ARVINMERITOR INC - 10-K Annual Report

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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 OCTOBER 3, 2004
COMMISSION FILE NUMBER 1-15983
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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 [ ]

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

The aggregate market value of the registrant's voting and non-voting common
equity held by non-affiliates of the registrant on March 26, 2004 (the last
business day of the most recently completed second fiscal quarter) was
approximately $1,299.24 million.

69,814,646 shares of the registrant's Common Stock, par value $1 per share,
were outstanding on November 30, 2004.

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 16, 2005 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. In 2004
and prior periods, the company also provided coil coating applications to the
transportation, appliance, construction, heating, ventilation and air
conditioning, and doors industries (see "Strategic Initiatives" below).

ArvinMeritor was incorporated in Indiana in March 2000, in connection with
the merger of Meritor Automotive, Inc. ("Meritor") and Arvin Industries, Inc.
("Arvin"), which 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.

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 year 2004 ended on October 3, 2004. All year and quarter references
relate to our fiscal year and fiscal quarters unless otherwise stated.

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 16, 2005 (the "2005 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, trailer
producers and specialty vehicle manufacturers, and certain aftermarkets. Our
total sales from continuing operations in fiscal year 2004 were $8.0 billion.
Our ten largest customers accounted for approximately 74% of fiscal year 2004
sales from continuing operations. We operated 124 manufacturing facilities in 25
countries around the world in fiscal year 2004, including facilities operated by
discontinued operations and joint ventures in which we have interests. Sales
from continuing operations outside the United States accounted for approximately
62% of total sales from continuing operations in fiscal year 2004. Our
continuing operations also participated in ten joint ventures that generated
unconsolidated revenues of $1.1 billion in fiscal year 2004.

In fiscal year 2004, we served customers worldwide through the following
businesses:

Continuing Operations:

- Light Vehicle Systems ("LVS") supplies emissions technologies, aperture
systems (roof and door systems), undercarriage systems (suspension and
ride control systems and wheel products) for passenger cars, all-terrain
vehicles, 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 and ride control products for medium- and heavy-duty
trucks, trailers and specialty vehicles to OEMs and to the commercial
vehicle aftermarket.

Discontinued Operations:

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

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

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In October 2004, we announced our intention to divest our LVA business and
our coil coating operation, and we transferred these businesses to discontinued
operations for accounting purposes. We sold the coil coating operations in
November 2004. See "Strategic Initiatives" below.

Note 23 of the Notes to Consolidated Financial Statements under Item 8.
Financial Statements and Supplementary Data contains financial information by
segment for continuing operations for each of the three years ended September
30, 2004, including information on sales and assets by geographic area for each
segment. The heading "Products" below includes information on LVS and CVS sales
by product for each of the three fiscal years ended September 30, 2004.

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, which are outside our control and cannot be predicted
with certainty, can have a positive or negative effect on our financial results.
See "Seasonality; Cyclicality" and Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Market Outlook,
and -- Results of Operations below.

Other factors in addition to market cyclicality can significantly impact
our business. In fiscal year 2004, these factors included:

- uncertainties related to the cost and availability of steel (see "Raw
Materials" below);

- pressure from customers to reduce prices (see "Customers; Sales and
Marketing" below);

- the effect of foreign currency (see "International Operations" below);
and

- the impact of acquisitions and divestitures (see "Strategic Initiatives"
below).

The effect of these factors on our financial performance is discussed in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations below.

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 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.

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. We
are working 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; pricing
pressures from OEMs that could negatively impact suppliers' earnings even when
sales volumes are increasing; the rising cost of raw materials, primarily steel;
and an increasing emphasis on engineering and technology. Our business
strategies, described below, are
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influenced by these industry factors and trends and are focused on leveraging
our resources to create a competitive cost structure.

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 2004, our annual sales
from continuing operations include $4.8 billion for LVS and $3.2 billion
for CVS.

- Customers. A diverse customer base helps to mitigate market
fluctuations. We have a large customer base comprised of most major
vehicle producers.

- 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. Our goal
is to grow those businesses that are profitable and are core to our operations.
We have identified the areas of our core business that we believe have the most
potential for leveraging into other products and markets, and we are focusing
our resources on these areas. We seek to take advantage of opportunities for
operating synergies and cross selling of products between our light vehicle and
commercial vehicle businesses. For example, CVS continues to adapt products and
technologies, originally developed by the LVS emissions technologies business
unit, in the development of emissions control products for its commercial
vehicle customers. See "Products -- Commercial Vehicle Systems -- Undercarriage
and Drivetrain Systems -- Emissions Systems" below. In addition, we are
exploring opportunities to apply our CVS drivetrain expertise in the development
of undercarriage component systems for our LVS customers.

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 leverage our capabilities, gain access to
new customers and technologies, enter new product markets and implement our
business strategies. We also 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"
below for information on recent activities 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.

One of our significant growth strategies is to provide engineering and
design expertise, develop new products and improve existing products that meet
these customer needs. We will continue to invest in new technologies and product
development and 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 is a supplier of complete roof modules comprised of a roof head liner
bound to an outer shell using an award-winning patented process, which
can also incorporate LVS sunroof technology. Our roof

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module is featured in the DaimlerChrysler SMART car. In addition, in 2004
LVS was awarded two multi-year contracts to supply major European OEMs
with large-opening roof systems that individually feature different roof
technologies. One system features long fiber injection (LFI) technology
(injecting a mixture of long glass fibers and a polyurethane resin into a
plastic mold, which reduces the weight of the roof), and the other
features full-glass appearance.

- LVS has begun production on a modular door concept for a European OEM,
and has developed a glass motion module for use in door systems, which is
currently being evaluated by several OEMs, including some Japanese
customers. LVS also has a contract with Hyundai to provide door modules,
incorporating window regulators, latches, motors, speakers and wire
harnesses, for two platforms beginning production in 2005.

- LVS' suspension systems group began production in 2004 on four front
suspension modules on two platforms for a major OEM, including a front
cradle module assembly and ball joint alignment. This group has also been
awarded a contract for the final assembly of front and rear cross car
modules, featuring a cradle, axle, steering system, lower control arms
and stabilizer bar, and a contract for a front, upper-corner suspension
module on light vehicle pickup trucks for a North American OEM, each with
production to begin in 2005.

- In 2004, CVS entered into an agreement with and began supplying axle and
brake systems to North American Bus Industries, Inc., a leading provider
of buses to North American transit authorities.

- CVS has contracts to provide integrated axles and wheel ends to
Freightliner, and integrated axles and suspension systems to Blue Bird
and Workhorse.

- CVS has adapted products and applications from the LVS emissions
technologies business unit to develop a portfolio of technologically
advanced exhaust products and applications to address increasingly
stringent regulatory standards for diesel particulate matter and nitrogen
oxide (NOx) emissions. These products and applications include:

- Diesel Oxidation Catalysts -- a catalyst in the exhaust system capable
of removing up to 90% of hydrocarbon and carbon monoxide emissions. This
technology is available currently.

- Thermal Regenerator -- on demand, active regeneration technology that
offers a safe and effective way to remove diesel particulate matter,
using diesel fuel as a heat source. This technology is available now for
retrofit and is in the field, and is expected to be available in 2007
for OEM use.

- Catalyzed Diesel Particulate Filter -- a filter that traps the diesel
particulate matter from the exhaust and prevents it from reaching the
atmosphere. It is expected to be available in 2007 to meet the EPA's
2007 particulate matter emission standards.

- Selective Catalytic Reduction (SCR) System -- a compact, low-weight
option to effectively reduce NOx emissions to the levels required to
meet 2005 European standards. The system also achieves reduction of
diesel particulate matter and allows the engine to operate in ways that
could maximize fuel economy. We have contracts with two European truck
OEMs and expect to launch the product in October 2005.

- Plasma Fuel Reformer -- a system that creates a hydrogen-rich gas from
any hydrocarbon fuel source, which enables more efficient control of NOx
from diesel engine exhaust, through effective regeneration of "NOx
adsorbers" or "lean NOx traps". This technology could be less sensitive
to sulfur contamination and could use less fuel than conventional
regeneration and consume minimal power. This technology, which is
expected to be available for production in 2010, also has potential for
future applications in gasoline combustion engines.

4

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 Detroit, Michigan; Columbus, Indiana; and Augsburg,
Germany, and our engineering centers of expertise in the United States, Brazil,
Canada, France, Germany, India 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 equipment required for changes in
environmental and safety-related regulatory provisions. OEMs select suppliers
based not only on the cost and quality of products, but also on their ability to
meet these demands. We use our technological expertise to anticipate trends and
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 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 emissions regulations, LVS is an industry leader in
emissions technologies that improve fuel economy and reduce air pollutants,
while CVS is leveraging our expertise in light vehicle emissions technologies to
bring products to the commercial vehicle market (see "Grow Content Per Vehicle
Through Technologically Advanced Systems and Modules" above). Looking forward,
we will continue to develop products that will permit us to assist customers in
meeting new and more stringent emissions requirements that will be phased in
over the next several years in our primary markets in North America and Europe.

We believe these more stringent emissions regulations will result in
continued growth in Europe, and potential growth in North America, of diesel
engines. Diesel engines today have the advantage of improved fuel economy,
better performance and improving emissions levels. Through our Zeuna Starker
subsidiary, LVS began production in 2004 under contracts to provide diesel
emissions systems to light vehicle OEMs in Europe. Approximately 44% of all new
vehicles in Europe are sold with diesel engine powertrains.

Strengthen our Presence in Emerging Global Markets. Geographic expansion
to meet the global sourcing needs of customers and to address new markets is an
important element of our growth strategy. ArvinMeritor currently has joint
ventures and wholly-owned subsidiaries in China and India and is negotiating
several programs to support customers as they establish and expand operations in
those markets. We also have wholly-owned operations and regional joint ventures
in South America, a market with potential for significant growth.

Drive a Continuous Improvement Culture Focused on Return on Capital. In
2001, we implemented the ArvinMeritor Performance System (AMPS), 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 work to achieve significant
cost savings, increase productivity and efficiency and streamline operations.
They focus 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
are required to achieve our goals with respect to return on invested capital
(defined as net income plus minority interest plus tax effected interest,
divided by total debt plus equity plus minority interest liability) ("ROIC"). We
believe that ROIC is a key performance measure, and that our focus on ROIC will
help 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

5

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 for continuing
operations by product for each of the three fiscal years ended September 30,
2004. A narrative description of the principal products of the two operating
segments that comprise our continuing operations, as well as the principal
products of our discontinued operations (LVA and the coil coating operation),
follows the chart.

SALES BY PRODUCT

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

(1) Prior to January 2003, we owned a minority interest in Zeuna Starker & Co.
KG ("Zeuna Starker"), a German emissions systems company. At that time, we
acquired the remaining interest in Zeuna Starker, and its sales are included
in LVS Emissions Technologies for fiscal year 2004 and for the last three
quarters of fiscal year 2003.

(2) In December 2002, we sold our off-highway planetary axle business. Sales
from these products are included in CVS Specialty Systems for the first
quarter of fiscal year 2003 and for fiscal year 2002.

Light Vehicle Systems

Emissions Technologies

We are a leading global supplier of a complete line of exhaust systems and
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 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.

Zeuna Starker, an exhaust systems supplier headquartered in Germany, is a
wholly owned subsidiary of the company. Zeuna Starker began production in 2004
under contracts to provide diesel emissions systems to light vehicle OEMs in
Europe. See "Business Strategies -- Enhance Core Products to Address Safety and
Environmental Issues" above for information on the importance of diesel
technology to LVS strategies for future growth.

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, including our Golde(R) brand sunroofs. We
make complete roofs, some of which incorporate sunroofs, that provide OEMs with
cost savings

6

by reducing assembly time and parts. Our roof system manufacturing facilities
are located in North America and Europe.

In the fourth quarter of fiscal year 2004, we formed a joint venture with
Shanghai SIIC Transportation Electronic Company, Ltd. ("STEC") to manufacture
passenger vehicle sunroofs for a Volkswagen facility in Shanghai, China. See
"Joint Ventures" below.

Door Systems. We are a leading supplier of integrated door modules and
systems, including manual and power window regulators and latch systems. Our
power and manual door system products utilize numerous technologies, including
our own electric motors with electronic function capabilities, which are custom
designed for individual applications 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
manufacturers. Our access control products include modular and integrated door
latches, actuators, trunk and hood latches and fuel flap locking devices, with a
leadership market position in Europe. We manufacture access control systems at
assembly facilities in North and South America, Europe and the Asia/Pacific
region.

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.

Suspension Modules. Using our expertise in ride control and vehicle
dynamics, we offer final assembly of upper and complete corner modules as well
as front and rear cross vehicle modules. This capability gives us the ability to
incorporate components that we manufacture into these modules, thus enhancing
value content.

Ride Control Systems. We provide ride control products, including shock
absorbers, struts, ministruts and corner modules. During 2004, we participated
in this business both directly and through a joint venture. In the second
quarter of fiscal year 2004, we sold our 75% interest in the joint venture. 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

Undercarriage and 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, 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 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 and
Permalube(TM) driveline, which are low maintenance, permanently lubricated
designs used in the high mileage on-highway market.

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Suspension Systems and Trailer Products. We are one of the world's leading
manufacturers 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.

Through our 50%-owned joint venture with Randon Participacoes, we develop,
manufacture and sell truck suspensions, trailer axles and suspensions and
related wheel-end products in the South American 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 and produces stability control
systems for tractors and trailers, which are designed to help maintain vehicle
stability and aid in reducing tractor-trailer rollovers.

Transmissions. In the second quarter of fiscal year 2004, we dissolved our
50%-owned joint venture with ZF Friedrichshafen AG ("ZF"), which produced
transmission components and systems for heavy vehicle OEMs and the aftermarket
in the United States, Canada and Mexico. The joint venture was replaced by a
marketing arrangement that allows us to provide the FreedomLine(TM), a fully
automated mechanical truck transmission without a clutch pedal, to our
customers. This transmission product line enables us to supply a complete
drivetrain system to heavy-duty commercial vehicle manufacturers in North
America.

Emissions Systems. CVS has adapted products and applications from the LVS
emissions technologies business unit to develop a portfolio of technologically
advanced exhaust products and applications for its commercial vehicle customers.
These products and applications, which address increasingly stringent regulatory
standards for diesel particulate matter, NOx emissions and hydrocarbons, are
described above under Business Strategies -- Grow Content Per Vehicle Through
Technologically Advanced Systems and Modules.

Specialty Products

Off-Highway Vehicle Products. We supply brakes in North America, South
America, Europe and the Asia/Pacific region, and heavy-duty axles and drivelines
in the Asia/Pacific region, for use in numerous off-highway vehicle
applications, including construction, material handling, agriculture, mining and
forestry. These products are designed to tolerate high tonnages and operate
under extreme conditions.

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.

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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.

Light Vehicle Aftermarket

The principal LVA products include mufflers; exhaust and tail pipes;
catalytic converters; shock absorbers; struts; gas lift supports and vacuum
actuators; 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 CARQUEST, NAPA and AC Delco (ride control) and Motorcraft,
Quaker State, Shell and Mobil (filters).

Coil Coating

Our coil coating operation focused predominantly on non-automotive
products. 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. We sold this business in the first quarter of fiscal year 2005
(see "Strategic Initiatives" below).

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 74% of our
total sales from continuing operations in fiscal year 2004.

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 are unable
to generate sufficient cost savings in the future to offset such price
reductions, our gross margins will be adversely affected (see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations below).

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), or continued
reduction of prices to these customers, could have a significant adverse effect
on our financial results. During fiscal year 2004, DaimlerChrysler AG (which
owns Chrysler, Mercedes-Benz AG and Freightliner Corporation), a significant
customer of LVS and CVS, accounted for approximately 19% of our total sales from
continuing operations. In addition, sales to General Motors Corporation
accounted for approximately 13%, sales to Ford Motor Company accounted for
approximately 10%, and sales to Volkswagen accounted for approximately 10% of
our total sales from continuing operations. No other customer accounted for 10%
or more of our total sales from continuing operations in fiscal year 2004.

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.

9

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 included steel companies, service
centers and end manufacturers engaged in the transportation, appliance,
construction, HVAC and doors 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 (emissions
technologies); Webasto and Inalfa (roof systems); Brose, Magna, Kiekert AG,
Valeo and Magna (door and access control systems); Tenneco, Dana Corporation,
Benteler and TRW (suspension modules); Thyssen-Krupp, Rassini, Mubea and NHK
Spring (suspension components); Kayaba Industries, Inc. ("Kayaba"), Tenneco
Automotive, Sachs and ZF (ride control systems); and Hayes-Lemmerz, Topy and
Accuride (wheel products). The major competitors of CVS are Dana Corporation
(truck axles and drivelines); Knorr/Bendix and Haldex Braking Systems (braking
systems); Hendrickson and Holland-Neway (suspension systems); Hendrickson and
Dana Corporation (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 LVS and CVS
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,
Goerlich's, Bosal, Flowmaster, Sebring and Remus (exhaust products); Tenneco,
Kayaba and Sachs (ride control products); Stabilus and Suspa (motion 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, product availability,
timely delivery, product development and manufacturing process efficiency.

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

RAW MATERIALS AND SUPPLIES

Lack of availability and price of raw materials, primarily steel, for our
business segments' manufacturing needs have negatively impacted our financial
performance in fiscal year 2004. In addition, we 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. 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.

Since the second half of fiscal year 2002, we, along with the automotive
industry globally, have experienced rising steel prices and spot shortages of
certain steel products. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations for
further information on the effect of higher steel prices and other costs
associated with steel shortages on our financial results. We cannot predict the
availability or price of steel in fiscal year 2005 and beyond. If supplies are
inadequate for our needs, or if prices remain at current levels or increase and
we are unable to either pass these prices to our customer base or mitigate the
costs by alternative sourcing of material or components, our sales and operating
income could continue to be adversely affected.

10

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.

We believe that the industry in which we operate could 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.

We completed the following strategic initiatives since the beginning of
fiscal year 2004 (see Note 5 of the Notes to Consolidated Financial Statements
under Item 8. Financial Statements and Supplementary Data below):

- In the third quarter of fiscal year 2004, we sold our CVS trailer beam
fabrication facility in Kenton, Ohio. The Kenton facility was primarily
an internal supplier to other CVS facilities, and its sale was consistent
with our strategy to reduce vertical integration and increase our focus
on core processes for the design and assembly of complete systems.

- In the first quarter of fiscal year 2005, we sold Roll Coater, Inc., a
wholly-owned subsidiary that constituted our coil coating operations. The
transaction, which was part of our strategy to divest non-core
businesses, included five facilities. The coil coating operations had
sales of $197 million in fiscal year 2004.

- In the first quarter of fiscal year 2005, we sold our LVS automotive
stamping and components manufacturing operation in Columbus, Indiana.
This action is part of our plan to rationalize our operations and focus
on our core automotive businesses. This manufacturing operation had sales
of $83 million in fiscal year 2004.

In October 2004, we announced our intention to divest the LVA business
segment. The divestiture will enable the company to focus more resources on our
core competencies and thereby better support our OEM customers.

In fiscal year 2004, we recorded restructuring charges of $15 million with
respect to our continuing operations. Of these charges, $10 million related to
workforce reductions and facility consolidations in the LVS segment. These
actions follow the realignment of management of the LVS businesses and are also
intended to address the competitive challenges in the automotive supplier
industry. The charges related to severance and other employee termination costs
for approximately 55 salaried employees and 580 hourly employees. The remaining
$5 million of these charges was associated with corporate administrative and
managerial employee termination costs. In addition, LVA recorded restructuring
costs of $3 million in fiscal year 2004 as a result of weakening demand in the
aftermarket business, and these costs are included in the results of
discontinued operations for fiscal year 2004. See Notes 3 and 4 of the Notes to
Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data below for further information.

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 may be able to
finance such acquisitions by using the cash proceeds of divestitures or by
issuing additional debt or equity securities. 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.

11

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. As of September 30, 2004, our continuing operations participated in
24 joint ventures with interests in the United States, Brazil, Canada, China,
the Czech Republic, France, Germany, India, Italy, Mexico, Turkey 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). Significant unconsolidated joint
ventures include our 50%-owned North American joint venture with WABCO (ABS
systems for heavy-duty commercial vehicles) and our 50% interest in Arvin Sango
Inc. in the United States.

Since the beginning of fiscal year 2004, we completed the following
significant initiatives with respect to our joint ventures (see Note 5 of the
Notes to Consolidated Financial Statements under Item 8. Financial Statements
and Supplementary Data below):

- In the second quarter of fiscal year 2004, we sold our 75% interest in AP
Amortiguadores, S.A., a Spanish joint venture that manufactured ride
control products, to our joint venture partner, Kayaba, and our
participation in the joint venture terminated. We recorded $81 million of
sales associated with the joint venture in fiscal year 2004.

- In the second quarter of fiscal year 2004, we dissolved a 50%-owned
commercial vehicle transmission joint venture with ZF and replaced it
with a marketing arrangement that allows us to provide the
Freedomline(TM) family of transmissions to our customers.

- In the fourth quarter of fiscal year 2004, we entered into a 50%-owned
joint venture with STEC to manufacture passenger vehicle sunroofs for a
Volkswagen facility in Shanghai, China. STEC has experience in developing
the Chinese market, and the joint venture provides an opportunity to
introduce our roof products and technologies in that market and to better
serve our customers.

- In October 2004, we entered into two 51%-owned joint ventures with AB
Volvo to produce commercial vehicle drive axles. The joint ventures will
manufacture axles at a facility in France and supply them to Volvo under
the terms of a new supply agreement.

RESEARCH AND DEVELOPMENT

We have significant research, development, engineering and product design
capabilities. We spent $156 million in fiscal year 2004, $160 million in fiscal
year 2003, and $122 million in fiscal year 2002 on company-sponsored research,
development and engineering. At September 30, 2004, we employed approximately
1,725 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.

Our registered trademarks ArvinMeritor(R), Arvin(R) and Meritor(R) are
important to our business. Other significant trademarks owned by us include
Purolator(R) (filters) with respect to LVA; Fumagalli(TM) (wheels), Zeuna
Starker(R) (emissions systems) and Golde(R) (sunroofs) with respect to LVS; 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

12

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, 2004, we had approximately 31,000 full-time employees. At
that date, approximately 4,000 employees in the United States and Canada were
covered by collective bargaining agreements and most 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 and remediation plan are
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 as of September 30, 2004, to be approximately $27 million, of
which $6 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 as of September 30, 2004, to be approximately $58
million, of which $28 million is recorded as a liability. During fiscal year
2004, we recorded additional environmental remediation costs of $11 million,
principally resulting from an agreement with the Environmental Protection Agency
to remediate a former Rockwell facility that was sold in 1985.

See Note 22 of the Notes to Consolidated Financial Statements under Item 8.
Financial Statements and Supplementary Data below for information on the changes
in environmental accruals during fiscal year 2004.

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
uncertainties, including the financial condition of other potentially
responsible parties, the success of the remediation and other factors that make
it difficult to predict actual costs accurately. However, based on management's
assessment, after consulting with Vernon G. Baker, II, Esq., General Counsel of
ArvinMeritor, and with outside advisors that specialize in environmental
matters, 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.

13

INTERNATIONAL OPERATIONS

Approximately 48% of our total assets related to continuing operations as
of September 30, 2004 and 50% of fiscal year 2004 sales from continuing
operations 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, 2004.

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;

- disruptions of capital and trading markets;

- possible terrorist attacks or acts of aggression that could affect
vehicle production or the availability of raw materials or supplies;

- 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.

Our operations are exposed to global market risks, including the effect of
changes in foreign currency exchange rates. In the fourth quarter of fiscal year
2004 we implemented a foreign currency cash flow hedging program to reduce the
company's exposure to changes in exchange rates. We use foreign currency forward
contracts to manage the company's exposures arising from foreign currency
exchange risk. Gains and losses on the underlying foreign currency exposures are
partially offset with gains and losses on the forward contracts. The forward
contracts generally mature within 12 months. Prior to the inception of this
hedging program, we entered into foreign exchange contracts for the purpose of
settling foreign currency denominated payables and receivables. These contracts
helped minimize the risk of loss from changes in exchange rates and were
generally of short duration (less than three months).

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 the hedging
program or 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 and Note 16 of the Notes to
Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data 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, demand has been somewhat lower in the

14

quarters ended September 30 and December 31, when OEM plants may close during
model changeovers and vacation and holiday periods. LVA also experiences
seasonal variations in the demand for products. Historically, demand has been
somewhat lower in the quarters ended December 31 and March 31, when activity
relating to the servicing of vehicles is less frequent.

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. We have sought and will
continue to seek to expand our operations globally to mitigate the effect of
periodic fluctuations in demand of the automotive industry in one or more
particular countries.

Demand for CVS products can also be affected by pre-buy before the
effective date of new regulatory requirements, such as changes in emissions
standards. We believe that 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. Implementation of new, more
stringent, emissions standards is scheduled for 2007 and 2010 in the U.S. and
2005 and 2008 in Europe, and we believe that heavy-duty truck demand in these
markets could increase prior to the effective dates of the new regulations.

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 anticipate the North American heavy-duty truck market to be up
approximately 17% in fiscal year 2005, with production at an estimated 275,000
units. In Western Europe, we expect production of heavy- and medium-duty trucks
to be down slightly to 360,000 units. Our most recent outlook shows North
American and Western European light vehicle production to be 15.9 million and
16.8 million vehicles, respectively, during fiscal year 2005. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations below for information on the effects of
recent market cycles 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.

15

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 and
potential disruption of production and supply due to terrorist attacks or acts
of aggression); the availability and cost of raw materials, including steel; OEM
program delays; demand for and market acceptance of new and existing products;
successful development of new products; reliance on major OEM customers; labor
relations of the company, its customers and suppliers; successful integration of
acquired or merged businesses; achievement of the expected annual savings and
synergies from past and future business combinations; success and timing of
potential divestitures; potential impairment of long-lived assets, including
goodwill; competitive product and pricing pressures; the amount of the company's
debt; the ability of the company to 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 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 -- "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, 2004, our operating segments, discontinued operations 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 29.2 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

16

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, 2004, is as follows:

In the first quarter of fiscal year 2005, we sold our coil coating
operation. The sale included five owned or leased facilities in the United
States with a total of 1,120,373 square feet of floor space.

ITEM 3. LEGAL PROCEEDINGS.

1. 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.

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 shared with other CCR members in the payment 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 2001, when it was reorganized and discontinued negotiating
shared settlements. Billings to insurance companies related to committed
settlements were $1 million in fiscal year 2004.

- Pending claims: Upon dissolution of the CCR in February 2001, Maremont
began handling asbestos-related claims through its own defense 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.
Maremont developed experience factors for estimating indemnity and
litigation costs using data on actual experience in resolving claims
since February 2001 and its assessment of the nature of the claims.
Maremont had approximately 74,000 and 63,000 pending asbestos-related
claims at September 30, 2004 and 2003, respectively. The overall increase
in the number of pending claims has not materially affected our aggregate
estimated loss for such claims. Although the company expects legal
defense costs to continue at higher levels than when we participated in
the CCR, we believe our litigation strategy has reduced the average
indemnity cost per claim. In addition, 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. Billings to insurance companies for indemnity and defense costs
of resolved cases were $12 million in fiscal year 2004.

- 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 ("shortfall"). In an effort to
resolve the affected settlements, Maremont has entered into negotiations
with plaintiffs' attorneys, and an estimate of Maremont's

17

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.
Payments by the company related to shortfall and other were $4 million in
fiscal year 2004.

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
asbestos-related claims.

At September 30, 2004, Maremont had established reserves of $74 million
relating to these potential asbestos-related liabilities and corresponding
asbestos-related recoveries of $72 million (see Note 22 of the Notes to
Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data). 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.

2. ArvinMeritor, along with hundreds of other companies, has also been
named as a defendant in lawsuits alleging personal injury as a result of
exposure to asbestos used in certain components of Rockwell products many years
ago. Liability for these claims was transferred to the company at the time of
the spin-off of the automotive business to Meritor from Rockwell in 1997.
Currently there are tens of thousands of claimants in lawsuits that name us,
together with hundreds of other companies, as defendants. The great bulk of the
complaints, however, do not identify any of Rockwell's products or specify which
of the claimants, if any, were exposed to asbestos attributable to Rockwell's
products, and past experience has shown that the vast majority of the claimants
will never identify any of Rockwell's products. For those claimants who do show
that they worked with Rockwell's products, we nevertheless believe we have
meritorious defenses, in substantial part due to the integrity of the products
involved, the encapsulated nature of any asbestos-containing components, and the
lack of any impairing medical condition on the part of many claimants. We defend
those cases vigorously. Historically, ArvinMeritor has been dismissed from the
vast majority of these claims with no payment to claimants.

Rockwell maintained insurance coverage that we believe covers indemnity and
defense costs, over and above self-insurance retentions, for most of these
claims. We have initiated claims against these carriers to enforce the insurance
policies. Although the status of one carrier as a financially viable entity is
in question, we expect to recover the majority of defense and indemnity costs we
have incurred to date over and above self-insured retentions and a substantial
portion of the costs for defending asbestos claims going forward. The
uncertainties of asbestos claim litigation and resolution of the litigation with
our insurance companies make it difficult to predict accurately the ultimate
resolution of asbestos claims. That uncertainty is increased by the possibility
of adverse rulings or new legislation affecting asbestos claim litigation or the
settlement process. Subject to these uncertainties and based on our experience
defending asbestos claims, we do not believe these lawsuits will have a material
adverse effect on our financial condition.

ArvinMeritor has not established reserves for pending claims and
corresponding recoveries for Rockwell-legacy asbestos-related claims, and
defense and indemnity costs related to these claims are expensed as incurred.
Reserves have not been established because management cannot reasonably estimate
the ultimate liabilities for these costs, primarily because we do not have a
sufficient history of claims settlement and defense costs from which to develop
reliable assumptions.

18

Rockwell was not a member of the CCR and handled its asbestos-related
claims using its own litigation counsel. As a result, we do not have any
additional potential liabilities for committed CCR settlements or shortfall (as
described above) in connection with the Rockwell-legacy cases.

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

4. 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 2004.

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, 2004, are as follows:

CHARLES G. MCCLURE, JR., 51 -- Chairman of the Board, Chief Executive
Officer and President since August 2004. Chief Executive Officer of
Federal-Mogul Corporation (automotive supplier) from July 2003 to July 2004;
President and Chief Operating Officer of Federal-Mogul from January 2001 to July
2003; President and Chief Executive Officer of Detroit Diesel Corporation
(automotive supplier) from 1997 to January 2001.

VERNON G. BAKER, II, 51 -- 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.

BRIAN P. CASEY, 50 -- Vice President and Treasurer since July 2003. Vice
President, Global Systems of Lear Corporation (automotive supplier) from
September 2002 to July 2003; Assistant Treasurer of Lear Corporation from June
2000 to September 2002; Treasury Director of Kellogg Company (packaged goods
manufacturer) from June 1995 to June 2000.

LINDA M. CUMMINS, 57 -- 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.

WILLIAM K. DANIEL, 39 -- 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 Director of Arvin Replacement
Products in Europe from January 1998 to November 1999.

JUAN L. DE LA RIVA, 60 -- Senior Vice President and President, Light
Vehicle Systems since August 2003. Senior Vice President, Corporate Development
& Strategy, Engineering and Procurement of ArvinMeritor from October 2001 to
August 2003; 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.

THOMAS A. GOSNELL, 54 -- 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.

19

PERRY L. LIPE, 58 -- Senior Vice President and Chief Information Officer
since July 2000. Vice President, Information Technology of Arvin from September
1998 to July 2000.

RAKESH SACHDEV, 48 -- Vice President and Controller since August 2003. Vice
President and General Manager, Worldwide Braking Systems of ArvinMeritor from
December 2000 to July 2003; Vice President and General Manager, Worldwide
Trailer Products of ArvinMeritor from July 2000 to December 2000; Vice President
and General Manager, Worldwide Trailer Products of Meritor from February 1999 to
July 2000.

S. CARL SODERSTROM, JR., 51 -- 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.

ERNEST T. WHITUS, 49 -- 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.

BONNIE WILKINSON, 54 -- Vice President and Secretary since November 2001.
Assistant General Counsel of ArvinMeritor from July 2000 to November 2001;
Assistant General Counsel of Meritor from July 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, 2004, there were 30,883 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 2004 and 2003 were as follows:

Quarterly cash dividends in the amount of $0.10 per share were declared and
paid in each quarter of the last two fiscal years.

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.

20

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.

ARVINMERITOR, INC.

SELECTED FINANCIAL DATA

- ---------------
(1) Prior period amounts have been restated for the effects of reporting
discontinued operations and the change in accounting for certain inventories
from the last-in, first-out method to the first-in, first-out method.

(2) Fiscal 2004 income from continuing operations and related basic and diluted
earnings per share include a restructuring charge of $15 million ($11
million after-tax, or $0.16 per share), environmental remediation charge of
$11 million ($8 million after-tax or $0.12 per share), a withdrawn tender
offer net charge of $9 million ($7 million after-tax or $0.10 per share) ,
and a net gain on the sale of a ride control joint venture of $20 million.
Fiscal 2003 income from continuing operations and related basic and diluted
earnings per share include a restructuring charge of $20 million ($14
million after-tax, or $0.21 per share) and a net gain on

21

divestitures of $15 million ($11 million after-tax, or $0.15 per share).
Fiscal 2002 income from continuing operations and related basic and diluted
earnings per share include a restructuring charge of $11 million ($8 million
after-tax, or $0.13 per share). Fiscal 2001 income from continuing
operations and related basic and diluted earnings per share include
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). Fiscal 2000 income from continuing
operations and related basic and diluted earnings per share include a gain
of $83 million ($51 million after-tax, or $0.96 per share) on the sale of
the seat adjusting systems business, restructuring costs of $26 million ($16
million after-tax, or $0.30 per share), and other charges of $4 million ($3
million after-tax, or $0.06 per share). Fiscal 2001 and 2000 income from
continuing operations and related basic and diluted earnings per share
include goodwill amortization expense of $17 million and $19 million.

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

OVERVIEW

ArvinMeritor, Inc. is a global supplier of a broad range of integrated
systems, modules and components to the motor vehicle industry. The company
serves light vehicle, commercial truck, trailer and specialty original equipment
manufacturers and related aftermarkets. Headquartered in Troy, Michigan, the
company employs approximately 31,000 people at more than 120 manufacturing
facilities in 25 countries. ArvinMeritor common stock is traded on the New York
Stock Exchange under the ticker symbol ARM.

Fiscal 2004 was a challenging year for the company. Excess capacity,
tougher competition and higher material costs resulted in lower margins. Our
industry is rapidly transforming to keep pace with the continued OEM trends
toward outsourcing, increased customer demand for modules and systems and an
increasing emphasis on engineering and technology. This increased complexity in
the industry and growing competitive pressures are presenting the company with
challenges, as well as growth opportunities.

One of the biggest challenges we faced in fiscal 2004 was the higher cost
and uncertain availability of raw materials, primarily steel. Increasing steel
costs had a significant impact on our financial performance in fiscal 2004 as we
experienced gross steel price increases of approximately $100 million, primarily
in our light vehicle and commercial vehicle systems businesses. We were able to
recover approximately 50 percent of these costs from our customers in fiscal
2004.

A summary of our results for fiscal 2004 is as follows:

- Sales were $8.0 billion, up from $6.7 billion in fiscal 2003. The
increase in sales is primarily attributable to our commercial vehicle
systems (CVS) business segment. North American commercial vehicle truck
and trailer volumes increased approximately 30 percent from fiscal 2003.

- Operating margins were 3.2 percent, down from 3.7 percent in fiscal 2003.

- Diluted earnings per share from continuing operations were $1.85,
compared to $1.48 per share in 2003.

- Diluted loss per share from discontinued operations was ($2.46),
including a goodwill impairment charge of $2.77 per diluted share,
compared to diluted earnings per share of $0.54 in 2003.

- Cash flow from operations, before the impact of our accounts receivable
securitization and factoring programs, was $406 million, an improvement
of $222 million from fiscal 2003.

- Including discontinued operations, we reduced debt and amounts
outstanding under our accounts receivable securitization and factoring
programs by $297 million in fiscal 2004.

We continue to rationalize our business and refocus on the company's
strengths, core competencies and strategic partnerships, including:

- Our announced plan to divest our Light Vehicle Aftermarket (LVA)
business;

- The sale of our Roll Coater business in November 2004;

- The divestiture of our 75-percent shareholdings in AP Amortiguadores,
S.A. (APA) in the second quarter of fiscal 2004;

22

- The sale of our commercial vehicle systems trailer beam fabrication
facility in the third quarter of fiscal 2004;

- The closure of the Franklin, Indiana emissions technologies plant in
fiscal 2004;

- The formation of two axle joint ventures with AB Volvo in October 2004;

- Our announced intent to close our Meritor Suspension Systems plant in
Sheffield, England during fiscal 2005; and

- The sale of our Columbus, Indiana automotive stamping and components
manufacturing operation in December, 2004.

As previously mentioned, we announced our intention to divest our LVA and
Roll Coater businesses. We believe divesting these businesses will enable us to
better concentrate on our core competencies while strengthening our balance
sheet. For financial accounting and reporting purposes these businesses have
been reclassified as discontinued operations. All prior periods have been
restated. In the fourth quarter of fiscal 2004, we recorded a $190 million
non-cash goodwill impairment charge in our LVA business. Increased competition
and difficult market conditions resulted in a decline in the fair value of this
business.

In November 2004, we completed the sale of our Roll Coater business. We
received approximately $163 million in cash for this business.

In addition to higher steel costs, intense competition, coupled with global
excess capacity, most notably in the light vehicle industry, has created
pressure from customers to reduce prices. The company continuously works to
address these competitive challenges and offset price decreases by reducing
costs, improving productivity and restructuring operations. The company recorded
restructuring costs of $15 million in fiscal 2004. The company's fiscal 2004
cost reduction programs were able to offset the impact of lower prices. These
actions were not enough, however, to offset the substantially higher cost of
steel.

Also impacting our industry is the rising cost of pension and other
post-retirement benefits. Our pension and retiree medical expenses increased 31
percent in fiscal 2004 to $130 million. In addition, we contributed $212
million, up from $163 million in fiscal 2003, to our pension and retiree medical
plans. To help alleviate this issue in the future we amended certain retiree
medical plans in fiscal 2004. These plan amendments will phase out the benefit
currently provided by the company by fiscal 2023. We expect these plan changes
to reduce retiree medical expenses and benefit payments in the coming years. We
estimate fiscal 2005 retiree medical expenses of $32 million, down $25 million
from fiscal 2004 and future benefit payments are expected to be reduced by
approximately $25 million by fiscal 2009.

We generated strong operating cash flow in fiscal 2004. Cash provided by
operations before the impact of the accounts receivable securitization and
factoring programs was $406 million compared to $184 million in fiscal 2003. The
improvement in operating cash flow was primarily attributed to lower working
capital levels. A portion of the strong operating cash flow also resulted from a
favorable calendar. Fiscal 2004 included 53 weeks compared to 52 weeks in fiscal
2003. We also generated $103 million from the sale of property, businesses and
investments. We used this cash to reduce debt, fund pension and retiree medical
plans and capital expenditures, and pay dividends. Including discontinued
operations, we reduced debt and our outstanding balance under the accounts
receivable securitization and factoring programs by $55 million and $242
million, respectively.

23

MARKET OUTLOOK

Over the business cycle the company has experienced periodic fluctuations
in demand for light, commercial and specialty vehicles and related aftermarkets,
most notably our commercial vehicle markets in North America. Vehicle production
in our principal markets for the last five fiscal years is shown below:

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

Our fiscal 2005 outlook for light vehicle production is 15.9 million
vehicles in North America and 16.8 million vehicles in Western Europe. We expect
that North American heavy-duty (also referred to as Class 8) truck production
will increase about 17 percent in fiscal 2005 to 275,000 units.

COMPANY OUTLOOK

We believe the availability and price of steel will continue to challenge
our industry in fiscal 2005. We are taking actions to help mitigate this issue
including negotiating with our customers to recover some of the costs, finding
new global steel sources, identifying alternative materials and finding ways to
reengineer our products to be less dependant on steel. We continue to further
consolidate our light vehicle systems businesses to address the competitive
challenges in the automotive supplier industry. Anticipated restructuring
actions include additional facility closures, business consolidations and
workforce downsizing. The company estimates total fiscal 2005 pre-tax costs of
approximately $16 million related to previously announced restructuring actions.
As we continue to rationalize and refocus our core businesses, additional
restructuring actions may be required.

Significant factors that could affect the company's results in fiscal 2005
include:

- Our ability to recover steel price increases from our customers;

- Additional restructuring actions;

- Higher than planned price reductions from our customers;

- Our ability to implement planned productivity and cost reduction
initiatives;

- The impact of any acquisitions or divestitures;

- Significant gains or losses of existing business; and

- The impact of currency fluctuations on sales and operating income.

NON-GAAP MEASURES

In addition to the results reported in accordance with accounting
principles generally accepted in the United States of America (GAAP), we have
provided information regarding "cash flow from operations

24

before receivable securitization and factoring programs", a non-GAAP financial
measure. This non-GAAP measure is defined as net cash provided by operating
activities before the net change in accounts receivable securitized and
factored. The company believes it is appropriate to exclude the net change in
securitized and factored accounts receivable since the sale of receivables may
be viewed as a substitute for borrowing activity.

We believe that this non-GAAP financial measure is useful to both
management and investors in the analysis of our financial position. This
non-GAAP measure should not be considered a substitute for cash provided by
operating activities or other cash flow statement data prepared in accordance
with GAAP or as a measure of liquidity. In addition, cash provided by operations
before receivable securitization and factoring programs does not reflect funds
available for investment or other discretionary uses.

25

RESULTS OF OPERATIONS

The following is a summary of the financial results for the fiscal years
ended:

Prior period amounts have been restated.

26

2004 COMPARED TO 2003

SALES

The following table reflects geographical business segment sales for fiscal
years 2004 and 2003. The reconciliation is intended to reflect the trend in
business segment revenues, and to illustrate the impact changes in foreign
currency exchange rates and acquisitions and divestitures had on sales.

Continuing Operations

Sales for fiscal 2004 were $8,033 million, up $1,310 million, or 19
percent, over last year. The increase in sales was primarily attributable to
stronger North American commercial vehicle truck and trailer volumes in our CVS
business segment. Acquisitions, primarily Zeuna Starker in the second quarter of
fiscal 2003, added sales of $240 million. Divestitures, primarily the sale of
APA in the second quarter of fiscal 2004, reduced sales in fiscal 2004 by $165
million. Favorable foreign currency translation, primarily due to the stronger
euro, increased sales by $395 million.

Business Segments

LIGHT VEHICLE SYSTEMS (LVS) sales increased to $4,818 million in fiscal
2004, up $517 million, or 12 percent, from $4,301 million a year ago. Foreign
currency translation, primarily as a result of the stronger euro, favorably
impacted sales by $290 million. The acquisition of Zeuna Starker in the second
quarter of fiscal of fiscal 2003 added incremental sales of $203 million in
fiscal 2004. Divestitures, primarily the sale of our 75-percent shareholdings in
APA, reduced sales in fiscal 2004 by $138 million. Net new business increased
sales in fiscal 2004 by approximately $270 million, primarily in our Doors and
Emissions Technologies businesses. Included in LVS sales in fiscal 2004 and 2003
are approximately $1,000 million and $775 million, respectively, of pass through
sales. Pass through sales are products sold to our customers, such as substrates
in catalytic converters, where we merely buy the material and assemble it into
the final product. These pass-through sales carry minimal margins as we have
little engineering or manufacturing responsibility.

COMMERCIAL VEHICLE SYSTEMS (CVS) sales were $3,215 million, up $793
million, or 33 percent, from fiscal 2003. The increase in sales was primarily
attributable to stronger North American commercial vehicle truck and trailer
volumes. North American commercial vehicle truck and trailer production volumes
increased approximately 30 percent from fiscal 2003. Foreign currency
translation increased sales by $105 million.

27

OPERATING INCOME AND OPERATING MARGINS

The following table reflects operating income and operating margins for
fiscal years 2004 and 2003.

Operating income in fiscal 2004 was $260 million, an increase of $14
million, compared to fiscal 2003, reflecting an operating margin of 3.2 percent,
down from 3.7 percent. Operating income in fiscal 2004 includes the costs
associated with the withdrawn tender offer for Dana Corporation of $16 million.
Also included in operating income in fiscal 2004 is the gain on the sale of APA
of $20 million and environmental remediation costs of $11 million. Operating
income for fiscal 2003 included a gain on the sale of the exhaust tube
manufacturing facility of $20 million and $11 million of costs related to
account reconciliations and information system implementation issues in a
facility in Mexico (see Note 24 of the Notes to Consolidated Financial
Statements).

The lack of availability and the price of raw materials, primarily steel,
negatively impacted operating income in fiscal 2004. Gross steel costs increased
approximately $90 million during fiscal 2004. We were successful in recovering
approximately 50% of these costs from our customers. Also negatively impacting
operating income in fiscal 2004 were higher retiree medical and pension costs of
$22 million, higher premium product launch costs of approximately $10 million
and additional investments in commercial vehicle exhaust technology. Reductions
in our selling prices, as a result of contractual or other commitments,
primarily in our LVS segment, were largely offset by cost reductions.

We recorded restructuring charges of $15 million in fiscal 2004 and $20
million in fiscal 2003. These costs included severance and other employee
termination costs related to a reduction of approximately 300 salaried employees
and 975 hourly employees. Fiscal 2003 restructuring charges included $8 million
of asset impairment costs from the rationalization of operations. The purpose of
these actions was primarily to reduce costs in our LVS business so that it can
be better positioned to address the competitive challenges in the automotive
supply industry. For more information concerning the status of our restructuring
programs, see Note 4 of the Notes to Consolidated Financial Statements.

Selling, general and administrative expenses as a percentage of sales
decreased to 4.8 percent in fiscal 2004 from 5.1 percent in fiscal 2003 due to
our continued efforts to reduce selling, general and administrative spending.

BUSINESS SEGMENTS

LVS operating income was $112 million, a decrease of $23 million from the
prior year. LVS continued to experience narrowing margins due primarily to
higher steel costs. LVS incurred higher net steel costs of $26 million in fiscal
2004 of which $5 million remained in inventory at September 30, 2004. As a
result, operating margins decreased to 2.3 percent from 3.1 percent. Included in
operating income for fiscal 2004 was the $20 million gain on the sale of APA
partially offset by environmental remediation costs of $12 million primarily
associated with a former Rockwell facility. Fiscal 2003 operating income
included a $20 million gain on the sale of the exhaust tube manufacturing
facility and the $11 million charge in Mexico. Also impacting fiscal 2004
operating income were higher premium product launch costs of approximately $10
million and higher retiree medical and pension costs.

As part of an ongoing strategy to implement actions to improve
profitability and to better align LVS' capacity with market conditions, LVS
continued its restructuring efforts and recorded $10 million and

28

$19 million of restructuring charges in fiscal 2004 and 2003, respectively.
These charges included costs associated with facility closures and
consolidations and workforce reductions. For more information concerning the
status of LVS' restructuring programs, see Note 4 of the Notes to Consolidated
Financial Statements.

CVS operating income was $164 million, an increase of $53 million from
fiscal 2003. Operating margin improved to 5.1 percent, up from 4.6 percent in
fiscal 2003. The increase in operating income is largely attributable to the
higher sales volumes. The benefits of the higher sales volumes were partially
offset by higher net steel costs. CVS incurred $20 million of higher net steel
costs in fiscal 2004 of which $9 million remained in inventory at September 30,
2004. Operating income was also impacted by higher retiree medical and pension
costs of $12 million and additional investments in commercial vehicle exhaust
technology. In addition, in the fourth quarter of fiscal 2004, CVS recorded a $4
million charge and reduced its receivable due from TRW, in anticipation of
settling a lawsuit related to a product warranty recall campaign. In December
2004, we reached an agreement with TRW settling this matter, resulting in no
additional charges to the Company. The change in accounting for certain CVS
inventories to FIFO from LIFO unfavorably impacted previously reported fiscal
2003 operating income by $4 million.

OTHER INCOME STATEMENT ITEMS

EQUITY IN EARNINGS OF AFFILIATES was $19 million in fiscal 2004, compared
to $8 million a year ago. The increase was primarily related to improved
performance and higher earnings of our commercial vehicle affiliates.

The EFFECTIVE INCOME TAX RATE from continuing operations for fiscal 2004
was approximately 25%, down from 30% in fiscal 2003. The reduction in the
effective tax rate was driven by the favorable tax treatment of the gain on the
sale of APA and the impact of recently issued IRS regulations supporting the
recoverability of previously disallowed capital losses. Various legal entity
restructurings to more closely align our organizational structure with the
underlying operations of the businesses also helped to reduce the effective tax
rate.

MINORITY INTERESTS increased to $8 million in fiscal 2004 from $5 million
in fiscal 2003. Minority interests represent our minority partners' share of our
less than 100 percent owned consolidated joint ventures. The increase in
minority interests is due primarily to the improved earnings of our Chinese
commercial vehicle joint venture.

LOSS FROM DISCONTINUED OPERATIONS was $169 million in fiscal 2004 compared
to income from discontinued operations of $37 million in fiscal 2003. The loss
in fiscal 2004 includes a non-cash goodwill impairment charge of $190 million
($2.77 per diluted share) in our LVA business. For more information on the
goodwill impairment charge see Note 3 of the Notes to Consolidated Financial
Statements. Lower sales volumes, customer pricing pressures and higher steel
costs in our LVA business also contributed to the decline. The effective tax
rate for discontinued operations was approximately 41 percent in fiscal 2004, up
from 36 percent in fiscal 2003.

NET LOSS for fiscal 2004 was $42 million, or $0.61 per diluted share,
compared to net income of $133 million, or $1.96 per diluted share, in the prior
year. Net income in fiscal 2003 included a fourth quarter charge for the
cumulative effect of accounting change upon adoption of FASB Interpretation No.
46 (FIN 46), "Consolidation of Variable Interest Entities" of $6 million ($4
million after-tax, or $0.06 per diluted share). The change in accounting for
certain CVS inventories to FIFO from LIFO decreased previously reported fiscal
2003 net income by $3 million ($0.04 per diluted share).

29

2003 COMPARED TO 2002

SALES

The following table reflects geographical business segment sales for fiscal
years 2003 and 2002. The reconciliation intends to reflect the trend in business
segment sales, and to illustrate the impact changes in foreign currency exchange
rates and acquisitions and divestitures had on sales.

Continuing Operations

Sales for fiscal 2003 were $6,723 million, up $933 million, or 16 percent,
over the prior year. The increase in sales was primarily attributable to the
acquisition of Zeuna Starker, which added $550 million in sales, and favorable
foreign currency translation, primarily due to the stronger euro, which
increased sales by $336 million. Sales growth in the Asia/Pacific region was the
primary driver in the organic and other increase in sales of $118 million. This
sales growth was partially offset by a decline in North America driven by the
two percent decline in North American light vehicle production.

Business Segments

LVS sales increased to $4,301 million in fiscal 2003, up $760 million, or
21 percent, from $3,541 million a year ago. Foreign currency translation,
primarily as a result of the stronger euro, favorably impacted sales by $238
million and the acquisition of Zeuna Starker added $550 million in sales.
Excluding the effects of currency and acquisition and divestitures, sales
decreased in fiscal 2003 primarily due to the decline in North American light
vehicle production of two percent. Pass through sales in fiscal 2003 and 2002
were approximately $775 million and $570 million, respectively. These
pass-through sales carry minimal margins as we have little engineering or
manufacturing responsibility.

CVS sales were $2,422 million, up $173 million, or eight percent, from
fiscal 2002. Foreign currency translation increased sales by $98 million, as
compared to fiscal 2002. During fiscal 2003, CVS sold net assets related to its
off-highway planetary axle products group. The loss of sales associated with
this transaction was approximately $90 million in fiscal 2003. Organic and other
sales growth of $136 million was primarily due to higher trailer volumes in
North America, additional sales in Mexico and sales growth in China. These
increases were partially offset by declines in the North American heavy-duty
truck markets (also known as Class 8 trucks), which experienced production
declines of three percent due in part to buyers purchasing Class 8 trucks in
fiscal 2002 in advance of the emissions standards change that occurred on
October 1, 2002.

30

OPERATING INCOME AND OPERATING MARGINS

The following table reflects operating income and operating margins for
fiscal years 2003 and 2002.

Operating income in fiscal 2003 was $246 million, a decline of $3 million
compared to fiscal 2002, reflecting an operating margin of 3.7 percent, down
from 4.3 percent in fiscal 2002. While operating income for fiscal 2003 was
favorably impacted by a gain on the sale of the exhaust tube manufacturing
facility of $20 million, this gain was more than offset by higher steel and
other steel related costs due to tariffs associated with Section 201 of the
Trade Act of 1974 of approximately $25 million, higher premium product launch
costs of $8 million, higher engineering and warranty costs of $10 million,
increased pension and retiree medical expenses of $17 million and continued
pricing pressures. In the fourth quarter of fiscal 2003, we also recorded $11
million of costs related to account reconciliations and information system
implementation issues in a facility in Mexico, of which $6 million related to
prior fiscal years (see Note 24 of the Notes to Consolidated Financial
Statements). It was determined that the amount of costs arising from the issues
at the Mexican facility that related to prior fiscal years was not material on a
quantitative and qualitative basis both individually and in the aggregate. Also,
during fiscal 2003 we recorded restructuring charges of $20 million. These costs
included severance and other employee termination costs of $12 million related
to a reduction of approximately 275 salaried employees and 400 hourly employees,
and $8 million associated with asset impairment costs from the rationalization
of operations. We recorded restructuring charges of $11 million in fiscal 2002.
For more information concerning the status of our restructuring programs, see
Note 4 of the Notes to Consolidated Financial Statements.

BUSINESS SEGMENTS

LVS operating income was $135 million in fiscal 2003, down $34 million, or
20 percent, from fiscal 2002. During fiscal 2003, LVS experienced narrowing
margins, due primarily to industry overcapacity, customer price concessions and
increases in material costs. As a result, operating margin declined to 3.1
percent from 4.8 percent. In fiscal 2003, as part of our long-term strategy to
reduce vertical integration, concentrate on systems design and integration and
focus on core competencies, LVS sold its exhaust tube manufacturing facility and
recorded a gain on the sale of $20 million. The $11 million charge in Mexico,
higher product launch costs of approximately $8 million and steel and other
steel related costs associated with Section 201 of the Trade Act of
approximately $20 million, negatively impacted operating income. As part of an
ongoing strategy to implement actions to improve profitability and to better
align LVS' capacity with market conditions, LVS continued its restructuring
efforts and recorded $19 million of restructuring costs in fiscal 2003. These
charges included costs associated with facility closures and consolidations and
workforce reductions. LVS recorded restructuring charges of $3 million in fiscal
2002. For more information concerning the status of LVS' restructuring programs,
see Note 4 of the Notes to Consolidated Financial Statements.

CVS operating income was $111 million, an increase of $31 million from
fiscal 2002. Operating margin improved to 4.6 percent, up from 3.6 percent in
fiscal 2002. The increase in operating income is largely attributable to the
higher sales volumes and cost savings resulting from prior year restructuring
programs and other cost-reduction actions. These cost reductions were partially
offset by higher engineering and warranty costs of $10 million in fiscal 2003.
Restructuring charges attributable to the CVS segment were $6 million in fiscal
2002. The change in accounting for certain CVS inventories to FIFO from LIFO
unfavorably impacted previously reported fiscal 2003 operating income by $4
million. This accounting change had no impact on previously reported fiscal 2002
operating income.

31

OTHER INCOME STATEMENT ITEMS

EQUITY IN EARNINGS OF AFFILIATES was $8 million in fiscal 2003, as compared
to equity in losses of affiliates of $4 million a year ago. The increase was
primarily related to improved performance and higher earnings of our commercial
vehicle affiliates.

The EFFECTIVE INCOME TAX RATE was 30% in fiscal 2003, up from 23% in fiscal
2002. The increase in the effective tax rate is primarily due to valuation
allowances recorded in fiscal 2003 for certain foreign deferred tax assets.

INCOME FROM DISCONTINUED OPERATIONS was $37 million in fiscal 2003 compared
to $53 million in fiscal 2002. The decrease is primarily attributable to LVA.
Increasing global competition, customer consolidation and the decreased need for
replacement parts, due to the longer life and improved quality of original
equipment parts, continued to weaken demand for certain aftermarket products.
This lower sales volume, along with customer pricing pressures and higher steel
costs associated with Section 201 of the Trade Act were the major factors behind
the deterioration in income from discontinued operations. Included in income
from discontinued operations was a $6 million gain on the sale of LVA's exhaust
accessories manufacturing operations in fiscal 2002 and restructuring charges of
$2 million and $4 million in fiscal 2003 and 2002, respectively. The effective
tax rate for discontinued operations was 36 percent in fiscal 2003, down from 44
percent in fiscal 2002.

NET INCOME for fiscal 2003 was $133 million or $1.96 per diluted share, as
compared to $107 million, or $1.59 per diluted share in the prior year. Net
income in fiscal 2003 included a fourth quarter charge for the cumulative effect
of accounting change upon adoption of FIN 46, of $6 million ($4 million
after-tax, or $0.06 per diluted share). Net income in fiscal 2002 included the
cumulative effect of the goodwill accounting change upon adoption of Statement
of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other
Intangible Assets." In fiscal 2002, we recorded an impairment loss on goodwill
as a cumulative effect of accounting change for our coil coating operations of
$42 million ($42 million after-tax, or $0.63 per diluted share). The change in
accounting for certain CVS inventories to FIFO from LIFO decreased previously
reported fiscal 2003 net income by $3 million ($0.04 per diluted share). This
accounting change had no impact on the previously reported fiscal 2002 net
income.

NON-CONSOLIDATED JOINT VENTURES

At September 30, 2004, our continuing operations had investments in 10
joint ventures that were not majority-owned or controlled and were accounted for
under the equity method of accounting. Our investment in non-consolidated joint
ventures was $95 million and $83 million at September 30, 2004 and 2003,
respectively. Our non-consolidated joint ventures generated a return on
investment of approximately 20 percent in fiscal 2004, compared to 10 percent in
fiscal 2003.

These strategic alliances provide for sales, product design, development
and manufacturing in certain product and geographic areas. Aggregate sales of
our non-consolidated joint ventures were $1,100 million, $843 million and $906
million in fiscal 2004, 2003 and 2002, respectively.

We received cash dividends from our non-consolidated joint ventures of $15
million in fiscal 2004 and $19 million in fiscal 2003 and 2002.

For more information about our non-consolidated joint ventures see Note 12
of the Notes to Consolidated Financial Statements.

32

FINANCIAL CONDITION

CAPITALIZATION

We remain committed to strong cash flow generation, the reduction of debt
and regaining an investment grade credit rating. Our primary source of liquidity
continues to be cash generated from operations, supplemented by our accounts
receivables securitization and factoring programs and, as required, borrowings
on our revolving credit facility. Our total debt to capitalization ratio was 59
percent at September 30, 2004 compared to 61 percent at September 30, 2003.

CASH FLOWS

OPERATING CASH FLOWS -- Operating cash flows before the impact of our
receivable securitization and factoring programs was $406 million in fiscal
2004, up $222 million from fiscal 2003. This improvement was driven largely by
lower working capital levels, partially offset by higher pension and retiree
medical contributions of $49 million. We used cash from operations and cash
generated from the disposition of property, businesses and marketable securities
to reduce our balances outstanding under the accounts receivable securitization
and factoring programs by $187 million and our revolving credit facility by $55
million in fiscal 2004. During fiscal 2003 we increased our balance outstanding
under the accounts receivable securitization and factoring programs by $90
million and used the proceeds from these receivables sales to fund the
acquisition of the remaining 51-percent interest in Zeuna Starker and for other
general corporate purposes. Total cash flows provided by operating activities
were $219 million, $274 million and $184 million in fiscal years 2004, 2003 and
2002, respectively.

33

INVESTING CASH FLOWS -- Cash used for investing activities was $120 million
in fiscal 2004, $191 million in fiscal 2003 and $198 million in fiscal 2002.
Capital expenditures decreased to $152 million in fiscal 2004 from $173 million
in fiscal 2003. Capital expenditures were $129 million in fiscal 2002. We
continue to manage our capital expenditures and leverage our global supply base
and the assets of our affiliate partners. As a result capital expenditures as a
percentage of sales continued to decline and was 1.9 percent in fiscal 2004,
compared to 2.6 percent and 2.2 percent of sales in fiscal 2003 and 2002,
respectively.

During fiscal 2004, we received proceeds from the disposition of certain
property and businesses of $85 million principally from the sale of APA and our
trailer beam fabrication facility. We also received $18 million in cash from the
sale of Dana stock (see Note 7 of the Notes to Consolidated Financial
Statements). We received proceeds of $104 million from the disposition of
property and businesses in fiscal 2003 principally from the sale of our exhaust
tube manufacturing facility and our off-highway planetary axle business. In
fiscal 2003, we used $107 million of cash for the acquisition of businesses and
other investments compared to $25 million in fiscal 2002. The increase in fiscal
2003 compared to fiscal 2002 was principally due to the acquisition of Zeuna
Starker, which used cash of $69 million.

Investing cash flows used by discontinued operations were $68 million, $15
million and $44 million in fiscal years 2004, 2003 and 2002, respectively. These
cash flows primarily relate to capital expenditures. In fiscal 2004 cash used by
discontinued operations included $54 million related to the buy out of an
operating lease associated with our Roll Coater business. During fiscal 2002, we
received proceeds of $11 million from the sale of our LVA exhaust accessories
manufacturing operations and used cash of $35 million to pay off an operating
lease associated with our Roll Coater business.

FINANCING CASH FLOWS -- Cash used for financing activities was $77 million
in fiscal 2004 compared to $56 million in fiscal 2003 and $32 million in fiscal
2002. We decreased amounts outstanding under our revolving credit facility and
lines of credit and other by $55 million in fiscal 2004, compared to $29 million
in fiscal 2003. In fiscal 2003, we used cash to repay lines of credit and other
debt of $55 million, principally related to the payoff of $23 million of debt
directly associated with the sale of the exhaust tube manufacturing facility.
Also in fiscal 2003, we paid down certain higher cost debt assumed in the
acquisition of Zeuna Starker. During fiscal 2002, we completed two public note
offerings. Proceeds from the note offerings of

34

$591 million were used to pay outstanding indebtedness under our revolving
credit facilities, lines of credit and other and for general corporate purposes.
We paid dividends of $28 million in fiscal 2004 and $27 million in fiscal 2003
and 2002. In fiscal 2004 and 2002, proceeds of $6 million and $22 million,
respectively, were received from the exercise of stock options.

LIQUIDITY

We are contractually obligated to make payments as follows (in millions):

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

(1) Excludes fair value adjustment of notes of $36 million and debt of the
discontinued operations of $3 million.

In addition to the obligations in the table, we sponsor defined benefit
pension plans that cover most of our U.S. employees and certain non-U.S.
employees. Our funding practice provides that annual contributions to the
pension plans 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. We expect funding for our retirement pension plans of approximately
$100 million in fiscal 2005.

We also sponsor retirement medical plans that cover the majority of our
U.S. and certain non-U.S. employees and provide for medical payments to eligible
employees and dependents upon retirement. We expect retiree medical plan benefit
payments of approximately $65 million in fiscal 2005; $66 million in fiscal
2006; $56 million in fiscal 2007; $44 million in fiscal 2008 and $42 million in
fiscal 2009.

REVOLVING AND OTHER DEBT -- In July 2004, we replaced our three-year,
$400-million revolving credit facility and a five-year, $750-million revolving
credit facility with a new four year $900 million revolving credit facility. The
previous facilities would have expired in fiscal 2005. Under the new facility,
borrowings are subject to interest based on quoted LIBOR rates plus a margin,
and a facility fee, both of which are based upon our credit rating.

The credit facilities require us to maintain a total net debt to earnings
before interest, taxes, depreciation and amortization ("EBITDA") ratio no
greater than 3.25x and a minimum fixed charge coverage ratio (EBITDA less
capital expenditures to interest expense) no less than 1.50x. At September 30,
2004, we were in compliance with all covenants.

We have $150 million of debt securities remaining unissued under the shelf
registration filed with the SEC in April 2001 (see Note 15 of the Notes to
Consolidated Financial Statements).

LEASES -- One of our operating leases requires us to maintain financial
ratios that are similar to those required by our revolving credit agreement. At
September 30, 2004, we were in compliance with all covenants. We have a residual
value guarantee of $30 million related to one of our leases.

ACCOUNTS RECEIVABLE SECURITIZATION AND FACTORING -- As discussed in Note 6
of the Notes to Consolidated Financial Statements, we participate in two
accounts receivable securitization programs 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 eligible trade receivables of certain U.S.
subsidiaries to a group of banks. Including amounts used by discontinued
operations, we utilized $24 million and $210 million, respectively, of this
accounts receivable securitization facility at September 30, 2004 and 2003,
respectively. Our LVA, Roll Coater and Columbus,

35

Indiana automotive stamping and components manufacturing operations no longer
participate in this accounts receivable securitization facility. As a result,
our borrowing capacity under this facility will be reduced by approximately $110
million.

In addition we have a European securitization program, wherein we can sell
up to 50 million euro of eligible trade receivables in one of our European
subsidiaries to a bank. As of September 30, 2004 and 2003, we utilized 7 million
euro ($8 million) and 24 million euro ($27 million) of this accounts receivable
securitization facility. The euro and U.S. accounts receivable securitization
programs mature in March and September of fiscal 2005, respectively.

In addition to our securitization programs, several of our European
subsidiaries factor accounts receivable with financial institutions. Such
receivables are factored without recourse to the company and are excluded from
accounts receivable. The amounts of factored receivables were $10 million and
$47 million at September 30, 2004 and 2003, respectively. There can be no
assurance that this facility will be used or available to us in the future.

If our credit ratings were reduced to certain levels, or if certain
receivables performance-based covenants were not met, it would constitute a
termination event, which, at the option of the banks, could result in
termination of the facilities. At September 30, 2004, we were in compliance with
all covenants.

On January 9, 2004, Standard & Poor's affirmed our BB+ ratings on our long
term debt and removed the company from CreditWatch.

On February 13, 2004, Moody's Investor Services lowered our long-term debt
rating to Ba1 from Baa3.

TENDER OFFER

On July 9, 2003, we commenced a tender offer to acquire all of the
outstanding shares of Dana Corporation (Dana) for $15.00 per share in cash. On
July 22, 2003, Dana's Board of Directors recommended that its shareowners reject
our initial cash tender offer. On November 17, 2003, we increased our tender
offer to $18.00 per share in cash and indicated we would terminate our offer
unless the Dana Board of Directors agreed to begin negotiating a definitive
merger agreement. On November 24, 2003, following Dana's announcement that its
Board of Directors recommended that its shareowners reject our increased offer,
we withdrew our $18.00 per share all cash tender offer. As a result of our
decision to terminate the tender offer, a net charge of approximately $9 million
($6 million after-tax, or $0.09 per diluted share) was recorded in the first
quarter of fiscal 2004. The net charge includes approximately $16 million of
direct incremental acquisition costs less a gain on the sale of Dana stock of $7
million.

Further information concerning this tender offer can be found in the
Schedule TO, as amended, filed by the company with the Securities and Exchange
Commission (File No. 5-10058).

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. Our most critical
accounting policies are discussed below.

36

PENSIONS -- Our pension obligations are determined on an actuarial basis
annually and are measured as of June 30. The U.S. plans include a qualified and
non-qualified pension plan. Non-U.S. plans are primarily in the United Kingdom,
Canada and Germany. The following are the significant assumptions used in the
measurement of the projected benefit obligation (PBO) and net periodic pension
expense:

The DISCOUNT RATE is used to calculate the present value of the PBO. The
rate is determined based on high-quality fixed income investments that match the
duration of expected benefit payments. We have typically used the corporate
AA/Aa bond rate for this assumption.

The ASSUMED RETURN ON PLAN ASSETS is used to determine net periodic pension
expense. The rate of return assumptions are based on projected long-term market
returns for the various asset classes in which the plans are invested, weighted
by the target asset allocations. An incremental amount for active management,
where appropriate, is included in the rate of return assumption. The return
assumption is reviewed annually.

The RATE OF COMPENSATION INCREASE represents the long-term assumption for
expected increases to salaries for pay-related plans.

These assumptions reflect our historical experience and our best judgments
regarding future expectations. The effects of the indicated increase and
decrease in selected assumptions, assuming no changes in benefit levels and no
amortization of gains or losses for the plans in 2004, is shown below (in
millions):

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

NA -- Not Applicable

Accounting guidance applicable to pensions does not require immediate
recognition of the effects of a deviation between actual and assumed experience
and the revision of an estimate. This approach allows the favorable and
unfavorable effects that fall within an acceptable range to be netted and
disclosed as an unrecognized gain or loss in the footnotes. At September 30,
2004 and 2003, we had an unrecognized loss of $642 million and $652 million,
respectively. A portion of this loss will be recognized into earnings in fiscal
2005. The effect on fiscal years after 2005 will depend on the actual experience
of the plans.

In recognition of the long-term nature of the liabilities of the pension
plans, we have targeted an asset allocation strategy that intends to promote
asset growth while maintaining an acceptable level of risk over the long term.
Asset-liability studies are performed periodically to validate the continued
appropriateness of these asset allocation targets. The asset allocation for the
U.S. plan is targeted at 70-75% equity securities, 25% debt securities, and 0-5%
alternative assets. The target asset allocation ranges for the non-U.S. plans
are 65-75% equity securities, 20-35% debt securities, and 0-5% real estate.

37

The investment strategies for the pension plans are designed to achieve an
appropriate diversification of investments as well as safety and security of the
principal invested. Assets invested are allocated to certain global sub-asset
categories within prescribed ranges in order to promote international
diversification across security type, issuer type, investment style, industry
group, and economic sector. Assets of the plans are both actively and passively
managed. Policy limits are placed on the percentage of plan assets that can be
invested in a security of any single issuer and minimum credit quality standards
are established for debt securities. ArvinMeritor securities comprised less than
one-half percent of the value of our worldwide pension assets during 2004.

The fiscal 2005 pension expense is estimated to be approximately $76
million. This may vary depending upon the accuracy of our original and future
assumptions.

RETIREE MEDICAL -- We have retirement medical plans that cover the majority
of our U.S. and certain non-U.S. employees and provide for medical payments to
eligible employees and dependents upon retirement. Our retiree medical
obligations are measured as of June 30.

The following are the significant assumptions used in the measurement of
the accumulated projected benefit obligation (APBO):

The DISCOUNT RATE is the rate used to calculate the present value of the
APBO and is determined using assumptions similar 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.
Our projection for fiscal 2005 is an increase in health care costs of 9.5
percent. For measurement purposes, the annual increase in health care costs was
assumed to decrease gradually to 5.0 percent by fiscal 2011 and remain at that
level thereafter.

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):

As previously discussed, we approved changes to certain retiree medical
plans in fiscal 2004. These plan amendments and the related impact is reflected
in the APBO as of September 30, 2004. Beginning in April 2005, salaried retirees
and certain non-union hourly retirees under age 65 who now pay a portion of the
cost for their coverage will contribute an increased share each year. The
benefit currently provided by the company will be phased out by fiscal 2023. For
retirees age 65 and older, we will no longer provide supplemental healthcare
benefits to Medicare-eligible retirees beginning in January 2006. The plan
changes resulted in a reduction in the APBO of $257 million, which will be
amortized as a reduction of retiree medical expense over the average remaining
service life of approximately 12 years. The fiscal 2005 retiree medical expense
is estimated to be approximately $32 million. This may vary depending upon the
accuracy of our original and future assumptions.

38

PRODUCT WARRANTIES -- Our CVS segment records product warranty costs at the
time of shipment of products to customers. Warranty reserves are based primarily
on factors, which include past claims experience, sales history, product
manufacturing, engineering changes and industry developments. In addition,
liabilities for product recall campaigns are recorded at the time the company's
obligation is known and can be reasonably estimated. Product warranties not
expected to be paid within one year are recorded as a non-current liability.

Our LVS segment records product warranty liabilities based on its
individual customer or warranty-sharing agreements. Product warranties are
recorded for known warranty issues when amounts can be reasonably estimated.

Significant judgments and estimates used by management when determining
product warranty liabilities include:

- Past claims experience;

- Sales history;

- Product manufacturing and industry developments; and

- Recoveries from third parties

ASBESTOS -- We record three types of reserves related to asbestos: (1)
unbilled committed settlements, (2) pending claims, and (3) shortfall and other.
The reserves for pending claims require the most significant management
judgment. For purposes of establishing reserves for pending asbestos-related
claims, Maremont (a subsidiary of the company) estimates its defense costs and
indemnity based on the history and nature of filed claims to date and Maremont's
experience since February 1, 2001. See Note 22 of 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 asbestos-related claims.

The amounts recorded by Maremont for the asbestos-related liability and
related insurance receivables were based upon currently known facts. However,
projecting future events, such as the number of new claims to be filed each
year, the average cost of disposing of each such claim, coverage issues among
insurers, and the continuing solvency of various insurance companies, as well as
the numerous uncertainties surrounding asbestos litigation in the United States,
could cause the actual costs and insurance recoveries to be higher or lower than
those projected or those recorded.

Significant judgments and estimates used by management when determining
reserves for pending asbestos claims and insurance recoveries include:

- Average historical settlement values;

- Average number of years to resolve pending claims;

- Average annual defense costs; and

- Solvency of insurance providers

ENVIRONMENTAL -- We record liabilities for environmental issues in the
accounting period in which our responsibility and remediation plans are
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

39

insolvent parties or unidentified shares. At environmental sites in which we are
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. This is management's best estimate of the costs associated
with environmental matters for which we have accrued liabilities. The ultimate
cost with respect to our environmental obligations could significantly exceed
the costs we have recorded as liabilities. Significant judgments and estimates
used by management when determining environmental reserves include:

- Evaluations of current law and existing technologies;

- Physical and scientific data at the site;

- Government regulations and legal standards; and

- Proposed remedies and technologies

GOODWILL -- Goodwill is reviewed for impairment annually or more frequently
if certain indicators arise, by using discounted cash flows and market multiples
to determine the fair value of each reporting unit. An impairment loss may be
recognized if the review indicates that the carrying value of a reporting unit
exceeds its fair value. If business conditions or other factors cause the
profitability and cash flows of the reporting unit to decline, we may be
required to record impairment charges for goodwill at that time. Significant
judgments and estimates used by management when evaluating goodwill for
impairment include:

- Fair value of the reporting unit, including developing estimates of
future cash flows and market multiples;

- Discount rate; and

- As required, an allocation of the reporting unit's fair value to the
underlying net assets of the reporting unit

IMPAIRMENT OF LONG-LIVED ASSETS -- Long-lived assets, excluding goodwill,
to be held and used are reviewed for impairment whenever adverse events or
changes in circumstances indicate a possible impairment. An impairment loss is
recognized when the long-lived assets' carrying value exceeds the fair value.
Long-lived assets held for sale are recorded at the lower of their carrying
amount or fair value less cost to sell. Significant judgments and estimates used
by management when evaluating long-lived assets for impairment include:

- An assessment as to whether an adverse event or circumstance has
triggered an impairment review; and

- Undiscounted future cash flows generated by the asset

INCOME TAXES -- Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. We record a valuation allowance when the
realization of the deferred tax asset is uncertain. Management judgment is
required in determining the company's provision for income taxes, deferred tax
assets and liabilities and the valuation allowance recorded against the
company's net deferred tax assets. The valuation allowance would need to be
adjusted in the event future taxable income is materially different than amounts
estimated. Significant judgments and estimates considered by management in its
determination of the probability of the realization of deferred tax assets
include:

- Historical operating results;

- Expectations of future earnings; and

- The extended period of time over which the retirement medical and pension
liabilities will be paid.

40

NEW ACCOUNTING PRONOUNCEMENTS

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law. The Act introduces a
prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to the benefit established by law. In May 2004, the
Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No.
FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003." The FSP provides
guidance on how to account for the federal subsidy. In the third quarter of
fiscal 2004, we amended certain retiree medical plans. As a result, the adoption
of FSP FAS 106-2 did not have a material impact on our results of operations or
financial position.

In December 2003, the FASB revised Statement of Financial Accounting
Standards (SFAS) No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans required by SFAS Statements No. 87, 88
and 106. The revised SFAS requires additional disclosures about the assets,
obligations, cash flows and net periodic benefit cost of defined benefit pension
plans and other defined benefit postretirement plans. The additional disclosure
requirements are included in Notes 19 and 20 to the Notes to the Consolidated
Financial Statements.

In January 2003, the FASB issued FASB Interpretation (FIN) No. 46,
"Consolidation of Variable Interest Entities." This interpretation provides
guidance on whether or not a variable interest entity, in which the company
holds a variable interest, should be consolidated by the company. We adopted the
provisions of FIN 46 in the fourth quarter of fiscal 2003. We determined that an
entity related to one of our lease agreements is a variable interest entity in
which the company had a variable interest. As the primary beneficiary we
consolidated the variable interest entity. Management concluded that the company
held a variable interest in the form of a residual value guarantee for which the
company is obligated at the end of the lease agreement. Upon adoption, we
recorded a $6 million charge ($4 million after-tax, or $0.06 per diluted share)
as a cumulative effect of accounting change for the difference between the net
book value of the leased assets and our obligation under the lease. The effect
of adopting this accounting change on our financial position was to increase
property and other assets by $50 million and increase long-term debt by $54
million. In addition, management determined that a wholly owned finance
subsidiary trust of the company is a variable interest entity in which the
company is not the primary beneficiary. As a result, we no longer consolidate
the trust, which issued $39 million of outstanding preferred capital securities,
and have included as long-term debt $39 million of outstanding 9.5 percent
junior subordinated debentures due to the trust. There was no impact to our
financial position or results of operations as a result of the de-consolidation
of the trust. In December 2003, the FASB revised FIN 46. The adoption of FIN 46R
had no impact on the company.

In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation it
assumes under the guarantee. This requirement applies to guarantees issued after
December 31, 2002. Guarantees issued prior to January 1, 2003, are not subject
to the recognition and measurement provisions of FIN 45 but are subject to
expanded disclosure requirements. The Notes to the Consolidated Financial
Statements include disclosure of residual value guarantees under certain leases
in Note 15 and information related to indemnification agreements in Note 22.
Disclosure related to our product warranty liabilities is included in Note 13.

Effective October 1, 2002, we voluntarily changed to the fair value method
of accounting for our stock-based compensation plans and began expensing the
fair value of stock options. In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure, an
amendment of FASB Statement No. 123." SFAS 148 provides alternative methods of
transition for a voluntary change to the fair value method. We elected the
modified prospective method, which allows for the recognition of compensation
expense for the non-vested portion of previously issued stock options, as well
as for new grants of stock options. The modified prospective method does not
require restatement of prior period

41

results. We recorded compensation expense for fiscal 2004 and 2003 of $7 million
($5 million after-tax, or $0.07 per diluted share).

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." 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. We
adopted this standard for exit or disposal activities initiated after December
31, 2002.

ACCOUNTING CHANGES

Prior to the fourth quarter of fiscal 2004, certain CVS inventories in the
U.S. were valued using the last-in, first-out (LIFO) method. During the fourth
quarter of fiscal 2004, the company changed its method of costing these
inventories to the first-in, first-out (FIFO) method from LIFO. As a result, all
U.S. inventories are now stated at the lower of cost, determined on a FIFO
basis, or market. We believe this change is preferable as it results in
inventories being valued in a manner which more closely approximates current
costs and better matches revenues with costs of goods sold. In accordance with
accounting principles generally accepted in the U.S., all prior periods have
been restated to give retroactive effect to this change. The effect of this
change decreased previously reported net income in 2003 by $3 million ($0.04 per
diluted share). This change did not impact 2002 results. This change increased
the carrying value of inventory by $42 million at September 30, 2003 and
shareowners' equity, net of tax, by $29 million at October 1, 2001.

INTERNATIONAL OPERATIONS

Approximately 48 percent of the company's total assets, excluding assets of
discontinued operations, as of September 30, 2004, and 50 percent of fiscal 2004
sales were outside North America. Management believes that international
operations have significantly benefited the financial performance of the
company. However, our 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 our ability to increase or maintain our
foreign sales or on our financial condition or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to global market risks including foreign currency exchange
rate risk related to our transactions denominated in currencies other than the
U.S. dollar and interest rate risk associated with our debt.

In the fourth quarter of fiscal 2004 we implemented a foreign currency cash
flow hedging program to help reduce our exposure to changes in exchange rates.
We use foreign currency forward contracts to manage the exposures arising from
foreign currency exchange risk. Gains and losses on the underlying foreign
currency exposures are partially offset with gains and losses on the forward
contracts. Under this program, we have designated the forward contracts as cash
flow hedges of underlying forecasted purchases and sales. The effective portion
of changes in the fair value of the forward contracts is recorded in Accumulated
Other Comprehensive Income (OCI) in the statement of shareowners' equity and is
recognized in operating income when the underlying forecasted transaction
impacts earnings. The forward contracts generally mature within 12 months. Prior
to this program, we used foreign exchange contracts to offset the effect of
exchange rate fluctuations on foreign currency denominated payables and
receivables but did not designate these contracts as hedges for accounting
purposes. These contracts were generally of short duration (less than three
months). It is difficult to predict the impact the euro and other currencies
will have on our sales and operating income in the upcoming year.

We also use interest rate swaps to manage the proportion of variable rate
debt to fixed rate debt. It is our policy not to enter into derivative
instruments for speculative purposes, and therefore, we hold no derivative
instruments for trading purposes.

42

We have performed a sensitivity analysis assuming a hypothetical 10-percent
movement in foreign currency exchange rates and interest rates applied to the
underlying exposures described above. As of September 30, 2004, the analysis
indicated that such market movements would not have a material effect on our
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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quantitative and Qualitative Disclosures About Market
Risk.

43

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of
ArvinMeritor, Inc. (the "Company") as of September 30, 2004 and 2003, and the
related consolidated statements of operations, shareowners' equity, and cash
flows for each of the three years in the period ended September 30, 2004. 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 standards of the Public Company
Accounting Oversight Board (United States). 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. at September
30, 2004 and 2003, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 2004 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 2 to the consolidated financial statements, in 2004
the Company changed its method of determining the cost of certain inventories
from the last-in, first-out method to the first-in, first-out method and
retroactively restated the 2003 and 2002 consolidated financial statements for
the change.

As also discussed in Note 2 to the consolidated financial statements,
effective July 1, 2003, the Company changed its method of accounting for its
interests in variable interest entities, and effective October 1, 2001, the
Company changed its method of accounting for goodwill.

DELOITTE & TOUCHE LLP

Detroit, Michigan
December 15, 2004

44

ARVINMERITOR, INC.

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

See Notes to Consolidated Financial Statements. Fiscal year 2003 and 2002
amounts have been restated.
45

ARVINMERITOR, INC.

CONSOLIDATED BALANCE SHEET
(IN MILLIONS)

See Notes to Consolidated Financial Statements. Fiscal year 2003 amounts have
been restated.
46

ARVINMERITOR, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)

See Notes to Consolidated Financial Statements. Fiscal year 2003 and 2002
amounts have been restated.
47

ARVINMERITOR, INC.

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

See Notes to Consolidated Financial Statements.
48

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, HVAC and doors
industries.

The company's light vehicle aftermarket business and its coil coating
business are classified as held for sale and presented as discontinued
operations in the financial statements and related notes. Prior periods have
been restated to reflect this presentation (see Note 3).

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. The
2004, 2003 and 2002 fiscal years ended on October 3, 2004, September 28, 2003
and September 29, 2002, respectively. All year and quarter references relate to
the company's fiscal year and fiscal quarters unless otherwise stated. Fiscal
2004 includes 53 weeks compared to 52 weeks in fiscal 2003.

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 of America (U.S.) requires
the use of estimates and assumptions related to the reporting of assets,
liabilities, revenues, expenses and related disclosures. Actual results could
differ from these estimates. Significant estimates and assumptions were used to
value goodwill (see Note 3), product warranty liabilities (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 balances and transactions are eliminated in
consolidation. The balance sheet and results of operations of controlled
subsidiaries where ownership is greater than 50 percent, but less than 100
percent, are included in the consolidated financial statements 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).
The company's consolidated financial statements also include those variable
interest entities in which the company holds a variable interest and is the
primary beneficiary.

Foreign Currency

Local currencies are generally considered the functional currencies for
operations 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

Long-lived assets, excluding goodwill, to be held and used are reviewed for
impairment whenever adverse events or changes in circumstances indicate a
possible impairment. An impairment loss is recognized when a long-lived asset's
carrying value exceeds the fair value. Long-lived assets held for sale are
recorded at the lower of their carrying amount or fair value less cost to sell.
49

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Discontinued Operations

A business component that either has been disposed of or is classified as
held for sale is reported as discontinued operations if the cash flows of the
component have been or will be eliminated from the ongoing operations of the
company and the company will no longer have any significant continuing
involvement in the business component. The results of operations of discontinued
operations are aggregated and presented separately in the consolidated statement
of operations and consolidated statement of cash flows. Assets and liabilities
of the discontinued operations are aggregated and reported separately as assets
and liabilities of discontinued operations in the consolidated balance sheet.

Goodwill

Goodwill is reviewed for impairment annually, or more frequently if certain
indicators arise, by using discounted cash flows and market multiples to
determine the fair value of each reporting unit. An impairment loss may be
recognized if the review indicates that the carrying value of a reporting unit
exceeds its fair value. If business conditions or other factors cause the
profitability and cash flows of the reporting unit to decline, the company may
be required to record impairment charges for goodwill at that time. In the
fourth quarter of fiscal 2004, the company recognized an impairment loss of $190
million ($2.77 per diluted share) on goodwill of its Light Vehicle Aftermarket
reporting unit (see Note 3).

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 is calculated using the weighted average number of
shares outstanding during each year. The diluted earnings per share calculation
includes the impact of dilutive common stock options and restricted stock.

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

At September 30, 2004, 2003 and 2002, options to purchase 1.7 million, 3.7
million and 1.9 million shares of common stock, respectively, were not included
in the computation of diluted earnings per share because their inclusion would
be anti-dilutive.

Other

Other significant accounting policies are included in the related notes,
specifically, inventories (Note 8), customer reimbursable tooling and
engineering (Note 9), property and depreciation (Note 10), capitalized software
(Note 11), product warranties (Note 13), financial instruments (Note 16), stock
options (Note 18), retirement medical plans (Note 19), retirement pension plans
(Note 20), income taxes (Note 21) and environmental and asbestos (Note 22).

50

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

New Accounting Standards

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law. The Act introduces a
prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to the benefit established by law. In May 2004, the
Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) FAS
106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003." The FSP provides
guidance on how to account for the federal subsidy. In the third quarter of
fiscal 2004, the company amended its retiree medical plans (see Note 19). As a
result, the adoption of FSP FAS 106-2 did not have a material impact on the
company's results of operations or financial position.

In December 2003, the FASB revised Statement of Financial Accounting
Standards (SFAS) No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans required by SFAS Nos. 87, 88 and 106.
The revised SFAS requires additional disclosures about the assets, obligations,
cash flows and net periodic benefit cost of defined benefit pension plans and
other defined benefit postretirement plans. The additional disclosure
requirements are included in Notes 19 and 20.

In January 2003, the FASB issued FASB Interpretation (FIN) No. 46,
"Consolidation of Variable Interest Entities." This interpretation provides
guidance on whether or not a variable interest entity, in which the company
holds a variable interest, should be consolidated by the company. The company
adopted the provisions of FIN 46 in the fourth quarter of fiscal 2003.
Disclosure of the impact of adopting FIN 46 is included in "Accounting Changes"
below. In December 2003, the FASB revised FIN 46. The adoption of FIN 46R had no
impact on the company.

In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation it
assumes under the guarantee. This requirement applies to guarantees issued after
December 31, 2002. Guarantees issued prior to January 1, 2003 are not subject to
the recognition and measurement provisions of FIN 45 but are subject to expanded
disclosure requirements. Disclosure of residual value guarantees under certain
leases is included in Note 15 and information related to indemnification
agreements is included in Note 22. Disclosure related to the company's product
warranty liabilities is included in Note 13.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." 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 company adopted this standard for exit or disposal activities initiated
after December 31, 2002.

Accounting Changes

Prior to the fourth quarter of fiscal 2004, certain inventories in the U.S.
were valued using the last-in, first-out (LIFO) method. During the fourth
quarter of fiscal 2004, the company changed its method of costing these
inventories to the first-in, first-out (FIFO) method from LIFO. As a result, all
U.S. inventories are now stated at the lower of cost, determined on a FIFO
basis, or market. The company believes this change is preferable as it results
in inventories being valued in a manner which more closely approximates current
costs and better matches revenues with costs of goods sold. In accordance with
accounting principles generally accepted in the U.S., all prior periods have
been restated to give retroactive effect to this change. The effect of this
change decreased net income in 2003 by $3 million ($0.04 per diluted share).
This change did not impact

51

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2002 results. This change increased the carrying value of inventory by $42
million at September 30, 2003 and shareowners' equity, net of tax, by $29
million at October 1, 2001.

As previously discussed, effective July 1, 2003 the company adopted FIN 46
in the fourth quarter of fiscal 2003. The company determined that an entity
related to one of its lease agreements is a variable interest entity in which
the company had a variable interest. As the primary beneficiary, the company
consolidated the variable interest entity. Management concluded that the company
held a variable interest in the form of a residual value guarantee for which the
company is obligated at the end of the lease agreement. Upon adoption, the
company recorded a $6 million charge ($4 million after-tax, or $0.06 per diluted
share) as a cumulative effect of accounting change for the difference between
the net book value of the leased assets and the company's obligation under the
lease. The effect of adopting this accounting change on the company's financial
position was to increase property and other assets by $50 million and increase
long-term debt by $54 million. Proceeds from the sale of the company's exhaust
tube manufacturing facility were used to pay down $23 million of this debt (see
Note 5). Information related to the company's leases is included in Note 15. In
addition, management has determined that a wholly owned finance subsidiary trust
of the company is a variable interest entity in which the company is not the
primary beneficiary. As a result, the company no longer consolidates the trust.
There was no impact to the company's financial position or results of operations
as a result of the de-consolidation of the trust (see Note 15).

Effective October 1, 2001, the company adopted SFAS No. 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. Upon adoption of SFAS No. 142, the company
recorded an impairment loss on goodwill for its coil coating operations as a
cumulative effect of accounting change 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.

3. DISCONTINUED OPERATIONS

In the fourth quarter of fiscal 2004, the company announced plans to divest
its Light Vehicle Aftermarket (LVA) business segment and coil coating business,
Roll Coater, Inc., a wholly owned subsidiary. These plans are part of the
company's long-term strategy to focus on core competencies and support its
growing list of global light vehicle systems original equipment manufacturing
(OEM) customers and its commercial vehicle systems OEM and aftermarket
customers. In November of fiscal 2005, the company completed the sale of Roll
Coater. Cash proceeds from the sale were approximately $163 million. The company
expects to complete the divestiture of LVA in fiscal year 2005.

LVA supplies exhaust, ride control, motion control and filter products as
well as other automotive parts to the passenger car, light truck and sport
utility aftermarket. Roll Coater supplies coil coating services and other
value-added metal processing services to the transportation, appliance, HVAC,
construction, doors and other industries. LVA and Roll Coater are reported as
discontinued operations for all periods presented.

52

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Results of the discontinued operations are summarized as follows (in
millions):

Assets and liabilities of the discontinued operations are summarized as
follows (in millions):

The company's fiscal 2004 annual goodwill impairment review indicated the
carrying value of the LVA reporting unit exceeded its fair value. Increased
competition, difficult market conditions, particularly in the exhaust market,
and higher raw material costs resulted in a decline in fair value in fiscal
2004. As a result, in the fourth quarter of fiscal 2004, the company recognized
a goodwill impairment charge of $190 million ($190 million after-tax or $2.77
per diluted share) in its LVA reporting unit. The fair value of LVA was
estimated using earnings multiples based on precedent transactions of comparable
companies and the expected present value of future cash flows.

As a result of weakening demand in the aftermarket business, LVA recorded
restructuring costs totaling $3 million, $2 million and $4 million during fiscal
years 2004, 2003 and 2002, respectively. These restructuring costs are included
in the results of discontinued operations for each respective period. At
September 30, 2004 and 2003, there was $2 million and $1 million, respectively,
of restructuring reserves related to unpaid employee termination benefits
included in liabilities of discontinued operations.

In the third quarter of fiscal 2002, LVA completed the sale of its exhaust
accessories manufacturing operations for $11 million in cash, resulting in a
gain of $6 million. This gain is included in discontinued operations.

53

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. RESTRUCTURING COSTS

The company recorded restructuring charges of $15 million, $20 million and
$11 million during the fiscal years ended September 30, 2004, 2003 and 2002,
respectively. At September 30, 2004 and 2003, there was $10 million and $12
million, respectively, of restructuring reserves related to unpaid employee
termination benefits in the consolidated balance sheet.

In 2003, the company approved workforce reductions and facility
consolidations in its Light Vehicle Systems (LVS) business segment. These
measures follow the management realignment of the company's LVS business and are
also intended to address the competitive challenges in the automotive supplier
industry. LVS recorded restructuring costs related to these programs of $10
million and $19 million in fiscal years 2004 and 2003, respectively. These costs
included severance and other employee termination costs related to a reduction
of approximately 300 salaried and 975 hourly employees and an asset impairment
charge of $8 million.

During fiscal 2004 and 2003, the company recorded additional restructuring
costs totaling $5 million and $1 million, respectively, associated with certain
corporate administrative and managerial employee termination costs.

In fiscal 2003, the company recorded restructuring costs of $5 million that
were incurred as a result of the integration of Zeuna Starker GmbH & Co. KG
(Zeuna Starker) into the Light Vehicle Systems business. These costs relate to
severance and other termination benefits associated with approximately 300
employees of Zeuna Starker. In fiscal 2004, the company recorded an additional
$1 million of restructuring costs associated with this integration. The
acquisition was accounted for using the purchase method of accounting and these
restructuring costs were reflected in the purchase price allocation.

In fiscal 2002, as part of a plan to reduce fixed costs, the company
recorded a restructuring charge of $11 million for severance and other employee
costs related to a net reduction of approximately 400 salaried employees.

54

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the changes in the restructuring reserves is as follows (in
millions):

5. ACQUISITIONS AND DIVESTITURES

In the third quarter of fiscal 2004, the company completed the sale of its
CVS Kenton, Ohio trailer beam fabrication facility. This divestiture is in line
with the company's strategy to be less vertically integrated and more focused on
its core processes for the design and assembly of complete systems. Net proceeds
from this divestiture were approximately $14 million. This divestiture did not
have a material impact on consolidated sales or net income.

In the second quarter of fiscal 2004 the company completed the sale of its
75-percent shareholdings in AP Amortiguadores, S.A. (APA); a joint venture that
manufactured ride control products. Net proceeds from the sale were $48 million,
resulting in a pre-tax gain of $20 million. The company recorded sales
associated with APA of $81 million and $158 million in fiscal years 2004 and
2003, respectively.

In 1998, the company acquired a 49-percent interest in Zeuna Starker, a
German air and emissions systems company. In the second quarter of fiscal 2003,
the company purchased the remaining 51-percent interest in Zeuna Starker for a
net purchase price of $69 million. The company recorded $111 million of goodwill
associated with the purchase price allocation. Incremental sales from Zeuna
Starker were $203 million and $550 million in fiscal 2004 and 2003,
respectively.

The company divested its exhaust tube manufacturing facility during the
fourth quarter of fiscal 2003. This divestiture is part of the company's
long-term strategy to be less vertically integrated and to focus on core
competencies. The company received $67 million in cash, resulting in a pre-tax
gain of $36 million. The company will continue to purchase exhaust tubing from
the buyer under a supply agreement that expires in 2006. Management concluded
that due to the supply agreement terms, a portion of the gain should be deferred
and recognized as a reduction of cost of sales over the supply agreement term.
During fiscal 2003, $20 million ($14 million after-tax, or $0.21 per diluted
share) of the gain was recognized as a gain on divestiture, with the

55

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

remaining amount to be recognized in fiscal years 2004 through 2006. This
transaction had no material impact on the consolidated sales of the company. In
connection with this transaction, the company used $23 million of the proceeds
to repay a portion of long term debt associated with this facility.

The company completed the sale of net assets related to the manufacturing
and distribution of its off-highway planetary axle products in the second
quarter of fiscal 2003 for $36 million. As discussed in Note 2, the company
changed its method of accounting for certain inventories to FIFO from LIFO. This
change reduced the previously reported $2 million gain by $7 million ($0.06 per
diluted share). Sales of off-highway planetary axle products were approximately
$110 million in fiscal 2002. The company did not consider these products core to
its commercial vehicle systems business.

6. ACCOUNTS RECEIVABLE SECURITIZATION AND FACTORING

The company sells substantially all of the trade receivables of certain
U.S. 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 to certain bank
conduits that fund their purchases through the issuance of commercial paper.
Including discontinued operations, the company had utilized $24 million and $210
million of this accounts receivable securitization facility as of September 30,
2004 and 2003, respectively. As of September 30, 2004 and 2003 the banks had a
preferential interest in $373 million and $255 million, respectively, of the
remainder of the receivables held at ARC to secure the obligation under this
accounts receivable securitization facility.

The company also participates in a European accounts receivable
securitization facility. Up to 50 million euro of eligible trade receivables in
one of its European subsidiaries are sold under this program. As of September
30, 2004 and 2003, the company had utilized 7 million euro ($8 million) and 24
million euro ($27 million), respectively, of this accounts receivable
securitization facility. As of September 30, 2004 and 2003, the bank had a
preferential interest in 1 million euro ($2 million) and 4 million euro ($5
million), respectively, of receivables to secure the obligation under this
securitization facility.

The company does not have a retained interest in the receivables sold, but
does perform collection and administrative functions. The receivables under
these programs were sold at fair market value and a discount on the sale was
recorded in interest expense, net and other. A discount of $5 million was
recorded in fiscal year 2004 and 2003 and $6 million was recorded in fiscal
2002. The gross amount of proceeds received from the sale of receivables under
these programs was $2,387 million, $2,711 million and $2,351 million for fiscal
years 2004, 2003 and 2002 respectively. The euro and U.S. accounts receivable
securitization programs mature in March and September of fiscal 2005,
respectively.

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 facilities. At September 30, 2004, the company was in
compliance with all covenants.

In addition to its securitization programs, several of the company's
European subsidiaries factor eligible accounts receivable with financial
institutions. The receivables are factored without recourse to the company and
are excluded from accounts receivable. The amounts of factored receivables were
$10 million and $47 million at September 30, 2004 and 2003, respectively.

7. DANA CORPORATION TENDER OFFER

On July 9, 2003, the company commenced a tender offer to acquire all of the
outstanding shares of Dana Corporation (Dana) for $15.00 per share in cash. On
July 22, 2003, Dana's Board of Directors recommended that its shareowners reject
the company's initial cash tender offer. On November 17, 2003, the company
increased its tender offer to $18.00 per share in cash and indicated it would
withdraw its offer unless the Dana Board of Directors agreed to begin
negotiating a definitive merger agreement. On November 24, 2003,
56

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

following Dana's announcement that its Board of Directors recommended that its
shareowners reject the company's increased tender offer, the company withdrew
its $18.00 per share all cash tender offer. As a result of the company's
decision to withdraw its tender offer, a net charge of $9 million ($6 million
after-tax, or $0.09 per diluted share) was recorded in the first quarter of
fiscal 2004. The pre-tax charge includes $16 million in direct incremental
acquisition costs less a gain on the sale of Dana stock of $7 million.

8. INVENTORIES

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

As discussed in Note 2, the company changed its method of accounting for
certain inventories to FIFO from LIFO in fiscal 2004. As a result, the carrying
value of inventories increased $42 million at September 30, 2003.

9. OTHER CURRENT ASSETS

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

Costs incurred for engineering and tooling, principally for light vehicle
products, for which customer reimbursement is contractually guaranteed, are
classified as customer reimbursable tooling and engineering. These costs are
billed to the customer based on the terms of the contract. Provisions for losses
are provided at the time management expects costs to exceed anticipated customer
reimbursements.

10. NET PROPERTY

Property is stated at cost. Depreciation of property is based on estimated
useful lives, generally using the straight-line method. Estimated useful lives
for buildings and improvements range from 10 to 50 years and estimated useful
lives for machinery and equipment range from 3 to 20 years. Significant
betterments are capitalized, and disposed or replaced property is written off.
Maintenance and repairs are charged to expense. Company-owned tooling is
classified as property and depreciated over the shorter of its expected life or
the life of the related vehicle platform, generally not to exceed three years.

57

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net Property is summarized as follows (in millions):

11. OTHER ASSETS

Other Assets are summarized as follows (in millions):

In accordance with Statement of Position (SOP) 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, costs
relating to internally developed or purchased software in the preliminary
project stage and the post-implementation stage are expensed as incurred. Costs
in the application development stage that meet the criteria for capitalization
are capitalized and amortized using the straight-line basis over the economic
useful life of the software.

The company's trademarks, which were determined to have an indefinite life,
are not amortized. Patents, licenses and other intangible assets are amortized
over their contractual or estimated useful lives, as appropriate. The company
recorded $7 million of other intangible assets, related to tradenames and
customer relationships, in connection with the acquisition of Zeuna Starker. The
company anticipates amortization expense for patents, licenses and other
intangible assets of approximately $2 million for fiscal year 2005, $2 million
in fiscal year 2006 and $2 million total for fiscal years 2007 through 2009.

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12. INVESTMENTS IN NON-CONSOLIDATED JOINT VENTURES

The company's significant non-consolidated joint ventures at September 30,
2004 and the related ownership interest for each are as follows:

Meritor WABCO Vehicle Control Systems....................... 50%
Master Sistemas Automotrices Limitada....................... 49%
Suspensys Sistemas Automotivos Ltda. ....................... 24%
Sistemas Automotrices de Mexico S.A. de C.V. ............... 50%
Ege Fren Sanayii ve Ticaret A.S. ........................... 49%
Automotive Axles Limited.................................... 36%
Arvin Sango, Inc. .......................................... 50%

In fiscal 2004, the company dissolved its transmission joint venture with
ZF Freidrichshafen in a favor of a marketing arrangement that allows the company
to provide the Freedomline(TM) transmission family to its customers. As
discussed in Note 5, in fiscal 2003, the company purchased the remaining 51%
interest in Zeuna Starker. Prior to this transaction, the company's investment
in Zeuna Starker was accounted for using the equity method of accounting. Also
in fiscal 2003, the company increased its ownership interest in Sistemas
Automotrices de Mexico S.A. de C.V. to 50% from 40%.

The company's investment in non-consolidated joint ventures was $95 million
and $83 million at September 30, 2004 and 2003, respectively. Equity in earnings
of affiliates was $19 million and $8 million in fiscal 2004 and 2003,
respectively, and a loss of $4 million in fiscal 2002. The summarized financial
information presented below represents the combined accounts of the company's
non-consolidated joint ventures (in millions).

Dividends received from the company's non-consolidated joint ventures were
$15 million in fiscal 2004 and $19 million in fiscal 2003 and fiscal 2002.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. OTHER CURRENT LIABILITIES

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

The company's CVS segment records product warranty costs at the time of
shipment of products to customers. Warranty reserves are primarily based on
factors that include past claims experience, sales history, product
manufacturing and engineering changes and industry developments. Liabilities for
product recall campaigns are recorded at the time the company's obligation is
known and can be reasonably estimated. Product warranties not expected to be
paid within one year are recorded as a non-current liability. As of September
30, 2004 and 2003, product warranties included a product recall campaign
liability associated with TRW model 20-EDL tie rod ends (see Note 22).

The company's LVS segment records product warranty liabilities based on
individual customer or warranty-sharing agreements. Product warranties are
recorded for known warranty issues when amounts can be reasonably estimated.

A summary of the changes in product warranties is as follows (in millions):

As discussed in Note 12, the company dissolved its transmission joint
venture with ZF Freidrichshafen in fiscal 2004. As a result, the company
reclassified $20 million of product warranties that were previously included in
other long-term liabilities in the consolidated balance sheet.

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14. OTHER LIABILITIES

Other Liabilities are summarized as follows (in millions):

15. LONG-TERM DEBT

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

Debt Securities

The company previously filed a shelf registration statement with the
Securities and Exchange Commission registering $750 million aggregate principal
amount of debt securities to be offered in one or more series on terms
determined at the time of sale. At September 30, 2004 the company had $150
million of debt securities available for issuance under this shelf registration.

Subordinated Debentures

The company, through Arvin Capital I (the trust), a wholly owned finance
subsidiary trust, issued 9.5 percent Company-Obligated Mandatorily Redeemable
Preferred Capital Securities of a Subsidiary Trust (preferred capital
securities), due February 1, 2027, and callable in February 2007 at a premium
and in February 2017 at par. The proceeds from the capital securities are
invested entirely in 9.5 percent junior subordinated debentures of the company,
which are the sole assets of the trust. The company fully and unconditionally
guarantees the trust's obligation to the holders of the preferred capital
securities.

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Prior to fiscal 2003, the trust was consolidated by the company and the
preferred capital securities were included in the consolidated balance sheet.
During the fourth quarter of fiscal 2003, the company adopted FIN 46. Under the
provisions of FIN 46, it was determined that the trust is a variable interest
entity in which the company does not have a variable interest and therefore is
not the primary beneficiary. Upon adoption of FIN 46, the company no longer
consolidates the trust that issued the $39 million of outstanding preferred
capital securities, and has included in long-term debt $39 million of junior
subordinated debentures due to the trust. There was no impact from the
de-consolidation of the trust to the company's financial position or results of
operations.

Bank Revolving Credit Facilities

In July 2004, the company replaced its three-year, $400-million revolving
credit facility and a five-year, $750-million revolving credit facility with a
new four year, $900 million revolving credit facility. The previous facilities
would have expired in fiscal 2005. Under the new 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,
2004, the margin over the LIBOR rate was 120 basis points, and the facility fee
was 30 basis points. Certain of the company's domestic wholly-owned
subsidiaries, as defined in the new credit agreement, irrevocably and
unconditionally guarantee amounts outstanding under the new credit facility.
Concurrently, the company was required by the terms of an existing lease
agreement to provide similar subsidiary guarantees for the benefit of the
lessor, lenders and agent thereunder and voluntarily agreed to provide similar
subsidiary guarantees for the benefit of the holders of the publicly-held notes
outstanding under the company's two indentures (see Note 26).

Interest Rate Swap Agreements

The company has two interest rate swap agreements that effectively convert
$300 million of the 8 3/4 percent notes and $100 million of the 6.8 percent
notes to variable interest rates. The fair value of the swaps was $36 million
and $46 million as of September 30, 2004 and 2003, respectively, 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 an agreement to lease certain manufacturing
and administrative assets. Under the agreement, the assets are held by a
variable interest entity, which was established and owned by an independent
third party who provides financing through debt and equity participation. The
company has determined that it has a variable interest in the variable interest
entity, in the form of a $30 million residual value guarantee that obligates the
company to absorb a majority of the variable interest entity's losses. The
assets and liabilities of this variable interest entity were consolidated in the
fourth quarter of fiscal 2003 and are included in the company's consolidated
balance sheet at September 30, 2004 and 2003 (see Note 2).

Future minimum lease payments under this and other operating leases are $17
million in 2005, $15 million in 2006, $12 million in 2007, $10 million in 2008,
$8 million in 2009 and $9 million thereafter.

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Covenants

The bank revolving credit facilities require the company to maintain a
total net debt to earnings before interest, taxes, depreciation and amortization
(EBITDA) ratio no greater than 3.25x and a minimum fixed charge coverage ratio
(EBITDA less capital expenditures to interest expense) no less than 1.50x. In
addition, an operating lease requires the company to maintain financial ratios
that are similar to those required under the company's credit facilities. At
September 30, 2004, the company was in compliance with all covenants.

16. FINANCIAL INSTRUMENTS

The company's financial instruments include cash and cash equivalents,
marketable securities, short-term debt, long-term debt, interest rate swaps, and
foreign exchange forward 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's operations are exposed to global market risks, including the
effect of changes in foreign currency exchange rates. In the fourth quarter of
fiscal 2004 the company implemented a foreign currency cash flow hedging program
to reduce the company's exposure to changes in exchange rates. The company uses
foreign currency forward contracts to manage the company's exposures arising
from foreign currency exchange risk. Gains and losses on the underlying foreign
currency exposures are partially offset with gains and losses on the forward
contracts.

Under this program, the company has designated the forward contracts as
cash flow hedges of underlying forecasted purchases and sales. The effective
portion of changes in the fair value of the forward contracts is recorded in
Accumulated Other Comprehensive Income (OCI) in the consolidated statement of
shareowners' equity and is recognized in operating income when the underlying
forecasted transaction impacts earnings. The forward contracts generally mature
within 12 months. There was no impact to the company's results of operations
associated with hedge ineffectiveness in fiscal 2004.

At September 30, 2004 there was a $3 million gain recorded in OCI. The
company expects to reclassify this amount from OCI to operating income during
the next twelve months as the forecasted hedged transactions are recognized in
earnings. Prior to the inception of this program, the company elected not to
designate the foreign exchange contracts as hedges, therefore, changes in the
fair value of the foreign exchange contracts were recognized in operating
income. The net income impact of recording these contracts at fair value in
fiscal 2003 and 2002 did not have a significant effect on the company's results
of operations. In addition, as of September 30, 2003 the fair value of foreign
exchange contracts was not material.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Marketable securities -- Fair values are based on current market prices of
the underlying investment.

Interest rate swaps and foreign exchange forward contracts -- Fair values
are estimated by obtaining quotes from external sources.

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

Long-term debt -- Fair values are based on interest rates that would be
currently available to the company for issuance of similar types of debt
instruments with similar terms and remaining maturities.

17. SHAREOWNERS EQUITY

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, performance shares,
restricted share units and stock

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awards to key employees and directors. At September 30, 2004, there were 2.7
million shares available for future grants under these plans.

Restricted Stock

The company granted shares of restricted stock to certain employees in
accordance with the LTIP and the Employee Stock Benefit Plan. The restricted
stock is subject to continued employment by the employee and vests after three
years. Restricted stock grants to officers and other employees are summarized as
follows:

- ---------------
(1) Includes shares of restricted stock awarded to the company's officers.
Vesting of these shares is also subject to satisfaction of conditions
related to the company's financial performance.

(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 early in January
2005, as certain performance measures have been achieved. Total compensation
related to the exchange was expensed over a three-year recognition period
assuming that the performance measures would be met.

(3) Includes shares of restricted stock awarded to the company's chief executive
officer that vest over three years with 25,000 shares vesting in August 2005
and 2006 and 50,000 shares vesting in August 2007. Vesting of the remaining
shares is subject to satisfaction of conditions related to the company's
financial performance.

As 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 expensed
over the vesting period. The company 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 $11 million, $9 million, and $6 million for fiscal
years 2004, 2003 and 2002 respectively.

The company also grants restricted share units to non-employee members of
the Board of Directors as annual grants under the 2004 Directors Stock Plan. The
accounting for restricted share units is consistent with restricted stock
grants. In fiscal 2004 the company granted 28,200 restricted share units to the
Board of Directors.

Treasury Stock

During fiscal 2004 and 2003, approximately 1 million and 0.6 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.

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Accumulated Other Comprehensive Loss

The components of Accumulated Other Comprehensive Loss as reported in the
Consolidated Statement of Shareowners' Equity are as follows:

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. Stock options vest over a three year period from the date of grant.

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

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The following table provides additional information about outstanding stock
options at September 30, 2004 (shares in thousands, exercise price represents a
weighted average):

Effective October 1, 2002, the company voluntarily changed its accounting
for stock options granted under its various stock-based compensation plans and
began expensing the fair value of stock options. In December 2002, the FASB SFAS
No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure,
an amendment of FASB Statement No. 123." SFAS 148 provides alternative methods
of transition for a voluntary change to the fair value method. The company
elected the modified prospective method, which allows for the recognition of
compensation expense for the non-vested portion of previously issued stock
options, as well as for new grants of stock options. The modified prospective
method does not require restatement of prior period results. The company
recorded compensation expense in fiscal 2004 and 2003 of $7 million ($5 million
after-tax, or $0.07 per diluted share) associated with the expensing of stock
options. If the company had expensed the fair value of stock options for fiscal
2002, the company's net income and diluted earnings per share would have been
reduced by $3 million and $0.04, respectively. The weighted average fair values
of options granted were $5.80, $5.20 and $6.81 per share in fiscal 2004, 2003
and 2002, 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) and retiree medical expense:

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Since the company measures its retiree medical obligations at June 30, the
assumptions noted above are used to calculate the APBO as of June 30 of the
current fiscal year and retiree medical expense for the subsequent fiscal year.

The discount rate is used to calculate the present value of the APBO. 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 2004 is an increase in health care costs of 9.5 percent.

The APBO 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):

In fiscal 2004, the company approved changes to certain retiree medical
plans. These plan amendments and the related impact are reflected in the APBO as
of September 30, 2004. Beginning in April 2005, salaried retirees and certain
non-union hourly retirees under age 65 who now pay a portion of the cost for
their coverage will contribute an increased share each year. The benefit
currently provided by the company will be phased out by fiscal 2023. For
retirees age 65 and older, the company will no longer provide supplemental
healthcare benefits to Medicare-eligible retirees beginning in January 2006. The
plan changes resulted in a reduction in the APBO of $257 million, which will be
amortized as a reduction of retiree medical expense over the average remaining
service life of approximately 12 years. The company recognized a curtailment
gain in fiscal 2004 of $5 million related to these plan changes.

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The demographic and other actuarial losses relate to earlier than expected
retirements due to certain plant closings and restructuring actions. In
accordance with SFAS No. 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 12 years. Union plan amendments are generally amortized over the
contract period, or 3 years.

The 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):

The company expects future benefit payments as follows (in millions):

Fiscal 2005................................................. $ 65
Fiscal 2006................................................. 66
Fiscal 2007................................................. 56
Fiscal 2008................................................. 44
Fiscal 2009................................................. 42
Fiscal 2010 - 2014.......................................... 177

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. The non-U.S. plans
include 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:

Since the company measures its pension obligations at June 30, the
assumptions noted above are used to calculate the APBO as of June 30 of the
current fiscal year and net periodic pension expense for the subsequent fiscal
year.

The discount rate is used to calculate the present value of the PBO. The
rate used reflects a rate of return on high-quality fixed income investments
that match the duration of expected benefit payments. The company has typically
used a long-term corporate AA/Aa bond rate of return for this assumption.

The assumed return on plan assets is used to determine net periodic pension
expense. The rate of return assumptions are based on projected long-term market
returns for the various asset classes in which the plans are invested, weighted
by the target asset allocations. An incremental amount for active management,
where appropriate, is included in the rate of return assumption. The return
assumption is reviewed annually.

The rate of compensation increase represents the long-term assumption for
expected increases to salaries for pay-related plans.

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The following table reconciles the change in the projected benefit
obligation (PBO) and the change in plan assets (in millions):

In fiscal 2003, the increase in the PBO due to actuarial losses relates
primarily to the reduction in the discount rate assumptions. In accordance with
SFAS No. 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. In fiscal 2004, the
financial markets improved compared to fiscal 2003 and 2002. The improved asset
performance along with the increase in the discount rate and fiscal 2004
contributions improved the funded status of the U.S. plans at September 30,
2004. 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.

In recognition of the long-term nature of the liabilities of the pension
plans, the company has targeted an asset allocation strategy that intends to
promote asset growth while maintaining an acceptable level of risk over the long
term. Asset-liability studies are performed periodically to validate the
continued appropriateness of these asset allocation targets. The asset
allocation for the U.S. plan is targeted at 70-75% equity securities, 25% debt
securities, and 0-5% alternative assets. The target asset allocation ranges for
the non-U.S. plans are 65-75% equity securities, 20-35% debt securities, and
0-5% real estate.

The investment strategies for the pension plans are designed to achieve an
appropriate diversification of investments as well as safety and security of the
principal invested. Assets invested are allocated to certain global sub-asset
categories within prescribed ranges in order to promote international
diversification across security type, issuer type, investment style, industry
group, and economic sector. Assets of the plans are both actively and passively
managed. Policy limits are placed on the percentage of plan assets that can be
invested

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in a security of any single issuer and minimum credit quality standards are
established for debt securities. ArvinMeritor securities comprised less than
one-half percent of the value of our worldwide pension assets during 2004.

The weighted average asset allocation for the U.S. and non U.S. pension
plans are as follows:

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

SFAS 87 requires a company to record a minimum liability that is at least
equal to the unfunded accumulated benefit obligation. The additional minimum
pension liability, net of a deferred tax asset, is charged to accumulated other
comprehensive loss. At September 30, 2004 and 2003, the company's additional
minimum pension liability was $293 million and $294 million, respectively.

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

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

In accordance with SFAS 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 are as follows (in
millions):

In connection with the company's sale of the CVS Kenton, OH facility (see
Note 5), the company recognized a curtailment loss of $4 million in the fiscal
year ended September 30, 2004.

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Information about the expected cash flows for the U.S. and non-U.S. pension
plans is as follows (in millions):

The company also sponsors certain defined contribution savings plans for
eligible employees. Expense related to these plans was $11 million, $13 million
and $11 million for fiscal 2004, 2003 and 2002, respectively.

21. INCOME TAXES

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

The deferred tax expense or benefit represents tax effects of current year
deductions or items of income that will be recognized in future periods for tax
purposes. The deferred tax benefit primarily represents the tax benefit of
current year net operating losses and tax credits carried forward.

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Net current deferred income tax assets included in the consolidated balance
sheet consist of the tax effects of temporary differences related to the
following (in millions):

Net non-current deferred income tax assets included in the consolidated
balance sheet consist of the tax effects of temporary differences related to the
following (in millions):

Net deferred current and non-current deferred income tax assets are
included in the consolidated balance sheet as follows (in millions):

Management believes it is more likely than not that current and non-current
deferred tax assets 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 and pension liabilities 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

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carryforward periods for $251 million of net operating losses and tax credit
carryforwards expire between fiscal 2005 and 2024. The carryforward period for
the remaining net operating losses and tax credits is indefinite.

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

For fiscal 2004, the significant benefit for recognition of basis
differences was related to the following items: (a) favorable book and tax basis
differences on the sale of APA, (b) favorable impact of recently issued IRS
regulations supporting recoverability of previously disallowed capital losses
and (c) utilization of previously unrecognized capital losses associated with
our Brazilian restructuring. For fiscal 2003, the significant benefit was
primarily due to a restructuring of certain Brazilian operations which increased
the long-term deferred tax asset associated with intangible assets.

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

For fiscal 2004 and 2003, no provision has been made for U.S., state or
additional foreign income taxes related to approximately $665 million and $406
million, respectively 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 and remediation plans are 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 eight
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, 2004, to be
approximately $27 million, of which $6 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, 2004, to be
approximately $58 million, of which $28 million is recorded as a liability.
During fiscal 2004, the company recorded environmental remediation costs of $11
million principally resulting from an agreement with the Environmental
Protection Agency to remediate a former Rockwell facility that was sold in 1985.

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, after consulting with outside advisors that specialize in
environmental matters, and subject to the difficulties inherent in estimating
these future costs, 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 Industries, Inc. ("Arvin") acquired
Maremont in 1986.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
Other Current Assets and Liabilities, with the majority of the amounts recorded
in Other Noncurrent Assets and Liabilities (see Notes 9, 11, 13 and 14).

Unbilled Committed Settlements: The liability for unbilled committed
settlements 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 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. There were $1 million in
billings to insurance companies related to committed settlements in fiscal 2004.
There were no significant billings to insurance companies related to committed
settlements in fiscal 2003.

Pending Claims: Upon dissolution of the CCR in February 2001, Maremont
began handling asbestos-related claims through its own defense 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. Maremont developed experience factors for
estimating indemnity and litigation costs using data on actual experience in
resolving claims since February 2001 and its assessment of the nature of the
claims. Maremont had approximately 74,000 and 63,000 pending asbestos-related
claims at September 30, 2004 and 2003, respectively. The overall increase in the
number of pending claims has not materially affected our aggregate estimated
loss for such claims. Although the company expects legal defense costs to
continue at higher levels than when it participated in the CCR, the company
believes its litigation strategy has reduced the average indemnity cost per
claim. In addition, 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. Billings to insurance companies
for indemnity and defense costs of resolved cases were $12 million and $15
million in fiscal 2004 and 2003, respectively.

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 (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. Payments by the
company related to shortfall and other were $4 million and $1 million in fiscal
2004 and 2003, respectively.

Recoveries: 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

78

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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 recorded 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.

ArvinMeritor estimates the cost of its expanded recall of TRW model 20-EDL
tie rod ends to be approximately $17 million. 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 recorded a liability and offsetting receivable for the estimated
cost of its expanded recall campaign. In the fourth quarter of fiscal 2004, in
anticipation of a settlement with TRW, the company recorded a charge of $4
million as a reduction of the receivable due from TRW at September 30, 2004. In
December 2004, the company reached an agreement with TRW settling this matter,
resulting in no additional charges to the Company. See Note 13 for additional
information related to the company's product warranties.

Indemnifications

The company has provided indemnifications in conjunction with certain
transactions, primarily divestitures. These indemnities address a variety of
matters, which may include environmental, tax, asbestos, and employment-related
matters, and the periods of indemnification vary in duration. The company's
maximum obligations under such indemnifications cannot be reasonably estimated.
The company is not aware of any claims or other information that would give rise
to material payments under such indemnifications.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 two reportable operating segments: Light Vehicle Systems
(LVS) and Commercial Vehicle Systems (CVS). LVS is a major supplier of air and
emission systems, aperture systems (roof and door systems), and undercarriage
systems (suspension and ride control systems and wheel products) for passenger
cars and all-terrain vehicles, light trucks and sport utility vehicles to
original equipment manufacturers (OEMs). CVS supplies drivetrain systems and
components, including axles and drivelines, braking systems, suspension systems
and exhaust and ride control products, for medium- and heavy-duty trucks,
trailers and specialty vehicles to OEMs and the commercial vehicle aftermarket.
The company's previously reported LVA segment and Other is reported in
discontinued operations.

Segment information is summarized as follows (in millions):

Sales:

Earnings:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation and Amortization:

Capital Expenditures:

Segment Assets:

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

(1) Corporate assets consist primarily of cash, taxes and prepaid pension costs.
For fiscal 2004 and 2003, segment assets include $365 million and $393
million, respectively, of receivables sold to ARC under the accounts
receivable securitization and factoring programs (see Note 6). As a result,
corporate assets are reduced to account for the impact of the sale.

A summary of the changes in the carrying value of goodwill is as follows
(in millions):

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Sales by geographic area are based on the location of the selling unit.
Information on the company's geographic areas is summarized as follows (in
millions):

Sales by Geographic Area:

Assets by Geographic Area (excludes assets of discontinued operations):

Sales to DaimlerChrysler AG (which owns Chrysler, Mercedes-Benz AG and
Freightliner Corporation) represented 19 percent, 18 percent and 18 percent of
the company's sales in fiscal 2004, 2003 and 2002, respectively. Sales to
General Motors Corporation comprised 13 percent,14 percent and 16 percent of the
company's sales in fiscal 2004, 2003 and 2002, respectively. Sales to Ford Motor
Company comprised 10 percent of the company's sales in fiscal 2004 and 2003 and
11 percent in fiscal 2002. Sales to Volkswagen comprised 10 percent of the
company's sales in fiscal 2004 and 2003. No other customer comprised 10 percent
or more of the company's sales in each of the three fiscal years ended September
30, 2004.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

24. QUARTERLY FINANCIAL INFORMATION

The following is a condensed summary of the company's unaudited quarterly
results for fiscal 2004 and 2003. Amounts related to prior quarters have been
restated to reflect LVA and Roll Coater as discontinued operations. Per share
amounts are based on the weighted average shares outstanding for that quarter.
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.

As discussed in Note 2, during the fourth quarter of fiscal 2004, the
company changed its method of accounting for certain CVS inventories to FIFO
from LIFO. In accordance with accounting principles generally accepted in the
United States, all prior periods have been restated to give retroactive effect
to this change. The effect of this change decreased previously reported net
income in the third quarter of fiscal 2004 by $2 million ($0.03 per diluted
share).

Fourth quarter income from continuing operations included a restructuring
charge of $5 million, or $0.06 per diluted share and environmental remediation
costs of $3 million, or $0.04 per diluted share. Fourth quarter net loss
included a goodwill impairment charge of $190 million, or $2.77 per diluted
share in its LVA reporting unit. Second quarter income from continuing
operations included a gain on the sale of the company's 75-percent shareholdings
in APA of $20 million and environmental remediation costs of $6 million, or
$0.09 per diluted share. First quarter 2004 income from continuing operations
included a net charge of $6 million, or $0.09 per diluted share as a result of
the company's decision to withdraw its tender offer for Dana.

The effect of the change to FIFO from LIFO decreased previously reported
net income in the second quarter of fiscal 2003 by $4 million ($0.06 per diluted
share) and increased previously reported net income in the fourth quarter of
fiscal 2003 by $1 million ($0.02 per diluted share).

Fourth quarter 2003 income from continuing operations included a gain on
the sale of the net assets associated with the company's exhaust tube
manufacturing facility of $14 million, or $0.21 per diluted share.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Fourth quarter net income included a $4 million after-tax, or $0.06 per diluted
share cumulative effect of accounting change related to the adoption of FIN 46
(see Note 2).

Also included in the fourth quarter of fiscal 2003 income from continuing
operations was a $6 million after-tax charge, or $0.09 per diluted share,
related to account reconciliations and information system implementation issues
in a facility in Mexico, of which $4 million related to prior fiscal years.
Account reconciliations include transactions previously not identified or
recorded, resulting from the failure to either reconcile accounts or to resolve
reconciliation issues in a timely matter. It has been determined that the amount
related to prior fiscal years is not material, both individually and in the
aggregate on both a quantitative and qualitative basis, to the trends in the
financial statements for the periods presented, to the prior periods affected
and to a fair presentation of the company's results of operations and financial
position.

25. SUPPLEMENTAL FINANCIAL INFORMATION

26. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

In July 2004, the company entered into a new revolving credit agreement
(see Note 15). As part of the new agreement, certain domestic subsidiaries of
the company, as defined in the credit agreement, irrevocably and unconditionally
guarantee amounts outstanding under the agreement (Guarantors). Concurrently,
the company voluntarily agreed to provide similar subsidiary guarantees for the
benefit of the holders of the publicly-held notes outstanding under the
company's two indentures. In lieu of providing separate audited financial
statements for the Guarantors, the company has included the accompanying
condensed consolidating financial statements.

These condensed consolidating financial statements are presented on the
equity method. Under this method, the investments in subsidiaries are recorded
at cost and adjusted for the company's share of the subsidiary's cumulative
results of operations, capital contributions and distributions and other equity
changes. The Guarantor subsidiaries are combined in the condensed consolidating
financial statements.

84

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN MILLIONS)

85

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN MILLIONS)

86

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN MILLIONS)

87

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
(IN MILLIONS)

88

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
(IN MILLIONS)

89

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN MILLIONS)

90

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN MILLIONS)

91

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(IN MILLIONS)

27. SUBSEQUENT EVENTS

On October 4, 2004, the company formed two joint ventures with AB Volvo to
manufacture and distribute axles from a facility in France. The results of
operations and financial position of these joint ventures will be consolidated
by the company in the first quarter of fiscal 2005.

In November 2004, Meritor Suspensions Systems Company (MSSC), a 57 percent
owned consolidated joint venture of the company, announced the decision to close
its Sheffield, England stabilizer bar plant. MSSC expects to record
restructuring and other costs of approximately $10 million related to this
action.

In December 2004, the company completed the divestiture of its LVS
Columbus, Indiana automotive stamping and components manufacturing operation.
This action is part of the company's plan to rationalize its operations and
focus on its core automotive businesses. This manufacturing operation had sales
of $83 million in fiscal 2004.

92

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

None.

ITEM 9A. CONTROLS AND PROCEDURES.

As required by Rule 13a-15 under the Securities Exchange Act of 1934
("Exchange Act"), management, with the participation of Charles G. McClure, Jr.,
Chairman of the Board, Chief Executive Officer and President, and S. Carl
Soderstrom, Jr., Senior Vice President and Chief Financial Officer, evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures as of September 30, 2004. Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that, as of
September 30, 2004, our disclosure controls and procedures were effective to
ensure that information required to be disclosed in the reports we file or
submit under the 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 changes in ArvinMeritor's internal control
over financial reporting in the fiscal quarter ended September 30, 2004 that
have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.

In connection with the rule, we continue to review and document our
disclosure controls and procedures, including our internal control over
financial reporting, and may from time to time make changes aimed at enhancing
their effectiveness and ensuring that our systems evolve with the business.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ARVINMERITOR.

See the information under the captions Election of Directors, Information
as to Nominees for Director and Continuing Directors, Involvement in Certain
Legal Proceedings and Compliance with Section 16(a) of the Exchange Act in the
2005 Proxy Statement. See also the information with respect to executive
officers of ArvinMeritor under Item 4a of Part I. No director or nominee for
director was selected pursuant to any arrangement or understanding between that
individual 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 director and any other director, executive officer or
person nominated to become a director or executive officer.

ArvinMeritor has a separately designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act. The
current members of the Audit Committee are William D. George, Jr. (chairman),
David W. Devonshire, Charles H. Harff, Victoria B. Jackson and James E. Marley.
The Board of Directors has determined that ArvinMeritor has at least one "audit
committee financial expert" (as defined in Item 401(h) of Regulation S-K), David
W. Devonshire, serving on the Audit Committee. Mr. Devonshire is "independent,"
as defined in the listing standards of the New York Stock Exchange.

The charters of the Audit Committee, the Compensation and Management
Development Committee, the Corporate Governance and Nominating Committee and the
Environmental and Social Responsibility Committee of the Board of Directors are
posted on our website, www.arvinmeritor.com, in the section headed
"Investors -- Corporate Governance."

All ArvinMeritor employees, including our chief executive officer, chief
financial officer, controller and other executive officers, are required to
comply with our corporate policies regarding Standards of Business Conduct and
Conflicts of Interest. ArvinMeritor's ethics manual, including the text of the
policies on Standards of Business Conduct and Conflicts of Interest, is posted
on our website (www.arvinmeritor.com), in the section headed
"Investors -- Corporate Governance." We will also post on our website any
amendment to,

93

or waiver from, a provision of our policies that applies to our chief executive
officer, chief financial officer or controller, and that relates to any of the
following elements of these policies: honest and ethical conduct; disclosure in
reports or documents filed by the company with the SEC and in other public
communications; compliance with applicable laws, rules and regulations; prompt
internal reporting of code violations; and accountability for adherence to the
policies.

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 2005 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 2005 Proxy Statement.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

See the information under the caption Securities Authorized for Issuance
under Other Equity Compensation Plans in the 2005 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

PART IV

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

See the information under the caption Independent Accountants' Fees in the
2005 Proxy Statement.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(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):

Consolidated Statement of Operations, years ended September 30, 2004, 2003
and 2002.

Consolidated Balance Sheet, September 30, 2004 and 2003.

Consolidated Statement of Cash Flows, years ended September 30, 2004, 2003
and 2002.

Consolidated Statement of Shareowners' Equity, years ended September 30,
2004, 2003 and 2002.

Notes to Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm.

(2) Financial Statement Schedule for the years ended September 30, 2004,
2003 and 2002.

94

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 June 29, 2003 (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-b-2 Second Supplemental Indenture, dated as of July 6, 2004, 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-a to
ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended June 27, 2004 (File No. 1-15983), 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 BNY Midwest Trust Company
(successor to 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 BNY Midwest Trust Company (successor to Harris Trust and
Savings Bank), as trustee, filed as Exhibit 4-c-1 to the
2000 Form 10-K, is incorporated by reference.
4-c-2 Third Supplemental Indenture, dated as of July 6, 2004, to
the Indenture, dated as of July 3, 1990, between
ArvinMeritor and BNY Midwest Trust Company (successor to
Harris Trust and Savings Bank), as trustee, filed as Exhibit
4-b to ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended June 27, 2004 (File No. 1-15983), is
incorporated by reference.
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 the 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
the 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.

95

10-a Credit Agreement, dated as of July 6, 2004, among
ArvinMeritor, the subsidiary borrowers from time to time
parties thereto, the institutions from time to time parties
thereto as lenders, Bank One, NA (Main Office Chicago), as
Administrative Agent, JP Morgan Chase Bank and Citicorp
North America, Inc., as Syndication Agents, and ABN AMRO
Bank N.V., BNP Paribas and UBS Securities LLC, as
Documentation Agents, filed as Exhibit 10 to ArvinMeritor's
Quarterly Report on Form 10-Q for the quarterly period ended
June 27, 2004 (File No. 1-15983), is incorporated by
reference.
*10-b-1 1997 Long-Term Incentives Plan, as amended and restated,
filed as Exhibit 10-a to ArvinMeritor's Current Report on
Form 8-K dated December 7, 2004 (File No. 1-15983) is
incorporated by reference.
*10-b-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 (File No. 1-13093)("1997 Form 10-K"), is incorporated
by reference.
*10-b-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-b-4 Form of Performance Share Agreement under the 1997 Long-Term
Incentives Plan, filed as Exhibit 10-b to ArvinMeritor's
Current Report on Form 8-K dated December 7, 2004 (File No.
1-15983) is incorporated by reference.
*10-c-1 Description of Compensation of Non-Employee Directors.
*10-c-2 2004 Directors Stock Plan, filed as Exhibit 10-a to
ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended March 28, 2004 (File No. 1-15983), is
incorporated by reference.
*10-c-3 Form of Restricted Share Unit Agreement under the 2004
Directors Stock Plan.
*10-d Incentive Compensation Plan, filed as Exhibit 10-c-1 to the
1997 Form 10-K, is incorporated by reference.
*10-e 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-f 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.
*10-g 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-h 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-i 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 quarterly period ended
July 4, 1993 (File No. 1-302), is incorporated by reference.
10-j Second Amended and Restated Receivables Sale Agreement,
dated as of September 26, 2002, among ArvinMeritor
Receivables Corporation, the company, 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, filed as Exhibit 10-k to
ArvinMeritor's Annual Report on Form 10-K for the fiscal
year ended September 29, 2002 (File No. 1-15983) ("2002 Form
10-K"), is incorporated by reference.

96

10-k Second Amendment to Second Amended and Restated Receivables
Sale Agreement, dated as of March 25, 2003, among
ArvinMeritor Receivables Corporation, the company, the
Purchaser Agents named therein and Credit Lyonnais, acting
through its New York Branch, as Agent, filed as Exhibit 10a
to ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended March 30, 2003 (File No. 1-15983), is
incorporated by reference.
10-l Third Amendment to Second Amended and Restated Receivables
Sale Agreement, dated as of September 25, 2003, among
ArvinMeritor Receivables Corporation, the company, the
Related Committed Purchasers named therein, the Purchaser
Agents named therein and Credit Lyonnais, acting through its
New York Branch, as Agent, filed as Exhibit 10-m to
ArvinMeritor's Annual Report on Form 10-K for the fiscal
year ended September 28, 2003 (File No. 1-15983), is
incorporated by reference.
10-m Fourth Amendment to Second Amended and Restated Receivables
Sale Agreement, dated as of March 1, 2004, among
ArvinMeritor Receivables Corporation, the company, the
Related Committed Purchasers named therein, the Purchaser
Agents named therein and Calyon (successor to Credit
Lyonnais), acting through its New York Branch, as Agent.
10-n Fifth Amendment to Second Amended and Restated Receivables
Sale Agreement, dated as of September 24, 2004, among
ArvinMeritor Receivables Corporation, the company, the
Related Committed Purchasers named therein, the Purchaser
Agents named therein and Calyon (successor to Credit
Lyonnais), acting through its New York Branch, as Agent,
filed as Exhibit 10 to the company's Current Report on Form
8-K dated September 23, 2004 (File No. 1-15983) is
incorporated by reference.
10-o Amended and Restated Purchase and Sale Agreement, dated
September 27, 2001, among the originators named therein and
ArvinMeritor Receivables Corporation, filed as Exhibit 10-n
to ArvinMeritor's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001 (File No. 1-15983), is
incorporated by reference.
10-p First Amendment to Restated Purchase and Sale Agreement,
dated as of March 25, 2002, among the originators named
therein, ArvinMeritor Receivables Corporation and ABN AMRO
Bank N.V., filed as Exhibit 10d 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-q Second Amendment to Restated Purchase and Sale Agreement,
dated as of September 26, 2002, among the originators named
therein and ArvinMeritor Receivables Corporation, filed as
Exhibit 10-l to the 2002 Form 10-K, is incorporated by
reference.
10-r Second Amended and Restated Receivables Purchase Agreement,
dated as of March 10, 2003, among Zeuna Starker, Galleon
Capital Corporation, as Purchaser, State Street Global
Markets LLC, as Administrator, and State Street Bank and
Trust Company, as Relationship Bank, filed as Exhibit 10b to
ArvinMeritor's Form 10-Q for the quarterly period ended
March 30, 2003 (File No. 1-15983), is incorporated by
reference.
*10-s Employment agreement between the company and Charles G.
McClure, Jr.
*10-t Agreement between the company and S. Carl Soderstrom, Jr.
*10-u Description of arrangement between the company and Larry D.
Yost.
12 Computation of ratio of earnings to fixed charges.
18 Letter from Deloitte & Touche LLP regarding a change in
accounting principles.
21 List of subsidiaries of ArvinMeritor.
23-a Consent of Vernon G. Baker, II, Esq., Senior Vice President
and General Counsel of ArvinMeritor.
23-b 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.
31-a Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a) under the Exchange Act.

97

31-b Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a) under the Exchange Act.
32-a Certification of the Chief Executive Officer pursuant to
Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section
1350.
32-b Certification of the Chief Financial Officer pursuant to
Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section
1350.

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

* Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K.

On July 23, 2004, we filed a Current Report on Form 8-K (i) reporting under
Item 5, "Other Events and Regulation FD Disclosure," that on July 21, 2004, the
Board of Directors had elected Charles G. McClure, Jr., to the position of
Chairman, Chief Executive Officer and President and as a member of the Board of
Directors, effective August 9, 2004, and (ii) furnishing the press release with
respect to this matter as an exhibit under Item 7. "Financial Statements and
Exhibits."

On July 28, 2004, we filed a Current Report on Form 8-K (i) reporting under
Item 12, "Results of Operations and Financial Condition," that on July 28, 2004,
ArvinMeritor had issued a press release reporting our financial results for the
fiscal quarter ended June 30, 2004, and had held a web-cast conference call to
discuss our financial results for the quarter, and (ii) furnishing the press
release and the presentation made on the conference call as exhibits under Item
7. "Financial Statements and Exhibits."

On September 23, 2004, we filed a Current Report on Form 8-K (i) reporting
under Item 1.01, "Entry into a Material Definitive Agreement," that on September
23, 2004, ArvinMeritor had entered into a Fifth Amendment to Second Amended and
Restated Receivables Sale Agreement, extending the term of our accounts
receivable securitization facility for an additional year, and (ii) filing the
Fifth Amendment as an exhibit under Item 9.01, "Financial Statements and
Exhibits."

98

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 15, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 15th day of December, 2004 by the following
persons on behalf of the registrant and in the capacities indicated.

Charles G. McClure, Jr.* Chairman of the Board, Chief Executive Officer
and President (principal executive officer)
and Director

Joseph B. Anderson, Jr., Rhonda L. Brooks Directors
David W. Devonshire, Joseph P. Flannery,
William D. George, Jr., Richard W. Hanselman,
Charles H. Harff, Victoria B. Jackson,
James E. Marley, William R. Newlin,
James E. Perrella, Steven G. Rothmeier,
Andrew J. Schindler and Martin D. Walker*

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

Rakesh Sachdev* Vice President and Controller (principal
accounting officer)
*By: /s/ BONNIE WILKINSON
------------------------------------------------
Bonnie Wilkinson
Attorney-in-fact**

**By authority of powers of attorney filed herewith.

99

SCHEDULE II

ARVINMERITOR, INC.

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED SEPTEMBER 30, 2004, 2003, AND 2002

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

(a) Uncollectible accounts written off.

(b) Underlying deferred tax asset written off.

S-1