITIES margin over the LIBOR rate was 57.5 basis points, Other Current Liabilities are summarized as follows which includes the facility fee of 12.5 basis points. (in millions): At September 30, 2000, the company was in compliance with all covenants and there have been September 30, 2000 1999 no events of default. Accrued product warranties $ 95 $ 95 Accrued taxes other than income taxes 36 27 During September 2000, the company instituted a commercial paper program with authorized Accrued restructuring 16 11 borrowings of up to $1 billion. At September 30, 2000, Environmental reserves 11 10 borrowings under the commercial paper program Other 96 53 totaled approximately $560 million, at an average Other Current Liabilities $ 254 $ 196 interest rate of 6.8 percent. Commercial paper borrowings are backed by the revolving credit facility, 12. OTHER LIABILITIES of which $500 million is classified as long-term debt Other Liabilities are summarized as follows and $60 million is classified as short-term debt. (in millions): The company has $85 million of unsecured lines of September 30, 2000 1999 credit with interest rates determined at the time of Environmental reserves $ 27 $ 14 borrowing. At September 30, 2000, there were no outstanding borrowings under these facilities. Deferred payments 34 44 These lines of credit expire in September 2001. Other 52 58 Other Liabilities $ 113 $ 116 Included in the Balance Sheet are $74 million of 9.5-percent company-obligated mandatorily redeemable preferred capital securities (“capital 13. LONG-TERM DEBT securities”), issued by a wholly owned subsidiary Long-Term Debt, net of discount where applicable, trust of ArvinMeritor, due February 1, 2027, and is summarized as follows (in millions): callable in February 2007. The company fully and September 30, 2000 1999 unconditionally guarantees the subsidiary trust’s 6 7/8 percent notes due 2001 $ 75 $ — obligation under the capital securities. 7.94 percent notes due 2005 50 — Future minimum lease payments on operating 6 3/4 percent notes due 2008 100 — leases are $28 million in 2001, $27 million in 2002, 7 1/8 percent notes due 2009 150 — $19 million in 2003, $15 million in 2004, $14 million 6.8 percent notes due 2009 498 498 in 2005 and $58 million thereafter. Commercial paper 560 — Bank revolving credit facilities 194 239 Lines of credit and other 93 109 Subtotal 1,720 846 Less: current maturities (183) (44) Long-Term Debt $ 1,537 $ 802 42
  • 50. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S (continued) 14. FINANCIAL INSTRUMENTS 15. CAPITAL STOCK ArvinMeritor’s financial instruments include The company is authorized to issue 500 million cash, short- and long-term debt and foreign shares of Common Stock, with a par value of currency forward exchange contracts. As of $1 per share, and 30 million shares of Preferred September 30, 2000 and 1999, the carrying values Stock, without par value, of which two million shares of the company’s financial instruments are designated as Series A Junior Participating approximated their fair values, based on prevailing Preferred Stock (Junior Preferred Stock). Under the market prices and rates. It is the policy of the Company Rights Plan, a Preferred Share Purchase company not to enter into derivative financial Right (Right) is attached to each share of Common instruments for speculative purposes. The company Stock pursuant to which the holder may, in certain does enter into foreign currency forward exchange takeover-related circumstances, become entitled to contracts to minimize the risk of unanticipated gains purchase from the company 1/100th of a share of and losses from currency rate fluctuations on foreign Junior Preferred Stock at a price of $100, subject to currency commitments entered into in the ordinary adjustment. Also, in certain takeover-related course of business. These foreign currency forward circumstances, each Right (other than those held by exchange contracts relate to purchase and sales an acquiring person) will be exercisable for shares of transactions and are generally for terms of less than Common Stock or stock of the acquiring person one year. The foreign currency forward exchange having a market value of twice the exercise price. contracts are executed with creditworthy banks In certain events, each Right may be exchanged by and are denominated in currencies of major the company for one share of Common Stock or industrial countries. The notional amount of 1/100th of a share of Junior Preferred Stock. The outstanding foreign currency forward exchange Rights will expire on July 7, 2010, unless earlier contracts aggregated $222 million and $266 million exchanged or redeemed at a redemption price of at September 30, 2000 and 1999, respectively. $0.01 per Right. Until a Right is exercised, the ArvinMeritor does not anticipate any material holder, as such, will have no voting, dividend or adverse effect on its results of operations or other rights as a shareowner of the company. financial position relating to these foreign currency The company has reserved approximately 9.5 million forward exchange contracts. shares of Common Stock in connection with its In anticipation of offering debt securities in 1997 Long-Term Incentives Plan (the 1997 LTIP), October 1998, the company entered into interest rate Directors Stock Plan and Incentive Compensation agreements in April 1998 to secure interest rates. Plan for grants of non-qualified stock options, The planned issuance of the debt securities did not incentive stock options, stock appreciation rights, occur in fiscal 1998, and the company settled certain restricted stock and stock awards to key interest rate agreements associated with the then- employees and the company’s directors. At planned offering of debt securities, resulting in a September 30, 2000, there were 6.0 million shares payment in the first quarter of fiscal 1999 of available for future grants under these plans. $31 million. The accounting treatment of the In July 2000, the company’s board of directors settlement payment was a one-time charge of authorized a program to repurchase up to $100 million $31 million ($19 million after-tax, or $0.36 per basic of its common stock. Under the program, the and diluted share). company will purchase shares periodically in the open market or through privately negotiated transactions as market conditions warrant and in accordance with Securities and Exchange Commission rules. As of September 30, 2000, 3.1 million shares of ArvinMeritor common stock had been purchased under this program at an aggregate cost of approximately $53 million, or an average of $16.98 per share. 43
  • 51. In September 1999, Meritor’s board of directors Information relative to stock options is as follows authorized the purchase of up to $125 million of (shares in thousands): Meritor’s common stock and in February 2000, the Weighted board of directors authorized an additional $75 million Average for such purpose. Meritor purchased 5,120,400 shares Exercise at an aggregate cost of approximately $125 million, or Shares Price an average of $24.51 per share, under these programs before they were suspended in February 2000 in Options outstanding anticipation of entering into a definitive agreement to on October 1, 1997 276 $ 31.71 merge with Arvin. The treasury stock was cancelled in Granted 2,282 29.87 connection with the merger. Exercised (3) 30.21 Cancelled (220) 29.91 Options outstanding 16. STOCK OPTIONS Stock options granted under the plans described in at September 30, 1998 2,335 30.08 Note 15 expire ten years from the date of grant and Granted 629 27.37 generally have a vesting period of three years. The Exercised (22) 29.83 stock options granted are exercisable at prices Cancelled (218) 29.62 equal to the fair market value of Common Stock on Options outstanding the dates the options are granted; accordingly, no at September 30, 1999 2,724 29.49 compensation expense has been recognized for the Granted 729 22.09 stock option plans. All Meritor option quantities and Conversion of Arvin options exercise prices have been adjusted for the one at July 7, 2000 3,118 28.10 Meritor share for 0.75 ArvinMeritor shares exchange Exercised — — ratio as part of the merger (see Note 3). Cancelled (176) 29.96 Upon completion of the merger, each outstanding Options outstanding option to purchase one share of Arvin common at September 30, 2000 6,395 $ 28.04 stock was converted into an option to purchase one Exercisable at September 30, 1998: 85 $ 31.73 share of ArvinMeritor common stock, plus $1.00 per Exercisable at September 30, 1999: 621 30.42 share reduction of the exercise price. The converted Exercisable at September 30, 2000: 4,878 28.77 options generally expire ten years from the date of the original grant and vested immediately upon the merger being consummated. The Arvin stock options originally granted were exercisable at prices not less than the fair market value of Arvin’s common stock on the dates the options were granted. Accordingly, no compensation expense has been recognized for the stock option plans. The Arvin stock options were valued using the Black-Scholes options model and the fair value of the options was included in the purchase price of Arvin, as described in Note 3. All of the converted options are exercisable at prices greater than the fair market value of ArvinMeritor common stock on the date of the conversion. 44
  • 52. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S (continued) Options outstanding at September 30, 2000, are The accumulated benefit obligation is summarized summarized as follows (shares in thousands): as follows (in millions): Weighted average Accumulated benefit obligation: Number of options Remaining Exercise price 2000 1999 Price Range Outstanding Exercisable life (yrs) Outstanding Exercisable Retirees $ 397 $ 384 $17.01-$23.00 1,914 1,200 8.3 $ 20.45 $ 19.52 Employees eligible to retire 22 19 $23.01-$29.00 983 626 5.8 $ 26.88 $ 26.49 Employees not eligible to retire 46 34 $29.01-$35.00 2,459 2,013 6.9 $ 30.17 $ 30.20 Total accumulated benefit obligation $ 465 $ 437 $35.01-$41.00 1,039 1,039 7.9 $ 38.06 $ 38.06 If the company accounted for its stock-based The following reconciles the change in retiree compensation plans using the fair value method medical accumulated benefit obligation and the provided by SFAS 123, the company’s 2000, 1999 amounts included in the balance sheet (in millions): and 1998 net income and earnings per share would Change in accumulated benefit obligation: have been reduced to pro forma net income of $212 million, $188 million and $142 million, 2000 1999 respectively, and pro forma earnings per share of Accumulated benefit obligation $4.01, $3.63 and $2.74, respectively. The weighted at beginning of year $ 437 $ 454 average fair value of options granted was $8.16, Service cost 2 3 $7.79 and $9.34 per share in 2000, 1999 and 1998, Interest cost 33 29 respectively. The fair value of each option was Plan amendments (1) — estimated on the date of grant using the Acquisitions 47 2 Black-Scholes pricing model utilizing the following Divestitures (2) — assumptions: Actuarial gains (2) (10) 2000 1999 1998 Benefits paid Volatility 35.0% 31.0% 31.0% ($36 million in fiscal 1998) (49) (41) Life 5 years 5 years 5 years Accumulated benefit Dividend yield rate 5.0% 2.0% 2.0% obligation at end of year 465 437 Risk-free interest rate 6.1% 4.8% 5.8% Items not recognized in the balance sheet: 17. RETIREMENT MEDICAL PLANS Plan amendments 10 15 ArvinMeritor has retirement medical plans that cover Actuarial losses (150) (157) the majority of its U.S. and certain non-U.S. Recorded liability employees and provide for medical payments to at September 30 $ 325 $ 295 eligible employees and dependents upon retirement. The components of retirement medical expense are The weighted average discount rates (using a as follows (in millions): June 30 measurement date) were 8.0 percent in fiscal 2000 and 7.5 percent in fiscal 1999. For 2000 1999 1998 measurement purposes, a 6.9-percent and Service cost $2 $ 3 $ 2 8.3-percent annual increase in the pre- and post-65 Interest cost 33 29 28 per capita cost of covered health care benefits was Amortization of assumed for 2000. The rate was assumed to unrecognized amounts (1) 1 (1) decrease gradually to 5.0 percent for 2011 and Retirement medical expense $ 34 $ 33 $ 29 remain at that level thereafter. 45
  • 53. Increasing the health care cost trend rates by The following reconciles the change in pension one percentage point would increase the projected benefit obligation, the change in plan accumulated obligation at September 30, 2000, by assets and the amounts included in the balance approximately $40 million and would increase total sheet (in millions): expense by approximately $4 million. Decreasing Change in projected benefit obligation: the health care cost trend rates by one percentage point would decrease the accumulated obligation 2000 1999 at September 30, 2000, by approximately Projected benefit obligation $36 million and would decrease total expense at beginning of year $ 445 $ 318 by approximately $3 million. Service cost 22 21 Interest cost 37 22 Participant contributions 1 2 18. RETIREMENT PENSION PLANS ArvinMeritor sponsors defined benefit pension plans Plan amendments (1) 3 that cover most of its U.S. employees and certain Acquisitions 423 81 non-U.S. employees. Pension benefits for salaried Divestitures (4) — employees are based on years of credited service Actuarial (gains) losses (21) 19 and compensation. Pension benefits for hourly Special termination benefits — 1 employees are based on years of service and Benefits paid (21) (19) specified benefit amounts. The company’s funding Foreign exchange rate changes (29) (3) policy provides that annual contributions to the Projected benefit obligation pension trusts will be at least equal to the minimum at end of year 852 445 amounts required by ERISA in the U.S. and the actuarial recommendations or statutory requirements in other countries. Change in plan assets: Certain of the company’s non-U.S. subsidiaries Fair value of plan assets provide limited non-pension benefits to retirees at beginning of year 368 237 in addition to government-sponsored programs. Actual return on plan assets 29 10 The cost of these programs is not significant to Employer contributions 40 30 the company. Most retirees outside the U.S. are Plan participants’ contributions 1 2 covered by government-sponsored and Acquisitions 443 109 -administered programs. Divestitures (2) — Net pension expense consisted of the following Benefits paid (21) (19) (in millions): Foreign exchange rate changes (28) (1) 2000 1999 1998 Fair value of plan assets at end of year 830 368 Service cost $ 22 $ 21 $ 15 Funded status (22) (77) Interest cost 37 22 18 Items not recognized in the balance sheet: Assumed return Actuarial losses 26 41 on plan assets (40) (25) (15) Prior service cost 9 15 Amortization of Net initial asset (9) (12) unrecognized amounts 5 1 3 Net prepaid (accrued) pension costs $ 4 $ (33) Net pension expense $ 24 $ 19 $ 21 46
  • 54. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S (continued) Amounts recognized in the balance sheet at The deferred tax expense represents tax deductions September 30 consisted of: related to previously accrued expenses. The deferred tax benefit represents the tax impact 2000 1999 related to certain accrued expenses that have been Prepaid pension asset $ 78 $ 66 recorded for financial statement purposes but are Accrued pension liability (76) (104) not deductible for income tax purposes until paid. Intangible asset 2 5 Net deferred income tax benefits included in Other Net amount recognized $ 4 $ (33) Current Assets in the accompanying Consolidated Balance Sheet consist of the tax effects of temporary The projected benefit obligation, accumulated benefit differences related to the following (in millions): obligation, and fair value of plan assets for the September 30, 2000 1999 pension plans with accumulated benefit obligations Accrued product warranties $ 32 $ 31 in excess of plan assets were $73 million, $61 million Accrued compensation and benefits 36 26 and $0 million, respectively, as of September 30, 2000, Accrued restructuring 5 3 and $235 million, $177 million and $80 million, Inventory costs 29 (7) respectively, as of September 30, 1999. Receivables 16 5 Assumptions used (June 30 measurement date): Other-net 4 25 2000 1999 Current deferred income taxes $ 122 $ 83 Discount rate 6.3-8.0% 6.0-7.5% Compensation increase rate 2.8-4.5% 2.5-4.5% Net deferred income tax benefits included in Other Long-term rate of return Assets in the accompanying Consolidated Balance on plan assets 9.0-9.5% 9.0% Sheet consist of the tax effects of temporary differences related to the following (in millions): The company also sponsors certain defined September 30, 2000 1999 contribution savings plans for eligible employees. Accrued retirement medical costs $ 111 $ 100 Expense related to these plans was $8 million, Property (99) (54) $6 million and $6 million for fiscal 2000, 1999 and Pensions (16) 8 1998, respectively. Loss and credit carryforwards 38 30 Other (10) 4 19. INCOME TAXES Subtotal 24 88 The components of the Provision for Income Taxes Valuation allowance (15) (17) are summarized as follows (in millions): Long-term deferred income taxes $ 9 $ 71 2000 1999 1998 Current tax expense: U.S. $ 17 $ 38 $ 37 Foreign 91 64 66 State and local 1 10 9 Total current tax expense 109 112 112 Deferred tax expense (benefit): U.S. 30 13 (4) Foreign (3) 3 (3) State and local 5 1 (3) Total deferred tax expense (benefit) 32 17 (10) Provision for income taxes $ 141 $ 129 $ 102 47
  • 55. Management believes it is more likely than not that 20. SUPPLEMENTAL FINANCIAL current and long-term deferred tax benefits will INFORMATION 2000 1999 1998 reduce future current income tax expense and payments. Significant factors considered by (In millions) management in its determination of the probability Statement of income data: of the realization of the deferred tax benefits Maintenance and included: (a) historical operating results, repairs expense $ 86 $ 74 $ 72 (b) expectations of future earnings and (c) the Research, development extended period of time over which the retirement and engineering expense 115 117 111 medical liability will be paid. The valuation allowance Rental expense 26 23 18 represents the amount of tax benefits related to net Statement of cash flows data: operating loss and tax credit carryforwards, which Interest payments $ 95 $ 61 $ 43 management believes are not likely to be realized. Income tax payments 100 95 116 The carryforward periods for $20 million of net Distribution tax payment — — 72 operating losses and tax credit carryforwards expire between 2001 and 2010. The carryforward period for the remaining net operating losses and tax 21. CONTINGENT LIABILITIES credits is indefinite. Federal, state and local requirements relating to the discharge of substances into the environment, the The company’s effective tax rate was different from disposal of hazardous wastes and other activities the U.S. statutory rate for the reasons set forth below: affecting the environment have, and will continue to have, an impact on the manufacturing operations of 2000 1999 1998 the company. Thus far, compliance with environmental Statutory tax rate 35.0% 35.0% 35.0% requirements and resolution of environmental claims State and local income taxes 1.2 2.3 1.6 have been accomplished without material effect on Foreign income taxes 1.4 1.1 2.7 the company’s liquidity and capital resources, Recognition of tax loss competitive position or financial statements. carryforwards — — (2.0) The company has been designated as a potentially Sale of business – responsible party at 10 Superfund sites, excluding basis difference — (1.2) — sites as to which the company’s records disclose no Tax on undistributed involvement or as to which the company’s potential foreign earnings 0.7 1.2 1.6 liability has been finally determined. Management Other (0.1) 0.4 1.1 estimates the total, reasonably possible costs the Effective tax rate 38.2% 38.8% 40.0% company could incur for the remediation of Superfund sites at September 30, 2000, to be approximately The income tax provisions were calculated based $20 million, of which $13 million has been accrued. upon the following components of income before Various other lawsuits, claims and proceedings have income taxes (in millions): been asserted against the company, alleging violations of federal, state and local environmental 2000 1999 1998 protection requirements, or seeking remediation of U.S. income $ 139 $ 160 $ 86 alleged environmental impairments, principally at Foreign income 230 173 170 previously disposed-of properties. For these Total $ 369 $ 333 $ 256 matters, management has estimated the total, reasonably possible costs the company could incur No provision has been made for U.S., state or at September 30, 2000, to be approximately additional foreign income taxes related to $50 million, of which $25 million has been recorded. approximately $208 million of undistributed earnings of foreign subsidiaries that have been or are intended to be permanently reinvested. 48
  • 56. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S (continued) Based on its assessment, management believes that Segment information is summarized as follows: the company’s expenditures for environmental capital Sales (in millions): investment and remediation necessary to comply with present regulations governing environmental 2000 1999 1998 protection and other expenditures for the resolution of Light Vehicle Systems $ 2,031 $ 1,575 $ 1,475 environmental claims will not have a material adverse Commercial Vehicle effect on the company’s liquidity and capital Systems 2,872 2,875 2,361 resources, competitive position or financial Light Vehicle Aftermarket 209 — — statements. Management cannot assess the possible Other 41 — — effect of compliance with future requirements. Total $ 5,153 $ 4,450 $ 3,836 Various other lawsuits, claims and proceedings have been or may be instituted or asserted against Earnings (in millions): the company, relating to the conduct of its business, including those pertaining to product liability, 2000 1999 1998 intellectual property, safety and health, and Operating income: employment matters. Although the outcome of Light Vehicle Systems $ 149 $ 129 $ 86 litigation cannot be predicted with certainty, and Commercial Vehicle some lawsuits, claims or proceedings may be Systems 221 232 212 disposed of unfavorably to the company, Light Vehicle Aftermarket 6 — — management believes the disposition of matters that Other — — — are pending or asserted will not have a material Restructuring costs (26) (28) — adverse effect on the company’s financial statements. Merger expenses (10) — — Gain on sale of business 22. BUSINESS SEGMENT and other 89 24 — INFORMATION Operating income 429 357 298 ArvinMeritor currently has three reportable operating Other income — 2 — segments: LVS, CVS and LVA. LVS is a major Equity in earnings of affiliates 29 35 28 supplier of exhaust systems, aperture systems Interest rate settlement cost — — (31) (primarily roof and door systems) and undercarriage Interest expense, net (89) (61) (39) systems (primarily suspension, ride and motion Income before income taxes 369 333 256 control, and wheel products) for passenger cars, light trucks and sport utility vehicles to original equipment Provision for income taxes (141) (129) (102) manufacturers. CVS is a leading supplier of drivetrain Minority interests (10) (10) (7) systems and components, including axles, brakes, Net income $ 218 $ 194 $ 147 and drivelines, for medium- and heavy-duty trucks, trailers and off-highway equipment and specialty vehicles. LVA supplies exhaust, ride control, filter products and accessories to the light vehicle aftermarket. Business units that are not focused on automotive products are classified as “Other.” The company’s Coil Coating division is the primary component of this classification. Revenues are attributed to geographic areas, based on the location of the assets producing the revenue. 49
  • 57. Depreciation and Amortization (in millions): Information on the company’s geographic areas is summarized as follows: 2000 1999 1998 Sales by Geographic Area (in millions): Light Vehicle Systems $ 55 $ 45 $ 44 Commercial Vehicle 2000 1999 1998 Systems 98 86 58 U.S. $ 2,576 $ 2,249 $ 1,848 Light Vehicle Aftermarket 7 — — Canada 441 476 414 Other 2 — — Mexico 235 145 124 Total depreciation Total North America 3,252 2,870 2,386 and amortization $ 162 $ 131 $ 102 France 394 398 411 U.K. 345 271 251 Other Europe 769 584 431 Capital Expenditures (in millions): Total Europe 1,508 1,253 1,093 2000 1999 1998 Other 393 327 357 Light Vehicle Systems $ 106 $ 55 $ 58 Total sales $ 5,153 $ 4,450 $ 3,836 Commercial Vehicle Systems 112 115 81 Assets by Geographic Area (in millions): Light Vehicle Aftermarket 5 — — Other 2 — — 2000 1999 1998 Total capital expenditures $ 225 $ 170 $ 139 U.S. $ 2,251 $ 1,375 $ 937 Canada 220 150 146 Mexico 149 83 82 Segment Assets (in millions): Total North America 2,620 1,608 1,165 2000 1999 1998 U.K. 602 346 128 Light Vehicle Systems $ 1,739 $ 701 $ 741 France 256 191 202 Commercial Vehicle Other Europe 842 402 309 Systems 1,783 1,814 1,049 Total Europe 1,700 939 639 Light Vehicle Aftermarket 751 — — Other 400 249 282 Other 107 — — Total assets $ 4,720 $ 2,796 $ 2,086 Segment total assets 4,380 2,515 1,790 Corporate(1) 340 281 296 Sales to one original equipment manufacturer Total assets $ 4,720 $ 2,796 $ 2,086 represented 18 percent of the company’s sales in (1) Consists primarily of cash, taxes and prepaid pension costs. fiscal 2000 and 23 percent of the company’s sales in fiscal 1999 and 1998. These sales include other customers acquired or merged with this customer. No other customer comprised 10 percent or more of the company’s sales in the three years ended September 30, 2000. 50
  • 58. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S (continued) 23. Q U A R T E R LY F I N A N C I A L I N F O R M A T I O N ( U N A U D I T E D ) The following is a condensed summary of the company’s unaudited quarterly results of operations for fiscal 2000 and 1999 and stock price data for fiscal 2000. The per share amounts are based on the weighted average shares outstanding for that quarter. All historical per share amounts, including stock prices, prior to the merger date have been adjusted for the one for 0.75 exchange ratio as part of the merger (see Note 3). 2000 Fiscal Quarters First Second Third Fourth 2000 (In millions, except share-related data) Sales $ 1,136 $ 1,196 $ 1,141 $ 1,680 $ 5,153 Cost of sales 966 1,000 956 1,488 4,410 Net income 97 57 40 24 218 Net income per share (basic and diluted) 1.94 1.22 0.86 0.35 4.12 Stock Prices High $ 28.58 $ 26.50 $ 22.33 $ 18.63 $ 28.58 Low $ 20.00 $ 18.17 $ 14.67 $ 13.75 $ 13.75 First quarter 2000 net income included a gain on sale of business of $83 million ($51 million after-tax, or $1.02 per share) (see Note 5) and third quarter 2000 net income included a restructuring charge of $26 million ($16 million after-tax, or $0.34 per share) (see Note 6), and a gain on the sale of land of $6 million ($3 million after-tax, or $0.06 per share). Third and fourth quarters include merger expenses of $2 million and $8 million, respectively ($1 million and $5 million after-tax, respectively and $0.02 and $0.07 per share, respectively). 1999 Fiscal Quarters First Second Third Fourth 1999 (In millions, except share-related data) Sales $ 944 $ 1,163 $ 1,217 $ 1,126 $ 4,450 Cost of sales 815 988 1,033 962 3,798 Net income 40 50 39 65 194 Net income per share (basic and diluted) 0.77 0.97 0.75 1.25 3.75 Third quarter 1999 net income included a restructuring charge of $28 million ($17 million after-tax, or $0.33 per share) (see Note 6) and fourth quarter 1999 net income included a gain on sale of business of $24 million ($18 million after-tax, or $0.35 per share) (see Note 5). 24. SUBSEQUENT EVENT (UNAUDITED) On November 8, 2000, the company announced restructuring actions to realign operations at selected facilities around the world. These actions are expected to have a total cost of approximately $90 million, with the majority of the cost accounted for as a restructuring charge of $60 million in the first quarter of 2001. Of the remaining cost, $15 million will be accounted for as an adjustment to the fair value of liabilities assumed in conjunction with the ArvinMeritor merger, and $15 million will be accounted for as period costs during 2001, as incurred. The total restructuring cost of $90 million is comprised of employee severance benefits of $50 million related to a net reduction of 1,500 employees, asset rationalization costs of $25 million, and equipment relocation and other costs of $15 million. The costs of these restructuring activities relate approximately 50 percent to CVS, 35 percent to LVS and 15 percent to LVA. 51
  • 59. SELECTED FINANCIAL DATA In millions, except per share amounts Year Ended September 30, 2000 1999 1998 1997 1996 Summary of Operations Sales Light Vehicle Systems $ 2,031 $ 1,575 $ 1,475 $ 1,352 $ 1,317 Commercial Vehicle Systems 2,872 2,875 2,361 1,957 1,827 Light Vehicle Aftermarket 209 — — — — Other 41 — — — — Total $ 5,153 $ 4,450 $ 3,836 $ 3,309 $ 3,144 $ 218(1) $ 194(1) $ 147(1) Net income $ 109 $ 114 share(2) 4.12(1) 3.75(1) 2.84(1) Basic and diluted earnings per N/A N/A Cash dividends per share(2) 0.64 0.56 0.56 N/A N/A Financial Position at September 30 Total assets $ 4,720 $ 2,796 $ 2,086 $ 2,002 $ 1,830 Short-term debt 183 44 34 21 8 Long-term debt 1,537 802 313 465 24 Capital securities 74 — — — — (1) Net income and basic and diluted earnings per share for fiscal year 2000 includes a one-time gain of $89 million ($54 million after-tax, or $1.01 per share) for the sale of the seat adjusting systems business and other assets, restructuring costs of $26 million ($16 million after-tax, or $0.30 per share), and merger expenses of $10 million ($6 million after-tax, or $0.11 per share). Net income and basic and diluted earnings per share for fiscal year 1999 includes restructuring costs of $28 million ($17 million after-tax, or $0.33 per share) and a one-time gain of $24 million ($18 million after-tax, or $0.34 per share) recorded to reflect the formation of a transmission and clutch joint venture with ZF Friedrichshafen AG. Net income and basic and diluted earnings per share for fiscal year 1998 includes a one-time charge of $31 million ($19 million after-tax, or $0.36 per share) relating to the settlement of interest rate agreements. (2) As the company began operations as a stand-alone entity on September 30, 1997, per share data for years ending prior to September 30, 1998, are not applicable. 52
  • 60. PRO FORMA SUMMARY OF OPERATIONS Dollars in millions, except per share amounts Unaudited Pro Forma(1) Year Ended September 30, 2000 1999 1998 1997 1996 Summary of Operations Sales Light Vehicle Systems $ 3,668 $ 3,474 $ 3,041 $ 2,865 $ 2,728 Commercial Vehicle Systems 2,926 2,941 2,425 2,016 1,876 Light Vehicle Aftermarket 950 906 686 649 607 Other 178 170 116 114 108 Total $ 7,722 $ 7,491 $ 6,268 $ 5,644 $ 5,319 Operating Income(2) Light Vehicle Systems $ 232 $ 198 $ 155 $ 117 $ 108 Commercial Vehicle Systems 231 244 224 163 141 Light Vehicle Aftermarket 43 72 62 52 47 Other 9 17 3 16 12 Segment Operating Income $ 515 $ 531 $ 444 $ 348 $ 308 Operating margins(2) 6.7% 7.1% 7.1% 6.2% 5.8% income(3) Net $ 254 $ 279 $ 236 $ 172 $ 144 Diluted earnings per share(3) $ 3.56 $ 3.66 $ 3.11 $ 2.30 $ 1.85 Cash Activity Operating cash flow $ 344 $ 415 $ 383 $ 401 $ 307 Depreciation and amortization expense 248 239 190 191 180 Capital expenditures 338 306 248 209 231 Combined stock repurchase programs(4) 175 6 — — — dividends(4) Combined aggregate cash 52 54 47 17 13 Combined Financial Position at September 30 (4) Working capital(5) $ 464 $ 332 $ 426 $ 391 $ 380 Property, plant and equipment 1,348 1,428 1,172 1,113 1,098 Total assets 4,720 4,829 3,633 3,412 3,260 Long-term debt 1,537 1,218 619 695 380 Capital securities 74 89 89 99 — Short-term debt 183 219 38 75 68 interests(6) Equity and minority 889 1,033 854 668 1,078 (1) Pro forma financial information presented as if the merger had occurred at the beginning of each fiscal year and reflects (a) the amortization of goodwill from merger and the elimination of historical Arvin goodwill amortization expense; (b) the adjustment to interest expense for borrowings to fund the Arvin cash consideration and other financing costs; (c) the income tax effects of (a) and (b) above; and (d) the adjustment of shares outstanding representing the exchange of one share of Meritor common stock for 0.75 shares of ArvinMeritor common stock and one share of Arvin common stock for one share of ArvinMeritor common stock, based on the average shares outstanding for each year. Additionally, fiscal 1997 and 1996 include adjustments to reflect the pro forma impact of the spin-off of Meritor from Rockwell, which occurred in September 1997. (2) Operating income excludes restructuring and other charges of $30 million, $35 million, $7 million, $29 million and $37 million in fiscal years 2000, 1999, 1998, 1997 and 1996, respectively. Operating income also excludes gain on sale of businesses and other of $89 million, $31 million and $14 million in fiscal years 2000, 1999 and 1996, respectively, and excludes merger-related expenses in fiscal year 2000. (3) Net income and earnings per share exclude the special items discussed in (2) above and non-operating one-time expenses of $3 million, $1 million and $25 million in fiscal 2000, 1999 and 1998, respectively, and non-operating one-time income of $16 million and $9 million in fiscal 1997 and 1996, respectively. (4) Information provided on a combined basis with no pro forma adjustments. Meritor dividends have been restated for the share conversion (see Note 1 of Notes to Financial Statements). Also, as Meritor began operations as a stand-alone entity on September 30, 1997, dividend information for Meritor for years ending prior to September 30, 1998 are not applicable. (5) Working capital consists of all current assets and liabilities, including cash and short-term debt. (6) Equity amounts for September 1996 for Meritor represent the net investment of Rockwell prior to the spin-off of Meritor on September 30, 1997. 53
  • 61. CORPORATE RESPONSIBILITY ARVINMERITOR AND THE COMMUNITY ArvinMeritor and its employees have a long tradition ArvinMeritor understands that an educated of making a difference in the lives of many people in workforce is a critical factor that enhances our the communities where we work and live. long-term competitiveness. Through these contributions, we help foster awareness and In those communities that are home to ArvinMeritor participation in programs that have a strong focus facilities, we seek to utilize our human and financial on engineering, science and technology. resources in partnership with local, private and public agencies to achieve measurable We are particularly interested in programs that improvements in the quality of life. We do so encourage ArvinMeritor employees to volunteer their through a focus on education, cultural programs, time. By leveraging financial resources and civic responsibility, health and human services. volunteerism in the community, we can contribute to long-term solutions, rather than short-term relief. In fiscal year 2000, hundreds of grants to not-for- profit organizations were made in ArvinMeritor We will continue to focus on meeting the most communities worldwide. More than half of those critical needs and determining how the ArvinMeritor charitable contributions, which total close to $2.5 Contributions Program can best make a significant million, went to support education. That’s because difference in the future of ArvinMeritor communities. 54
  • 62. ARVINMERITOR BOARD OF DIRECTORS Larry D. Yost Joseph P. Flannery Victoria B. Jackson Chairman of the Board Chairman of the Board Former President and Chief Executive Officer President and Chief Executive Officer Chief Executive Officer DSS/Prodiesel, Inc. V. William Hunt Uniroyal Holding, Inc. Vice Chairman Don J. Kacek President Chairman of the Board Robert E. Fowler, Jr. Former Chairman and Chief Executive Officer Joseph B. Anderson, Jr. Chief Executive Officer Advanced Automation Chairman of the Board and IMC Global Inc. Technologies, Inc. Chief Executive Officer Chivas Industries LLC William D. George, Jr. James E. Marley Former President and Former Chairman of the Board Donald R. Beall Chief Executive Officer AMP Inc. Former Chairman of the Board S.C. Johnson Wax and Chief Executive Officer James E. Perrella Rockwell International Corporation Chairman of the Board Ivan W. Gorr Former Chairman and Ingersoll-Rand Company Steven C. Beering Chief Executive Officer President Emeritus Harold A. Poling Cooper Tire & Rubber Company Purdue University Former Chairman of the Board and Chief Executive Officer Richard W. Hanselman Rhonda L. Brooks Chairman of the Board Ford Motor Company President Health Net, Inc. Exterior Systems Business Martin D. Walker Owens Corning, Inc. Former Chief Executive Officer Charles H. Harff Former Senior Vice President, and Chairman of the Board John J. Creedon General Counsel M.A. Hanna Company Former President and Secretary Chief Executive Officer Rockwell International Corporation Metropolitan Life Insurance Company EXECUTIVE OFFICERS Larry D. Yost Juan L. De La Riva Terrence E. O’Rourke Chairman of the Board Senior Vice President Senior Vice President Chief Executive Officer Corporate Development President, Light Vehicle Systems and Strategy V. William Hunt A.R. Sales Vice Chairman Senior Vice President Thomas A. Gosnell President Senior Vice President President, Roll Coater President, Commercial Vernon G. Baker, II S. Carl Soderstrom Vehicle Systems Senior Vice President Senior Vice President General Counsel and Secretary Engineering, Quality and Perry L. Lipe Senior Vice President Procurement Gary L. Collins Chief Information Officer Senior Vice President Diane M. Stelfox Human Resources Vice President William M. Lowe Vice President Corporate Development Linda M. Cummins Controller Senior Vice President Craig M. Stinson Communications Senior Vice President Thomas A. Madden Senior Vice President President, Exhaust Systems William K. Daniel Chief Financial Officer Senior Vice President Frank A. Voltolina President, Light Vehicle Vice President Aftermarket Treasurer 55
  • 63. AR VINMERITOR, INC. GENERAL INFORMATION ARVINMERITOR HEADQUARTERS DIVIDEND REINVESTMENT AND 2135 West Maple Road ADDITIONAL INVESTMENTS IN Troy, MI 48084-7186 ARVINMERITOR COMMON STOCK Phone: 248-435-1000 EquiServe Trust Company, N.A. provides the Fax: 248-435-1393 DirectSERVICE Investment Program for ArvinMeritor shareowners, under which current shareowners may elect to reinvest dividends INVESTOR RELATIONS and/or make optional cash investments in Securities analysts and professional additional shares of ArvinMeritor common stock. investors should contact: The program also allows cash investments in Investor Relations ArvinMeritor common stock by first-time investors, 248-655-2159 with a $500 minimum initial investment. Shareowners may also sell their shares through CORPORATE PUBLIC RELATIONS the DirectSERVICE Investment Program. Members of the media should contact: For a brochure and details of the program, Public Relations please direct inquiries to: 248-435-7774 DirectSERVICE Investment Program EquiServe Trust Company, N.A. SHAREOWNER SERVICES P.O. Box 2598 Communications about share ownership, book-entry Jersey City, NJ 07303-2598 accounts, dividend payments, transfer requirements, Registered shareowners: 800-414-6280 changes of address, lost stock certificates, account Other interested investors: 800-483-2277 status and sale of shares should be directed to: EquiServe Trust Company, N.A. INDEPENDENT AUDITORS P.O. Box 2500 Deloitte & Touche LLP Jersey City, NJ 07303-2500 600 Renaissance Center 800-519-3111 Detroit, MI 48243-1704 313-396-3000 For Internet access to account information call 877-843-9327 toll free to receive a password TRANSFER AGENT AND by mail. REGISTRAR EquiServe Trust Company, N.A. E-mail: P.O. Box 2500 Telecommunications Devices for the Jersey City, NJ 07303-2500 Deaf (TDDs) may be accessed by calling 800-519-3111 201-222-4955. For copies of annual reports, Forms 10-K and NEW YORK STOCK EXCHANGE 10-Q and other ArvinMeritor publications, Common Stock (Symbol: ARM) please contact: ArvinMeritor, Inc. ANNUAL MEETING 2135 West Maple Road The company’s annual meeting of shareowners will Troy, MI 48084-7186 be held at the ArvinMeritor headquarters at 9 a.m. Attention: Investor Relations Wednesday, February 14, 2001. A notice of meeting 248-435-1545 and proxy material will be mailed to shareowners on E-mail: or about December 29, 2000.
  • 64. Innovative Solutions That Move Your World Printed on recycled paper.