ARVINMERITOR INC - 10-K Annual Report

Back to GetFilings.com

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 2002
COMMISSION FILE NUMBER 1-15983
------------------------

ARVINMERITOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

INDIANA 38-3354643
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

2135 WEST MAPLE ROAD 48084-7186
TROY, MICHIGAN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 435-1000
------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant on March 28, 2002 (the last business day of the
most recently completed second fiscal quarter) was approximately $1.918 billion.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

67,942,966 shares of the registrant's Common Stock, par value $1 per share,
were outstanding on October 31, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information contained in the Proxy Statement for the Annual Meeting of
Shareowners of the registrant to be held on February 19, 2003 is incorporated by
reference into Part III.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PART I

ITEM 1. BUSINESS.

ArvinMeritor, Inc. (the "company" or "ArvinMeritor"), headquartered in
Troy, Michigan, is a leading global supplier of a broad range of integrated
systems, modules and components serving light vehicle, commercial truck, trailer
and specialty original equipment manufacturers and certain aftermarkets. The
company also provides coil coating applications to the transportation,
appliance, construction and furniture industries.

ArvinMeritor was incorporated in Indiana in March 2000 in connection with
the merger ("Merger") of Meritor Automotive, Inc. ("Meritor") and Arvin
Industries, Inc. ("Arvin"). The Merger of Meritor and Arvin into ArvinMeritor
was effective on July 7, 2000. As used in this Annual Report on Form 10-K, the
terms "company," "ArvinMeritor," "we," "us" and "our" include ArvinMeritor, its
consolidated subsidiaries and its predecessors unless the context indicates
otherwise.

Whenever an item of this Annual Report on Form 10-K refers to information
in the Proxy Statement for the Annual Meeting of Shareowners of ArvinMeritor to
be held on February 19, 2003 (the "2003 Proxy Statement"), or under specific
captions in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations or Item 8. Financial Statements and Supplementary
Data, the information is incorporated in that item by reference.

ArvinMeritor serves a broad range of original equipment manufacturer
("OEM") customers worldwide, including truck OEMs, light vehicle OEMs,
semi-trailer producers and off-highway and specialty vehicle manufacturers, and
certain aftermarkets. Our total sales in fiscal year 2002 were $6.9 billion. Our
ten largest customers accounted for approximately 65% of fiscal year 2002 sales.
We operated 153 manufacturing facilities in 26 countries around the world in
fiscal year 2002, including facilities operated by joint ventures in which we
have interests. Sales outside the United States accounted for approximately 50%
of total sales in fiscal year 2002. We also participated in twelve joint
ventures that generated unconsolidated revenues of $1.6 billion in fiscal 2002.

We serve customers worldwide through three operating segments:

- Light Vehicle Systems ("LVS") supplies air and emissions systems,
aperture systems (roof and door systems and motion control products), and
undercarriage systems (suspension and ride control systems and wheel
products) for passenger cars, light trucks and sport utility vehicles to
OEMs.

- Commercial Vehicle Systems ("CVS") supplies drivetrain systems and
components, including axles and drivelines, braking systems, suspension
systems, and exhaust, ride control and filtration products for medium-
and heavy-duty trucks, trailers and off-highway equipment and specialty
vehicles to OEMs and to the commercial vehicle aftermarket.

- Light Vehicle Aftermarket ("LVA") supplies exhaust, ride control and
filter products to the passenger car, light truck and sport utility
aftermarket.

Our coil coating operation, which does not primarily focus on automotive
products, is classified as "Other."

Note 23 of the Notes to Consolidated Financial Statements under Item 8.
Financial Statements and Supplementary Data contains financial information by
segment for each of the three years ended September 30, 2002, including
information on sales and assets by geographic area for each segment. The heading
"Products" below includes information on LVS, CVS, LVA and Other sales by
product for each of the three years ended September 30, 2002.

References in this Annual Report on Form 10-K to our being a leading
supplier or the world's leading supplier, and other similar statements as to our
relative market position are based principally on calculations we have made.
These calculations are based on information we have collected, including company
and industry sales data obtained from internal and available external sources,
as well as our estimates. In addition

1

to such quantitative data, our statements are based on other competitive factors
such as our technological capabilities, our research and development efforts and
innovations and the quality of our products and services, in each case relative
to that of our competitors in the markets we address.

ArvinMeritor began operations as a combined company on July 7, 2000 and,
accordingly, does not have an operating history as a combined company prior to
that date. Except where otherwise noted, the historic financial information
included in this Annual Report on Form 10-K for periods prior to July 7, 2000
reflects the results of Meritor and its consolidated subsidiaries. The
information for periods after July 7, 2000 represents the results of
ArvinMeritor and its consolidated subsidiaries. This information may not be
indicative of our future results of operations, financial position or cash
flows.

INDUSTRY DEVELOPMENTS AND OUTLOOK

The industry in which we operate is cyclical and has been characterized
historically by periodic fluctuations in demand for vehicles for which we supply
products. Industry cycles can have a positive or negative effect on our
financial results. Lower demand in several of our principal markets, including
commercial truck and light vehicle markets in North America and light vehicle
replacement markets, had a negative effect on our financial results for fiscal
years 2001 and 2002.

For fiscal year 2003, our most recent outlook shows continued weakness in
the North American commercial truck markets. We currently expect North American
and Western European light vehicle production in fiscal year 2003 to remain
relatively flat compared to fiscal year 2002 production. We also anticipate that
the light vehicle replacement market for our exhaust and ride control products
will remain soft. See "Seasonality; Cyclicality" and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview and Outlook and -- Results of Operations below.

We have sought to mitigate the effects of down cycles in our markets by
improving operational efficiencies and implementing restructuring programs and
cost-reduction initiatives, which include reducing our salaried workforce and
the number of our facilities. We undertook restructuring actions in fiscal years
2001 and 2002 to improve efficiency and realize cost savings. See "Strategic
Initiatives" below and Note 5 of the Notes to Consolidated Financial Statements
under Item 8. Financial Statements and Supplementary Data below.

BUSINESS STRATEGIES

We are a global supplier of a broad range of integrated systems, modules
and components for use in commercial, specialty and light vehicles worldwide and
we have developed market positions as a leader in most of our served markets. In
the short term, we seek to maintain these market positions in the face of the
industry downturns described above. In the longer term, we work to enhance our
leadership positions and capitalize on our existing customer, product and
geographic strengths, and to increase sales, earnings and profitability. We
employ various business strategies to achieve these goals.

Several significant factors and trends in the automotive industry present
opportunities and challenges to industry suppliers and influence our business
strategies. These factors and trends include the cyclicality of the industry,
consolidation and globalization of OEMs and their suppliers, increased
outsourcing by OEMs, increased demand for modules and systems by OEMs, and an
increasing emphasis on engineering and technology. Our business strategies,
which are influenced by these industry factors and trends, include the
following:

Minimize the Risks of Cyclicality Through Business Diversity. As noted
above, the automotive industry is cyclical in nature and subject to periodic
fluctuations in demand for vehicles. This in turn results in fluctuation in
demand for our products. We seek to diversify our business in order to mitigate
the effects of market downturns and better accommodate the changing needs of
OEMs. We strive to maintain diversity in three areas:

- Revenues. We manufacture and sell a wide range of products in various
segments of the automotive market. For fiscal year 2002, our annual sales
include $3.6 billion for LVS, $2.3 billion for CVS,
2

$0.8 billion for LVA and $0.2 billion for Other. Our goal is to maintain
this sales diversity rather than to focus primarily on one segment, and
to be a leader in all three of our markets.

- Customers. A diverse customer base helps to mitigate market
fluctuations. We have a large customer base comprised of most major
vehicle producers. Our top ten customers comprised approximately 65% of
our sales in fiscal year 2002.

- Global Presence. Cycles in the major geographic markets of the
automotive industry are not necessarily concurrent or related. We seek to
maintain a strong global presence and to expand our global operations to
mitigate the effect of periodic fluctuations in demand in one or more
geographic areas. A strong global presence also helps to meet the global
sourcing needs of our customers.

Focus on Organic Growth While Reviewing Strategic Opportunities. We have
identified the most successful aspects of our business, and we are working to
grow those areas. We seek to take advantage of opportunities for operating
synergies and cross selling of products between our light vehicle and commercial
vehicle businesses. The Merger provided opportunities for cross-marketing of
products and services to customers of the two constituent companies, and we
continue to pursue these opportunities. For example, CVS has been awarded its
first contract to supply Caterpillar Inc. with exhaust products for commercial
vehicles in North America.

We also consider strategic opportunities that could enhance the company's
growth. Automotive suppliers continue to consolidate into larger, more efficient
and more capable companies and collaborate with each other in an effort to
better serve the global needs of their OEM customers. We regularly evaluate
various strategic and business development opportunities, including licensing
agreements, marketing arrangements, joint ventures, acquisitions and
dispositions. We remain committed to selectively pursuing alliances and
acquisitions that would allow us to gain access to new customers and
technologies, enter new product markets and implement our business strategies.
We also intend to continue to review the prospects of our existing businesses to
determine whether any of them should be modified, restructured, sold or
otherwise discontinued. See "Strategic Initiatives" and "Joint Ventures" for
information on initiatives in these areas.

Grow Content Per Vehicle Through Technologically Advanced Systems and
Modules. Increased outsourcing by OEMs has resulted in higher overall per
vehicle sales by independent suppliers and presents an opportunity for supplier
sales growth at a faster rate than the overall automotive industry growth trend.
OEMs are also demanding modules and integrated systems that require little
assembly by the OEM customer. In both light and commercial vehicle markets, we
believe that the trend is also away from sales of components to customers, and
toward integration of components into systems and eventual joint development of
integrated vehicles with development partners.

One of our significant growth strategies is to provide a higher level of
engineering and design expertise, to develop new products and improve existing
products that meet these customer needs. We will continue to invest in new
technologies and product development, and will work closely with our customers
to develop and implement design, engineering, manufacturing and quality
improvements. We will also continue to integrate our existing product lines by
using our design, engineering and manufacturing expertise and teaming with
technology partners to expand sales of higher-value modules and systems. For
example:

- LVS has developed the Air2Air(TM) system, an integrated airflow system
that expands our existing exhaust system products to incorporate air
induction components that are customarily produced internally by OEMs.
The first integrated system is scheduled for production on the 2003
Chevrolet SSR.

- LVS is a leading supplier of complete roof modules comprised of a roof
head liner bound to an outer shell using a patented process. These
modules can also incorporate LVS sunroof technology and such items as sun
visors, grab handles and interior lighting, as well as antennae and
speakers. Our roof

3

module is featured in the DaimlerChrysler SMART car and has been accepted
by a second global OEM.

- LVS has been awarded a $300 million annual contract to provide a complete
front suspension module for a popular sport utility vehicle.

- CVS has a contract to provide advanced front and rear suspension systems
for the new Blue Bird Wanderlodge M380 luxury motor coach.

Management believes that the strategy of continuing to introduce new and
improved systems and technologies will be an important factor in our efforts to
achieve our growth objectives. We will draw upon the engineering resources of
our Technical Centers in Troy, Michigan, and Columbus, Indiana, and our
engineering centers of expertise in the United States, Brazil, Canada, France,
Germany and the United Kingdom. See "Research and Development" below.

Enhance Core Products to Address Safety and Environmental Issues. Another
industry trend is the increasing amount of vehicle content that responds to
changes in environmental and safety-related regulatory requirements. OEMs select
suppliers based not only on the cost and quality of products, but also on
responsiveness to these customer needs. In order to meet these demands, we focus
significant attention on our core products and seek to develop products that
address safety and environmental concerns.

To address safety, our LVS group designs its aperture systems with stronger
materials, creates designs that enhance the vehicle's crashworthiness and
develops undercarriage systems that offer improved ride and vehicle control
dynamics. Our CVS group, for example, is focusing on the integration of braking
and stability products and suspension products, as well as the development of
electronic control capabilities. CVS is also developing braking systems
technology that would assist customers in meeting proposed U.S. regulations to
improve braking performance and reduce stopping distances for commercial motor
vehicles.

With respect to environmental regulations, LVS is an industry leader in air
and emissions systems that improve fuel economy and reduce air pollutants, and
CVS is applying our expertise in light vehicle air and emissions to the
commercial vehicle market. Looking forward, we continue to develop technical
expertise that will permit us to assist customers in meeting new and more
stringent emissions requirements that will be phased in over the next ten years
in our primary markets in North America and Europe.

Drive a Continuous Improvement Culture Focused on Economic Profit and
Return on Capital. In 2001, we implemented the ArvinMeritor Performance System,
a continuous improvement initiative that guides our philosophy for achieving
operational excellence, eliminating waste, improving quality and earning
customer loyalty. Throughout the company, continuous improvement teams have
achieved significant cost savings, increased productivity and efficiency and
streamlined operations. They have focused on eliminating non-value-added tasks,
reducing lead and cycle times and improving customer service.

A continuous improvement culture is important to our business operations
and to maintaining and improving our earnings. Process improvement initiatives
should help us achieve our goals with respect to economic profit, which is net
operating profit after taxes less a cost of capital charge for net assets
employed. We believe that economic profit is a key performance measure, and that
our focus on economic profit in fiscal year 2002 helped us achieve strong cash
flow and debt reduction.

PRODUCTS

ArvinMeritor designs, develops, manufactures, markets, distributes, sells,
services and supports a broad range of products for use in commercial, specialty
and light vehicles. In addition to sales of original equipment systems and
components, we provide our products to OEMs, dealers, distributors, fleets and
other end-users in certain aftermarkets.

The following chart sets forth operating segment sales by product for each
of the three fiscal years ended September 30, 2002. Product sales by Arvin and
its subsidiaries are included only for periods after the date of

4

the Merger. A narrative description of the principal products of our three
operating segments and other operations follows the chart.

SALES BY PRODUCT

- ---------------
(1) Sales relating to motion control products (included in aperture systems),
ride control systems (included in undercarriage systems and suspension
systems and trailer products), air and emissions systems, LVA products and
Other are included only for periods after the date of the Merger, July 7,
2000.

Light Vehicle Systems

A key strategy of LVS is to enhance our market position in air and
emissions systems, aperture systems (including roof and door systems and motion
control products), and undercarriage components and systems (including
suspension and ride control systems and wheel products). The following products
comprise our LVS portfolio.

Air and Emissions Systems

We are a leading global supplier of a complete line of exhaust system
components, including mufflers, exhaust pipes, catalytic converters and exhaust
manifolds. We sell these products to OEMs primarily as original equipment, while
also supporting manufacturers' needs for replacement parts and dealers' needs
for service parts. We also produce our Air2Air(TM) system, which combines air
induction and exhaust systems into an integrated airflow system for OEM
customers and provides an overall improved airflow system for better system
performance with less development time.

5

We participate in this business both directly and through joint ventures
and affiliates. These alliances include our 50% interest in Arvin Sango Inc., an
exhaust joint venture based in North America, and our 49% interest in Zeuna
Starker GmbH & Co., an exhaust systems supplier headquartered in Germany. See
"Joint Ventures" below.

Aperture Systems

Roof Systems. ArvinMeritor is one of the world's leading independent
suppliers of sunroofs and roof systems products for use in passenger cars, light
trucks and sport utility vehicles. We make one-piece, modular roof systems, some
of which incorporate sunroofs, that provide OEMs with cost savings by reducing
assembly time and parts. Our roof system manufacturing facilities are located in
North America, Europe and the Asia/ Pacific region.

Door Systems. We are a leading supplier of integrated door modules and
systems, including manual and power window regulators and latch systems. Our
wide range of power and manual door system products utilize numerous
technologies, including our own electric motors, which are designed for
individual applications and to maximize operating efficiency and reduce noise
levels. We manufacture window regulators at plants in North and South America,
Europe and the Asia/Pacific region for light vehicle and heavy-duty commercial
vehicle OEMs.

We also supply manual and power activated latch systems to light vehicle
and heavy-duty commercial vehicle manufacturers. Our access control products
include modular and integrated door latches, actuators, trunk and hood latches
and fuel flap locking devices with leadership market positions in Europe and a
market presence in North America and the Asia/Pacific region. We have access
control systems manufacturing and/or assembly facilities in North and South
America, Europe and the Asia/Pacific region.

Motion Control Products. We are a worldwide leader in the manufacture and
supply of motion control and counterbalancing products for the automotive
industry. Our products include gas lift supports and vacuum actuators. We have
motion control products manufacturing facilities in the United States and the
United Kingdom.

Undercarriage Systems

Suspension Systems. Through our 57%-owned joint venture with Mitsubishi
Steel Manufacturing Co., we are one of the leading independent suppliers of
products used in suspension systems for passenger cars, light trucks and sport
utility vehicles in North America. Our suspension system products, which are
manufactured at facilities in the United States and Canada, include coil
springs, stabilizer bars and torsion bars. In addition, we supply automotive
suspension components for the European light vehicle market from a manufacturing
facility in England.

Ride Control Systems. We provide ride control products, including shock
absorbers, struts, ministruts and corner modules. We participate in this
business both directly and through a joint venture. We manufacture ride control
products and are a leading supplier in the European OEM market through a joint
venture with Kayaba Industries, Inc. ("Kayaba"). See "Joint Ventures" below.

Wheel Products. We are a leading supplier of steel wheel products to the
light vehicle OEM market, principally in North and South America. We have wheel
manufacturing facilities in Brazil and Mexico. Our wheel products include
fabricated steel wheels, bead seat attached wheels, full-face designed wheels
and clad wheels with the appearance of a chrome finish. Our cladding process
offers enhanced styling options previously available only in aluminum wheels.

Commercial Vehicle Systems

Drivetrain Systems

Truck Axles. We are one of the world's leading independent suppliers of
axles for medium- and heavy-duty commercial vehicles, with axle manufacturing
facilities located in North America, South America,

6

Europe and the Asia/Pacific region. Our extensive truck axle product line
includes a wide range of drive and non-drive front steer axles and single and
tandem rear drive axles, which can include driver-controlled differential lock
for extra traction, aluminum carriers to reduce weight and pressurized filtered
lubrication systems for longer life. Our front steer and rear drive axles can be
equipped with our cam, wedge or air disc brakes, automatic slack adjusters and
anti-lock braking systems.

Drivelines and Other Products. We also supply universal joints and
driveline components, including our Permalube(TM) universal joint, a permanently
lubricated universal joint used in the high mileage on-highway market.

Braking Systems

We are a leading independent supplier of air and hydraulic brakes to
medium- and heavy-duty commercial vehicle manufacturers in North America and
Europe. In Brazil, the third largest truck and trailer market in the world, our
49%-owned joint venture with Randon S. A. Veiculos e Implementos is a leading
supplier of brakes and brake-related products.

Through manufacturing facilities located in North America and Europe, we
manufacture a broad range of foundation air brakes, as well as automatic slack
adjusters for brake systems. Our foundation air brake products include cam drum
brakes, which offer improved lining life and tractor/trailer interchangeability;
air disc brakes, which provide fade resistant braking for demanding
applications; wedge drum brakes, which are lightweight and provide automatic
internal wear adjustment; hydraulic brakes; and wheel end components such as
hubs, drums and rotors.

Federal regulations require that new heavy- and medium-duty vehicles sold
in the United States be equipped with anti-lock braking systems ("ABS"). Our
50%-owned joint venture with WABCO Automotive Products ("WABCO"), a wholly-owned
subsidiary of American Standard, Inc., is the leading supplier of ABS and a
supplier of other electronic and pneumatic control systems for North American
heavy-duty commercial vehicles. The joint venture also supplies hydraulic ABS to
the North American medium-duty truck market.

Specialty Systems

Off-Highway Vehicle Products. We supply heavy-duty axles, brakes and
drivelines for use in numerous off-highway vehicle applications, including
construction, material handling, agriculture, mining and forestry, in North
America, South America, Europe and the Asia/Pacific region. These products are
designed to tolerate high tonnages and operate under extreme conditions. In
October 2002, we announced an agreement to sell our off-highway planetary axle
business. See "Strategic Initiatives" below.

Government Products. We supply axles, brakes and brake system components
including ABS, trailer products, transfer cases and drivelines for use in
medium-duty and heavy-duty military tactical wheeled vehicles, principally in
North America.

Specialty Vehicle Products. We supply axles, brakes and transfer cases for
use in buses, coaches and recreational, fire and other specialty vehicles in
North America and Europe, and we are the leading supplier of bus and coach axles
and brakes in North America.

Suspension Systems and Trailer Products

We believe we are the world's leading manufacturer of heavy-duty trailer
axles, with leadership positions in North America and in Europe. Our trailer
axles are available in over 40 models in capacities from 20,000 to 30,000 pounds
for virtually all heavy trailer applications and are available with our broad
range of brake products, including ABS. In addition, we supply trailer air
suspension systems and products for which we have strong market positions in
Europe and an increasing market presence in North America.

7

In August 2002, we entered into a 50%-owned joint venture with Randon
Participacoes to develop, manufacture and sell truck suspensions, trailer axles
and suspensions and related wheel-end products in the South American market. See
"Joint Ventures" below.

Transmissions

Our 50%-owned joint venture with ZF Friedrichshafen AG ("ZF")produces
technologically advanced transmission components and systems for heavy vehicle
OEMs and the aftermarket in the United States, Canada and Mexico. This
transmission product line enables us to supply a complete drivetrain system to
heavy-duty commercial vehicle manufacturers in North America. The most recent
additions to the joint venture's range of transmission models include
FreedomLine(TM), a fully automated mechanical truck transmission without a
clutch pedal, and SureShift(TM), a shift-by-wire system that provides the
operating ease of an automatic transmission with full manual control by the
driver.

Light Vehicle Aftermarket

The principal LVA products include mufflers; exhaust and tail pipes;
catalytic converters; shock absorbers; struts; and automotive oil, air, and fuel
filters. These products are sold under the brand names Arvin(R)(mufflers);
Gabriel(R) (shock absorbers); and Purolator(R) (filters). LVA also markets
products under private label to customers such as Pep Boys and CARQUEST (ride
control) and Quaker State (filters).

Other

"Other" consists of business units that are not focused predominantly on
automotive products and includes our coil coating operation. Coated steel and
aluminum substrates are used in a variety of applications, which include
consumer appliances; roofing and siding; garage and entry doors; heating,
ventilation and air conditioning (HVAC); and transportation.

CUSTOMERS; SALES AND MARKETING

ArvinMeritor's operating segments have numerous customers worldwide and
have developed long-standing business relationships with many of these
customers. Our ten largest customers accounted for approximately 65% of our
total sales in fiscal year 2002.

Original Equipment. Both LVS and CVS market and sell products principally
to OEMs. In North America, CVS also markets truck and trailer products directly
to dealers, fleets and other end-users, which may designate the components and
systems of a particular supplier for installation in the vehicles they purchase
from OEMs.

Consistent with industry practice, LVS and CVS make most of their sales to
OEMs through open purchase orders, which do not require the purchase of a
minimum number of products. The customer typically may cancel these purchase
orders on reasonable notice. LVS and CVS also sell products to certain customers
under long-term arrangements that require us to provide annual cost reductions
(through price reductions or other cost benefits for the OEMs). If we were
unable to generate sufficient cost savings in the future to offset such price
reductions, our gross margins would be adversely affected.

Both LVS and CVS are dependent upon large OEM customers with substantial
bargaining power with respect to price and other commercial terms. Although we
believe that our businesses generally enjoy good relations with our OEM
customers, loss of all or a substantial portion of sales to any of our large
volume customers for whatever reason (including, but not limited to, loss of
contracts, reduced or delayed customer requirements, plant shutdowns, strikes or
other work stoppages affecting production by such customers) could have a
significant adverse effect on our financial results. During fiscal year 2002,
DaimlerChrysler AG (which owns Chrysler, Mercedes-Benz AG and Freightliner
Corporation) accounted for approximately $670 million of sales for LVS, $410
million of sales for CVS and $20 million of sales for LVA, or 16% of our total
sales. In addition, General Motors Corporation accounted for approximately $840
million of sales for LVS, $65 million of sales for CVS and $15 million of sales
for LVA, or 13% of our total sales, and Ford Motor Company

8

accounted for approximately $605 million of sales for LVS, $30 million of sales
for CVS and $90 million of sales for LVA, or 11% of our total sales. No other
customer accounted for over 10% of our total sales in fiscal year 2002.

Except as noted above with respect to the North American market for
heavy-duty trucks and trailers, LVS and CVS generally compete for new business
from OEMs, both at the beginning of the development of new vehicle platforms and
upon the redesign of existing platforms. New platform development generally
begins two to four years prior to start-up of production. Once a supplier has
been designated to supply products to a new platform, an OEM will generally
continue to purchase those products from the supplier for the life of the
platform, which typically lasts three to six years.

Aftermarkets. CVS also provides truck and trailer products and off-highway
and specialty products to OEMs, dealers and distributors in the aftermarket. LVA
sells products primarily to wholesale distributors, retailers and installers.
The light vehicle aftermarket includes fewer and larger customers as the market
consolidates and as OEMs increase their presence in the market.

Coil Coating. Our coil coating customers include steel companies, service
centers and end manufacturers engaged in the transportation, appliance,
construction and furniture industries.

COMPETITION

Each of ArvinMeritor's businesses operates in a highly competitive
environment. LVS and CVS compete worldwide with a number of North American and
international providers of components and systems, some of which belong to, or
are associated with, some of our customers. Some of these competitors are larger
and some are smaller than the company in terms of resources and market shares.
The principal competitive factors are price, quality, service, product
performance, design and engineering capabilities, new product innovation and
timely delivery. LVS has numerous competitors across its various product lines
worldwide, including Tenneco, Faurecia and Eberspaecher (air and emissions
systems); Webasto and Inalfa (roof systems); Brose, Magna, Hi-Lex and Grupo
Antolin (door systems); Kiekert and Valeo (latch systems); Stabilus (motion
control products); Thyssen-Krupp and NHK Spring (suspension systems); Kayaba,
Tenneco and Sachs (ride control systems); and Hayes-Lemmerz and Michelin (wheel
products). The major competitors of CVS are Dana Corporation and Eaton
Corporation (truck axles and drivelines); Knorr/Bendix and Haldex Braking
Systems (braking systems); Hendrickson and Holland-Neway (suspension systems);
Hendrickson and Dana (trailer products); and Eaton Corporation (transmissions).
In addition, certain OEMs manufacture for their own use products of the types we
supply, and any future increase in this activity could displace our sales.

LVA competes with both OEMs and independent suppliers in North America and
Europe and serves the market through our own sales force, as well as through a
network of manufacturers' representatives. Major competitors include Tenneco,
Goerlicks, Bosal, Flowmaster, Sebring and Remus (exhaust products); Tenneco,
Kayaba and Sachs (ride control products); and Champion Laboratories, Honeywell,
Dana, Mann & Hummel, Sogefi Filtration and Mahle (filtration products).
Competitive factors include customer loyalty, competitive pricing, customized
service, quality, timely delivery, product development and manufacturing process
efficiency.

Our coil coating operation competes with other coil coaters and with
customers' internal painting systems.

RAW MATERIALS AND SUPPLIES

We believe we have adequate sources for the supply of raw materials and
components for our business segments' manufacturing needs with suppliers located
around the world. We do, however, concentrate our purchases of certain raw
materials and parts over a limited number of suppliers, some of which are
located in developing countries, and we are dependent upon the ability of our
suppliers to meet performance and quality specifications and delivery schedules.
Although we historically have not experienced any significant difficulties in
obtaining an adequate supply of raw materials and components necessary for our
manufacturing operations,

9

the loss of a significant supplier or the inability of a supplier to meet
performance and quality specifications or delivery schedules could have an
adverse effect on us.

On March 5, 2002, President Bush, acting under Section 201 of the Trade Act
of 1974, imposed tariffs of up to 30% on imports of most flat rolled carbon
steel products for a three-year period. Imports of finished steel have decreased
since imposition of the tariffs, and we began to experience rising steel prices
and spot shortages of certain steel products as a result of these tariffs in the
second half of fiscal year 2002. We cannot predict the effect of the tariffs on
availability of steel in fiscal year 2003. If supplies are inadequate for our
needs, or if prices increase significantly and we are unable to either pass
these price increases to our customer base or mitigate the cost increases by
alternative sourcing of material or components, our sales and operating income
could be adversely affected.

STRATEGIC INITIATIVES

We regularly consider various strategic and business opportunities,
including licensing agreements, marketing arrangements and acquisitions, and
review the prospects of our existing businesses to determine whether any of them
should be modified, restructured, sold or otherwise discontinued.

The industry in which we operate continues to experience significant
consolidation among suppliers. This trend is due in part to globalization and
increased outsourcing of product engineering and manufacturing by OEMs, and in
part to OEMs reducing the total number of their suppliers by more frequently
awarding long-term, sole-source or preferred supplier contracts to the most
capable global suppliers. Scale is an important competitive factor, with the
largest industry participants able to maximize key resources and contain costs.

Consistent with this trend, we completed the Merger of Arvin and Meritor in
fiscal year 2000 in order to enhance the financial strength, diversity of
operations and product lines of both companies and to better position ourselves
to take advantage of global opportunities. In addition, we believe that
efficiencies and cost savings resulting from the Merger enable us to improve
upon and increase our strategic options and lower our average cost of capital.

On October 31, 2002, we announced that we had entered into an agreement to
sell our off-highway planetary axle business to Axle Tech International, an
affiliate of Wynnchurch Capital, Ltd. The sale includes manufacturing sites at
Oshkosh, Wisconsin and St. Etienne, France and the planetary axle operations in
Osasco, Brazil, and Seoul, Korea and is contingent on the satisfaction of
certain conditions. We expect to complete the transaction in the first half of
fiscal year 2003.

In the first quarter of fiscal 2002, we recorded a restructuring charge of
$15 million to realign certain operations to reflect the weak demand in our
major markets. The charge related to employee severance benefits for
approximately 450 salaried employees. See Note 5 of the Notes to Consolidated
Financial Statements under Item 8. Financial Statements and Supplementary Data
below.

No assurance can be given as to whether or when any additional strategic
initiatives will be consummated in the future. We will continue to consider
acquisitions as a means of growing the company or adding needed technologies,
but cannot predict whether our participation or lack of participation in
industry consolidation will ultimately be beneficial to us. If an agreement with
respect to any additional acquisitions were to be reached, we could finance such
acquisitions by issuance of additional debt or equity securities or by using our
accounts receivable securitization facility. The additional debt from any such
acquisitions, if consummated, could increase our debt to capitalization ratio.
In addition, the ultimate benefit of any acquisition would depend on our ability
to successfully integrate the acquired entity or assets into our existing
business and to achieve any projected synergies.

JOINT VENTURES

As the automotive industry has become more globalized, joint ventures and
other cooperative arrangements have become an important element of our business
strategies. At September 30, 2002, we participated in 26 joint ventures with
interests in the United States, Brazil, Canada, China, Colombia, the Czech
Republic,

10

Germany, Hungary, India, Italy, Japan, Mexico, South Africa, Spain, Turkey,
Venezuela and the United Kingdom.

In accordance with accounting principles generally accepted in the United
States, our consolidated financial statements include the operating results of
those majority-owned joint ventures in which we have control. Significant
consolidated joint ventures include our 57%-owned North American joint venture
with Mitsubishi Steel Manufacturing Co. (suspension products for passenger cars,
light trucks and sport utility vehicles); and our 75% interest in a joint
venture in Spain with Kayaba (ride control products). Significant unconsolidated
joint ventures include our 50%-owned North American joint venture with WABCO
(ABS systems for heavy-duty commercial vehicles); our 50%-owned joint venture in
the United States with ZF (transmissions); our 50% interest in Arvin Sango Inc.
in the United States and our 49% interest in Zeuna Starker GmbH & Co. in Germany
(air and emissions systems).

In August 2002, we formed a 50%-owned joint venture with Randon
Participacoes to develop, manufacture and sell truck suspensions, trailer axles
and suspensions and related wheel-end products in the South American market. The
joint venture will combine our product technology and customer contacts with
Randon's manufacturing and operations expertise and could enhance both our
market penetration in South America and our product portfolio outside of the
region.

In October 2002, Kayaba purchased our 40% interest in a Spanish joint
venture that manufactures steering pumps, and our participation in this joint
venture was terminated.

On December 17, 2002, we entered into agreements to purchase the remaining
51% interest in Zeuna Starker GmbH & Co. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity.

RESEARCH AND DEVELOPMENT

We have significant research, development, engineering and product design
capabilities. We spent $132 million in fiscal year 2002, $136 million in fiscal
year 2001, and $115 million in fiscal year 2000 on research, development and
engineering. At September 30, 2002, we employed approximately 1,700 professional
engineers and scientists.

PATENTS AND TRADEMARKS

We own or license many United States and foreign patents and patent
applications in our manufacturing operations and other activities. While in the
aggregate these patents and licenses are considered important to the operation
of our businesses, management does not consider them of such importance that the
loss or termination of any one of them would materially affect a business
segment or ArvinMeritor as a whole. (See Item 3. Legal Proceedings for
information regarding a patent infringement lawsuit filed against the company by
Eaton Corporation and adverse judgments in the case.)

Our registered trademarks ArvinMeritor(R), Arvin(R) and Meritor(R) are
important to our business. Other significant trademarks owned by us include
Gabriel(R) (shock absorbers and struts) and Purolator(R) (filters) with respect
to LVA, and ROR(TM) (trailer axles) with respect to CVS. In connection with the
1997 spin-off of Meritor's common stock to the shareowners of Rockwell
International Corporation (now Rockwell Automation, Inc., and referred to in
this Annual Report on Form 10-K as "Rockwell") and the transfer of Rockwell's
automotive businesses to Meritor, Meritor entered into an agreement that allows
us to continue to apply the "Rockwell" brand name to our products until
September 30, 2007.

EMPLOYEES

At September 30, 2002, we had approximately 32,000 full-time employees. At
that date, approximately 4,500 employees in the United States and Canada were
covered by collective bargaining agreements and most

11

of our facilities outside of the United States and Canada were unionized. We
believe our relationship with unionized employees is satisfactory. No
significant work stoppages have occurred in the past five years.

ENVIRONMENTAL MATTERS

Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes and other
activities affecting the environment have, and will continue to have, an impact
on our manufacturing operations. We record liabilities for environmental issues
in the accounting period in which our responsibility is established and the cost
can be reasonably estimated. At environmental sites in which more than one
potentially responsible party has been identified, we record a liability for our
allocable share of costs related to our involvement with the site, as well as an
allocable share of costs related to insolvent parties or unidentified shares. At
environmental sites in which we are the only potentially responsible party, we
record a liability for the total estimated costs of remediation before
consideration of recovery from insurers or other third parties.

We have been designated as a potentially responsible party at eight
Superfund sites, excluding sites as to which our records disclose no involvement
or as to which our potential liability has been finally determined. Management
estimates the total reasonably possible costs we could incur for the remediation
of Superfund sites at September 30, 2002, to be approximately $34 million, of
which $13 million is recorded as a liability.

In addition to Superfund sites, various other lawsuits, claims and
proceedings have been asserted against us, alleging violations of federal, state
and local environmental protection requirements or seeking remediation of
alleged environmental impairments, principally at previously disposed-of
properties. For these matters, management has estimated the total reasonably
possible costs we could incur at September 30, 2002, to be approximately $50
million, of which $21 million is recorded as a liability.

The process of estimating environmental liabilities is complex and
dependent on physical and scientific data at the site, uncertainties as to
remedies and technologies to be used, and the outcome of discussions with
regulatory agencies. The actual amount of costs or damages for which we may be
held responsible could materially exceed the foregoing estimates because of
these uncertainties and others (including the financial condition of other
potentially responsible parties and the success of the remediation) that make it
difficult to accurately predict actual costs. However, based on management's
assessment, after consulting with Vernon G. Baker, II, Esq., General Counsel of
ArvinMeritor, and subject to the difficulties inherent in estimating these
future costs, we believe that our expenditures for environmental capital
investment and remediation necessary to comply with present regulations
governing environmental protection and other expenditures for the resolution of
environmental claims will not have a material adverse effect on our business,
financial condition or results of operations. In addition, in future periods,
new laws and regulations, advances in technology and additional information
about the ultimate clean-up remedy could significantly change our estimates.
Management cannot assess the possible effect of compliance with future
requirements.

INTERNATIONAL OPERATIONS

Approximately 40% of our total assets as of September 30, 2002 and 38% of
fiscal year 2002 sales were outside North America. See Note 23 of the Notes to
Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data below for financial information by geographic area for the
three fiscal years ended September 30, 2002.

Management believes that international operations have significantly
benefited our financial performance. However, our international operations are
subject to a number of risks inherent in operating abroad, including, but not
limited to:

- risks with respect to currency exchange rate fluctuations;

- local economic and political conditions;

12

- disruptions of capital and trading markets;

- restrictive governmental actions (such as restrictions on transfer of
funds and trade protection measures, including export duties and quotas
and customs duties and tariffs);

- changes in legal or regulatory requirements;

- import or export licensing requirements;

- limitations on the repatriation of funds;

- difficulty in obtaining distribution and support;

- nationalization;

- the laws and policies of the United States affecting trade, foreign
investment and loans;

- tax laws; and

- labor disruptions.

There can be no assurance that these risks will not have a material adverse
impact on our ability to increase or maintain our foreign sales or on our
financial condition or results of operations.

The impact that the euro and other currencies will have on our sales and
operating income is difficult to predict in fiscal year 2003. We enter into
foreign currency contracts to help minimize the risk of loss from currency rate
fluctuations on foreign currency commitments entered into in the ordinary course
of business. It is our policy not to enter into derivative financial instruments
for speculative purposes and, therefore, we hold no derivative instruments for
trading purposes. We have not experienced any material adverse effect on our
business, financial condition or results of operations related to these foreign
currency contracts. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quantitative and Qualitative
Disclosures About Market Risk below.

SEASONALITY; CYCLICALITY

LVS and CVS may experience seasonal variations in the demand for products
to the extent automotive vehicle production fluctuates. Historically, for both
segments, such demand has been somewhat lower in the quarters ended September 30
and December 31, when OEM plants may close during model changeovers and vacation
and holiday periods.

In addition, the industry in which LVS and CVS operate has been
characterized historically by periodic fluctuations in overall demand for
trucks, passenger cars and other vehicles for which we supply products,
resulting in corresponding fluctuations in demand for our products. The cyclical
nature of the automotive industry is outside our control and cannot be predicted
with certainty. Cycles in the major automotive industry markets of North America
and Europe are not necessarily concurrent or related.

13

The following table sets forth vehicle production in principal markets
served by LVS and CVS for the last five fiscal years:

- ---------------
Source: Automotive industry publications and management estimates.

We believe that the stronger heavy-duty truck demand in North America in
fiscal year 2002 was partially due to the pre-buy before new U.S. emission
standards went into effect on October 1, 2002. As a result, we anticipate the
North American heavy-duty truck market to be slightly weaker in fiscal year
2003, with production at an estimated 161,000 units. In Western Europe, we
expect production of heavy- and medium-duty trucks to decrease approximately 5%
to 337,000 units. Our most recent outlook shows North American and Western
European light vehicle production to be 16.0 million and 16.5 million vehicles,
respectively, during fiscal year 2003. See "Industry Developments and Outlook"
above and Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview and Outlook and -- Results of Operations
below for information on downturns in certain markets and their effects on our
sales and earnings.

AVAILABLE INFORMATION

We make available free of charge through our web site
(www.arvinmeritor.com) our Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, all amendments to those reports, and other
filings with the Securities and Exchange Commission, as soon as reasonably
practicable after they are filed.

CAUTIONARY STATEMENT

This Annual Report on Form 10-K contains statements relating to future
results of the company (including certain projections and business trends) that
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are typically identified by words
or phrases such as "believe," "expect," "anticipate," "estimate," "should," "are
likely to be" and similar expressions. Actual results may differ materially from
those projected as a result of certain risks and uncertainties, including but
not limited to global economic and market conditions; the demand for commercial,
specialty and light vehicles for which the company supplies products; risks
inherent in operating abroad, including foreign currency exchange rates; the
availability and cost of raw materials; OEM program delays; demand for and
market acceptance of new and existing products; successful development of new
products; reliance on major OEM customers; labor relations of the company, its
customers and suppliers; successful integration of acquired or merged
businesses; achievement of the expected annual savings and synergies from past
and future business combinations; competitive product and pricing pressures; the
amount of the company's debt; the ability of the company to access capital
markets; the credit ratings of the company's debt; the outcome of existing and
any future legal proceedings, including any litigation with respect to
environmental or asbestos-related matters; as well as other risks and
uncertainties, including but not limited to those

14

detailed herein and from time to time in other filings of the company with the
Securities and Exchange Commission. See also the following portions of this
Annual Report on Form 10-K: Item 1. Business -- "Industry Developments and
Outlook"; "Customers; Sales and Marketing"; "Competition"; "Raw Materials and
Supplies"; "Strategic Initiatives"; "Environmental Matters"; "International
Operations"; and "Seasonality; Cyclicality"; Item 3. Legal Proceedings; and Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 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.

ITEM 2. PROPERTIES.

At September 30, 2002, our operating segments and joint ventures had the
following facilities in the United States, Europe, South America, Canada,
Mexico, Australia, South Africa and the Asia/Pacific region:

These facilities had an aggregate floor space of approximately 33.2 million
square feet, substantially all of which is in use. We owned approximately 74%
and leased approximately 26% of this floor space. There are no major
encumbrances (other than financing arrangements that in the aggregate are not
material) on any of our plants or equipment. In the opinion of management, our
properties have been well maintained, are in sound operating condition and
contain all equipment and facilities necessary to operate at present levels. A
summary of floor space of these facilities at September 30, 2002, is as follows:

In October 2002, we announced an agreement to sell our off-highway
planetary axle business. The sale includes two owned manufacturing facilities,
in Oshkosh, Wisconsin, USA and St. Etienne, France, with a total of 834,000
square feet of floor space.

ITEM 3. LEGAL PROCEEDINGS.

On July 17, 1997, Eaton Corporation filed suit against Rockwell in the U.S.
District Court in Wilmington, Delaware, asserting infringement of Eaton's U.S.
Patent No. 4850236, which covers certain aspects of heavy-duty truck
transmissions, by our Engine SynchroShift(TM) transmission for heavy-duty
trucks, and seeking damages and injunctive relief. Meritor was joined as a
defendant on June 11, 1998. The following judgments and orders have been issued
in this case:

- After trial, on July 1, 1998, a jury rendered a verdict in favor of
Eaton, finding that Meritor had infringed Eaton's patent and awarding
compensatory damages in an amount equal to 13% of total

15

product sales. On October 11, 2001, the judge entered an order granting damages
to Eaton in the amount of $2.9 million, plus post-judgment interest.

- A separate phase of the trial was held in April 1999, without a jury,
with respect to Meritor's allegations that Eaton had engaged in
inequitable conduct in obtaining its patent and that the patent was
therefore unenforceable. On February 9, 2001, the judge ruled against us
on the second phase of the proceedings, finding that we had not provided
clear and convincing evidence of inequitable conduct by Eaton in
obtaining its patent.

- On September 19, 2001, the judge granted Eaton's request for a permanent
injunction against our manufacturing or selling the Engine
SynchroShift(TM) transmission and any "colorable variations."

- On October 11, 2001, the judge denied our motions for a new trial and for
judgment as a matter of law.

We have appealed these judgments and orders to the United States Court of
Appeals for the Federal Circuit and oral arguments were held in October 2002.
Based on advice of M. Lee Murrah, Esq., Chief Intellectual Property Counsel of
ArvinMeritor, management believes our truck transmissions do not infringe
Eaton's patent. We intend to continue to defend this suit vigorously.

Maremont Corporation ("Maremont," a subsidiary of ArvinMeritor) and many
other companies are defendants in suits brought by individuals claiming personal
injuries as a result of exposure to asbestos-containing products. Maremont
manufactured friction products containing asbestos from 1953 through 1977, when
it sold its friction product business. Arvin acquired Maremont in 1986. During
fiscal years 1997 through 2002, Maremont paid approximately $52 million to
address asbestos-related claims, substantially all of which was reimbursed by
insurance.

Maremont's potential liabilities for asbestos-related claims include the
following:

- Unbilled committed settlements entered into by the Center for Claims
Resolution: Maremont participated in the Center for Claims Resolution
("CCR") and agreed to share with other CCR members in the payments of
defense and indemnity costs for asbestos-related claims. The CCR handled
the resolution and processing of asbestos claims on behalf of its members
until February 1, 2001, when it was reorganized and discontinued
negotiating shared settlements.

- Pending claims: Since February 1, 2001, Maremont has hired its own
litigation counsel and is committed to examining the merits of each
asbestos-related claim. For purposes of establishing reserves for pending
asbestos-related claims, Maremont estimates its defense and indemnity
costs based on the history and nature of filed claims to date and
Maremont's experience since February 1, 2001. Maremont had approximately
37,500 and 27,500 pending asbestos-related claims at September 30, 2002
and 2001, respectively. Although Maremont has been named in these cases,
in the cases where actual injury has been alleged, very few claimants
have established that a Maremont product caused their injuries.

- Shortfall: Several former members of the CCR have filed for bankruptcy
protection, and these members have failed, or may fail, to pay certain
financial obligations with respect to settlements that were reached while
they were CCR members. Maremont is subject to claims for payment of a
portion of these defaulted member shares. In an effort to resolve the
affected settlements, Maremont has entered into negotiations with
plaintiffs' attorneys, and an estimate of Maremont's obligation for the
shortfall is included in the total asbestos-related reserves (discussed
below). In addition, Maremont and its insurers are engaged in legal
proceedings to determine whether existing insurance coverage should
reimburse any potential liability related to this issue.

Maremont has insurance that reimburses a substantial portion of the costs
incurred defending against asbestos-related claims. The coverage also reimburses
Maremont for any indemnity paid on those claims. The coverage is provided by
several insurance carriers based on the insurance agreements in place. Based on
its assessment of the history and nature of filed claims to date, and of
Maremont's insurance carriers,

16

management believes that existing insurance coverage is adequate to cover
substantially all costs relating to pending and future asbestos-related claims.

At September 30, 2002, Maremont had established reserves of $66 million
relating to these potential asbestos-related liabilities and corresponding
asbestos-related recoveries of $59 million. The amounts recorded for the
asbestos-related reserves and recoveries from insurance companies are based upon
assumptions and estimates derived from currently known facts. All such estimates
of liabilities for asbestos-related claims are subject to considerable
uncertainty because such liabilities are influenced by variables that are
difficult to predict. If the assumptions with respect to the nature of pending
claims, the cost to resolve claims and the amount of available insurance prove
to be incorrect, the actual amount of Maremont's liability for asbestos-related
claims, and the effect on ArvinMeritor, could differ materially from current
estimates. Maremont does not have sufficient information to make a reasonable
estimate of its potential liability for asbestos-related claims that may be
asserted against it in the future, and has not accrued reserves for these
unknown claims.

See Item 1. Business, "Environmental Matters" for information relating to
environmental proceedings.

Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against ArvinMeritor or our subsidiaries relating to the
conduct of our business, including those pertaining to product liability,
intellectual property, safety and health, and employment matters. Although the
outcome of litigation cannot be predicted with certainty and some lawsuits,
claims or proceedings may be disposed of unfavorably to ArvinMeritor, management
believes, after consulting with Vernon G. Baker, II, Esq., ArvinMeritor's
General Counsel, that the disposition of matters that are pending will not have
a material adverse effect on our business, financial condition or results of
operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 2002.

ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.

The name, age, positions and offices held with ArvinMeritor and principal
occupations and employment during the past five years of each of our executive
officers as of November 30, 2002, are as follows:

LARRY D. YOST, 64 -- Chairman of the Board and Chief Executive Officer
since July 2000. Chairman of the Board and Chief Executive Officer of Meritor
from May 1997 to July 2000; Acting President, Light Vehicle Systems of Meritor
from January 1998 to March 1999.

VERNON G. BAKER, II, 49 -- Senior Vice President and General Counsel since
July 2000. Secretary of ArvinMeritor from July 2000 to November 2001; Senior
Vice President, General Counsel and Secretary of Meritor from August 1999 to
July 2000; Vice President and General Counsel, Corporate Research and Technology
of Hoechst Celanese Corporation, a subsidiary of Hoechst AG (pharmaceuticals and
industrial chemicals), from 1989 to July 1999.

DIANE S. BULLOCK, 45 -- Vice President and Controller since August 2001.
Vice President, Corporate Development of ArvinMeritor from July 2000 to December
2000; Vice President and Controller of Meritor from September 1998 to July 2000;
Assistant Controller of Meritor from January 1998 to September 1998;
Controller -- Body Systems N.A. of ITT Automotive, Inc. (automotive component
supplier) from 1995 to 1997.

LINDA M. CUMMINS, 55 -- Senior Vice President, Communications since July
2000. Senior Vice President, Communications of Meritor from April 2000 to July
2000; Vice President, Communications of Meritor from August 1999 to April 2000;
Vice President of Advanced Marketing and Worldwide Communications of United
Technologies Automotive (automotive component supplier) from August 1997 to
August 1999.

WILLIAM K. DANIEL, 37 -- Senior Vice President and President, Light Vehicle
Aftermarket since July 2000. President of Arvin Replacement Products business
group from December 1999 to July 2000; Managing
17

Director of Arvin Replacement Products in Europe from January 1998 to November
1999; Managing Director of Gabriel Europe from May 1996 to December 1997.

JUAN L. DE LA RIVA, 58 -- Senior Vice President, Corporate Development &
Strategy, Engineering and Procurement since October 2001. Senior Vice President,
Corporate Development and Strategy of ArvinMeritor from July 2000 to October
2001; Senior Vice President, Business Development of Meritor from February 2000
to July 2000; Senior Vice President, Business Development and Communications of
Meritor from February 1999 to February 2000; Vice President, Business
Development and Communications of Meritor from September 1998 to February 1999;
Managing Director -- Wheels, Light Vehicle Systems of Meritor from September
1997 to September 1998.

THOMAS A. GOSNELL, 52 -- Senior Vice President and President, Commercial
Vehicle Systems since November 2000. Senior Vice President and President, Heavy
Vehicle Systems Aftermarket Products of ArvinMeritor from July 2000 to November
2000; Senior Vice President and President, Worldwide Aftermarket of Meritor from
September 1999 to July 2000; Vice President and General Manager, Aftermarket, of
Meritor from February 1998 to September 1999; General Manager, Worldwide
Aftermarket Services, Heavy Vehicle Systems, of Meritor from September 1997 to
February 1998.

PERRY L. LIPE, 56 -- Senior Vice President and Chief Information Officer
since July 2000. Vice President, Information Technology of Arvin from September
1998 to July 2000; Vice President, Information Technology of Fisher Controls
International, Inc. (valves, regulators and instrumentation) from September 1992
to August 1998.

TERRENCE E. O'ROURKE, 55 -- President and Chief Operating Officer since
June 2002. Senior Vice President and President, Light Vehicle Systems of
ArvinMeritor from July 2000 to May 2002; Senior Vice President and President,
Light Vehicle Systems of Meritor from March 1999 to July 2000; Group Vice
President and President -- Ford Division of Lear Corporation (automotive
component supplier) from January 1996 to January 1999.

DEBRA L. SHUMAR, 46 -- Senior Vice President, Continuous Improvement and
Quality since July 2002. Vice President, Quality of ArvinMeritor from July 2000
to July 2002; Vice President, Quality of Meritor from 1999 to July 2000;
Director, Quality, Light Vehicle Systems of Meritor from 1998 to 1999; Director,
Quality, Structural Systems of ITT Automotive (automotive component supplier)
from 1994 to 1998.

S. CARL SODERSTROM, JR., 49 -- Senior Vice President and Chief Financial
Officer since July 2001. Senior Vice President, Engineering, Quality and
Procurement of ArvinMeritor from July 2000 to July 2001; Senior Vice President,
Engineering, Quality and Procurement of Meritor from February 1998 to July 2000;
Vice President, Engineering and Quality, Heavy Vehicle Systems of Meritor from
September 1997 to February 1998.

CRAIG M. STINSON, 41 -- Senior Vice President and President, Light Vehicle
Systems, since June 2002. Senior Vice President and President, Exhaust Systems,
of ArvinMeritor from September 2000 to May 2002; Executive Vice President,
Exhaust Systems of ArvinMeritor from July 2000 to September 2000; Executive Vice
President, Exhaust Systems of Arvin from January 2000 to July 2000; Vice
President -- General Motors Business Group, Exhaust Systems of Arvin from June
1998 to January 2000; Vice President -- DaimlerChrysler Business Group, Exhaust
Systems of Arvin from February 1995 to June 1998.

FRANK A. VOLTOLINA, 42 -- Vice President and Treasurer since October 2000.
Vice President and Treasurer of Mallinckrodt Inc. (medical products) from
October 1997 to October 2000; Staff Vice President -- Director of Corporate Tax
of Mallinckrodt from October 1995 to October 1997.

ERNEST T. WHITUS, 47 -- Senior Vice President, Human Resources, since April
2001. Vice President, Human Resources-Commercial Vehicle Systems of ArvinMeritor
from July 2000 to April 2001; Vice President, Human Resources-Heavy Vehicle
Systems of Meritor from October 1998 to July 2000; Director, Human
Resources-Heavy Vehicle Systems of Meritor from September 1997 to October 1998.

18

BONNIE WILKINSON, 52 -- Vice President and Secretary since November 2001.
Assistant General Counsel of ArvinMeritor from July 2000 to November 2001;
Assistant General Counsel of Meritor from September 1997 to July 2000.

There are no family relationships, as defined in Item 401 of Regulation
S-K, between any of the above executive officers and any director, executive
officer or person nominated to become a director or executive officer. No
officer of ArvinMeritor was selected pursuant to any arrangement or
understanding between him or her and any person other than ArvinMeritor. All
executive officers are elected annually.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

ArvinMeritor's common stock, par value $1 per share ("Common Stock"), is
listed on the New York Stock Exchange and trades under the symbol "ARM." On
November 30, 2002, there were 34,091 shareowners of record of ArvinMeritor's
Common Stock.

The high and low sale prices per share of ArvinMeritor Common Stock for
each quarter of fiscal years 2002 and 2001 were as follows:

Quarterly cash dividends in the following amounts per share were declared
and paid in each quarter of the last two fiscal years.

On July 1, 2002, we issued 750 shares of Common Stock to two non-employee
directors of ArvinMeritor, in lieu of cash payment of the quarterly retainer fee
for board service. These shares were issued pursuant to the terms of our
Directors Stock Plan and the issuance was exempt from registration under the
Securities Act of 1933, as amended, as a transaction not involving a public
offering under Section 4(2).

See Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters for information on securities authorized for
issuance under equity compensation plans.

ITEM 6. SELECTED FINANCIAL DATA.

The following sets forth selected consolidated financial data. The data
should be read in conjunction with the information included under Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. Financial Statements and Supplementary Data below.

19

ARVINMERITOR, INC.

SELECTED FINANCIAL DATA

- ---------------
(1) Fiscal year 2002 net income and basic and diluted earnings per share include
a restructuring charge of $15 million ($10 million after-tax, or $0.15 per
share) and a gain on sale of the exhaust accessories manufacturing
operations of $6 million ($4 million after-tax, or $0.06 per share). Net
income and basic and diluted earnings per share for fiscal year 2001
includes restructuring costs of $67 million ($45 million after-tax, or $0.68
per share), an employee separation charge of $12 million ($8 million
after-tax, or $0.12 per share), and an environmental charge of $5 million
($3 million after-tax, or $0.05 per share). Net income and basic and diluted
earnings per share for fiscal year 2000 includes a one-time gain of $83
million ($51 million after-tax, or $0.96 per share) for the sale of the seat
adjusting systems business, restructuring costs of $26 million ($16 million
after-tax, or $0.30 per share), and other one-time charges of $4 million ($3
million after-tax, or $0.06 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.

20

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW AND OUTLOOK

We operate in a cyclical industry that has been characterized historically
by periodic fluctuations in demand for light, commercial and specialty vehicles,
and related aftermarkets. Light vehicle production volumes peaked in North
America in fiscal 2000 at 17.5 million units and in Western Europe (including
Czech Republic) in fiscal 2001 at 16.9 million units. Vehicle build rates for
heavy-duty trucks in North America were 294,000 units in fiscal 2000 and fell
nearly 50 percent in fiscal 2001. Lower demand in most of our principal markets
in fiscal 2002 and 2001 had a negative effect on our financial results.

The following sets forth vehicle production in our principal markets for
the last three fiscal years:

- ---------------
Source: Automotive industry publications and management estimates.

Our fiscal 2003 outlook for light vehicle production is 16.0 million
vehicles in North America and 16.5 million vehicles in Western Europe. We expect
that North American heavy-duty (also referred to as Class 8) truck production
will decline about five percent in fiscal 2003 to 161,000 units. Despite
continued soft markets, we plan to grow our sales as a result of new business
awards and greater market penetration.

Over the past two years, we have focused on reducing our break-even levels
and driving a continuous improvement culture throughout the organization. We
will continue to identify aggressive cost-reduction actions in order to improve
our financial results in fiscal 2003.

Our industry is rapidly transforming to keep pace with the continued OEM
trends toward outsourcing, increased OEM demand for modules and systems and an
increasing emphasis on engineering and technology. The increased competitive
pressures and complexity of the industry are presenting suppliers with
challenges, as well as growth opportunities.

We believe that ArvinMeritor has all the ingredients and qualities in place
to be a leading Tier One supplier. Our broad customer, product and geographic
base, coupled with our technological capabilities, position us to be one of the
industry's strongest competitors and to take further advantage of industry
trends.

21

RESULTS OF OPERATIONS

The following sets forth the sales, operating income and net income of the
company for the years ended September 30, 2002, 2001 and 2000, as well as pro
forma amounts for fiscal 2000.

- ---------------
(1) Pro forma financial information is presented as if the merger had occurred
at the beginning of fiscal 2000 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 share 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. See Note 4 of the Notes to Consolidated
Financial Statements for more information on the ArvinMeritor merger.

22

TOTAL COMPANY

2002 COMPARED TO 2001

Sales for fiscal 2002 were $6,882 million, up $77 million, or one percent,
over last year. The sales increase was primarily attributable to higher
production volumes for North American heavy-duty trucks and the favorable impact
of a stronger euro.

To improve comparability of operating income on a year-over-year basis, the
following information is presented (in millions):

Operating income for fiscal 2002 was $343 million, up $148 million from
fiscal 2001. Fiscal 2002 operating margin improved to 5.0 percent, up from 2.9
percent last year. The company has been able to improve its operating margin
through savings generated by cost-reduction initiatives and restructuring
programs. In the first quarter of fiscal 2002, the company recorded a
restructuring charge of $15 million for severance and other employee costs
related to a net reduction of approximately 450 employees. The company also
recorded restructuring costs of $67 million in fiscal 2001. This charge included
severance and other employee costs of approximately $48 million related to a net
reduction of approximately 1,350 employees, with the balance primarily
associated with facility-related costs from the rationalization of operations.
For more information concerning the status of the company's restructuring
programs, see Note 5 of the Notes to Consolidated Financial Statements.

Fiscal 2002 results include a gain on sale of the company's exhaust
accessories manufacturing business of $6 million. Other charges in fiscal 2001
include $12 million related to an employee separation agreement and $5 million
related to environmental liability costs. In fiscal 2002 the company adopted
Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and
Other Intangible Assets", which eliminated goodwill amortization expense of $24
million. Excluding restructuring costs, gain on sale of business and other
charges, as well as adjusting for goodwill amortization in fiscal 2001, segment
operating income was $352 million in fiscal 2002, up $49 million from $303
million in fiscal 2001.

Equity in losses of affiliates was $3 million in fiscal 2002, as compared
to equity in earnings of affiliates of $4 million a year ago. The decline was
primarily related to the company's commercial vehicle affiliates. Interest
expense, net and other for fiscal 2002 was $105 million, down $31 million, or 23
percent, from fiscal 2001, principally as a result of lower average debt levels
and the favorable interest rate environment. The effective income tax rate in
fiscal 2002 was 32 percent, down from 33.5 percent in fiscal 2001 (31 percent,
after excluding goodwill amortization).

23

Income before cumulative effect of accounting change was $149 million in
fiscal 2002, compared to $35 million in fiscal 2001. As required by SFAS 142,
the company reviewed the fair values of each of its reporting units, using
discounted cash flows and market multiples. As a result of this review, the
company recorded an impairment loss on goodwill as a cumulative effect of
accounting change for its coil coating operations (classified as "Other" for
segment reporting) of $42 million ($42 million after-tax, or $0.63 per diluted
share) in the first quarter of fiscal 2002. Increased competition, consolidation
in the coil coating applications industry and the struggling U.S. steel market
caused a decrease in the fair value of this business.

Net income for fiscal 2002 was $107 million, or $1.59 per diluted share, as
compared to fiscal 2001 net income of $35 million, or $0.53 per diluted share.
Net income in fiscal 2002 included restructuring costs ($10 million after-tax or
$0.15 per diluted share), a gain on sale of business ($4 million after-tax or
$0.06 per diluted share) and the cumulative effect of the goodwill accounting
change ($42 million after-tax or $0.63 per diluted share). Excluding the impact
of these items, diluted earnings per share was $2.31. Net income in fiscal 2001
included goodwill amortization expense ($20 million after-tax or $0.30 per
diluted share), restructuring costs ($45 million after-tax or $0.68 per diluted
share) and certain other charges ($11 million after-tax or $0.17 per diluted
share). Excluding the impact of these items, diluted earnings per share was
$1.68.

2001 COMPARED TO 2000

Sales for fiscal 2001 were $6,805 million, up $1,652 million, or 32
percent, over fiscal 2000 sales. Fiscal 2001 results include incremental sales
of $2,439 million, attributable to the merger with Arvin, for the first three
quarters of the year. Fiscal 2000 results include Arvin results for the fourth
quarter only. The increase in sales related to the merger was significantly
offset by a decline in the company's Commercial Vehicle Systems (CVS) segment
sales of $673 million. CVS sales were lower in fiscal 2001 due to the steep
decline in CVS heavy-duty truck and trailer markets in North America.

Fiscal 2001 operating income was $195 million, down $234 million from
fiscal 2000 operating income of $429 million. Operating margin was 2.9 percent
in fiscal 2001 compared to 8.3 percent in fiscal 2000. The decline in operating
income was driven by the impact of the significant decrease in CVS sales. The
merger with Arvin added operating income of $100 million on the incremental
sales of $2,439 million.

2001 COMPARED TO PRO FORMA 2000

Sales for fiscal 2001 were $6,805 million, down $917 million, or 12
percent, from pro forma fiscal 2000 sales. The decline in sales was driven by
the company's CVS segment, which experienced a steep decline in the heavy-duty
truck and trailer markets in North America. Also contributing to the decline
were lower volumes in the North American light vehicle market and a softening of
demand in the aftermarket.

Fiscal 2001 operating income as reported was $195 million, down $379
million from pro forma fiscal 2000. Operating margin was 2.9 percent in fiscal
2001, as compared to 7.4 percent in pro forma fiscal 2000. As previously
discussed, included in operating income in fiscal 2001, were restructuring costs
of $67 million and other charges of $17 million. In pro forma fiscal 2000, the
company also recorded $30 million in restructuring costs. This included
approximately $19 million related to a net reduction of approximately 500
employees, $4 million associated with a voluntary early retirement plan in the
U.S. and the balance primarily associated with facility-related costs from the
rationalization of operations. In addition, pro forma fiscal 2000 results
included $6 million of other credits and a one-time gain on the sale of business
of $83 million related to the company's sale of its Light Vehicle Systems (LVS)
seat adjusting systems business.

Excluding restructuring costs, gain on sale of business and other charges,
operating income for fiscal 2001 was $279 million, down $236 million from $515
million in pro forma fiscal 2000. Operating margin before the effect of these
items was 4.1 percent in fiscal 2001, as compared to 6.7 percent in pro forma
fiscal 2000. The substantial decrease in operating income was principally due to
lower CVS sales, resulting from weakness in CVS markets, particularly in North
America. Additionally, operating income from the Other segment (business units
not focused on automotive products) decreased $19 million.

24

Equity in earnings of affiliates was $4 million in fiscal 2001, as compared
to $40 million in pro forma fiscal 2000. The decline was primarily due to lower
earnings from commercial vehicle affiliates. Interest expense, net and other for
fiscal 2001 was $136 million, down $6 million, or four percent, from pro forma
fiscal 2000 reflecting lower debt levels and interest rates.

Net income for fiscal 2001 was $35 million, or $0.53 per diluted share, as
compared to pro forma fiscal 2000 net income of $287 million, or $4.02 per
diluted share. Net income in fiscal 2001 included restructuring costs ($45
million after-tax or $0.68 per diluted share) and certain one-time charges ($11
million after-tax or $0.17 per diluted share). Excluding the impact of these
items, diluted earnings per share was $1.38. Net income in pro forma fiscal 2000
included restructuring costs ($19 million after-tax or $0.27 per diluted share),
other credits ($3 million after tax or $0.04 per diluted share) and gain on sale
of business ($51 million after tax or $0.69 per diluted share). Excluding the
impact of these items, diluted earnings per share on a pro forma basis was
$3.56.

BUSINESS SEGMENTS

LIGHT VEHICLE SYSTEMS -- To improve comparability on a year-over-year
basis, the following information is presented (in millions):

2002 COMPARED TO 2001

LVS sales increased to $3,632 million in fiscal 2002, up $44 million from
$3,588 million a year ago. Acquisition activity added approximately $80 million
to sales in fiscal 2002 and included additional investments in two previously
unconsolidated joint ventures in Germany and China. LVS also sold its seat
motors business in August 2001 and divested its investment in a majority-owned
joint venture in North America effective September 30, 2001. These businesses
contributed sales of approximately $120 million in fiscal 2001. In addition,
sales were up in fiscal 2002 principally due to new business awards.

LVS operating income was $196 million in fiscal 2002, down $17 million, or
eight percent, from fiscal 2001. Operating margin declined to 5.4 percent from
5.9 percent in fiscal 2001 (6.1 percent, after excluding goodwill amortization).
Pricing pressure from the vehicle manufacturers continued to negatively impact
operating margin. Also contributing to the operating margin decline were higher
engineering costs, start-up costs associated with a new Detroit manufacturing
facility and increases in steel costs. Restructuring costs related to the LVS
segment totaled $7 million and $27 million in fiscal 2002 and 2001,
respectively. LVS continues to identify and implement cost-reduction initiatives
to mitigate the pricing pressures from the vehicle manufacturers.

2001 COMPARED TO PRO FORMA 2000

On a reported basis, sales in fiscal 2001 were up $1,557 million and
operating income was up $64 million. Incremental sales and operating income of
$1,633 million and $74 million, respectively, related to the merger with Arvin.

25

LVS sales were $3,588 million in fiscal 2001, a decrease of $80 million,
compared to pro forma fiscal 2000. Unfavorable foreign currency translation and
divestiture activity lowered sales in fiscal 2001 by approximately $130 million
and $30 million, respectively. Excluding these items, sales were up two percent,
despite lower vehicle build rates in North America. This increase was
principally related to higher sales in air and emission systems.

LVS operating income was $213 million in fiscal 2001, down $19 million from
pro forma 2000 operating income of $232 million. Operating margin was 5.9
percent in fiscal 2001, compared to 6.3 percent in pro forma fiscal 2000.
Pricing pressure from the vehicle manufacturers contributed to the operating
margin decline. Furthermore, the higher sales of air and emission systems
included sales of catalytic converters, which typically carry low operating
margins. In fiscal 2001 and pro forma 2000, LVS implemented restructuring and
other programs aimed at lowering fixed costs. Restructuring costs related to
these programs were $27 million and $14 million in fiscal 2001 and pro forma
2000, respectively.

COMMERCIAL VEHICLE SYSTEMS -- To improve comparability on a year-over-year
basis, the following information is presented (in millions):

2002 COMPARED TO 2001

CVS sales were $2,249 million, up $50 million, or two percent, compared to
fiscal 2001. Vehicle build rates in CVS markets were mixed in fiscal 2002. A
13-percent increase in North American Class 8 truck volumes drove higher
drivetrain and braking systems sales of approximately $70 million. However,
declines in worldwide trailer markets contributed to lower suspension systems
and trailer product sales of approximately $35 million.

CVS operating income was $94 million, an increase of $62 million from
fiscal 2001. Operating margin improved to 4.2 percent, up from 1.5 percent in
fiscal 2001 (2.0 percent, after excluding goodwill amortization). Restructuring
charges attributable to the CVS segment were $6 million and $40 million,
respectively, in fiscal 2002 and 2001. The cost savings resulting from these
restructuring programs and other cost-reduction actions have allowed CVS to
lower its fixed cost structure and contributed to the operating margin
improvement.

2001 COMPARED TO PRO FORMA 2000

On a reported basis, sales in fiscal 2001 were down $673 million and
operating income was down $189 million. Incremental sales and operating income
of $41 million and $6 million, respectively, related to the merger with Arvin.

CVS sales were $2,199 million in fiscal 2001, down $727 million from pro
forma fiscal 2000. Sales in North America were down approximately $600 million,
principally due to the 49-percent decline in the North American Class 8 truck
market and the 43-percent decline in the trailer market in U.S. and Canada. The
impact of foreign currency translation contributed approximately $80 million to
the sales decline in fiscal 2001.

CVS operating income was $32 million, a decrease of $199 million from pro
forma fiscal 2000. Operating margin declined to 1.5 percent in fiscal 2001, from
7.9 percent in pro forma fiscal 2000. Lower production

26

volumes in North America for heavy- and medium-duty trucks and trailers drove
the margin decline. In response to the significant decline in its markets, CVS
initiated restructuring programs with a total cost of $56 million in fiscal 2001
and pro forma 2000.

LIGHT VEHICLE AFTERMARKET -- To improve comparability on a year-over-year
basis, the following information is presented (in millions):

2002 COMPARED TO 2001

LVA sales were $844 million in fiscal 2002, a two percent decrease from
$859 million in the prior year. LVA continued to experience lower demand in
exhaust and ride control products during fiscal 2002. The quality of original
equipment parts continues to weaken demand for these products.

LVA operating income was $58 million in fiscal 2002, with an operating
margin of 6.9 percent, compared to operating income of $44 million and an
operating margin of 5.1 percent in fiscal 2001 (5.6 percent, after excluding
goodwill amortization). Despite lower sales for aftermarket parts, LVA was able
to increase its operating margin, as the result of improved pricing and
cost-reduction activities.

2001 COMPARED TO PRO FORMA 2000

On a reported basis, sales were up $650 million and operating income was up
$38 million. The increase in sales and operating income was due to the merger
with Arvin. The full year of merger activity in fiscal 2001 added $648 million
to sales and $28 million to operating income.

LVA sales were $859 million in fiscal 2001, a decline of $91 million, or 10
percent, compared to pro forma fiscal 2000. Softening customer demand resulted
in depressed volumes in this segment.

LVA operating income was $44 million in fiscal 2001, up slightly from $43
million in pro forma fiscal 2000. Operating margin was 5.1 percent compared to
pro forma fiscal 2000 operating margin of 4.5 percent. The operating margin
increase is the result of improved pricing, the favorable impact of
cost-reduction actions and lower changeover spending.

AFFILIATES

At September 30, 2002, the company had investments in 12 joint ventures
which were accounted for under the equity method of accounting, as they were not
majority-owned or controlled. These strategic alliances provide for sales,
product design, development and manufacturing in certain product and geographic
areas. Aggregate sales of these affiliates were $1,565 million, $1,641 million
and $924 million in fiscal 2002, 2001 and 2000, respectively.

The company's equity in earnings (losses) of affiliates was $(3) million in
fiscal 2002, $4 million in fiscal 2001, and $29 million in fiscal 2000. Cash
dividends to ArvinMeritor were $19 million, $24 million and $32 million in
fiscal 2002, 2001 and 2000, respectively. The decrease in earnings of affiliates
over the three-year period is primarily a result of lower earnings from
commercial vehicle affiliates.

27

FINANCIAL CONDITION

The company remains committed to strong cash flow generation and investment
grade capital structure. During fiscal 2002, the company strengthened its
capital structure by replacing its bank revolver borrowings with long-term
notes, the earliest of which mature in 2007. In addition, the company replaced
its $750 million one-year bank revolving facility with a new $400 million
three-year bank revolver. The company's primary source of liquidity continues to
be cash generated from operations, supplemented by its accounts receivables
securitization program and, as required, borrowings on the revolving credit
facilities. The company's total debt to capitalization ratio was 65 percent at
September 30, 2002 compared to 67 percent at September 30, 2001.

CASH FLOWS

See Statement of Consolidated Cash Flows for additional detail on the
company's cash flows.

OPERATING CASH FLOW -- Cash flow from operations was $184 million in fiscal
2002, down $421 million from $605 million in fiscal 2001. The decrease is
largely attributable to the accounts receivable securitization program. During
fiscal 2001, the company commenced an accounts receivable securitization program
and had $211 million outstanding at the end of the fiscal year. As a result of
strong cash flow, the company reduced its balance outstanding under the accounts
receivable securitization program by $106 million in fiscal 2002. Also
contributing to the decrease in operating cash flow were higher pension and
retiree medical contributions of $39 million and higher working capital levels,
offset partially by higher income. Working capital as a percentage of sales at
September 30, 2002, 2001 and 2000 was 4.3 percent, 4.2 percent and 6.9 percent,
respectively. In computing this ratio, the company included the receivables sold
under the securitization program and excluded short-term debt and cash and cash
equivalents. Cash flow from operations was $228 million in fiscal 2000.

INVESTING CASH FLOW -- Cash used for investing activities was $198 million
in fiscal 2002, $210 million in fiscal 2001 and $200 million in fiscal 2000,
primarily as a result of capital expenditures. Capital expenditures were $184
million in fiscal 2002, down from $206 million in fiscal 2001 and $225 million
in fiscal 2000. Capital expenditures, as a percentage of sales, were 2.7 percent
in fiscal 2002 and 3.0 percent in fiscal 2001, down significantly from 4.4
percent in fiscal 2000. Management, at all levels, follows a rigorous process to
review capital expenditures. The company's focus on economic profit, which
applies a capital charge on assets employed, also helps assure that each capital
project generates positive economic profit. In fiscal 2000, proceeds of $148
million were received from dispositions of property and businesses, primarily
relating to the sale of the seat adjusting systems business. These proceeds were
substantially offset by cash payments of $74 million for acquisitions of
businesses and investments and $49 million relating to the merger between Arvin
and Meritor.

FINANCING CASH FLOW -- Cash used for financing activities was $32 million
in fiscal 2002, compared to $402 million in fiscal 2001. Cash provided by
financing activities was $38 million in fiscal 2000. During fiscal 2002, the
company completed two public note offerings. Proceeds from the note offerings of
$591 million were used to pay outstanding indebtedness under the company's
revolving credit facilities and for general corporate purposes. The company
reduced total debt, including preferred capital securities, by $27 million and
$320 million in fiscal 2002 and 2001, respectively. Total debt increased by $245
million in fiscal 2000. The company paid dividends of $27 million, $51 million
and $35 million in fiscal 2002, 2001 and 2000, respectively. In fiscal 2001 and
2000, the company made payments of $31 million and $172 million, respectively,
for the repurchase of its stock.

28

LIQUIDITY

The company is contractually obligated to make payments as follows (in
millions):

- ---------------
(1) Excludes fair value adjustment of notes of $48 million

Excluded from the contractual obligation table are open purchase orders at
September 30, 2002 for raw materials and supplies used in the normal course of
business, supply contracts with customers, distribution agreements, joint
venture agreements and other contracts without express funding requirements.

In 1998, the company acquired a 49-percent interest in a German joint
venture, Zeuna Starker GmbH & Co. KG, an air and emissions systems company.
Under the terms of the shareholders' agreement, the owners of the majority
interest in the joint venture have the right to exercise a put option to require
the company to purchase the remaining 51 percent. On December 17, 2002, the
majority shareholders exercised the put option, and the company entered into
agreements to purchase the remaining 51 percent interest for a purchase price of
approximately $75 million. The company expects to complete the transaction in
the second quarter of fiscal 2003.

REVOLVING AND OTHER DEBT -- The company has two unsecured credit
facilities, which mature on June 27, 2005: a three-year, $400-million revolving
credit facility and a five-year, $750-million revolving credit facility. The
company also has a $50-million uncommitted line of credit.

The credit facilities require the company to maintain a total net debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio
of 3.25x and a minimum fixed charge coverage ratio (EBITDA less capital
expenditures to interest expense) of 1.50x. At September 30, 2002, the company
was in compliance with all covenants.

The company has $150 million remaining under a shelf registration filed
with the SEC in April 2001 (see Note 15 of the Notes to Consolidated Financial
Statements).

LEASES -- Certain operating leases require the company to maintain
financial ratios that are similar to those required by the company's revolving
credit agreements. At September 30, 2002, the company was in compliance with all
covenants (see Note 15 of the Notes to Consolidated Financial Statements).

ACCOUNTS RECEIVABLE SECURITIZATION FACILITY -- As discussed in Note 8 of
the Notes to Consolidated Financial Statements, the company participates in an
accounts receivable securitization facility to improve financial flexibility and
lower interest costs. ArvinMeritor Receivables Corporation (ARC), a wholly owned
subsidiary of the company, has entered into an agreement to sell an undivided
interest in up to $250 million of trade receivables to a group of banks. As of
September 30, 2002 and 2001, the company had utilized $105 million and $211
million, respectively, of the accounts receivable securitization facility. The
accounts receivable securitization program matures in September 2003 and the
company expects to renew the facility at that time.

If the company's credit ratings are reduced to certain levels, or if
certain receivables performance-based covenants are not met, it would constitute
a termination event, which, at the option of the banks, could result in
termination of the facility. At September 30, 2002, the company was in
compliance with all covenants.

29

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that are most important to the
portrayal of the company's financial condition and results of operations. These
policies require management's most difficult, subjective or complex judgments in
the preparation of the financial statements and accompanying notes. Management
makes estimates and assumptions about the effect of matters that are inherently
uncertain, relating to the reporting of assets, liabilities, revenues, expenses
and the disclosure of contingent assets and liabilities. The company's most
critical accounting policies are discussed below.

PENSIONS -- The company's pension obligations are measured as of June 30.
The U.S. plans include a qualified and non-qualified pension plan. Non-U.S.
includes plans primarily in the United Kingdom, Canada and Germany. The
following are the assumptions used in the measurement of the projected benefit
obligation (PBO) and net periodic pension expense:

The discount rate is the rate that the PBO is discounted. The rate is
determined based on high-quality fixed income investments that match the
duration of expected benefit payments. The company has typically used the
corporate AA/Aa bond rate for this assumption. The assumed return on plan assets
noted above represents a forward projection of the average rate of earnings
expected on the pension assets. This rate is used in the calculation of assumed
rate of return on plan assets, a component of net periodic pension expense. As
of June 30, 2002, the company has lowered the assumed rates of return on plan
assets in the United States to 8.50 percent, in the United Kingdom to 8.00
percent and in Canada to 8.50 percent. These revised assumed rates of return
will be used for fiscal 2003 net periodic pension expense. The rate of
compensation increase represents the long-term assumption for expected increases
to salaries for pay-related plans.

Management expects to fund at least the minimum pension plan contributions
required by government regulations for the various plans and anticipates that
pension plan funding will be between $90 million and $100 million in fiscal
2003.

RETIREE MEDICAL -- The company has retirement medical plans that cover the
majority of its U.S. and certain non-U.S. employees and provide for medical
payments to eligible employees and dependents upon retirement. The company's
retiree medical obligations are measured as of June 30. The following are the
assumptions used in the measurement of the accumulated projected benefit
obligation (APBO):

The discount rate is the rate that the accumulated projected benefit
obligation is discounted and is determined similarly to the discount rate used
for pensions. The health care cost trend rate represents the company's expected
annual rates of change in the cost of health care benefits. The trend rate noted
above represents a forward projection of health care costs as of the measurement
date. The company's projection for fiscal 2003 is an increase in health care
costs of 9.0 percent from fiscal 2002. For measurement purposes, the annual
increase in health care costs was assumed to decrease gradually to 5.0 percent
for fiscal 2011 and remain at that level thereafter. Retirement medical plan
benefit payments are expected to be approximately $65 million in fiscal 2003, up
from $60 million in fiscal 2002.

30

A one-percentage point change in the assumed health care cost trend rate
for all years to, and including, the ultimate rate would have the following
effects (in millions):

WARRANTY -- Accruals for product warranty costs are recorded at the time of
shipment of products to customers. Accruals for product recall campaigns are
recorded at the time the company's obligation is known and can be reasonably
estimated. Warranty reserves are based on several factors, including past claims
experience, sales history, product manufacturing and engineering changes,
industry developments and various other considerations.

ASBESTOS -- There are three categories of reserves related to asbestos:
unbilled committed settlements, pending claims, and shortfall and other. For
purposes of establishing reserves for pending asbestos-related claims, Maremont
(a subsidiary of the company) estimates its defense and indemnity costs based on
the history and nature of filed claims to date and Maremont's experience since
February 1, 2001. See Note 22 of the Notes to Consolidated Financial Statements
for additional information concerning asbestos-related reserves and recoveries.

All such estimates of liabilities for asbestos-related claims are subject
to considerable uncertainty because such liabilities are influenced by variables
that are difficult to predict. If the assumptions with respect to the nature of
pending claims, the cost to resolve claims and the amount of available insurance
prove to be incorrect, the actual amount of liability for asbestos-related
claims, and the effect on the company, could differ materially from current
estimates. Maremont records receivables from insurance companies for a
substantial portion of the costs incurred defending against asbestos-related
claims and any indemnity paid on those claims. Management believes that existing
insurance coverage is adequate to cover substantially all costs relating to
pending and future asbestos-related claims.

ENVIRONMENTAL -- The company records liabilities for environmental issues
in the accounting period in which its responsibility is established and the cost
can be reasonably estimated. At environmental sites in which more than one
potentially responsible party has been identified, the company records a
liability for its allocable share of costs related to its involvement with the
site, as well as an allocable share of costs related to insolvent parties or
unidentified shares. At environmental sites in which the company is the only
potentially responsible party, a liability is recorded for the total estimated
costs of remediation before consideration of recovery from insurers or other
third parties. The process of estimating environmental liabilities is complex
and dependent on physical and scientific data at the site, uncertainties as to
remedies and technologies to be used and the outcome of discussions with
regulatory agencies.

NEW ACCOUNTING PRONOUNCEMENTS

Effective October 1, 2001, the company adopted SFAS 142, "Goodwill and
Other Intangible Assets". Upon adoption, the company recorded an impairment loss
on goodwill as a cumulative effect of accounting change of $42 million in the
first quarter of fiscal 2002 (see Note 3 of the Notes to Consolidated Financial
Statements). There were no other new accounting pronouncements adopted in fiscal
2002 that had a material impact on the company's business, financial condition
or results of operations.

In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for
the Impairment or Disposal of Long-Lived Assets". The new standard requires one
model of accounting for long-lived assets to be disposed of, and

31

broadens the definition of discontinued operations to include a component of a
segment. The company adopted this standard effective October 1, 2002. The
company does not expect the adoption of SFAS 144 to have a significant impact on
its financial position or results of operations.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities",
which nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in Restructuring)". The new standard
requires a liability for a cost associated with an exit or disposal activity to
be recognized and measured initially at its fair value in the period in which
the liability is incurred, rather than at the time of commitment to an exit
plan. The standard is effective for exit or disposal activities initiated after
December 31, 2002.

INTERNATIONAL OPERATIONS

Approximately 40 percent of the company's total assets as of September 30,
2002, and 38 percent of fiscal 2002 sales were outside North America. Management
believes that international operations have significantly benefited the
financial performance of the company. However, the company's international
operations are subject to a number of risks inherent in operating abroad. There
can be no assurance that these risks will not have a material adverse impact on
the company's ability to increase or maintain its foreign sales or on its
financial condition or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company is exposed to foreign currency exchange rate risk related to
its transactions denominated in currencies other than the U.S. dollar and
interest rate risk associated with the company's debt.

The impact the euro and other currencies will have on the company's sales
and operating income is difficult to predict in the upcoming year. The company
uses foreign exchange contracts to offset the effect of exchange rate
fluctuations on foreign currency denominated payables and receivables to help
minimize the risk of loss from changes in exchange rates (see Note 16 of the
Notes to Consolidated Financial Statements). The company also uses interest rate
swaps to offset the effects on interest rate fluctuations on the fair value of
its debt portfolio (see Note 15 of the Notes to Consolidated Financial
Statements). It is the policy of the company not to enter into derivative
instruments for speculative purposes, and therefore the company holds no
derivative instruments for trading purposes.

The company has performed a sensitivity analysis assuming a hypothetical
10-percent adverse movement in foreign currency exchange rates and interest
rates applied to the underlying exposures described above. As of September 30,
2002, the analysis indicated that such market movements would not have a
material effect on the company's business, financial condition or results of
operations. Actual gains or losses in the future may differ significantly from
that analysis, however, based on changes in the timing and amount of interest
rate and foreign currency exchange rate movements and the company's actual
exposures.

32

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareowners of ArvinMeritor, Inc.
Troy, Michigan

We have audited the accompanying consolidated balance sheets of
ArvinMeritor, Inc. and subsidiaries (the "Company") as of September 30, 2002 and
2001, and the related consolidated statements of income, shareowners' equity,
and cash flows for each of the three years in the fiscal year ended September
30, 2002. Our audits also included the financial statement schedule listed in
the Index at Item 15(a)(2). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedule 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, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the fiscal year ended
September 30, 2002 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for goodwill in fiscal 2002.

DELOITTE & TOUCHE LLP
November 6, 2002
(December 17, 2002 as to paragraph 2 of Note 26)
Detroit, Michigan

33

ARVINMERITOR, INC.

STATEMENT OF CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

See Notes to Consolidated Financial Statements
34

ARVINMERITOR, INC.

CONSOLIDATED BALANCE SHEET
(IN MILLIONS)

See Notes to Consolidated Financial Statements
35

ARVINMERITOR, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(IN MILLIONS)

See Notes to Consolidated Financial Statements
36

ARVINMERITOR, INC.

STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

See Notes to Consolidated Financial Statements
37

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

ArvinMeritor, Inc. (the company or ArvinMeritor) is a leading global
supplier of a broad range of integrated systems, modules and components serving
light vehicle, commercial truck, trailer and specialty original equipment
manufacturers and certain aftermarkets. The company also provides coil coating
applications to the transportation, appliance, construction and furniture
industries.

On July 7, 2000, Meritor Automotive, Inc. (Meritor) and Arvin Industries,
Inc. (Arvin) merged into ArvinMeritor (see Note 4). The merger was accounted for
utilizing the purchase method of accounting. The financial information for the
period prior to July 7, 2000, reflects the results of Meritor and its
consolidated subsidiaries. The information for periods after July 7, 2000,
represents the results of ArvinMeritor and its consolidated subsidiaries.

The company's fiscal quarters end on the Sundays nearest December 31, March
31, and June 30 and its fiscal year ends on the Sunday nearest September 30.
Fiscal 2002 ended on September 29, 2002. All year and quarter references relate
to the company's fiscal year and fiscal quarters unless otherwise stated.

Certain prior year amounts have been reclassified to conform to current
year presentation.

2. SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States (U.S.) requires the use of
estimates and assumptions related to the reporting of assets, liabilities,
revenues, expenses and the disclosure of contingent assets and liabilities.
Significant estimates and assumptions were used to value accrued product
warranties (see Note 13), retiree medical and pension obligations (see Notes 19
and 20), income taxes (see Note 21), and contingencies including asbestos and
environmental matters (see Note 22).

Consolidation and Joint Ventures

The consolidated financial statements include the accounts of the company
and those majority-owned subsidiaries in which the company has control. All
significant intercompany accounts and transactions are eliminated in
consolidation. The accounts and results of operations of controlled subsidiaries
where ownership is greater than 50 percent, but less than 100 percent, are
included in the consolidated results and are offset by a related minority
interest expense and liability recorded for the minority interest ownership.
Investments in affiliates that are not controlled or majority-owned are reported
using the equity method of accounting (see Note 12).

Foreign Currency

Local currencies are generally considered the functional currencies outside
the U.S. For operations reporting in local currencies, assets and liabilities
are translated at year-end exchange rates with cumulative currency translation
adjustments included as a component of Accumulated Other Comprehensive Loss.
Income and expense items are translated at average rates of exchange during the
year.

Impairment of Long-Lived Assets including Goodwill

Management periodically reviews long-lived assets, including goodwill and
other intangible assets, for potential impairment. Goodwill is reviewed
annually, or more frequently if certain indicators arise, by using discounted
cash flows and market multiples to determine fair value (see Note 3). Fair value
of all other long-lived assets is determined based on useful lives, cash flows
and profitability projections. An impairment loss would be recognized if the
review indicates that the carrying value of the asset exceeds the fair value.

38

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition

Revenues are recognized upon shipment of product and transfer of ownership
to the customer. Provisions for customer sales allowances and incentives are
made at the time of product shipment.

Earnings per Share

Basic earnings per share are based upon the weighted average number of
shares outstanding during each year. Diluted earnings per share assumes the
exercise of common stock options and the impact of restricted stock when
dilutive.

A reconciliation of basic average common shares outstanding to diluted
average common shares outstanding is as follows (in millions):

Other

Information relative to other accounting policies is included in the
related notes, specifically, inventories (see Note 9), customer reimbursable
tooling and engineering (see Note 10), property and depreciation (see Note 11),
capitalized software (see Note 12), financial instruments (see Note 16) and
stock options (see Note 18).

New Accounting Standards

In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for
the Impairment or Disposal of Long-Lived Assets". The new standard requires one
model of accounting for long-lived assets to be disposed of, and broadens the
definition of discontinued operations to include a component of a segment. The
company adopted this standard effective October 1, 2002. The company does not
expect the adoption of SFAS 144 to have a significant impact on its financial
position or results of operations.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities",
which nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in Restructuring)". The new standard
requires a liability for a cost associated with an exit or disposal activity to
be recognized and measured initially at its fair value in the period in which
the liability is incurred, rather than at the time of commitment to an exit
plan. The standard is effective for exit or disposal activities initiated after
December 31, 2002.

3. GOODWILL IMPAIRMENT

Effective October 1, 2001, the company adopted Statement of Financial
Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets",
which requires goodwill to be subject to an annual impairment test, or more
frequently if certain indicators arise, and also eliminates goodwill
amortization. Prior to the adoption of SFAS 142, goodwill was amortized using
the straight-line method for periods not to exceed

39

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

40 years. As required by this standard, the company reviews the fair values of
each of its reporting units using discounted cash flows and market multiples.

Upon adoption of SFAS 142, the company recorded an impairment loss on
goodwill as a cumulative effect of accounting change for its coil coating
operations (classified as "Other" for segment reporting) of $42 million ($42
million after-tax, or $0.63 per diluted share) in the first quarter of fiscal
2002. Increased competition, consolidation in the coil coating applications
industry and the struggling U.S. steel market caused a decrease in the fair
value of this business. There have been no changes in the carrying value of
goodwill since September 30, 2001, other than the impairment loss on goodwill
for the coil coating operations and fluctuations due to changes in foreign
currency exchange rates.

Income before cumulative effect of accounting change and basic and diluted
earnings per share before cumulative effect of accounting change would have been
as follows had the company been accounting for goodwill under SFAS 142 for
fiscal 2001 and 2000 (in millions, except per share amounts):

Information regarding other intangible assets, which includes trademarks,
patents and licenses, is included in Note 12, and goodwill by segment is
included in Note 23.

4. ARVINMERITOR MERGER

On July 7, 2000, Meritor and Arvin merged to form ArvinMeritor. Under the
terms of the merger agreement, each share of Meritor common stock was converted
into the right to receive 0.75 share of common stock of ArvinMeritor, and each
share of Arvin common stock was converted into the right to receive one share of
common stock of ArvinMeritor plus $2.00 in cash. In total, approximately 62.3
million shares of Meritor, 24.3 million shares of Arvin and $48.5 million in
cash were exchanged for approximately 71.0 million shares of ArvinMeritor. All
share and per share data for periods prior to the merger have been restated to
conform with the exchange of Meritor shares to ArvinMeritor shares on a one to
0.75 basis in connection with the merger with Arvin.

The merger was accounted for utilizing the purchase method of accounting.
Accordingly, the results of operations of Arvin are included with those of the
company for the period subsequent to the date of the merger. Pro forma sales,
net income and basic and diluted earnings per share for the fiscal year ended
September 30, 2000, would have been $7,722 million, $287 million and $4.02 per
share, respectively, and exclude a non-recurring charge of $70 million ($58
million after-tax or $0.81 per basic and diluted share) for

40

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

merger-related expenses. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable. The
pro forma data is not necessarily indicative of the results of operations of
ArvinMeritor that would have been achieved if the merger had in fact occurred on
such dates. The pro forma data does not give effect to any restructuring costs
or to cost savings or other synergies that have resulted from the merger.

5. RESTRUCTURING COSTS

In the first-quarter of fiscal 2002, the company recorded a restructuring
charge of $15 million ($10 million after-tax, or $0.15 per basic and diluted
share) for severance and other employee costs related to a net reduction of
approximately 450 employees. All employees have been terminated under this
restructuring action, and $5 million of restructuring reserves relating to
severance payments remained in the consolidated balance sheet at September 30,
2002.

During fiscal 2001, the company recorded a net restructuring charge of $67
million ($45 million after-tax, or $0.68 per basic and diluted share). The
restructuring charge was net of approximately $4 million of restructuring
reserves established in fiscal 2000 that were reversed due to a change in
circumstances and $12 million of restructuring reserves established in fiscal
2001 that were reversed primarily due to actions taken to minimize severance
costs related to cost-reduction programs in Europe. The fiscal 2001 net charges
include severance and other employee costs of approximately $48 million related
to a net reduction of approximately 1,350 employees, with the balance primarily
associated with facility related costs from the rationalization of operations.
All employees have been terminated under this restructuring action, and $2
million of restructuring reserves relating to severance payments remained in the
consolidated balance sheet at September 30, 2002.

In fiscal 2001, the company also recorded approximately $34 million of
restructuring costs that were incurred as a result of the ArvinMeritor merger
and were reflected in the purchase price allocation. These costs include
approximately $17 million related to a net reduction of approximately 1,200
employees, with the balance primarily associated with facility related costs
from the rationalization of operations. All employees have been terminated under
this restructuring action, and $2 million of restructuring reserves relating to
severance payments remained in the consolidated balance sheet at September 30,
2002.

41

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of restructuring charges and merger-related restructuring
reserves as of September 30, 2002 is as follows (in millions):

6. SALE OF BUSINESSES

In the third quarter of fiscal 2002, the company completed the sale of its
exhaust accessories manufacturing operations for approximately $11 million in
cash, resulting in a one-time gain of $6 million ($4 million after-tax, or $0.06
per basic and diluted share).

In the first quarter of fiscal 2000, the company completed the sale of its
Light Vehicle Systems (LVS) seat adjusting systems business for approximately
$135 million in cash, resulting in a one-time gain of $83 million ($51 million
after-tax, or $0.96 per basic and diluted share).

7. OTHER CHARGES, NET

During fiscal 2001, the company recorded $12 million ($8 million after-tax,
or $0.12 per basic and diluted share) for an employee separation agreement and
$5 million ($3 million after-tax, or $0.05 per basic and diluted share) for
environmental liability costs.

During fiscal 2000, the company incurred $10 million in merger expenses ($6
million after-tax, or $0.11 per basic and diluted share) related to the
ArvinMeritor merger (see Note 4), and recorded a gain on sale of land of $6
million ($3 million after-tax, or $0.05 per basic and diluted share).

8. ASSET SECURITIZATION

The company sells substantially all of the trade receivables of certain
subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly owned
special purpose subsidiary. ARC has entered into an agreement to sell an
undivided interest in up to $250 million of eligible receivables, as defined, to
certain bank conduits that fund their purchases through the issuance of
commercial paper. As of September 30, 2002 and 2001, $105 million and $211
million, respectively, of trade receivables had been sold and are excluded from
receivables in the consolidated balance sheet. The company has no retained
interest in the receivables sold, but does perform collection and administrative
functions. The receivables were sold at fair market value and a discount on the
sale was recorded in interest expense, net and other. A discount of $6 million
and $3 million

42

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

was recorded in the fiscal years ended September 30, 2002 and 2001,
respectively. As of September 30, 2002 and 2001, the banks had a preferential
interest in approximately $201 million and $202 million, respectively, of the
remainder of the receivables held at ARC to secure the obligation under the
asset securitization facility. The gross amount of proceeds received from the
sale of receivables under this program was approximately $2,400 million and $700
million for fiscal 2002 and 2001, respectively. The accounts receivable
securitization program matures in September 2003.

If the company's credit ratings are reduced to certain levels, or if
certain receivables performance-based covenants are not met, it would constitute
a termination event, which, at the option of the banks, could result in
termination of the facility. At September 30, 2002 the company was in compliance
with all covenants.

9. INVENTORIES

Inventories are stated at the lower of cost (using LIFO, FIFO or average
methods) or market (determined on the basis of estimated realizable values) and
are summarized as follows (in millions):

10. OTHER CURRENT ASSETS

Other Current Assets are summarized as follows (in millions):

Costs incurred for engineering and tooling projects, principally for light
vehicle products, for which customer reimbursement is contractually guaranteed
are classified as Other Current Assets. These costs are billed to the customer
and recorded as a receivable upon completion of the engineering or tooling
project. Provisions for losses are provided at the time management expects costs
to exceed anticipated customer reimbursement.

11. NET PROPERTY

Property is stated at cost. Depreciation of property is based on estimated
useful lives, generally using the straight-line method. Significant renewals and
betterments are capitalized, and replaced units are written off. Maintenance and
repairs, as well as renewals of minor amounts, are charged to expense.
Company-owned

43

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

tooling is classified as property and depreciated over the shorter of its
expected life or the life of the related vehicle platform.

Net Property is summarized as follows (in millions):

12. OTHER ASSETS

Other Assets are summarized as follows (in millions):

At September 30, 2002 and 2001, the company had investments in 12 and 14
joint ventures, respectively, which were accounted for using the equity method
of accounting, as they were not controlled or majority-owned.

Costs relating to internally developed or purchased software are
capitalized and amortized utilizing the straight-line basis over periods not to
exceed seven years.

The company's trademarks, which were determined to have an indefinite life,
are not amortized, and patents and licenses are amortized over their contractual
lives. The company anticipates amortization expense for patents and licenses of
approximately $2 million per year for fiscal 2003 and 2004 and approximately $1
million per year for fiscal 2005 through 2007.

44

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. OTHER CURRENT LIABILITIES

Other Current Liabilities are summarized as follows (in millions):

Accruals for product warranty costs are recorded at the time of shipment of
products to customers. Accruals for product recall campaigns are recorded at the
time the company's obligation is known and can be reasonably estimated. Warranty
reserves are based on several factors including past claims experience, sales
history, product manufacturing and engineering changes, industry developments
and various other considerations. As of September 30, 2002, accrued product
warranties included a liability related to a recall campaign associated with TRW
model 20-EDL tie rod ends (see Note 22).

14. OTHER LIABILITIES

Other Liabilities are summarized as follows (in millions):

45

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. LONG-TERM DEBT

Long-Term Debt, net of discount where applicable, is summarized as follows
(in millions):

Credit Facilities and Lines of Credit

The company has two unsecured credit facilities, which mature on June 27,
2005: a three-year, $400-million revolving credit facility and a five-year,
$750-million revolving credit facility. Borrowings are subject to interest based
on quoted LIBOR rates plus a margin, and a facility fee, both of which are based
upon the company's credit rating. At September 30, 2002, the margin over the
LIBOR rate was 105 basis points, and the facility fee was 20 basis points.

The company also has a $50-million uncommitted line of credit. Included in
lines of credit and other at September 30, 2001 are approximately $50 million of
borrowings from a non-consolidated affiliate. There were no borrowings from
related parties at September 30, 2002.

Debt Securities

On April 12, 2001, the company filed a shelf registration statement with
the Securities and Exchange Commission registering $750 million aggregate
principal amount of debt securities that may be offered in one or more series on
terms to be determined at the time of sale. On February 26, 2002, the company
completed a public offering of debt securities under the shelf registration
consisting of $400 million 10-year fixed-rate 8 3/4 percent notes due March 1,
2012. The notes were offered to the public at 100 percent of their principal
amount. On July 1, 2002, the company completed a second public offering of debt
securities under the shelf registration consisting of $200 million 5-year
fixed-rate 6 5/8 percent notes due June 15, 2007. The notes were offered to the
public at 99.684 percent of their principal amount. The proceeds of both
offerings, net of underwriting discounts and commissions, were used to repay
outstanding indebtedness under the revolving credit facilities and for general
corporate purposes.

Capital Securities

Included in the Consolidated Balance Sheet as of September 30, 2002 and
2001, are $39 million and $57 million, respectively, of 9.5 percent
company-obligated mandatorily redeemable preferred capital securities (capital
securities), issued by a wholly owned subsidiary trust of ArvinMeritor, due
February 1, 2027, and callable in February 2007. The company fully and
unconditionally guarantees the subsidiary trust's obligation under the capital
securities.

46

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest Rate Swap Agreements

The company entered into two interest rate swap agreements in March 2002.
These swap agreements, in effect, converted $300 million notional amount of the
8 3/4 percent notes and $100 million notional amount of the 6.8 percent notes to
variable interest rates. The fair value of the swaps was $48 million as of
September 30, 2002, and is recorded in other assets, with an offsetting amount
recorded in long-term debt. The swaps have been designated as fair value hedges
and the impact of the changes in their fair values is offset by an equal and
opposite change in the carrying value of the related notes. Under the terms of
the swap agreements, the company receives a fixed rate of interest of 8.75
percent and 6.8 percent on notional amounts of $300 million and $100 million,
respectively, and pays variable rates based on 3-month LIBOR plus a
weighted-average spread of 2.51 percent. The payments under the agreements
coincide with the interest payment dates on the hedged debt instruments, and the
difference between the amounts paid and received is included in interest
expense, net and other.

Leases

The company has entered into agreements to lease certain assets. These
assets are held by special purpose entities (SPEs), which were established and
are owned by independent third parties. These leases are accounted for as
operating leases, and the lease payments are charged to operating income. Under
current accounting principles generally accepted in the U.S., the assets and the
related obligations are excluded from the consolidated balance sheet, and the
SPEs are not consolidated. During fiscal 2002, the company purchased certain
assets for $35 million that were previously leased under one of these
arrangements. At September 30, 2002 and 2001, the original cost of the assets
under such arrangements was $120 million and $131 million, respectively.

Future minimum lease payments under these and other operating leases are
$26 million in 2003, $22 million in 2004, $21 million in 2005, $20 million in
2006, $18 million in 2007 and $46 million thereafter. These amounts reflect the
future minimum lease payments under the existing agreements, discussed above.

Covenants

The credit facilities require the company to maintain a total net debt to
earnings before interest, taxes depreciation and amortization (EBITDA) ratio of
3.25x and a minimum fixed charge coverage ratio (EBITDA less capital
expenditures to interest expense) of 1.50x. In addition, certain operating
leases require the company to maintain financial ratios that are similar to
those required under the company's credit facilities. At September 30, 2002, the
company was in compliance with all covenants.

16. FINANCIAL INSTRUMENTS

The company's financial instruments include cash and cash equivalents,
short-term debt, long-term debt, preferred capital securities, interest rate
swaps, and foreign exchange contracts. The company uses derivatives for hedging
and non-trading purposes in order to manage its interest rate and foreign
exchange rate exposures. The company's interest rate swap agreements are
discussed in Note 15.

Foreign Exchange Contracts

The company uses foreign exchange contracts to offset the effect of
exchange rate fluctuations on foreign currency denominated payables and
receivables. These contracts help minimize the risk of loss from changes in
exchange rates and are generally of short duration (less than three months). The
company has elected not to designate the foreign exchange contracts as hedges,
therefore, changes in the fair value of the foreign exchange contracts are
recognized in operating income. The net income impact of recording these
contracts at fair value in fiscal 2002 and 2001 did not have a significant
effect on the company's results of operations. As of

47

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

September 30, 2002 and 2001, the fair value of foreign exchange contracts was
not material. It is the policy of the company not to enter into derivative
instruments for speculative purposes.

Fair Value

Fair values of financial instruments are summarized as follows (in
millions):

Cash and cash equivalents -- All highly liquid investments purchased with
maturity of three months or less are considered to be cash equivalents. The
carrying value approximates fair value because of the short maturity of these
instruments.

Short-term debt -- The carrying value of short-term debt approximates fair
value because of the short maturity of these borrowings.

Long-term debt and preferred capital securities -- Fair values are based on
the company's current incremental borrowing rate for similar types of borrowing
arrangements.

Interest rate swaps -- Fair values are estimated by obtaining quotes from
external sources.

17. CAPITAL STOCK

Common Stock

The company is authorized to issue 500 million shares of Common Stock, with
a par value of $1 per share, and 30 million shares of Preferred Stock, without
par value, of which two million shares are designated as Series A Junior
Participating Preferred Stock (Junior Preferred Stock). Under the Company Rights
Plan, a Preferred Share Purchase Right (Right) is attached to each share of
Common Stock pursuant to which the holder may, in certain takeover-related
circumstances, become entitled to purchase from the company 1/100th of a share
of Junior Preferred Stock at a price of $100, subject to adjustment. Also, in
certain takeover-related circumstances, each Right (other than those held by an
acquiring person) will be exercisable for shares of Common Stock or stock of the
acquiring person having a market value of twice the exercise price. In certain
events, the company may exchange each Right for one share of Common Stock or
1/100th of a share of Junior Preferred Stock. The Rights will expire on July 7,
2010, unless earlier exchanged or redeemed at a redemption price of $0.01 per
Right. Until a Right is exercised, the holder, as such, will have no voting,
dividend or other rights as a shareowner of the company.

The company has reserved approximately 15.6 million shares of Common Stock
in connection with its Long-Term Incentives Plan (the LTIP), Directors Stock
Plan, Incentive Compensation Plan, 1998 and 1988 Stock Benefit Plans, and
Employee Stock Benefit Plan for grants of non-qualified stock options, incentive
stock options, stock appreciation rights, restricted stock and stock awards to
key employees and directors. At September 30, 2002, there were 5.9 million
shares available for future grants under these plans.

48

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Restricted Stock

Restricted stock grants to officers and other employees are summarized as
follows:

- ---------------
(1) In January 2002 and 2001, the company granted shares of restricted stock to
certain employees in accordance with the LTIP and the Employee Stock Benefit
Plan. The restricted shares are subject to continued employment by the
employee and vest after three years.

(2) In June 2001, the company commenced an offer to exchange certain outstanding
stock options for restricted shares of the company's Common Stock. All
outstanding stock options issued under the LTIP, the Employee Stock Benefit
Plan, the 1998 and the 1988 Stock Benefit Plans (together, "the plans") that
were held by active employees and had an exercise price of $22.25 or more
per share (except options that expired in June 2001) were eligible for
exchange. The exchange rate was based on a percentage of the present value
of the options and the market price of the Common Stock on May 25, 2001 of
$15.31 per share. In July 2001, 2,810,471 eligible options were cancelled
and restricted shares of Common Stock were issued under the plans in
exchange for those options. The restricted stock will vest in July 2006, if
the holder remains an active employee through that period, or earlier if
certain performance measures are achieved. Total compensation related to the
exchange is being expensed over a three-year recognition period assuming
that the performance measures will be met. During fiscal 2001, certain
restricted stock issued with this exchange vested early, resulting in the
recognition of compensation expense of $2 million.

Since the grant of restricted stock relates to future service, the total
compensation expense is recorded as unearned compensation and is shown as a
separate reduction of shareowners' equity. The unearned compensation is then
expensed over the recognition period. The company has granted the restricted
stock from treasury shares, and cash dividends on the restricted stock are
reinvested in additional shares of Common Stock during the period. Total
compensation expense recognized for restricted stock was $6 million and $4
million for fiscal 2002 and 2001, respectively.

Treasury Stock

In July 2000, the board of directors authorized a program to repurchase up
to $100 million of the company's Common Stock. This program was terminated in
November 2001. Prior to the termination, 5.4 million shares of ArvinMeritor
Common Stock were purchased at an aggregate cost of approximately $84 million,
or an average of $15.39 per share.

During fiscal 2002, approximately 1.5 million shares of treasury stock were
issued in connection with the exercise of stock options and issuance of
restricted stock under the company's incentive plans.

18. STOCK OPTIONS

Under the company's incentive plans, stock options are granted at prices
equal to the fair value on the date of grant and have a maximum term of 10
years. Vesting periods are generally three years from the date of grant.

49

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information relative to stock options is as follows (shares in thousands,
exercise price represents a weighted average):

- ---------------
(1) All Meritor option quantities and exercise prices have been adjusted by the
exchange ratio of one Meritor share for .75 ArvinMeritor share as part of
the merger (see Note 4).

(2) In connection with the merger, each Arvin outstanding option was converted
to an ArvinMeritor option on a one-to-one basis, plus $1.00 per share
reduction in the exercise price.

(3) In July 2001, certain stock options were converted to restricted shares of
Common Stock (see Note 17).

The following table provides additional information about outstanding stock
options at September 30, 2002 (shares in thousands, exercise price represents a
weighted average):

The company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Since stock options are granted at prices equal to fair market
value, no compensation expense is recognized in connection with stock options
granted to employees. The company's net income and earnings per share would have
been reduced to the pro forma amounts shown below if the company accounted for
its stock options using the fair value method provided by

50

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock Based Compensation" (in millions, except per share amounts):

The weighted average fair value of options granted was $6.81, $3.93 and
$8.16 per share in fiscal 2002, 2001 and 2000, respectively. The fair value of
each option was estimated on the date of grant using the Black-Scholes pricing
model and the following assumptions:

19. RETIREMENT MEDICAL PLANS

ArvinMeritor has retirement medical plans that cover the majority of its
U.S. and certain non-U.S. employees and provide for medical payments to eligible
employees and dependents upon retirement.

The company's retiree medical obligations are measured as of June 30. The
following are the assumptions used in the measurement of the accumulated
projected benefit obligation (APBO):

The discount rate is the rate that the accumulated projected benefit
obligation is discounted. This rate is determined based on high-quality fixed
income investments that match the duration of expected retiree medical benefits.
The company has typically used the corporate AA/Aa bond rate for this
assumption. The health care cost trend rate represents the company's expected
annual rates of change in the cost of health care benefits. The trend rate noted
above represents a forward projection of health care costs as of the measurement
date. The company's projection for fiscal 2003 is an increase in health care
costs of 9.0 percent.

51

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The APBO for retiree medical as of the June 30 measurement date is
summarized as follows (in millions):

The following reconciles the change in the APBO and the amounts included in
the consolidated balance sheet (in millions):

The increase in the APBO was driven primarily by actuarial losses. The
actuarial losses resulted from the decrease in the discount rate assumption and
unfavorable health care cost trend experience. The demographic and other
actuarial losses relate to earlier than expected retirements due to certain
plant closings and restructuring actions. In accordance with Statement of
Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for
Postretirement Benefits Other than Pensions", a portion of the actuarial losses
is not subject to amortization. The actuarial losses that are subject to
amortization are generally amortized over the average expected remaining service
life, which is approximately 14 years. Union plan amendments are generally
amortized over the contract period, or 3 years. The company has approved changes
to certain retiree medical plans. These plan amendments will be effective in
fiscal 2003 and have been reflected in the APBO as of September 30, 2002.

52

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The accrued retiree medical liability is included in the consolidated
balance sheet as follows (in millions):

The components of retiree medical expense are as follows (in millions):

A one-percentage point change in the assumed health care cost trend rate
for all years to, and including, the ultimate rate would have the following
effects (in millions):

20. RETIREMENT PENSION PLANS

ArvinMeritor sponsors defined benefit pension plans that cover most of its
U.S. employees and certain non-U.S. employees. Pension benefits for salaried
employees are based on years of credited service and compensation. Pension
benefits for hourly employees are based on years of service and specified
benefit amounts. The company's funding policy provides that annual contributions
to the pension trusts will be at least equal to the minimum amounts required by
ERISA in the U.S. and the actuarial recommendations or statutory requirements in
other countries.

Certain of the company's non-U.S. subsidiaries provide limited non-pension
benefits to retirees in addition to government-sponsored programs. The cost of
these programs is not significant to the company. Most retirees outside the U.S.
are covered by government-sponsored and administered programs.

The company's pension obligations are measured as of June 30. The U.S.
plans include a qualified and non-qualified pension plan. Non-U.S. includes
plans primarily in the United Kingdom, Canada and Germany.

53

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following are the assumptions used in the measurement of the projected
benefit obligation (PBO) and net periodic pension expense:

54

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following reconciles the funded status with the amount included in the
consolidated balance sheet (in millions):

The increase in the PBO due to actuarial losses for fiscal 2002 and 2001
relates primarily to the reduction in the discount rate assumptions. In
accordance with Statement of Financial Accounting Standards No. 87 (SFAS 87),
"Employers' Accounting for Pensions", a portion of the actuarial losses is not
subject to amortization. The actuarial losses that are subject to amortization
are generally amortized over the expected remaining service life, which ranges
from 12 to 18 years, depending on the plan. The most significant impact on the
funded status has been the underperformance of the pension assets for both
fiscal 2002 and 2001. This was driven by worldwide financial market conditions,
which also contributed to the company's revision of the expected rate of return
on plan assets. Also in accordance with SFAS 87, the company utilizes a market-
related value of assets, which recognizes changes in the fair value of assets
over a five-year period.

The increase in the unfunded status resulted in the company recording an
additional minimum pension liability for both fiscal 2002 and 2001. SFAS 87
requires a company to record a minimum liability that is at least equal to the
unfunded accumulated benefit obligation. The company recorded an additional
minimum pension liability adjustment of $116 million and $75 million in fiscal
2002 and 2001, respectively. The additional minimum pension liability, net of a
deferred tax asset, is charged to accumulated other comprehensive loss.

Amounts included in the consolidated balance sheet at September 30 are
comprised of the following (in millions):

55

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The accrued pension liability is included in Accrued Retirement Benefits in
the consolidated balance sheet as follows (in millions):

In accordance with Statement of Financial Accounting Standards No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits", the
PBO, accumulated benefit obligation (ABO) and fair value of plan assets is
required to be disclosed for all plans where the ABO is in excess of plan
assets. The difference between the PBO and ABO is that the PBO includes
projected compensation increases. Additional information is as follows (in
millions):

The components of net periodic pension expense were as follows (in
millions):

The company also sponsors certain defined contribution savings plans for
eligible employees. Expense related to these plans was $11 million, $11 million
and $8 million for fiscal 2002, 2001 and 2000, respectively.

21. INCOME TAXES

The components of the Provision for Income Taxes are summarized as follows
(in millions):

56

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The deferred tax expense represents tax deductions related to previously
accrued expenses. The deferred tax benefit represents the tax benefit of current
year net operating losses and tax credits carried forward, and the tax impact
related to certain accrued expenses that have been recorded for financial
statement purposes but are not deductible for income tax purposes until paid.

Net deferred income tax benefits included in Other Current Assets in the
accompanying consolidated balance sheet consist of the tax effects of temporary
differences related to the following (in millions):

Net deferred income tax benefits included in Other Assets in the
accompanying consolidated balance sheet consist of the tax effects of temporary
differences related to the following (in millions):

Management believes it is more likely than not that current and long-term
deferred tax benefits will reduce future income tax payments. Significant
factors considered by management in its determination of the probability of the
realization of the deferred tax benefits include: (a) historical operating
results, (b) expectations of future earnings and (c) the extended period of time
over which the retirement medical liability will be paid. The valuation
allowance represents the amount of tax benefits related to net operating loss
and tax credit carryforwards, which management believes are not likely to be
realized. The carryforward periods for $145 million of net operating losses and
tax credit carryforwards expire between 2003 and 2022. The carryforward period
for the remaining net operating losses and tax credits is indefinite.

57

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The company's effective tax rate was different from the U.S. statutory rate
for the reasons set forth below:

The income tax provisions were calculated based upon the following
components of income before income taxes (in millions):

No provision has been made for U.S., state or additional foreign income
taxes related to approximately $190 million of undistributed earnings of foreign
subsidiaries that have been or are intended to be permanently reinvested.

22. CONTINGENCIES

Environmental

Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes and other
activities affecting the environment have, and will continue to have, an impact
on the manufacturing operations of the company. The process of estimating
environmental liabilities is complex and dependent on physical and scientific
data at the site, uncertainties as to remedies and technologies to be used and
the outcome of discussions with regulatory agencies. The company records
liabilities for environmental issues in the accounting period in which its
responsibility is established and the cost can be reasonably estimated. At
environmental sites in which more than one potentially responsible party has
been identified, the company records a liability for its allocable share of
costs related to its involvement with the site, as well as an allocable share of
costs related to insolvent parties or unidentified shares. At environmental
sites in which ArvinMeritor is the only potentially responsible party, the
company records a liability for the total estimated costs of remediation before
consideration of recovery from insurers or other third parties.

The company has been designated as a potentially responsible party at 8
Superfund sites, excluding sites as to which the company's records disclose no
involvement or as to which the company's potential liability has been finally
determined. Management estimates the total reasonably possible costs the company
could incur for the remediation of Superfund sites at September 30, 2002, to be
approximately $34 million, of which $13 million is recorded as a liability. In
addition to the Superfund sites, various other lawsuits, claims and proceedings
have been asserted against the company, alleging violations of federal, state
and local environmental protection requirements, or seeking remediation of
alleged environmental impairments, principally at previously disposed-of
properties. For these matters, management has estimated the total reasonably
possible costs the company could incur at September 30, 2002, to be
approximately $50 million, of which $21 million is
58

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recorded as a liability. Following are the components of the Superfund and
Non-Superfund environmental reserves (in millions):

A portion of the environmental reserves is included in Other Current
Liabilities (see Note 13), with the majority of the amounts recorded in Other
Liabilities (see Note 14).

The actual amount of costs or damages for which the company may be held
responsible could materially exceed the foregoing estimates because of
uncertainties, including the financial condition of other potentially
responsible parties, the success of the remediation and other factors that make
it difficult to accurately predict actual costs. However, based on management's
assessment, the company believes that its expenditures for environmental capital
investment and remediation necessary to comply with present regulations
governing environmental protection and other expenditures for the resolution of
environmental claims will not have a material adverse effect on the company's
business, financial condition or results of operations. In addition, in future
periods, new laws and regulations, advances in technology and additional
information about the ultimate clean up remedy could significantly change the
company's estimates. Management cannot assess the possible effect of compliance
with future requirements.

Asbestos

Maremont Corporation ("Maremont", a subsidiary of the company) and many
other companies are defendants in suits brought by individuals claiming personal
injuries as a result of exposure to asbestos-containing products. Maremont
manufactured friction products containing asbestos from 1953 through 1977, when
it sold its friction product business. Arvin acquired Maremont in 1986. During
fiscal 1997 through 2002, Maremont paid approximately $52 million to address
asbestos-related claims, substantially all of which was reimbursed by insurance.

Maremont's asbestos-related reserves and corresponding asbestos-related
recoveries are summarized as follows (in millions):

A portion of the asbestos-related recoveries and reserves are included in
current assets and liabilities, with the majority of the amounts recorded in
noncurrent assets and liabilities (see Notes 10, and 12 through 14).

The unbilled committed settlements reserve relates to committed settlements
that Maremont agreed to pay when Maremont participated in the Center for Claims
Resolution (CCR). Maremont shared in the payments of defense and indemnity costs
of asbestos-related claims with other CCR members. The CCR

59

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

handled the resolution and processing of asbestos claims on behalf of its
members until February 1, 2001, when it was reorganized and discontinued
negotiating shared settlements.

Since February 1, 2001, Maremont has hired its own litigation counsel and
is committed to examining the merits of each asbestos-related claim. For
purposes of establishing reserves for pending asbestos-related claims, Maremont
estimates its defense and indemnity costs based on the history and nature of
filed claims to date and Maremont's experience since February 1, 2001. Maremont
had approximately 37,500 and 27,500 pending asbestos-related claims at September
30, 2002 and 2001, respectively. Although Maremont has been named in these
cases, in the cases where actual injury has been alleged, very few claimants
have established that a Maremont product caused their injuries.

Several former members of the CCR have filed for bankruptcy protection, and
these members have failed, or may fail, to pay certain financial obligations
with respect to settlements that were reached while they were CCR members.
Maremont is subject to claims for payment of a portion of these defaulted member
shares ("shortfall"). In an effort to resolve the affected settlements, Maremont
has entered into negotiations with plaintiffs' attorneys, and an estimate of
Maremont's obligation for the shortfall is included in the total
asbestos-related reserves. In addition, Maremont and its insurers are engaged in
legal proceedings to determine whether existing insurance coverage should
reimburse any potential liability related to this issue.

Maremont has insurance that reimburses a substantial portion of the costs
incurred defending against asbestos-related claims. The coverage also reimburses
Maremont for any indemnity paid on those claims. The coverage is provided by
several insurance carriers based on the insurance agreements in place. Based on
its assessment of the history and nature of filed claims to date, and of
Maremont's insurance carriers, management believes that existing insurance
coverage is adequate to cover substantially all costs relating to pending and
future asbestos-related claims.

The amounts recorded for the asbestos-related reserves and recoveries from
insurance companies are based upon assumptions and estimates derived from
currently known facts. All such estimates of liabilities for asbestos-related
claims are subject to considerable uncertainty because such liabilities are
influenced by variables that are difficult to predict. If the assumptions with
respect to the nature of pending claims, the cost to resolve claims and the
amount of available insurance prove to be incorrect, the actual amount of
Maremont's liability for asbestos-related claims, and the effect on the company,
could differ materially from current estimates.

Maremont has not accrued reserves for unknown claims that may be asserted
against it in the future. Maremont does not have sufficient information to make
a reasonable estimate of its potential liability for asbestos-related claims
that may be asserted against it in the future.

Product Recall Campaign

The company has recalled certain of its commercial vehicle axles equipped
with TRW model 20-EDL tie rod ends because of potential safety-related defects
in those ends. TRW, Inc. (TRW) manufactured the affected tie rod ends from June
1999 through June 2000 and supplied them to the company for incorporation into
its axle products.

TRW commenced recall campaigns in August 2000 and June 2001, covering 24
weeks of production, due to a purported manufacturing anomaly identified by TRW.
However, after an analysis of field returns and customer reports of excessive
wear, ArvinMeritor concluded that the defect was based on the design of a
bearing used in the ball socket, which is part of the tie rod end, and not on
the purported anomaly in the manufacturing process. The company reported its
finding to the National Highway Transportation Safety Administration in April
2002 and expanded the recall campaign to cover all of its axle products that had
incorporated TRW model 20-EDL tie rod ends.

60

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ArvinMeritor estimates the cost of recalling all TRW model 20-EDL tie rod
ends to be approximately $30 million, of which approximately $13 million is
estimated to be covered by TRW's recall campaigns. The company believes that it
is entitled to reimbursement by TRW for its costs associated with the campaigns.
On May 6, 2002, the company filed suit against TRW in the U.S. District Court
for the Eastern District of Michigan, claiming breach of contract and breach of
warranty, and seeking compensatory and consequential damages in connection with
the recall campaign. The company has recorded a liability and offsetting
receivable for the estimated cost of the recall campaign, which is not covered
by TRW's recall campaign. As of September 30, 2002, the company has recorded a
receivable from TRW for $17 million and has accrued product warranty reserves of
$15 million, net of claims paid to date. In addition, as of September 30, 2002
the company has recorded a $4 million receivable from TRW for reimbursement of
customer claims paid to date that are covered by TRW's recall campaign.

Other

Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against the company, relating to the conduct of the
company's business, including those pertaining to product liability,
intellectual property, safety and health, and employment matters. Although the
outcome of litigation cannot be predicted with certainty, and some lawsuits,
claims or proceedings may be disposed of unfavorably to the company, management
believes the disposition of matters that are pending will not have a material
adverse effect on the company's business, financial condition or results of
operations.

23. BUSINESS SEGMENT INFORMATION

The company has three reportable operating segments: Light Vehicle Systems
(LVS), Commercial Vehicle Systems (CVS), and Light Vehicle Aftermarket (LVA).
LVS is a major supplier of air and emission systems, aperture systems (roof and
door systems and motion control products), and undercarriage systems (suspension
and ride control systems and wheel products) for passenger cars, light trucks
and sport utility vehicles to original equipment manufacturers. CVS supplies
drivetrain systems and components, including axles and drivelines, braking
systems, suspension systems and exhaust, ride control and filtration products
for medium- and heavy-duty trucks, trailers and off-highway equipment and
specialty vehicles. LVA supplies exhaust, ride control and filter products to
the light vehicle aftermarket. Business units that are not focused on automotive
products are classified as "Other". The company's coil coating operation is
included in this classification.

Segment information is summarized as follows (in millions):

Sales:

61

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Earnings:

62

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Segment Assets:

Net Goodwill:

- ---------------

(1) Corporate assets consist primarily of cash, taxes and prepaid pension costs.
For fiscal 2002 and 2001, segment assets include $105 million and $211
million, respectively, of receivables sold under the accounts receivable
securitization program (see Note 8). As a result, corporate assets are
reduced by these amounts to account for the impact of the sale.

Information on the company's geographic areas is summarized as follows (in
millions):

Sales by Geographic Area:

63

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Assets by Geographic Area:

Sales to DaimlerChrysler AG represented 16 percent, 15 percent and 18
percent of the company's sales in fiscal 2002, 2001, and 2000, respectively.
Sales to General Motors Corporation comprised 13 percent and 12 percent of the
company's sales in fiscal 2002 and 2001, respectively. Sales to Ford Motor
Company comprised 11 percent of the company's sales in fiscal 2002. No other
customer comprised 10 percent or more of the company's sales in each of the
three years ended September 30, 2002.

24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following is a condensed summary of the company's unaudited quarterly
results of operations for fiscal 2002 and 2001 and stock price data for fiscal
2002. The per share amounts are based on the weighted average shares outstanding
for that quarter.

First quarter 2002 net income included a restructuring charge of $15
million ($10 million after-tax, or $0.15 per basic and diluted share) and third
quarter 2002 net income included a gain on the sale of the company's exhaust
accessories manufacturing operations of $6 million ($4 million after-tax, or
$0.06 per basic and diluted share).

64

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

First quarter 2001 net loss included a restructuring charge of $46 million
($30 million after-tax, or $0.45 per share), second quarter 2001 net income
included a restructuring charge of $9 million ($6 million after-tax, or $0.09
per share), third quarter 2001 net income included a restructuring charge of
$(1) million ($(1) million after-tax, or $(0.02) per share), and fourth quarter
2001 net loss included a restructuring charge of $13 million ($10 million
after-tax, or $0.15 per share), a charge associated with an employee separation
agreement of $12 million ($8 million after-tax, or $0.12 per share), and a
charge of $5 million ($3 million after-tax, or $0.05 per share) for
environmental liability costs.

Earnings per share for the year may not equal the sum of the four fiscal
quarters earnings per share due to changes in basic and diluted shares
outstanding.

25. SUPPLEMENTAL FINANCIAL INFORMATION

26. SUBSEQUENT EVENTS

On October 31, 2002, the company announced an agreement to sell its CVS
off-highway planetary axle business. The off-highway planetary axle business had
fiscal 2002 sales of approximately $90 million. Completion of the sale is
contingent on satisfaction of certain conditions and the company expects to
complete the transaction in the first half of fiscal 2003.

In 1998, the company acquired a 49-percent interest in a German joint
venture, Zeuna Starker GmbH & Co. KG, an air and emissions systems company.
Under the terms of the shareholders' agreement, the owners of the majority
interest in the joint venture have the right to exercise a put option to require
the company to purchase the remaining 51 percent. On December 17, 2002, the
majority shareholders exercised the put option, and the company entered into
agreements to purchase the remaining 51 percent interest for a purchase price of
approximately $75 million. The company expects to complete the transaction in
the second quarter of fiscal 2003.

65

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ARVINMERITOR.

See the information under the captions Election of Directors and
Information as to Nominees for Directors and Continuing Directors in the 2003
Proxy Statement. No nominee for director was selected pursuant to any
arrangement or understanding between the nominee and any person other than
ArvinMeritor pursuant to which such person is or was to be selected as a
director or nominee. There are no family relationships, as defined in Item 401
of Regulation S-K, between any of the directors or nominees for directors and
any other director, executive officer or person nominated to become a director
or executive officer. See also the information with respect to executive
officers of ArvinMeritor under Item 4a of Part I.

ITEM 11. EXECUTIVE COMPENSATION.

See the information under the captions Compensation of Directors, Executive
Compensation, Agreements with Named Executive Officers and Retirement Benefits
in the 2003 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

See the information under the captions Voting Securities and Ownership by
Management of Equity Securities in the 2003 Proxy Statement.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The number of stock options outstanding under our equity compensation
plans, the weighted average exercise price of outstanding options, and the
number of securities remaining available for issuance, as of September 30, 2002,
were as follows:

- ---------------

(1) In addition to stock options, as of September 30, 2002, an aggregate of
923,244 shares of Common Stock, restricted Common Stock, and deferred Common
Stock were outstanding under equity compensation plans approved by security
holders and 610,225 shares of restricted Common Stock were outstanding under
equity compensation plans not approved by security holders.

(2) All of our equity compensation plans except the Employee Stock Benefit Plan
were approved by the shareholders of either Arvin or Meritor. The Employee
Stock Benefit Plan was adopted by the Arvin board of directors in 1998 and
expires in 2008. It is intended to provide compensation arrangements that

66

will attract, retain and reward key non-officer employees and to provide
these employees with a proprietary interest in the company. The Plan
provides for the issuance of incentive awards to non-officer employees in
the form of stock options, tandem or non-tandem stock appreciation rights,
restricted stock, performance shares or performance units. For further
information, see the Plan document, which is filed as Exhibit 10-i to this
Annual Report on Form 10-K, and Notes 17 and 18 of the Notes to Consolidated
Financial Statements under Item 8. Financial Statements and Supplementary
Data below.

(3) The table includes options granted under Arvin's 1988 Stock Benefit Plan,
1998 Stock Benefit Plan and Employee Stock Benefit Plan, which we assumed in
connection with the Merger. A total of 3,118,255 options issued under these
plans, with a weighted average exercise price of $28.10, were assumed at the
time of the Merger.

(4) The following number of shares remained available for issuance under each of
our equity compensation plans at September 30, 2002. Grants under these
plans may be in the form of any of the listed types of awards:

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

PART IV

ITEM 14. CONTROLS AND PROCEDURES.

As required by Rule 13a-15 under the Securities Exchange Act of 1934,
within the 90 days prior to the date of this report, we carried out an
evaluation under the supervision and with the participation of ArvinMeritor's
management, including Larry D. Yost, Chairman of the Board and Chief Executive
Officer, and S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports we file or submit under the Securities Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There have been no
significant changes in ArvinMeritor's internal controls or in other factors that
could significantly affect these controls subsequent to the date of that
evaluation.

In connection with the rule, we currently are in the process of further
reviewing and documenting our disclosure controls and procedures, including our
internal controls and procedures for financial reporting, and

67

may from time to time make changes aimed at enhancing their effectiveness and to
ensure that our systems evolve with the business.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) Financial Statements, Financial Statement Schedules and Exhibits.

(1) Financial Statements (all financial statements listed below are those
of the company and its consolidated subsidiaries):

Statement of Consolidated Income, years ended September 30, 2002, 2001 and
2000.

Consolidated Balance Sheet, September 30, 2002 and 2001.

Statement of Consolidated Cash Flows, years ended September 30, 2002, 2001
and 2000.

Statement of Consolidated Shareowners' Equity, years ended September 30,
2002, 2001 and 2000.

Notes to Consolidated Financial Statements.

Independent Auditors' Report.

(2) Financial Statement Schedule for the years ended September 30, 2002,
2001 and 2000.

Schedules not filed with this Annual Report on Form 10-K are omitted
because of the absence of conditions under which they are required or because
the information called for is shown in the financial statements or related
notes.

(3) Exhibits

3-a Restated Articles of Incorporation of ArvinMeritor, filed as
Exhibit 4.01 to ArvinMeritor's Registration Statement on
Form S-4, as amended (Registration Statement No. 333-36448)
("Form S-4") is incorporated by reference.
3-b By-laws of ArvinMeritor, filed as Exhibit 3 to
ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended April 1, 2001 (File No. 1-15983), is
incorporated by reference.
4-a Rights Agreement, dated as of July 3, 2000, between
ArvinMeritor and The Bank of New York (successor to
EquiServeTrust Company, N.A.), as rights agent, filed as
Exhibit 4.03 to the Form S-4, is incorporated by reference.
4-b Indenture, dated as of April 1, 1998, between ArvinMeritor
and BNY Midwest Trust Company (successor to The Chase
Manhattan Bank), as trustee, filed as Exhibit 4 to Meritor's
Registration Statement on Form S-3 (Registration No.
333-49777), is incorporated by reference.
4-b-1 First Supplemental Indenture, dated as of July 7, 2000, to
the Indenture, dated as of April 1, 1998, between
ArvinMeritor and BNY Midwest Trust Company (successor to The
Chase Manhattan Bank), as trustee, filed as Exhibit 4-b-1 to
ArvinMeritor's Annual Report on Form 10-K for the fiscal
year ended September 30, 2000 (File No. 1-15983) ("2000 Form
10-K"), is incorporated by reference.
4-c Indenture dated as of July 3, 1990, as supplemented by a
First Supplemental Indenture dated as of March 31, 1994,
between ArvinMeritor and Harris Trust and Savings Bank, as
trustee, filed as Exhibit 4-4 to Arvin's Registration
Statement on Form S-3 (Registration No. 33-53087), is
incorporated by reference.
4-c-1 Second Supplemental Indenture, dated as of July 7, 2000, to
the Indenture dated as of July 3, 1990, between ArvinMeritor
and Harris Trust and Savings Bank, as trustee, filed as
Exhibit 4-c-1 to the 2000 Form 10-K, is incorporated by
reference.

68

4-d Indenture, dated as of January 28, 1997, between
ArvinMeritor and Wilmington Trust Company, as trustee, filed
as Exhibit 4.4 to Arvin's Registration Statement on Form S-3
(Registration No. 333-18521), is incorporated by reference.
4-d-1 First Supplemental Indenture, dated as of January 28, 1997,
to Indenture dated as of January 28, 1997, between
ArvinMeritor and Wilmington Trust Company, as trustee, filed
as Exhibit 4.5 to Arvin's Current Report on Form 8-K dated
February 10, 1997 (File No. 1-302), is incorporated by
reference.
4-d-2 Second Supplemental Indenture, dated as of July 7, 2000, to
Indenture dated as of January 28, 1997, between ArvinMeritor
and Wilmington Trust Company, filed as Exhibit 4-d-2 to the
2000 Form 10-K, is incorporated by reference.
10-a-1 Amended and Restated Five-Year Revolving Credit Agreement
dated as of June 27, 2001, among ArvinMeritor, the foreign
subsidiary borrowers and lenders from time to time party to
the agreement, Bank One, NA, as Administrative Agent, JP
Morgan Chase Bank as Syndication Agent, and Citicorp USA,
Inc. and Bank of America, NA, as Documentation Agents, filed
as Exhibit 10-b to ArvinMeritor's Quarterly Report on Form
10-Q for the quarterly period ended July 1, 2001 (File No.
1-15983), is incorporated by reference.
10-a-2 Amendment No. 2, dated as of February 1, 2002, to Amended
and Restated Five-Year Revolving Credit Agreement, filed as
Exhibit 10a to ArvinMeritor's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2002 (File No.
1-15983), is incorporated by reference.
10-a-3 Amendment No. 3, dated as of June 26, 2002, to Amended and
Restated Five-Revolving Credit Agreement, filed as Exhibit
10a to ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002 (File No. 1-15983), is
incorporated by reference.
10-b 3-Year Credit Agreement dated as of June 26, 2002, among
ArvinMeritor, the lenders from time to time party to the
agreement, Bank One, NA, as Administrative Agent, JP Morgan
Chase Bank as Syndication Agent, and Deutsche Bank
Securities Inc., Citicorp USA, Inc., and UBS Warburg LLC, as
Documentation Agents, filed as Exhibit 10b to ArvinMeritor's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2002 (File No. 1-15983), is incorporated by
reference.
*10-c-1 1997 Long-Term Incentives Plan, as amended and restated.
*10-c-2 Form of Restricted Stock Agreement under the 1997 Long-Term
Incentives Plan, filed as Exhibit 10-a-2 to Meritor's Annual
Report on Form 10-K for the fiscal year ended September 30,
1997 ("1997 Form 10-K"), is incorporated by reference.
*10-c-3 Form of Option Agreement under the 1997 Long-Term Incentives
Plan, filed as Exhibit 10(a) to Meritor's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1998
(File No. 1-13093), is incorporated by reference.
*10-d-1 Directors Stock Plan, filed as Exhibit 10-b-1 to the 1997
Form 10-K, is incorporated by reference.
*10-d-2 Form of Restricted Stock Agreement under the Directors Stock
Plan, filed as Exhibit 10-b-2 to the 1997 Form 10-K, is
incorporated by reference.
*10-d-3 Form of Option Agreement under the Directors Stock Plan,
filed as Exhibit 10(b) to Meritor's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998 (File No.
1-13093), is incorporated by reference.
*10-e Incentive Compensation Plan, filed as Exhibit 10-c-1 to the
1997 Form 10-K, is incorporated by reference.
*10-f Copy of resolution of the Board of Directors of
ArvinMeritor, adopted on July 6, 2000, providing for its
Deferred Compensation Policy for Non-Employee Directors,
filed as Exhibit 10-f to the 2000 Form 10-K, is incorporated
by reference.
*10-g Deferred Compensation Plan, filed as Exhibit 10-e-1 to
Meritor's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998 (File No. 1-13093), is incorporated
by reference.

69

*10-h 1998 Stock Benefit Plan, as amended, filed as Exhibit (d)(2)
to ArvinMeritor's Schedule TO, Amendment No. 3 (File No.
5-61023), is incorporated by reference.
*10-i Employee Stock Benefit Plan, as amended, filed as Exhibit
(d)(3) to ArvinMeritor's Schedule TO, Amendment No. 3 (File
No. 5-61023), is incorporated by reference.
*10-j 1988 Stock Benefit Plan, as amended, filed as Exhibit 10 to
Arvin's Quarterly Report on Form 10-Q for the quarterly
period ended July 3, 1988, and as Exhibit 10(E) to Arvin's
Quarterly Report on Form 10-Q for the quarter ended July 4,
1993 (File No. 1-302), is incorporated by reference.
10-k Second Amended and Restated Receivables Sale Agreement,
dated as of September 26, 2002, among ArvinMeritor
Receivables Corporation, ArvinMeritor, Credit Lyonnais,
Bayerische Landesbank, New York Branch, ABN AMRO N.V., Giro
Balanced Funding Corporation, La Fayette Asset
Securitization LLC, Amsterdam Funding Corporation and the
other purchasers party thereto.
10-l Second Amendment to Restated Purchase and Sale Agreement,
dated as of September 26, 2002, among the originators named
therein and ArvinMeritor Receivables Corporation.
12 Computation of ratio of earnings to fixed charges.
21 List of subsidiaries of ArvinMeritor.
23-a Consent of M. Lee Murrah, Esq., Chief Intellectual Property
Counsel of ArvinMeritor.
23-b Consent of Vernon G. Baker, II, Esq., Senior Vice President
and General Counsel of ArvinMeritor.
23-c Independent auditors' consent.
24 Power of Attorney authorizing certain persons to sign this
Annual Report on Form 10-K on behalf of certain directors
and officers of ArvinMeritor.
99-a Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act.
99-b Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act.

- ---------------
* Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K.

We filed a Current Report on Form 8-K on July 3, 2002, reporting under Item
5, Other Events and Regulation FD Disclosure, that ArvinMeritor issued and sold
in an underwritten public offering $200 million principal amount of its 6 5/8%
Notes due 2007 on July 1, 2002, and filing under Item 7, Financial Statements
and Exhibits, certain exhibits relating to the new series of notes.

We filed a Current Report on Form 8-K on August 6, 2002, reporting under
Item 5, Other Events and Regulation FD Disclosure, that on August 6, 2002 the
Chief Executive Officer and Chief Financial Officer of the company had filed
with the Securities and Exchange Commission the certifications required by Order
No. 4-460, and filing those certifications as exhibits under Item 7, Financial
Statements and Exhibits.

70

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

ARVINMERITOR, INC.

By: /s/ VERNON G. BAKER, II
------------------------------------
Vernon G. Baker, II
Senior Vice President and General
Counsel

Date: December 17, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 17th day of December, 2002 by the following
persons on behalf of the registrant and in the capacities indicated.

Larry D. Yost* Chairman of the Board and Chief Executive
Officer (principal executive officer) and
Director
Terrence E. O'Rourke* President and Chief Operating Officer and
Director

Joseph B. Anderson, Jr., Directors
Steven C. Beering,
Rhonda L. Brooks, Joseph P. Flannery,
William D. George, Jr., Richard W. Hanselman,
Charles H. Harff, Victoria B. Jackson,
James E. Marley, James E. Perrella,
and Martin D. Walker*

S. Carl Soderstrom, Jr.* Senior Vice President and Chief Financial
Officer
(principal financial officer)

Diane S. Bullock * Vice President and Controller
(principal accounting officer)

*By: /s/ BONNIE WILKINSON
------------------------------------------------
Bonnie Wilkinson
Attorney-in-fact**

**By authority of powers of attorney filed herewith.

71

CERTIFICATIONS

I, Larry D. Yost, Chairman of the Board and Chief Executive Officer of
ArvinMeritor, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of ArvinMeritor, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

/s/ LARRY D. YOST
--------------------------------------
Larry D. Yost,
Chairman of the Board and
Chief Executive Officer

Date: December 17, 2002

72

I, S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial
Officer of ArvinMeritor, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of ArvinMeritor, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

/s/ S. CARL SODERSTROM, JR.
--------------------------------------
S. Carl Soderstrom, Jr.
Senior Vice President and Chief
Financial Officer

Date: December 17, 2002

73

SCHEDULE II

ARVINMERITOR, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED SEPTEMBER 30, 2002, 2001, AND 2000

- ---------------

(a) Includes allowances for trade and other long-term receivables.

(b) Uncollectible accounts written off.

(c) Includes increase in allowance of $11.9 million due to Merger.

S-1