arvinmeritor ARM_DB_Conference_092508_FINAL


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arvinmeritor ARM_DB_Conference_092508_FINAL

  1. 1. Deutsche Bank Leveraged Finance Conference September 25, 2008 Jay Craig Senior Vice President and CFO 1
  2. 2. Forward-Looking Statements This presentation contains statements relating to future results of the company (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “estimate,” “should,” “are likely to be,” “will” and similar expressions. There are risks and uncertainties relating to the announced spin-off of ArvinMeritor’s LVS business, including the timing and certainty of completion of the transition. In addition, actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to global economic and market cycles and conditions; the demand for commercial, specialty and light vehicles for which the company supplies products; risks inherent in operating abroad (including foreign currency exchange rates and potential disruption of production and supply due to terrorist attacks or acts of aggression); availability and sharply rising cost of raw materials, including steel and oil; OEM program delays; demand for and market acceptance of new and existing products; successful development of new products; reliance on major OEM customers; labor relations of the company, its suppliers and customers, including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial condition of the company’s suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our suppliers; potential difficulties competing with companies that have avoided their existing contracts in bankruptcy and reorganization proceedings; successful integration of acquired or merged businesses; the ability to achieve the expected annual savings and synergies from past and future business combinations and the ability to achieve the expected benefits of restructuring actions; success and timing of potential divestitures; potential impairment of long-lived assets, including goodwill; potential adjustment of the value of deferred tax assets; competitive product and pricing pressures; the amount of the company’s debt; the ability of the company to continue to comply with covenants in its financing agreements; the ability of the company to access capital markets; credit ratings of the company’s debt; the outcome of existing and any future legal proceedings, including any litigation with respect to environmental or asbestos-related matters; product liability and warranty and recall claims; rising costs of pension and other post-retirement benefits and possible changes in pension and other accounting rules; as well as other risks and uncertainties, including but not limited to those detailed herein and from time to time in other filings of the company with the SEC. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. 2
  3. 3. Agenda • Business Unit Overview • Driving Financial Results • Frequently Asked Questions 3
  4. 4. CVS Customer Mix 2007 Sales $4.2 Billion Volvo Group Aftermarket, Trailers and Other Daimler Trucks ITE Hino XCMG Tata Ashok Leyland Fiat/Iveco VW PACCAR GM BAE 4
  5. 5. CVS Geographic Mix 2007 Sales First 9 Months, 2008 South America Asia and Asia and Asia Other 6% Other Pacific 17% 11% 20% North North America America North Europe 44% 54% America Europe Europe 29% 54% 28% 36% 5
  6. 6. Product Portfolio AFTERMARKET AND REMANUFACTURING BRAKING SYSTEMS Original equipment service parts Cam brakes Air disc brakes All-makes programs Hydraulic disc brakes Remanufactured parts Parking brakes - Mascot Truck Parts Automatic slack adjusters TRAILER AIR SUSPENSION SYSTEMS - Trucktechnic Hubs, drums and rotors Steel and Stainless Clad Wheels Air ride suspensions Axles and brakes ELSA195 Air Disc Wheel-end systems AXLES, DRIVELINES AND SUSPENSIONS Brake Meritor Tire Inflation System Front steer and drive axles by P.S.I. Meritor RF-611 Military All-wheel drive axles Front Steer Axle Single and tandem rear drive axles Tag/pusher axles Drivelines, universal joints and yokes Transfer cases Meritor® MTC-4210 Two-Speed Transfer Case ALTERNATIVE POWERED DRIVETRAINS Meritor Tandem Axle Hybrid Class 8 – diesel electric Alternative powered independent suspension Meritor® RPL Driveline Ultra-low floor axles Hybrid-specific axles Stopping & Safety Systems Anti-lock braking Systems Stability enhancement Hydraulic power brake and clutch control systems Automatic traction control OnGuard collision safety systems 6
  7. 7. Commercial Vehicle Applications 7
  8. 8. CVS Leadership Positions (including JVs) North Category Europe Other Regions America #1 in South Independent truck drive axle #1 #1 America, India supplier #1 in South Trailer axle supplier #1 America Truck air brake supplier #1 #2 Truck- Truck brake remanufacturer #1 technic Acquisition Truck driveline supplier #2 Independent off-highway axle #1 in China Strategic Strategic supplier Thrust Thrust 8
  9. 9. LVS Business Portfolio 2007 Value-Added Sales Geographic Mix Customer Mix Toyota South Asia Pacific 2% Honda America 6% Fiat 2% Other 2% 10% 5% North Nissan VW BMW 2% America 25% 3% 38% Hyundai 5% Europe Renault 8% 46% Chrysler Aftermkt 13% 9% Segment Mix PSA Ford 7% GM 10% 7% Chassis Ford GM Chrysler Total Systems North America 4.1% 2.9% 12.6% 19.5% 40% South America 0.0 2.9 0.2 3.0 Europe 2.7 1.5 0.0 4.2 Body Asia Pacific 2.7 0.0 0.0 2.7 Systems 60% Only 20% of sales are to the Detroit 3 in North America 9
  10. 10. LVS Chassis Systems Product Overview Coil Springs and Stabilizer Bars Shocks, Struts, Tie Rods and Links Modules: Cross-car, Wheel-end, Steel Wheels Coil-over-shock Standard High Ventilation Cladded Drop Center Area (in development) 10
  11. 11. LVS Body Systems Product Overview Roof Systems Latches and Motors Window Regulators Door Modules 11
  12. 12. LVS Leadership Positions (including JVs) North Category Europe Other Regions America Latch supplier #2 #1 in China Window regulator supplier #2 Window motor supplier #2 Sunroof supplier #2 #1 in South Steel wheels supplier #2 America Torsion bar supplier #1 Stabilizer bar supplier #2 12
  13. 13. Agenda • Business Unit Overview • Driving Financial Results • Frequently Asked Questions 13
  14. 14. Positive Earnings Trend in a Difficult Environment – Total Company EBITDA from Continuing Operations before Special Items(1) in millions $125 $500 2007 (left scale) Trailing Twelve Month EBITDA 2008 (left scale) Trailing Twelve Months (right scale) $100 $400 Quarterly EBITDA $75 $300 $50 $200 $25 $100 Q1 Q2 Q3 Implied Actual Actual Actual Midpoint (1) See Appendix – “Non-GAAP Financial Information” 14
  15. 15. Most Profitable Segments Grow Rapidly • Market leader in South America for Axles/Brakes and Suspensions • Growing bus and coach axles and brakes business in China • Commercial vehicle axles in India – AAL joint venture is the leading independent manufacturer, with 28% CAGR since 1998 – Market leader in rapidly-growing tandem axle segment • Specialty vehicle segment – All wheel drive systems for Military applications – Continued growth in off-highway and construction sector in Asia • Aftermarket initiatives – Expanding presence in Europe, CIS, South America and Asia Pacific – Growing remanufacturing sales in the North American and European markets – Acquired Mascot Truck Parts and Trucktechnic this fiscal year 15
  16. 16. OEM Capabilities Feed Specialized Channels OEM Supply Off-Highway Military Capability Reputation Other Specialty Relationships Products Aftermarket Remanufacturing 16
  17. 17. Fiscal Year 2008 Outlook Continuing Operations Before Special Items(1) Previous Revised Guidance Guidance Top end of Earnings Per Share $1.40 to $1.60 $1.55 to $1.65 range Outlook Free Cash Flow in Millions(2) $(50) - $(100) improving (1) Excluding gains or losses on divestitures, restructuring costs, and other special items (2) Cash flow from operations less capital expenditures 17
  18. 18. Agenda • Business Unit Overview • Driving Financial Results • Frequently Asked Questions 18
  19. 19. Frequently Asked Questions 1. How were you able to raise guidance in this environment? 2. Why is cash flow improving? 3. What exposure do you have to Lehman Brothers and other troubled financial institutions? 4. How weak is Europe really? 5. When will you start to benefit from lower steel prices? 6. Will you be hurt by American Axle’s entry into the commercial vehicle market in North America? 7. Has Performance Plus already picked all the low- hanging fruit? 19
  20. 20. FAQ #1: How were you able to raise guidance in this environment? Markets better than expected Industry capacity constraints less South America binding than anticipated Incremental orders for Navistar Military vehicles Defense Risks unrealized or managed Orders weak, but backlog holding Europe medium and heavy truck through the period Mill surcharges stabilized; pass-through Steel and other commodities arrangements worked as intended 20
  21. 21. FAQ #2: Why is cash flow improving? • Cash flow outlook is improving – Strengthened earnings – Strict inventory control – Management of accounts receivable • Half of annual management bonus depends on achievement of cash flow plan 21
  22. 22. FAQ #3: What exposure do you have to Lehman Brothers and other troubled financial institutions? Bank of New York The Foothill Group, Inc. General Electric Capital Corp. • Lehman Commercial Bayerische Landesbank JPMorgan Chase Bank of Nova Scotia Paper Inc. accounts for Landesbank Baden- 6% of our $700 million Wuerttemberg Fifth Third Bank Citicorp credit line commitment National City Bank • Entity not included in Comerica Bank bankruptcy filing Bank Austria BNP Paribas Creditanstalt AG • Unclear how Barclays will handle SunTrust Bank commitments in an ABN AMRO Bank acquisition The Royal Bank of Scotland PLC • Good diversity among Bank of Tokyo- UBS Loan Finance Mitsubishi UFJ other credit line banks Trust Comp. Bank of America Lehman Commercial Paper Inc. 22
  23. 23. FAQ #4: How bad is Europe really? Analyst Estimates of 2009 Production Higher/(Lower) than 2008 Light Commercial Vehicles Vehicles Bank A -8% -12% Bank B -6% -12% Bank C -5% OEM 1 -9% OEM 2 -5% to -10% 23
  24. 24. FAQ #5: When will you start to benefit from lower steel prices? Implement Manage Timing No End Appropriate Supply Differ- ences? Surcharges Arrangements Yes Incremental Cost Reductions • In fiscal Q3, raw material cost increases net of related pricing reduced pre-tax profits by $9 million • Surcharges from the mills have been flat during the quarter • Scrap steel prices have come down, which may lead to lower finished steel prices in future periods • Customer pass-through will come down in parallel with costs 24
  25. 25. FAQ #6: Will you be hurt by American Axle’s entry into the CV market in North America? • American Axle will be the tier 2 supplier to us for the axle components in question • We were the incumbent supplier and chose not to quote these parts for the new model program although we will be making other components and assembling finished axles 25
  26. 26. FAQ #7: Has Performance Plus already picked all the low-hanging fruit? • Performance Plus cost reductions expected to fully achieve 2008 target of $75 million savings net of unrecovered material cost increases • Strong implementation momentum late in the year positions the company well to achieve an additional $75 million in savings in 2009 • To increase confidence in a difficult material cost environment, we have launched a second wave of Performance Plus resources – Wave 2 team located in Europe – Intended to increase idea generation and project management while Wave 1 ideas are being implemented 26
  27. 27. Appendix 27
  28. 28. North America Class 8 Truck Net New Orders 30,000 Net new orders per month 2008 20,000 2007 10,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Orders better than prior year in 10 of the last 11 months Source: ACT Research 28
  29. 29. U.S. Freight Tonnage Seasonally adjusted monthly index, 2000 = 100.0 3 MMA Monthly 10-Year Trend 125 July ’08 Final Index – 115.5 Down 0.9% from June 2008 Up 3.8% from July 2007 120 115 110 105 100 Jan Apr July Jan Apr Jul Oct Jan Apr Jul Oct 2008 2008 2008 2006 2006 2006 2006 2007 2007 2007 2007 Ninth consecutive monthly year-over-year increase Source: ATA
  30. 30. Limited Term Debt Refinancing Millions as of June 30, 2008 $700 $600 Secured Revolver $500 ($666 million available) $400 Convertible $300 $200 Letters of $276 $300 credit $253 Defeased $100 $6 $200 $77 $34 $0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2026 2027 Fiscal Year 30
  31. 31. Use of Non-GAAP Financial Information In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included throughout this presentation, the Company has provided information regarding income from continuing operations and diluted earnings per share before special items, which are non-GAAP financial measures. These non-GAAP measures are defined as reported income or loss from continuing operations and reported diluted earnings or loss per share from continuing operations plus or minus special items. Other non-GAAP financial measures include “EBITDA” and “free cash flow”. EBITDA before special items is defined as earnings before interest, taxes, depreciation and amortization, and losses on sales of receivables, plus or minus special items. Free cash flow represents net cash provided by operating activities less capital expenditures. Management believes that the non-GAAP financial measures used in this presentation are useful to both management and investors in their analysis of the Company’s financial position and results of operations. In particular, management believes that free cash flow is useful in analyzing the Company’s ability to service and repay its debt. EBITDA is a meaningful measure of performance commonly used by management, the investment community and banking institutions to analyze operating performance and entity valuation. Further, management uses these non-GAAP measures for planning and forecasting in future periods. The company uses EBITDA as the primary basis for the chief operating decision maker to evaluate the performance of each of the company’s reportable segments. These non-GAAP measures should not be considered a substitute for the reported results prepared in accordance with GAAP. Free cash flow should be considered substitutes for cash provided by operating activities or other balance sheet or cash flow statement data prepared in accordance with GAAP or as a measure of financial position or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and thus, does not reflect funds available for investment or other discretionary uses. EBITDA should not be considered an alternative to operating income as an indicator of operating performance or to cash flows as a measure of liquidity. These non-GAAP financial measures, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies. Set forth on the following slides are reconciliations of these non-GAAP financial measures, if applicable, to the most directly comparable financial measures calculated and presented in accordance with GAAP. In addition, financial data may be provided on a “trailing twelve month basis,” which equates to the sum of the measure in question for the four most recent quarters. 31
  32. 32. Non-GAAP Financial Information EBITDA Reconciliation – FY08 Quarters Quarter Ended Quarter Ended Quarter Ended (in millions) December 31, 2007 March 31, 2008 June 30, 2008 $ 82 $ 104 $ 121 Total EBITDA - Before Special Items (10) (5) (4) Restructuring Costs - - (6) Rising Sun Costs Loss on Sale of Receivables (4) (5) (6) Depreciation and Amortization (32) (36) (38) Interest Expense, Net (27) (20) (19) Benefit (Provision) for Income Taxes (10) (14) 3 Income (Loss) From Continuing Operations $ (1) $ 24 $ 51 32
  33. 33. Non-GAAP Financial Information EBITDA Reconciliation – FY07 Quarters Quarter Ended Quarter Ended Quarter Ended Quarter Ended (in millions) December 31, 2006 March 31, 2007 June 30, 2007 September 30, 2007 72 77 85 49 Total EBITDA - Before Special Items - (37) (24) (10) Restructuring Costs - 10 - - Fair Value Adjustment Impact of Work Stoppages (2) 6 (2) (14) Loss on Sale of Receivables (2) (1) (3) (3) Depreciation and Amortization (30) (34) (32) (33) Interest Expense, Net (27) (34) (27) (22) Benefit (Provision) for Income Taxes (1) - (1) 10 Income (Loss) From Continuing Operations $ 10 $ (13) $ (4) $ (23) 33