arvinmeritor ARM_JPM_Harbour_Conference_081308


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arvinmeritor ARM_JPM_Harbour_Conference_081308

  1. 1. JPMorgan Harbour Conference August 13, 2008 Chip McClure Chairman, CEO and President 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 planned 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 • Creating value through constant focus – Geographic and customer balance – Category leadership – Business structure transformation • Growing most profitable sub-segments • Controlling cost with excellent execution 3
  4. 4. CVS Business Portfolio 2007 Sales $4.2 Billion Geographic Mix Customer Mix South America Asia 6% Pacific 11% Volvo Group Aftermarket, North Trailers and America Other Europe 54% 28% Daimler Trucks ITE Hino XCMG Tata Ashok Leyland Fiat/Iveco VW PACCAR GM BAE 4
  5. 5. CVS Leadership Positions (including JVs) North Category America Europe Other Regions #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 brake remanufacturer #1 Truck driveline supplier #2 Independent off-highway axle #1 in China supplier 5
  6. 6. 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 6
  7. 7. LVS Top European Platforms by Segment 1 VW Golf, Touran ArvinMeritor 2008 Sales VW Polo, Seat Ibiza Peugeot 307/308 2 3 Renault Clio, 4 Ford Focus 5 6 Twingo, Logan Renault Megane, Scenic 7 Peugeot 206/207 Audi Q7 VW Passat, Tiguan 8 BMW Mini 9 10 A B C D E 7
  8. 8. 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 8
  9. 9. Creating Value Through Transformation • Roll Coater divestiture • LVA divestitures • Balance sheet restructuring – Pay-down and re-timing • Emissions Technologies divestiture • Performance Plus profit improvement program • Spinoff of Light Vehicle Systems Optimizing structure for greatest shareholder value 9
  10. 10. Spinoff Key Timing Gates • Tax Rulings Filed First Regulatory • Form 10 Amendment Effective- ness Filed Form 10 Continue Business to meet Met Q3 milestones Announced Complete milestones May 6 Spinoff Engaged Financial Financial Institutions Secure financing 10
  11. 11. LVS/Arvin Innovation Investment Thesis • Global supplier with $2.1 billion of value-added sales – Specialized in Body and Chassis Systems – Over 60% of revenue derived outside North America • Diverse and robust business portfolio • Global manufacturing with an expanding LCCC footprint • Great brands and business building blocks • Strong book of business benefiting from emerging market growth • Experienced and respected management team • Margin expansion from an improving cost structure Positioned to win in the global automotive industry 11
  12. 12. Agenda • Creating value through constant focus • Growing most profitable sub-segments – Great products feed specialized channels – Remanufacturing strategy – Specialty – Product development • Controlling cost with excellent execution 12
  13. 13. OEM Capabilities Feed Specialized Channels OEM Supply Off-Highway Capability Military Reputation Relationships Other Products Specialty Aftermarket 13
  14. 14. CVA Cradle-to-Grave Coverage • Offer all– makes products to extend addressable markets • Create price point products to address vehicle life cycle • Geographic expansion • Offer more than just a part and a price 14
  15. 15. Continuing Growth in Remanufacturing Other Remanufacturing Trucktechnic Acquisition • Integration pace and synergies • A major remanufacturer and with Mascot exceeding expectations distributor of commercial vehicle disc brakes and air system • Launched licensed remanufacturing components, based in Liege, of Allison transmissions Belgium • Won major awards to provide remanufactured transmissions and • Expands the product breadth and axle carriers to Navistar Parts and market depth of ArvinMeritor’s to PACCAR’s dealers in Canada existing European aftermarket portfolio North • Provides complementary 2008 Changes America Europe geographical footprint, capability, Brakes Strengthened capacity and brand Drivelines Added • Continues execution of ArvinMeritor strategy to grow Drivetrain Expanded aggressively in the most profitable business units Trailer Axles Added Additional Product Evaluate Evaluate 15
  16. 16. Continued Focus on Specialty Better/ FY 2009 Compared to FY 2008 Worse MRAP vehicle production for U.S. -- MRAP vehicle production for partners + MRAP service parts + Other medium tactical vehicles + China off-highway (primarily construction) + Other off-highway TBD Other specialty vehicles in North America 0/- Total year-over-year change 0 16
  17. 17. Product Development Focus on Fuel Economy Unicell Quicksider Meritor Tire Battery-Electric Pickup Inflation System and delivery vehicle Delivers higher fuel economy by constantly maintaining proper tire air pressure Wal-Mart Hybrid EV Class-8 Hybrid Diesel/Electric Long Fiber Injection Panoramic Roof Lightweight plastic reduces vehicle weight by 10 lbs. HIP Module Highly-integrated Low Energy plastic door Release Latch module reduces Contains up to 50% weight by 30% fewer parts, saving 5-7 lbs. per vehicle 17
  18. 18. Agenda • Creating value through constant focus • Growing most profitable sub-segments • Controlling cost with excellent execution – Performance Plus – Operational improvement in CVS 18
  19. 19. Announcing Wave 2 Performance Plus Effort to Increase Confidence in 2009 Savings Target Annualized EBITDA Impact from Cost Saving Actions Ideas that will save $135 $ Millions million per year (gross) Period Savings Period savings were implemented by for the third $232M Q1 $12 240 06/30/08 fiscal quarter Q2 18 Team Targets 220 were $28 million $197M 200 Q3 28 180 Q4 December 160 Implementation Less Plan 140 Risks 120 Risk Adjustment $115 M Full Yr. $75 100 80 60 40 20 0 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct • Performance Plus cost reductions expected to fully achieve 2008 target of $75 million savings net of material cost increases • Strong implementation momentum late in the year positions the company well as full-year benefits accrue to 2009 compared to partial-year in 2008 • To increase confidence in achieving 2009 target in difficult material cost environment, we are launching a second wave of Performance Plus resources to accelerate idea generation and increase focus in Europe 19
  20. 20. Managing Steel Cost Risk 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 • Some of the increase related to commodities other than steel • Cost reductions exceeded commitment levels, allowing us to offset the shortfall in recovery 20
  21. 21. CVS Margins Progression Driven by Execution EBITDA Margin Before Special Items(1) 8% 100 EBITDA Production Margin 7% 80 Production (000) EBITDA Margin 6% 60 5% 40 4% 3% 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 (1) See Appendix – “Non-GAAP Financial Information.” ArvinMeritor uses EBITDA as the primary basis for the chief operating decision maker to evaluate the performance of each of the company’s reportable segments. EBITDA margin equals EBITDA divided by sales. 21
  22. 22. ArvinMeritor Leverage Millions except ratio March 31, June 30, Comments 2008 2008 Expected to be reduced Debt $ 1,299 $ 1,292 after cash payment from Arvin Innovation Trailing Twelve Months EBITDA Before Special 318 360 Improving trend Items(1) Stated intention to Debt-to-EBITDA Ratio 4.1x 3.6x maintain at 4.1x or lower Debt Reduction Opportunities: • On balance sheet securitization ($118 million) • February 2009 debt maturity ($77 million) (1) See Appendix – “Non-GAAP Financial Information” 22
  23. 23. Appendix 23
  24. 24. Customer Base 2007 Sales Commercial Vehicle Customers Light Vehicle Customers Volkswagen 65% 7% Chrysler Commercial Other CVS 6% 18% Vehicle Asian Based OEMs 5% Ford 1% Ford 2% PSA 2% Volkswagen 2% General Motors 1% General Motors 2% Fiat 3% PACCAR 3% Other LVS 12% International 4% 35% Light Vehicle Asian Based OEMs 7% Volvo 16% Daimler 9% 24
  25. 25. North America Class 8 Truck Net New Orders 60,000 Net new orders per month 50,000 2006 40,000 30,000 2008 2007 20,000 10,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec July (preliminary) was the first YOY decline in 10 months Source: ACT Research 25
  26. 26. U.S. Freight Tonnage Seasonally adjusted monthly index, 2000 = 100.0 3 MMA Monthly 10-Year Trend 125 120 115 110 105 100 Jan Apr Jan Apr Jul Oct Jan Apr Jul Oct 2008 2008 2006 2006 2006 2006 2007 2007 2007 2007 June reading was the largest year-over-year gain since 2005 Source: ATA
  27. 27. North America Class 8 Production FY2007 = 246K FY2008 = 185K - 195K vehicles vehicles 89 71 57 52 50 46 44 43 42 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 FY 2009 CY2007 = 200K CY2008 = 195K - 205K vehicles vehicles 27
  28. 28. Europe Medium and Heavy Truck Production Previous forecast of FY2007 = 480K FY2008 = 560K - 570K 580-590 vehicles vehicles 530- 154 152 550 145 140 134 124 123 115 99 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 CY 2009 CY2007 = 501K CY2008 = 550K - 560K vehicles vehicles • Raised 2008 CY forecast by 5% last quarter reflecting breaking bottlenecks in the industry, then took it back down this quarter reflecting less robust demand growth (+11% YOY) • Now project 2009 CY 3% lower than this year’s record level (midpoint to midpoint) • This magnitude of slowing will relieve high-volume premium costs and allow us to refocus capital expenditures on efficiency and flexibility initiatives 28
  29. 29. 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 29
  30. 30. 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. 30
  31. 31. 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 31
  32. 32. 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) 32