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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 29, 2003
-----------------------
Commission file number 1-15983
-------------------------
ArvinMeritor, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 38-3354643
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2135 West Maple Road, Troy, Michigan 48084-7186
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(248) 435-1000
- --------------------------------------------------------------------------------
(Registrant's telephone number,
including area code)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
------- -------
68,490,076 shares of Common Stock, $1.00 par value, of ArvinMeritor, Inc. were
outstanding on July 31, 2003.
ARVINMERITOR, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Page
Item 1. Financial Statements: No.
Statement of Consolidated Income - - Three Months
and Nine Months Ended June 30, 2003 and 2002......................... 2
Consolidated Balance Sheet - -
June 30, 2003 and September 30, 2002................................. 3
Condensed Statement of Consolidated Cash Flows - -
Nine Months Ended June 30, 2003 and 2002............................. 4
Notes to Consolidated Financial Statements........................... 5
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition.......................... 24
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................................... 32
Item 4. Controls and Procedures................................................... 33
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds................................. 33
Item 5. Other Information......................................................... 34
Item 6. Exhibits and Reports on Form 8-K.......................................... 35
Signatures........................................................................................... 36
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ARVINMERITOR, INC.
STATEMENT OF CONSOLIDATED INCOME
(in millions, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(Unaudited)
Sales ............................................. $ 2,109 $ 1,883 $ 5,811 $ 5,136
Cost of sales ..................................... (1,896) (1,667) (5,236) (4,590)
--------- --------- --------- ---------
GROSS MARGIN ...................................... 213 216 575 546
Selling, general and administrative ............ (111) (100) (326) (285)
Restructuring costs ............................ (5) - (16) (15)
Gain on sale of business ....................... - 6 - 6
--------- --------- --------- ---------
OPERATING INCOME .................................. 97 122 233 252
Equity in earnings (losses) of affiliates ...... 4 - 6 (1)
Interest expense, net and other ................ (26) (26) (78) (79)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ........................ 75 96 161 172
Provision for income taxes ..................... (24) (31) (52) (55)
Minority interests ............................. (4) (3) (6) (9)
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE .................... 47 62 103 108
Cumulative effect of accounting change ......... - - - (42)
--------- --------- --------- ---------
NET INCOME ........................................ $ 47 $ 62 $ 103 $ 66
========= ========= ========= =========
BASIC EARNINGS PER SHARE
Before cumulative effect of accounting change... $ 0.70 $ 0.93 $ 1.54 $ 1.63
Cumulative effect of accounting change ......... - - - (0.63)
--------- --------- --------- ---------
Basic earnings per share ....................... $ 0.70 $ 0.93 $ 1.54 $ 1.00
========= ========= ========= =========
DILUTED EARNINGS PER SHARE
Before cumulative effect of accounting change... $ 0.69 $ 0.91 $ 1.52 $ 1.61
Cumulative effect of accounting change ......... - - - (0.62)
--------- --------- --------- ---------
Diluted earnings per share ..................... $ 0.69 $ 0.91 $ 1.52 $ 0.99
========= ========= ========= =========
Basic average common shares outstanding ........... 66.9 66.8 66.9 66.2
========= ========= ========= =========
Diluted average common shares outstanding ......... 67.8 68.0 67.6 67.0
========= ========= ========= =========
Cash dividends per common share ................... $ 0.10 $ 0.10 $ 0.30 $ 0.30
========= ========= ========= =========
See notes to consolidated financial statements.
2
ARVINMERITOR, INC.
CONSOLIDATED BALANCE SHEET
(in millions)
June 30, September 30,
2003 2002
----------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 103 $ 56
Receivables (less allowance for doubtful accounts:
June 30, 2003, $21 and September 30, 2002, $18) ............... 1,325 1,251
Inventories .......................................................... 549 458
Other current assets ................................................. 259 211
----------- -----------
TOTAL CURRENT ASSETS ............................................. 2,236 1,976
----------- -----------
NET PROPERTY .............................................................. 1,343 1,179
GOODWILL .................................................................. 915 808
OTHER ASSETS .............................................................. 670 688
----------- -----------
TOTAL ASSETS ..................................................... $ 5,164 $ 4,651
=========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ...................................................... $ 12 $ 15
Accounts payable ..................................................... 1,308 1,123
Accrued compensation and benefits .................................... 248 283
Accrued income taxes ................................................. 26 65
Other current liabilities ............................................ 281 257
----------- -----------
TOTAL CURRENT LIABILITIES ........................................ 1,875 1,743
----------- -----------
LONG-TERM DEBT ............................................................ 1,523 1,435
ACCRUED RETIREMENT BENEFITS ............................................... 473 512
OTHER LIABILITIES ......................................................... 141 123
MINORITY INTERESTS ........................................................ 73 58
PREFERRED CAPITAL SECURITIES .............................................. 39 39
SHAREOWNERS' EQUITY:
Common stock (June 30, 2003, 71.0 shares issued and 68.5
outstanding; September 30, 2002, 71.0 shares issued
and 67.9 outstanding) ........................................... 71 71
Additional paid-in capital ........................................... 559 554
Retained earnings .................................................... 613 530
Treasury stock (June 30, 2003, 2.5 shares;
September 30, 2002, 3.1 shares) ................................. (37) (46)
Unearned compensation ................................................ (14) (12)
Accumulated other comprehensive loss ................................. (152) (356)
----------- -----------
TOTAL SHAREOWNERS' EQUITY ........................................ 1,040 741
----------- -----------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY ........................ $ 5,164 $ 4,651
=========== ===========
See notes to consolidated financial statements.
3
ARVINMERITOR, INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
(in millions)
Nine Months Ended
June 30,
----------------------
2003 2002
--------- ---------
(Unaudited)
OPERATING ACTIVITIES
Income before cumulative effect of accounting change .......... $ 103 $ 108
Adjustments to arrive at cash provided by operating activities:
Depreciation and amortization ................................ 161 144
Restructuring costs, net of expenditures ..................... 3 7
Gain on sale of business ..................................... - (6)
Pension and retiree medical expense .......................... 73 58
Pension and retiree medical contributions .................... (141) (103)
Changes in receivable securitization ......................... 120 3
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures and foreign currency
adjustments ................................................. (113) 40
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES .......................... 206 251
--------- ---------
INVESTING ACTIVITIES
Capital expenditures .......................................... (119) (94)
Proceeds from disposition of assets ........................... 42 11
Acquisition of business ....................................... (69) -
Other investing activities .................................... (35) (23)
--------- ---------
CASH USED FOR INVESTING ACTIVITIES ............................. (181) (106)
--------- ---------
FINANCING ACTIVITIES
Net change in debt ............................................ 22 (494)
Proceeds from issuance of notes ............................... - 394
Purchase of preferred capital securities ...................... - (18)
Proceeds from exercise of stock options ....................... - 20
Cash dividends ................................................ (20) (20)
--------- ---------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ............... 2 (118)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ........................ 20 6
--------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS ............................ 47 33
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 56 101
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 103 $ 134
========= =========
See notes to consolidated financial statements.
4
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
ArvinMeritor, Inc. (the company or ArvinMeritor) is a leading global
supplier of a broad range of integrated systems, modules and components
serving light vehicle, commercial truck, trailer and specialty original
equipment manufacturers and certain aftermarkets. The company also provides
coil coating applications to the transportation, appliance, construction
and furniture industries. The consolidated financial statements are those
of the company and its consolidated subsidiaries.
In the opinion of the company, the unaudited financial statements contain
all adjustments, consisting solely of adjustments of a normal, recurring
nature, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. These statements
should be read in conjunction with the company's financial statements
included in the Annual Report on Form 10-K for the fiscal year ended
September 30, 2002. The results of operations for the three and nine months
ended June 30, 2003, are not necessarily indicative of the results for the
full year.
The company's fiscal year ends on the Sunday nearest September 30. The
company's fiscal quarters end on the Sundays nearest December 31, March 31,
and June 30. The third quarter of fiscal 2003 and 2002 ended on June 29,
2003, and June 30, 2002, respectively. All year and quarter references
relate to the company's fiscal year and fiscal quarters unless otherwise
stated.
For each interim reporting period the company makes an estimate of the
effective tax rate expected to be applicable for the full fiscal year. The
rate so determined is used in providing for income taxes on a year-to-date
basis.
Certain prior period amounts have been reclassified to conform with current
period presentation.
2. Earnings per Share
Basic earnings per share are based upon the weighted average number of
shares outstanding during each period. Diluted earnings per share assumes
the exercise of common stock options and the impact of restricted stock
when dilutive.
A reconciliation of basic average common shares outstanding to diluted
average common shares outstanding is as follows (in millions):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Basic average common shares outstanding .... 66.9 66.8 66.9 66.2
Impact of restricted stock ................. 0.2 0.7 0.1 0.4
Impact of stock options .................... 0.7 0.5 0.6 0.4
-------- -------- -------- --------
Diluted average common shares outstanding... 67.8 68.0 67.6 67.0
======== ======== ======== ========
5
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. New Accounting Standards
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets." The new standard
requires one model of accounting for long-lived assets to be disposed of,
and broadens the definition of discontinued operations to include a
component of a segment. The company adopted this standard effective October
1, 2002. The adoption of SFAS 144 did not have a significant impact on the
company's financial position or results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," which nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in
Restructuring)." The new standard requires a liability for a cost
associated with an exit or disposal activity to be recognized and measured
initially at its fair value in the period in which the liability is
incurred, rather than at the time of commitment to an exit plan. The
company adopted this standard for exit or disposal activities initiated
after December 31, 2002.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 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 liability
recognition but are subject to expanded disclosure requirements. Disclosure
of residual value guarantees under certain leases is included in Note 14
and information related to indemnification agreements is included in Note
17. Disclosure related to the company's product warranty obligations is
included in Note 12.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, Consolidated Financial Statements."
This interpretation provides guidance on the identification of variable
interest entities and may require consolidation based on these new rules.
FIN 46 applies immediately to variable interest entities created after
January 31, 2003. Variable interest entities created before February 1,
2003 are subject to the provisions of FIN 46 for the first interim period
beginning after June 15, 2003. The company has determined that an entity
related to one of the company's lease agreements is a variable interest
entity and will require consolidation in the fourth quarter of fiscal 2003.
The company does not expect the consolidation of the variable interest
entity to have a significant impact on the company's financial position or
results of operations. Information related to the company's leases is
included in Note 14.
6
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Accounting for Stock Options
Effective October 1, 2002, the company voluntarily changed to the fair
value method of accounting for its stock-based compensation plans and began
expensing the fair value of stock options. In December 2002, the FASB
issued Statement of Financial Accounting Standards No. 148 (SFAS 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
has 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 for the
nine months ended June 30, 2003, of $5 million ($4 million after-tax, or
$0.06 per diluted share). If the fair value method had been applied, for
the three and nine months ended June 30, 2002, the company's net income and
earnings per share would have been reduced to the pro forma amounts shown
below.
Three Months Ended Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income as reported ................................. $ 47 $ 62 $ 103 $ 66
Add: stock-based compensation expense included in
reported net income, net of tax ........................ 2 - 4 -
Less: stock-based compensation expense determined under
the fair value method, net of tax ...................... (2) (1) (4) (2)
---------- ---------- ---------- ----------
Pro forma net income ................................... $ 47 $ 61 $ 103 $ 64
========== ========== ========== ==========
Earnings per share:
Basic -- as reported ................................. $ 0.70 $ 0.93 $ 1.54 $ 1.00
========== ========== ========== ==========
Basic -- pro forma ................................... $ 0.70 $ 0.91 $ 1.54 $ 0.97
========== ========== ========== ==========
Diluted -- as reported ............................... $ 0.69 $ 0.91 $ 1.52 $ 0.99
========== ========== ========== ==========
Diluted -- pro forma ................................. $ 0.69 $ 0.90 $ 1.52 $ 0.96
========== ========== ========== ==========
7
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Goodwill Impairment
Effective October 1, 2001, the company adopted Statement of Financial
Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible
Assets," which requires goodwill to be subject to an annual impairment
test, or more frequently, if certain indicators arise, and also eliminated
goodwill amortization. Upon adoption of SFAS 142 the company recorded an
impairment loss on goodwill as a cumulative effect of accounting change for
its coil coating operations (classified as "Other" for segment reporting)
of $42 million ($42 million after-tax, or $0.62 per diluted share) in the
nine months ended June 30, 2002. Changes in the carrying value of goodwill
since September 30, 2002 are disclosed in Note 19.
6. Acquisitions and Divestitures
In 1998, the company acquired a 49-percent interest in a German joint
venture, Zeuna Staerker GmbH & Co. KG (Zeuna Staerker), an air and
emissions systems company. In the second quarter of fiscal 2003, the
company purchased the remaining 51-percent interest in Zeuna Staerker for a
purchase price of $69 million, net of cash acquired of $8 million. At June
30, 2003, the company has recorded $74 million of goodwill associated with
the initial purchase price allocation and expects to finalize the purchase
price allocation by September 30, 2003. The company expects incremental
sales from the Zeuna Staerker acquisition of approximately $550 million in
fiscal 2003.
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. Sales of the off-highway planetary axle products
were approximately $90 million in fiscal 2002.
7. Restructuring Costs
The company has approved plans for 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. Additionally, the company has approved plans
for a work force reduction and facility closure in its Light Vehicle
Aftermarket (LVA) business segment. The LVA actions are a result of weak
demand in the exhaust aftermarket business. During the first nine months of
fiscal 2003, the company recorded restructuring costs totaling $16 million
($11 million after-tax, or $0.16 per diluted share). These costs included
severance and other employee termination costs of $10 million related to a
reduction of approximately 225 salaried employees and 280 hourly employees
and $6 million related to asset impairments. At June 30, 2003, $4 million
of restructuring reserves relating to severance payments remained in the
consolidated balance sheet.
8
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In addition to the $16 million restructuring costs discussed above, the
company recorded restructuring costs of $3 million in the second quarter of
fiscal 2003 related to the acquisition of Zeuna Staerker. These costs
relate to severance and other termination benefits associated with 98
employees. The acquisition was accounted for utilizing the purchase method
of accounting and these restructuring costs were reflected in the purchase
price allocation. At June 30, 2003, $2 million of restructuring reserves
remained in the consolidated balance sheet.
In the first quarter of fiscal 2002, the company recorded a restructuring
charge of $15 million ($10 million after-tax, or $0.15 per diluted share)
for severance and other employee costs related to a net reduction of
approximately 450 employees. All employees have been terminated under this
restructuring action, and $2 million of restructuring reserves relating to
severance payments remained in the consolidated balance sheet at June 30,
2003.
The changes in the restructuring reserves are as follows (in millions):
Employee
Termination Asset
Benefits Impairments Total
------------ ------------ ------------
Balance at September 30, 2002 ...... $ 9 $ - $ 9
Activity during the period:
Charges to expense .............. 10 6 16
Purchase accounting adjustment .. 3 - 3
Asset write-offs ................ - (6) (6)
Cash payments ................... (14) - (14)
------------ ------------ ------------
Balance at June 30, 2003 ........... $ 8 $ - $ 8
============ ============ ============
8. Asset Securitization
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,
as defined, to certain bank conduits that fund their purchases through the
issuance of commercial paper. As of June 30, 2003 and September 30, 2002
the company had utilized $225 million and $105 million, respectively, of
the U.S. accounts receivable securitization facility. As of June 30, 2003
and September 30, 2002 the banks had a preferential interest in $225
million and $201 million, respectively, of the remainder of the receivables
held at ARC to secure the obligation under the U.S. accounts receivable
securitization facility.
9
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Zeuna Staerker had entered into an agreement to sell an undivided interest
in up to euro 50 million of eligible trade receivables, as defined, to a
bank that funds its purchases through the issuance of commercial paper. As
a result of the acquisition of the remaining 51-percent interest in Zeuna
Staerker, the company amended this agreement and has continued borrowing
under the accounts receivable securitization program. As of June 30, 2003,
the company had utilized euro 33 million ($38 million) of the euro accounts
receivable securitization facility. As of June 30, 2003, the banks had a
preferential interest in euro 5 million ($6 million) of the remainder of
the receivables held at Zeuna Staerker to secure the obligation under the
asset securitization facility.
The company has no 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 $3 million
and $5 million was recorded for the nine months ended June 30, 2003 and
2002, respectively. The gross amount of proceeds received from the sale of
receivables under these programs was approximately $1,920 million and
$1,808 million for the nine months ended June 30, 2003 and 2002,
respectively. The U.S. accounts receivable securitization program matures
in September 2003, and the company expects to renew the facility at that
time. The euro accounts receivable securitization program matures in March
2005.
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 June 30, 2003, the company was
in compliance with all covenants.
9. Inventories
Inventories are summarized as follows (in millions):
June 30, September 30,
2003 2002
---------- -------------
Finished goods ..................................... $ 244 $ 207
Work in process .................................... 138 131
Raw materials, parts and supplies .................. 211 171
---------- ----------
Total ......................................... 593 509
Less: allowance to adjust the carrying value of
certain inventories to a LIFO basis .............. (44) (51)
---------- ----------
Inventories ................................... $ 549 $ 458
========== ==========
10
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Other Current Assets
Other Current Assets are summarized as follows (in millions):
June 30, September 30,
2003 2002
------------- ---------------
Current deferred income taxes............................... $ 116 $ 116
Customer reimbursable tooling and engineering............... 72 33
Asbestos-related recoveries................................. 20 20
Prepaid and other........................................... 51 42
---------- ----------
Other Current Assets................................... $ 259 $ 211
========== ==========
11. Other Assets
Other Assets are summarized as follows (in millions):
June 30, September 30,
2003 2002
------------- ---------------
Long-term deferred income taxes............................. $ 190 $ 187
Prepaid pension costs....................................... 117 98
Investments in affiliates................................... 86 167
Fair value of interest rate swaps........................... 66 48
Asbestos-related recoveries................................. 56 39
Net capitalized software costs.............................. 43 44
Trademarks.................................................. 23 23
Patents and licenses (less accumulated
amortization: June 30, 2003, $5 and
September 30, 2002, $5)................................... 10 11
Other....................................................... 79 71
---------- ----------
Other Assets........................................... $ 670 $ 688
========== ==========
The company's trademarks, which were determined to have an indefinite life,
are not amortized, and patents and licenses are amortized over their
contractual lives. The company anticipates amortization expense for patents
and licenses of approximately $2 million per year for fiscal years 2003
through 2004 and approximately $1 million per year for fiscal years 2005
through 2007.
11
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12. Other Current Liabilities
Other Current Liabilities are summarized as follows (in millions):
June 30, September 30,
2003 2002
------------- ---------------
Accrued product warranties.................................. $ 80 $ 85
Accrued taxes other than income taxes....................... 43 37
Asbestos-related reserves................................... 20 20
Accrued interest expense.................................... 27 12
Accrued restructuring ...................................... 8 9
Environmental reserves...................................... 3 8
Other....................................................... 100 86
---------- ----------
Other Current Liabilities.............................. $ 281 $ 257
========== ==========
The company's Commercial Vehicle Systems (CVS) and LVA segments record
product warranty costs at the time of shipment of products to customers.
Warranty reserves are based on several factors including past claims
experience, sales history, product manufacturing and engineering changes,
industry developments and various other considerations. In addition,
liabilities for product recall campaigns are recorded at the time the
company's obligation is known and can be reasonably estimated. As of June
30, 2003 and September 30, 2002, accrued product warranties included a
liability related to a recall campaign associated with TRW model 20-EDL tie
rod ends (see Note 17).
The company's LVS segment records product warranty liabilities based on its
individual customer agreements. Product warranties are recorded for known
warranty issues when amounts related to such issues are probable and
reasonably estimable. In addition, the company records product warranty
liabilities for amounts expected to be paid under warranty-sharing
agreements with its customers.
A summary of the changes in accrued product warranties is as follows (in
millions):
Nine Months Ended
June 30,
----------------------------------
2003 2002
------------ ------------
Balance at September 30............................................. $ 85 $ 91
Accruals for product warranties..................................... 24 21
Increase in product warranties due to acquisition................... 8 -
Payments made....................................................... (42) (43)
Change in estimates................................................. 5 4
--------- ----------
Balance at June 30.................................................. $ 80 $ 73
========= ==========
12
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. Other Liabilities
Other Liabilities are summarized as follows (in millions):
June 30, September 30,
2003 2002
------------- --------------
Asbestos-related reserves......................................... $ 62 $ 46
Environmental reserves............................................ 26 26
Other............................................................. 53 51
---------- ----------
Other Liabilities............................................ $ 141 $ 123
========== ==========
14. Long-Term Debt
Long-Term Debt, net of discount where applicable, is summarized as follows
(in millions):
June 30, September 30,
2003 2002
------------ ---------------
6 5/8 percent notes due 2007........................................ $ 199 $ 199
6 3/4 percent notes due 2008........................................ 100 100
7 1/8 percent notes due 2009........................................ 150 150
6.8 percent notes due 2009.......................................... 499 499
8 3/4 percent notes due 2012........................................ 400 400
Bank revolving credit facilities.................................... 71 27
Lines of credit and other........................................... 50 27
Fair value adjustment of notes...................................... 66 48
--------- ----------
Subtotal......................................................... 1,535 1,450
Less: current maturities........................................... (12) (15)
--------- ----------
Long-Term Debt............................................. $ 1,523 $ 1,435
========= ==========
Credit Facilities and Lines of Credit
The company has two unsecured credit facilities, which mature on June 27,
2005: a three-year, $400-million revolving credit facility and a five-year,
$750-million revolving credit facility. Borrowings are subject to interest
based on quoted LIBOR rates plus a margin, and a facility fee, both of
which are based upon the company's credit rating. At June 30, 2003, the
margin over the LIBOR rate was 115 basis points, and the facility fee was
22.5 basis points.
13
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Interest Rate Swap Agreements
The company entered into two interest rate swap agreements in March 2002.
These swap agreements, in effect, converted $300 million notional amount of
the company's 8 3/4 percent notes and $100 million notional amount of the
6.8 percent notes to variable interest rates. The fair value of the swaps
was $66 million and $48 million as of June 30, 2003 and September 30, 2002,
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 3/4 percent and 6.8 percent on notional amounts of $300
million and $100 million, respectively, and pays variable rates based on
three-month LIBOR plus a weighted-average spread of 2.51 percent. The
payments under the agreements coincide with the interest payment dates on
the hedged debt instruments, and the difference between the amounts paid
and received is included in interest expense, net and other.
Leases
The company has entered into agreements to lease certain manufacturing and
administrative assets. Under two of these agreements, the assets are held
by special purpose entities, which were established and are owned by
independent third parties who provide financing through debt and equity
participation. At June 30, 2003, these leases are accounted for as
operating leases and the assets and the related obligations are excluded
from the consolidated balance sheet. At June 30, 2003 and September 30,
2002, the original cost of the assets under such arrangements was $113
million and $120 million, respectively. The company has determined that one
of the special purpose entities is a variable interest entity under FIN 46
(see Note 3). The assets and liabilities of this variable interest entity
will be included in the consolidated balance sheet of the company in the
fourth quarter of fiscal 2003.
Certain of these leases contain residual value guarantees that obligate the
company, not the third party owners, to absorb a portion of the losses. At
June 30, 2003, the company's residual value guarantees associated with
these leases, which represents the maximum exposure to loss, were $48
million.
Covenants
The credit facilities require the company to maintain a total net debt to
earnings before interest, taxes, depreciation and amortization (EBITDA)
ratio of 3.25x and a minimum fixed charge coverage ratio (EBITDA less
capital expenditures to interest expense) of 1.50x. In addition, an
operating lease requires the company to maintain financial ratios that are
similar to those required under the company's credit facilities. At June
30, 2003, the company was in compliance with all covenants.
14
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
15. Financial Instruments
The company's financial instruments include cash and cash equivalents,
short-term debt, long-term debt, preferred capital securities, interest
rate swaps, and foreign exchange contracts. The company uses derivatives
for hedging and non-trading purposes in order to manage its interest rate
and foreign exchange rate exposures. The company's interest rate swap
agreements are discussed in Note 14.
Foreign Exchange Contracts
The company uses foreign exchange contracts to offset the effect of
exchange rate fluctuations on foreign currency denominated payables and
receivables. These contracts help minimize the risk of loss from changes in
exchange rates and are generally of short duration (less than three
months). The company has elected not to designate the foreign exchange
contracts as hedges; therefore, changes in the fair value of the foreign
exchange contracts are recognized in operating income. The net income
impact of recording these contracts at fair value in the three and nine
months ended June 30, 2003 and 2002 did not have a significant effect on
the company's results of operations. As of June 30, 2003 and September 30,
2002, the fair value of foreign exchange contracts was not material. It is
the policy of the company not to enter into derivative instruments for
speculative purposes.
Fair Value
Fair values of financial instruments are summarized as follows (in
millions):
June 30, September 30,
2003 2002
-------------------- ----------------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Cash and cash equivalents.......................... $ 103 $ 103 $ 56 $ 56
Short-term debt.................................... 12 12 15 15
Long-term debt..................................... 1,523 1,564 1,435 1,433
Preferred capital securities....................... 39 41 39 40
Interest rate swaps - asset........................ 66 66 48 48
Cash and cash equivalents - All highly liquid investments purchased with
maturity of three months or less are considered to be cash equivalents. The
carrying value approximates fair value because of the short maturity of
these instruments.
Short-term debt - The carrying value of short-term debt approximates fair
value because of the short maturity of these borrowings.
15
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-term debt and preferred capital securities - Fair values are based on
the company's current incremental borrowing rate for similar types of
borrowing arrangements.
Interest rate swaps - Fair values are estimated by obtaining quotes from
external sources.
16. Accrued Retirement Benefits
Accrued Retirement Benefits consisted of the following (in millions):
June 30, September 30,
2003 2002
---------- -------------
Accrued retirement medical liability........................ $ 298 $ 309
Accrued pension liability................................... 196 231
Other....................................................... 39 32
---------- ----------
Subtotal................................................ 533 572
Less: current liability..................................... (60) (60)
---------- ----------
Accrued Retirement Benefits.......................... $ 473 $ 512
========== ==========
17. Contingencies
Environmental
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes and other
activities affecting the environment have, and will continue to have, an
impact on the manufacturing operations of the company. The process of
estimating environmental liabilities is complex and dependent on physical
and scientific data at the site, uncertainties as to remedies and
technologies to be used and the outcome of discussions with regulatory
agencies. The company records liabilities for environmental issues in the
accounting period in which its responsibility is established and the cost
can be reasonably estimated. At environmental sites in which more than one
potentially responsible party has been identified, the company records a
liability for its allocable share of costs related to its involvement with
the site, as well as an allocable share of costs related to insolvent
parties or unidentified shares. At environmental sites in which
ArvinMeritor is the only potentially responsible party, the company records
a liability for the total estimated costs of remediation before
consideration of recovery from insurers or other third parties.
16
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
June 30, 2003, to be approximately $34 million, of which $12 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 June 30, 2003, to be approximately $49 million, of which $17
million is recorded as a liability. The following are the components of the
Superfund and Non-Superfund environmental reserves (in millions):
June 30, September 30,
2003 2002
--------- -------------
Superfund sites................................................ $ 12 $ 13
Non-Superfund sites............................................ 17 21
--------- --------
Environmental reserves.................................... $ 29 $ 34
========= ========
A portion of the environmental reserves is included in current liabilities
with the majority of the amount recorded in noncurrent liabilities (see
Notes 12 and 13).
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 predict actual costs accurately. However, based on
management's assessment, the company believes that its expenditures for
environmental capital investment and remediation necessary to comply with
present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a
material adverse effect on the company's business, financial condition or
results of operations. In addition, in future periods, new laws and
regulations, advances in technology and additional information about the
ultimate clean up remedy could significantly change the company's
estimates. Management cannot assess the possible effect of compliance with
future requirements.
Asbestos
Maremont Corporation (Maremont, a subsidiary of the company) and many other
companies are defendants in suits brought by individuals claiming personal
injuries as a result of exposure to asbestos-containing products. Maremont
manufactured friction products containing asbestos from 1953 through 1977,
when it sold its friction product business. Arvin acquired Maremont in
1986.
17
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Maremont's estimate of asbestos-related reserves and corresponding
asbestos-related recoveries are summarized as follows (in millions):
June 30, September 30,
2003 2002
---------- -------------
Unbilled committed settlements.............................. $ 9 $ 9
Pending claims.............................................. 67 50
Shortfall and other ........................................ 6 7
---------- ----------
Asbestos-related reserves.............................. $ 82 $ 66
========== ==========
Asbestos-related recoveries................................. $ 76 $ 59
========== ==========
A portion of the asbestos-related recoveries and reserves are included in
current assets and liabilities, with the majority of the amounts recorded
in noncurrent assets and liabilities (see Notes 10 through 13).
The unbilled committed settlements reserve relates to committed settlements
that Maremont agreed to pay when Maremont participated in the Center for
Claims Resolution (CCR). Maremont shared in the payments of defense and
indemnity costs of asbestos-related claims with other CCR members. The CCR
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 no significant billings to
insurance companies related to committed settlements in the nine months
ended June 30, 2003.
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. Maremont had
approximately 61,200 and 37,500 pending asbestos-related claims at June 30,
2003 and September 30, 2002, respectively. Although Maremont has been named
in these cases, in the cases where actual injury has been alleged very few
claimants have established that a Maremont product caused their injuries.
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. At September 30,
2001, Maremont did not have sufficient history apart from the CCR to
estimate its asbestos-related reserves and used the experience factors
developed by the CCR. As of June 30, 2003 and September 30, 2002, Maremont
developed experience factors for indemnity and litigation costs using data
on actual experience in resolving claims since February 2001 and its
assessment of the nature of the claims. Billings to insurance companies for
indemnity and defense costs of resolved cases were $10 million in the nine
months ended June 30, 2003.
18
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 $1 million in the nine months ended June 30, 2003.
Maremont has insurance that reimburses a substantial portion of the costs
incurred defending against asbestos-related claims. The coverage also
reimburses Maremont for any indemnity paid on those claims. The coverage is
provided by several insurance carriers based on the insurance agreements in
place. Based on its assessment of the history and nature of filed claims to
date, and of Maremont's insurance carriers, management believes that
existing insurance coverage is adequate to cover substantially all costs
relating to pending and future asbestos-related claims.
The amounts recorded for the asbestos-related reserves and recoveries from
insurance companies are based upon assumptions and estimates derived from
currently known facts. All such estimates of liabilities for
asbestos-related claims are subject to considerable uncertainty because
such liabilities are influenced by variables that are difficult to predict.
If the assumptions with respect to the nature of pending claims, the cost
to resolve claims and the amount of available insurance prove to be
incorrect, the actual amount of Maremont's liability for asbestos-related
claims, and the effect on the company, could differ materially from current
estimates.
Maremont has not accrued reserves for unknown claims that may be asserted
against it in the future. Maremont does not have sufficient information to
make a reasonable estimate of its potential liability for asbestos-related
claims that may be asserted against it in the future.
Product Recall Campaign
The company has recalled certain of its commercial vehicle axles equipped
with TRW model 20-EDL tie rod ends because of potential safety-related
defects in those ends. TRW, Inc. (TRW) manufactured the affected tie rod
ends from June 1999 through June 2000 and supplied them to the company for
incorporation into its axle products.
TRW commenced recall campaigns in August 2000 and June 2001, covering 24
weeks of production, due to a purported manufacturing anomaly identified by
TRW. However, after an analysis of field returns and customer reports of
excessive wear, ArvinMeritor concluded that the defect was based on the
design of a bearing used in the ball socket, which is part of the tie rod
end, and not on the purported anomaly in the manufacturing process. The
company reported its finding to the National Highway Transportation Safety
Administration in April 2002 and expanded the recall campaign to cover all
of its axle products that had incorporated TRW model 20-EDL tie rod ends.
19
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ArvinMeritor estimates the cost of its expanded recall of TRW model 20-EDL
tie rod ends to be approximately $17 million. The company believes that it
is entitled to reimbursement by TRW for its costs associated with the
campaign. 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. As of June 30, 2003 and September 30, 2002, the company
had recorded a receivable from TRW for $17 million. The company has also
recorded accrued product warranty reserves of $8 million and $15 million,
net of claims paid to date, as of June 30, 2003 and September 30, 2002,
respectively. See Note 12 for additional information related to the
company's accrued 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,
employment-related matters, and the periods of indemnification vary in
duration. The overall maximum amount of the obligation 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 indemnities.
UBS Securities LLC is acting as the company's financial advisor and the
dealer manager in connection with the tender offer for the outstanding
shares of Dana Corporation (see Note 20). The company has agreed to
indemnify UBS Securities LLC and certain related persons against various
liabilities and expenses in connection with its engagement, including
various liabilities and expenses under the federal securities laws.
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.
20
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
18. Comprehensive Income
Comprehensive income is summarized as follows (in millions):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2003 2002 2003 2002
------- ------- -------- -------
Net income ............................. $ 47 $ 62 $103 $ 66
Foreign currency translation ........... 110 75 204 71
---- ---- ---- ----
Comprehensive income ................... $157 $137 $307 $137
==== ==== ==== ====
19. Business Segment Information
The company has three reportable operating segments: Light Vehicle Systems
(LVS), Commercial Vehicle Systems (CVS), and Light Vehicle Aftermarket
(LVA). LVS is a major supplier of air and emission systems, aperture
systems (roof and door systems and motion control products), and
undercarriage systems (suspension and ride control systems and wheel
products) for passenger cars, light trucks and sport utility vehicles to
original equipment manufacturers. CVS supplies drivetrain systems and
components, including axles and drivelines, braking systems, suspension
systems and exhaust, ride control and filtration products, for medium- and
heavy-duty trucks, trailers and off-highway equipment and specialty
vehicles. LVA supplies exhaust, ride control and filter products to the
light vehicle aftermarket. Business units that are not focused on
automotive products are classified as "Other." The company's coil coating
operation is included in this classification.
21
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Segment information is summarized as follows (in millions):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -------------------------
2003 2002 2003 2002
------- ------- ------- -------
Sales:
Light Vehicle Systems ......................... $ 1,195 $ 984 $ 3,262 $ 2,734
Commercial Vehicle Systems .................... 645 622 1,806 1,637
Light Vehicle Aftermarket ..................... 225 234 626 648
Other ......................................... 44 43 117 117
------- ------- ------- -------
Sales ....................................... $ 2,109 $ 1,883 $ 5,811 $ 5,136
======= ======= ======= =======
Operating Income:
Light Vehicle Systems ......................... $ 46 $ 59 $ 117 $ 148
Commercial Vehicle Systems .................... 38 35 91 56
Light Vehicle Aftermarket ..................... 10 26 22 47
Other ......................................... 3 2 3 1
------- ------- ------- -------
Operating income ............................ 97 122 233 252
Equity in earnings (losses) of affiliates ........ 4 - 6 (1)
Interest expense, net and other .................. (26) (26) (78) (79)
------- ------- ------- -------
Income before income taxes ....................... 75 96 161 172
Provision for income taxes ....................... (24) (31) (52) (55)
Minority interests ............................... (4) (3) (6) (9)
------- ------- ------- -------
Income before cumulative effect of
accounting change ............................ $ 47 $ 62 $ 103 $ 108
======= ======= ======= =======
The carrying value of goodwill for the company's segments is summarized as
follows (in millions):
June 30, September 30,
2003 2002
---------- -------------
Light Vehicle Systems......................................... $ 315 $ 225
Commercial Vehicle Systems.................................... 421 408
Light Vehicle Aftermarket..................................... 179 175
---------- ----------
Goodwill ............................................... $ 915 $ 808
========== ==========
22
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of the changes in the carrying value of goodwill is as follows
(in millions):
Nine Months Ended
June 30,
-------------------
2003 2002
----- -----
Balance at September 30 ............................. $ 808 $ 835
Goodwill resulting from Zeuna Staerker ............... 74 -
Impairment loss ..................................... - (42)
Foreign currency translation ........................ 33 13
----- -----
Balance at June 30 .................................. $ 915 $ 806
===== =====
20. Subsequent Events
In the fourth quarter of fiscal 2003, the company signed a definitive
agreement to sell its LVS exhaust tube manufacturing operation to AK Tube
LLC, a subsidiary of AK Steel Corporation. The exhaust tube manufacturing
facility will continue to supply stainless steel exhaust tubing to the
company's U.S. and Canadian LVS Air and Emissions Technologies plants under
a supply agreement. Although the sale is subject to regulatory approval,
the company expects to close the transaction in the fourth quarter of
fiscal 2003.
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.
The tender offer is scheduled to expire on August 28, 2003, unless
extended. The proposed transaction has a total equity value of
approximately $2.2 billion assuming 148.6 million shares of Dana
outstanding. In addition, based on Dana's public disclosures, Dana had
approximately $2.4 billion of debt outstanding at June 30, 2003, accounting
for Dana Credit Corporation on an equity basis. On July 22, 2003, Dana's
Board of Directors recommended that its shareowners reject the company's
cash tender offer to acquire all of Dana's outstanding common stock for
$15.00 per share.
23
ARVINMERITOR, INC.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
------- ------- ------- -------
(in millions, except per share amounts)
Sales:
Light Vehicle Systems ....................................... $ 1,195 $ 984 $ 3,262 $ 2,734
Commercial Vehicle Systems .................................. 645 622 1,806 1,637
Light Vehicle Aftermarket ................................... 225 234 626 648
Other ....................................................... 44 43 117 117
------- ------- ------- -------
SALES ....................................................... $ 2,109 $ 1,883 $ 5,811 $ 5,136
======= ======= ======= =======
Operating Income:
Light Vehicle Systems ....................................... $ 46 $ 59 $ 117 $ 148
Commercial Vehicle Systems .................................. 38 35 91 56
Light Vehicle Aftermarket ................................... 10 26 22 47
Other ....................................................... 3 2 3 1
------- ------- ------- -------
OPERATING INCOME ............................................... 97 122 233 252
Equity in earnings (losses) of affiliates ...................... 4 - 6 (1)
Interest expense, net and other ................................ (26) (26) (78) (79)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES ..................................... 75 96 161 172
Provision for income taxes ..................................... (24) (31) (52) (55)
Minority interests ............................................. (4) (3) (6) (9)
------- ------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE ........................................ 47 62 103 108
Cumulative effect of accounting change ...................... - - - (42)
------- ------- ------- -------
NET INCOME ..................................................... $ 47 $ 62 $ 103 $ 66
======= ======= ======= =======
DILUTED EARNINGS PER SHARE:
Before cumulative effect of accounting change ............... $ 0.69 $ 0.91 $ 1.52 $ 1.61
Cumulative effect of accounting change ...................... - - - (0.62)
------- ------- ------- -------
Diluted earnings per share .................................. $ 0.69 $ 0.91 $ 1.52 $ 0.99
======= ======= ======= =======
DILUTED AVERAGE COMMON SHARES OUTSTANDING....................... 67.8 68.0 67.6 67.0
======= ======= ======= =======
24
ARVINMERITOR, INC.
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
Total Company
Sales for the third quarter of fiscal 2003 were $2,109 million, an increase of
$226 million, or 12 percent, as compared to last year's third quarter. Foreign
currency translation, driven by the stronger euro, favorably impacted sales by
approximately $125 million and the company's acquisition of the remaining
51-percent interest in Zeuna Staerker added sales of $176 million in the third
fiscal quarter. Sales would have been down with out these items, as compared to
the third quarter of fiscal 2002. The company's results for the third fiscal
quarter were negatively impacted by lower light vehicle production volumes in
both North America and Western Europe and continued soft demand in the Light
Vehicle Aftermarket (LVA) business.
Operating income for the third quarter of fiscal 2003 was $97 million, compared
to $122 million for the same period last year. Included in operating income in
the third quarter of fiscal 2002 was a $6 million gain on sale of business.
Restructuring costs of $5 million associated with Light Vehicle Systems (LVS)
and LVA segments were recorded in the third quarter of fiscal 2003. Savings of
$4 million were realized from these restructuring actions. For additional
information concerning the company's restructuring programs, see Note 7 of the
Notes to Consolidated Financial Statements and the discussion under the heading
Outlook below. Operating margin declined to 4.6 percent, from 6.5 percent in the
third quarter of fiscal 2002.
Equity in earnings of affiliates increased $4 million, primarily due to improved
earnings from commercial vehicle affiliates. Interest expense, net and other of
$26 million was flat, as compared to the last year's third quarter. The
effective tax rate was 32 percent in the third quarter of fiscal 2003 and 2002.
Net income for the third quarter of fiscal 2003 was $47 million, or $0.69 per
diluted share, a decline of $15 million as compared to last year's third quarter
net income of $62 million, or $0.91 per diluted share. Net income for the third
quarter of fiscal 2002 included a one-time gain on the sale of business of $4
million, or $0.06 per diluted share.
Business Segments
LVS sales were $1,195 million, up $211 million, or 21 percent, from the third
quarter of fiscal 2002. The acquisition of Zeuna Staerker added sales of $176
million and foreign currency translation favorably impacted sales by
approximately $85 million, as compared to the prior year's third quarter.
Without these items, sales would have been down as compared to the third quarter
of fiscal 2002. Operating income was $46 million, a decrease of $13 million from
last year's third quarter. Lower volumes contributed to the operating income
decline, as did higher steel prices of $5 million in the third quarter of fiscal
2003. During the third quarter of fiscal 2003, LVS recorded restructuring costs
of $3 million associated with previously announced workforce reductions and
facility closures. Savings of $4 million were realized from these actions.
Operating margin was 3.8 percent, down from 6.0 percent in last year's third
quarter.
25
ARVINMERITOR, INC.
Commercial Vehicle Systems (CVS) sales were $645 million, up $23 million, or
four percent, from last year's third quarter. Foreign currency translation
increased sales by approximately $30 million, as compared to last year's third
quarter. During the second quarter of fiscal 2003, CVS sold net assets related
to its off-highway planetary axle products. Sales of off-highway planetary axle
products were approximately $30 million in the third quarter of fiscal 2002.
Without these items, sales would have been up modestly from last year's third
quarter. Operating income was $38 million, an increase of $3 million in the
third quarter of fiscal 2002, and operating margin improved to 5.9 percent from
5.6 percent in last year's third quarter.
LVA sales were $225 million, down $9 million, or four percent, from last year's
third quarter. Foreign currency translation favorably impacted sales by
approximately $10 million in the third quarter of fiscal 2003. Sales were down
from last year's third quarter as a result of weak demand across the filters and
exhaust product lines. Operating income was $10 million, a decline of $16
million from last year's third quarter. During the third quarter of fiscal 2003,
LVA recorded restructuring costs of $2 million associated with previously
announced restructuring actions. Lower sales volume in the third quarter of
fiscal 2003 also contributed to the operating income decline. Operating income
in the third quarter of fiscal 2002 included a $6 million gain on the sale of
the exhaust accessories manufacturing business. Operating margin fell to 4.4
percent, from 11.1 percent (8.5 percent, excluding the one-time gain of $6
million) in the prior year's third quarter.
Nine Months Ended June 30, 2003 Compared to Nine Months Ended June 30, 2002
Total Company
For the first nine months of fiscal 2003, sales were $5,811 million, up $675
million, or 13 percent, compared to the same period last year. The company's
acquisition of the remaining 51-percent interest in Zeuna Staerker added sales
of $374 million and foreign currency translation also favorably impacted sales
by approximately $275 million.
Operating income for the first nine months of fiscal 2003 was $233 million, a
decrease of $19 million compared to the same period last year, reflecting an
operating margin of 4.0 percent, down from 4.9 percent. Operating income in the
first nine months of fiscal 2003 and 2002 includes restructuring costs of $16
million and $15 million, respectively. Restructuring costs in the first nine
months of fiscal 2003 related to workforce reductions and facility closures in
the company's LVS and LVA segments. The restructuring charge of $15 million
recorded in the first nine months of fiscal 2002 related to employee and other
severance costs for approximately 450 salaried employees across all segments.
For additional information concerning the company's restructuring programs, see
Note 7 of the Notes to Consolidated Financial Statements.
Equity in earnings of affiliates for the first nine months of fiscal 2003 was up
$7 million, as compared to the same period last year, primarily due to higher
earnings from commercial vehicle affiliates. Interest expense, net and other of
$78 million was down $1 million from the same period last year. The effective
tax rate was 32 percent in the first nine months of fiscal 2003 and 2002.
26
ARVINMERITOR, INC.
Income before cumulative effect of accounting change for the first nine months
of fiscal 2003 was $103 million, or $1.52 per diluted share, down from $108
million, or $1.61 per diluted share, in the same period last year. Effective
October 1, 2001, the company adopted Statement of Financial Accounting Standards
No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." Upon adoption of
SFAS 142, the company recorded an impairment loss on goodwill as a cumulative
effect of accounting change of $42 million ($42 million after-tax, or $0.62 per
diluted share) in fiscal 2002. Net income in the first nine months of fiscal
2002 was $66 million, or $0.99 per diluted share.
Business Segments
LVS sales were $3,262 million, up $528 million, or 19 percent, from the first
nine months of fiscal 2002. Foreign currency translation favorably impacted
sales by approximately $185 million, as compared to the prior year, and the
acquisition of Zeuna Staerker added sales of $374 million. Without these items,
sales would have been down slightly, as compared to the first nine months of
fiscal 2002. Operating income was $117 million, a decrease of $31 million from
the first nine months of fiscal 2002. Higher steel and other costs associated
with steel shortages negatively impacted operating income by $15 million in the
first nine months of fiscal 2003. Restructuring costs were $14 million and $7
million, respectively, in the first nine months of fiscal 2003 and 2002. LVS
operating margin declined to 3.6 percent from 5.4 percent for the same period
last year.
CVS sales were $1,806 million, up $169 million, or 10 percent, from the last
year's first nine months. Foreign currency translation increased sales by
approximately $65 million, as compared to the first nine months of fiscal 2002.
This increase was partially offset by a decline in sales of approximately $55
million resulting from the sale of net assets related to the off-highway
planetary axle products in the second quarter of fiscal 2003. Higher North
American trailer and truck production drove the sales improvement. CVS operating
income increased to $91 million, compared to $56 million in the first nine
months of fiscal 2003, and operating margin was 5.0 percent, up from 3.4 percent
in the same period last year. The operating income improvement is largely
attributable to the higher sales volume. CVS recorded restructuring costs of $6
million in the first nine months of fiscal 2002.
LVA sales were $626 million for the first nine months of fiscal 2003, down $22
million from $648 million in the same period last year. Favorable foreign
currency translation increased sales by approximately $25 million and the
consolidation of a joint venture in Venezuela as of October 1, 2002 added sales
of $11 million. Sales were down in the first nine months of fiscal 2003
reflecting weak demand across all product lines. LVA operating income was $22
million, as compared to $47 million in last year's first nine months. Lower
sales volume and customer pricing pressures were major factors behind the
operating income decline. In addition, operating income in the third quarter of
fiscal 2002 included a $6 million gain on the sale of the exhaust accessories
manufacturing business. Restructuring costs were $2 million and $1 million,
respectively, in the first nine months of fiscal 2003 and 2002. Operating margin
fell to 3.5 percent from 7.3 percent (6.3 percent excluding the one-time gain of
$6 million) in the first nine months of fiscal 2002.
27
ARVINMERITOR, INC.
OUTLOOK
The company's fiscal 2003 outlook for light vehicle production is 15.9 million
vehicles in North America and 16.4 million vehicles in Western Europe. The
company expects North American Class 8 truck production of 166,000 units in
fiscal 2003. Western European heavy- and medium-duty truck production is
estimated at 361,000 units for fiscal 2003.
Effective October 1, 2002, the company voluntarily changed to the fair value
method of accounting for its stock-based compensation plans and began expensing
the fair value of stock options. See Note 4 of the Notes to Consolidated
Financial Statements for additional information. For fiscal 2003, the company
expects to record compensation expense for stock options of $7 million ($5
million after-tax, or $0.07 per diluted share).
During the second and third quarters of fiscal 2003, the company approved plans
for a workforce reduction of approximately 300 salaried employees, as well as
facility consolidations affecting an additional 275 hourly employees in its LVS
business. These measures follow the management realignment of the company's LVS
businesses and are also intended to address the competitive challenges in the
automotive supplier industry. Additionally, the company approved plans for a
workforce reduction of approximately 100 salaried employees and a facility
closure in its LVA business. The LVA actions are a result of weak demand in the
exhaust aftermarket business. The company has recorded restructuring costs of
$16 million, partially offset by savings of $6 million, related to these
actions. For the full year of fiscal 2003, the company expects to record total
restructuring costs of approximately $18 million and to generate savings of
approximately $12 million related to these actions. The annual pre-tax savings
from these initiatives are estimated at approximately $30 million.
The company continues to integrate Zeuna Staerker and further consolidate its
LVS businesses to address competitive challenges in the automotive supplier
industry. Planned restructuring actions include additional facility closures,
business consolidations and workforce downsizing. The company estimates total
pre-tax costs of $20 million to $25 million and annualized pre-tax savings of
approximately $20 million related to these actions. The restructuring costs are
expected to be incurred between the fourth quarter of fiscal 2003 and the end of
fiscal 2004; however, the fourth quarter impact of these actions has not been
finalized.
In the fourth quarter of fiscal 2003, the company signed a definitive agreement
to sell its LVS exhaust tube manufacturing operation to AK Tube LLC, a
subsidiary of AK Steel Corporation. The exhaust tube manufacturing facility will
continue to supply stainless steel exhaust tubing to the company's U.S. and
Canadian LVS Air and Emissions Technologies plants under a supply agreement.
Although the sale is subject to regulatory approval, the company expects to
close the transaction in the fourth quarter of fiscal 2003.
Other factors that could affect the company's results for the full fiscal year
include the impact of currency fluctuations on sales and operating income, which
is difficult to predict. In addition, the company has commenced a tender offer
to acquire all of the outstanding shares of Dana Corporation. For additional
information concerning the company's tender offer see the discussion under the
heading Tender Offer below.
28
ARVINMERITOR, INC.
FINANCIAL CONDITION
See Condensed Statement of Consolidated Cash Flows for additional detail on the
company's cash flows.
Operating Activities -- Cash provided by operating activities was $206 million
for the first nine months of fiscal 2003 compared to $251 million in the same
period in fiscal 2002. Contributing to the decrease in operating cash flow were
higher working capital levels and increased pension and retiree medical
contributions in the first nine months of fiscal 2003. Operating cash flow for
first nine months of fiscal 2003 also included receivable sales of $120 million.
The company increased its balance outstanding under its U.S. accounts receivable
facility and used the proceeds from these receivables sales to fund the
acquisition of the remaining 51-percent interest in Zeuna Staerker and for other
general corporate purposes.
Investing Activities -- Cash used for investing activities was $181 million for
the first nine months of fiscal 2003, an increase of $75 million as compared to
$106 million in the same period last year. Capital expenditures were $119
million in the first nine months of fiscal 2003 compared to $94 million in the
same period last year. The acquisition of Zeuna Staerker added capital
expenditures of $11 million and the company purchased previously leased assets
for $11 million in the first nine months of fiscal 2003. Investing activities in
the first nine months of fiscal 2003 includes proceeds of $42 million from the
disposition of assets compared to $11 million in the same period in the prior
year. In the first nine months of fiscal 2003, the company used cash of $69
million (net of cash acquired) for the acquisition of Zeuna Staerker. Cash used
for other investing activities was $35 million in the first nine months of
fiscal 2003 compared to $23 million in the same period in the prior year.
Financing Activities -- Cash provided by financing activities was $2 million in
the first nine months of fiscal 2003 compared to cash used for financing
activities of $118 million in the same period last year. During the first nine
months of fiscal 2003 the company increased net debt by $22 million and paid
dividends of $20 million. During the first nine months of fiscal 2002, the
company completed a public offering of debt securities and proceeds from the
notes of $394 million were used to pay outstanding indebtedness under the
company's revolving credit facilities. The company reduced revolving debt and
preferred capital securities by $512 million and paid dividends of $20 million
in the first nine months of fiscal 2002.
LIQUIDITY
The company is contractually obligated to make certain payments as disclosed in
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity in the company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2002, which is incorporated in this Form 10-Q by
reference.
Revolving Debt -- As discussed in Note 14 of the Notes to Consolidated Financial
Statements, the company has two unsecured credit facilities, which mature on
June 27, 2005: a three-year, $400-million revolving credit facility and a
five-year, $750-million revolving credit facility.
29
ARVINMERITOR, INC.
The credit facilities require the company to maintain a total net debt to
earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of
3.25x and a minimum fixed charge coverage ratio (EBITDA less capital
expenditures to interest expense) of 1.50x. Non-compliance with these covenants
would constitute an event of default, and could allow lenders to suspend
additional borrowings and could allow lenders to accelerate the repayment of
outstanding borrowings. At June 30, 2003, the company was in compliance with all
covenants.
Under a shelf registration filed with the SEC in April 2001, the company has
$150 million of debt securities remaining unissued.
Leases -- As discussed in Note 14 of the Notes to Consolidated Financial
Statements, one of the operating leases requires the company to maintain
financial ratios that are similar to those required by the company's revolving
credit agreements. Non-compliance with the covenants of this lease could result
in termination of the lease and could result in acceleration of the company's
obligations. At June 30, 2003, the company was in compliance with all covenants.
Accounts Receivable Securitization Facilities - As discussed in Note 8 of the
Notes to Consolidated Financial Statements, the company participates in accounts
receivable securitization facilities to enhance financial flexibility and lower
interest costs. Under the accounts receivable securitization facilities the
company can sell up to $250 million of U.S. trade receivables and up to euro 50
million of trade receivables. As of June 30, 2003, the company had utilized $225
million of the U.S. accounts receivable securitization facility and euro 33
million ($38 million) of the euro accounts receivable securitization facility.
The U.S. accounts receivable securitization program matures in September 2003
and the company expects to renew the facility at that time. The euro accounts
receivable securitization program matures in March 2005.
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. While no assurances can be given, management
believes that the company would be able to renegotiate the programs; however,
the company might incur higher costs or be required to make other financial
concessions. At June 30, 2003, the company was in compliance with all covenants.
Credit Ratings - On May 20, 2003, Standard & Poor's (S&P) downgraded the
company's long-term debt to BB+ from BBB-. Borrowings under the company's
revolving credit facilities are subject to interest based on quoted LIBOR rates
plus a margin, and a facility fee, both of which are based on the company's
credit rating. As a result of the downgrading by S&P, the applicable margin over
the LIBOR rate increased to 115 basis points from 105 basis points, and the
facility fee increased to 22.5 basis points from 20 basis points. Also as a
result of this downgrade, the method of determining receivables eligible for
sale under the U.S. accounts receivable securitization facility was modified and
the program fee increased to 50 basis points from 12.5 basis points. At June 30,
2003, the amount of receivables eligible for sale was reduced by $17 million as
a result of the downgrade.
30
ARVINMERITOR, INC.
On July 8, 2003, S&P and Moody's Investors Service placed the company on
negative credit watch, indicating that the company's current credit ratings of
BB+ and Baa3, respectively, are under review. These actions by the rating
agencies have no impact on the cost or availability of borrowings under the
revolving credit facilities or sales of receivables under the securitization
facility.
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. The
tender offer is scheduled to expire on August 28, 2003, unless extended. The
proposed transaction has a total equity value of approximately $2.2 billion
assuming 148.6 million shares of Dana outstanding. In addition, based on Dana's
public disclosures, Dana had approximately $2.4 billion of debt outstanding as
of June 30, 2003, accounting for Dana Credit Corporation on an equity basis. On
July 22, 2003, Dana's Board of Directors recommended that its shareowners reject
the company's cash tender offer to acquire all of Dana's outstanding common
stock for $15.00 per share.
The company currently expects that the amount required to finance the
transaction will include at least approximately $3.7 billion, including
approximately $2.2 billion to purchase all outstanding shares of Dana common
stock, approximately $0.2 billion to pay certain related fees, expenses and
payments, approximately $1.0 billion to finance the repurchase of indebtedness
that may be put to the company and approximately $0.3 billion to refinance
amounts outstanding under the company's accounts receivable securitizations. In
order to finance the purchase of all outstanding shares of Dana's common stock
pursuant to the tender offer, refinance certain debt of the company, Dana and
their subsidiaries, provide for debt that may need to be redeemed or repurchased
and provide for adequate working capital, the company expects to use a
combination of cash on hand and one or more new financings. The new financings
are expected to take the form of one or more new credit facilities and private
or public placements of debt securities (which may include term and revolving
bank debt, accounts receivable securitizations and/or high yield bonds) and may
also include other capital raising transactions. However, the company has not
yet entered into any agreements, commitments, credit facilities, letters of
credit or other financing arrangements with respect to these transactions. The
availability of new financings and the exact structure of the new financings
will likely be subject to customary conditions, including, among other things,
the company's financial condition, the preparation, execution and delivery of
mutually acceptable documentation, customary representations and warranties,
covenants, mandatory prepayment provisions and events of default. The company
expects to repay amounts outstanding under new financings out of cash from
operations and the proceeds from other short- and long-term debt financings,
although the company does not have any firm plans with respect to other
capital-raising transactions.
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).
31
ARVINMERITOR, INC.
CRITICAL ACCOUNTING POLICIES
See the information concerning the company's critical accounting policies
included under Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Critical Accounting Policies in the
company's Annual Report on Form 10-K for the fiscal year ended September 30,
2002, which is incorporated in this Form 10-Q by reference.
NEW ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements are discussed in Notes 3 through 5 of the Notes to
Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The company is exposed to foreign currency exchange rate risk related to its
transactions denominated in currencies other than the U.S. dollar and interest
rate risk associated with the company's debt.
The impact the euro and other currencies will have on the company's sales and
operating income is difficult to predict. The company uses foreign exchange
contracts to offset the effect of exchange rate fluctuations on foreign currency
denominated payables and receivables to help minimize the risk of loss from
changes in exchange rates (see Note 15 of the Notes to Consolidated Financial
Statements). The company also uses interest rate swaps to offset the effects on
interest rate fluctuations on the fair value of its debt portfolio (see Note 14
of the Notes to Consolidated Financial Statements). It is the policy of the
company not to enter into derivative instruments for speculative purposes, and
therefore the company holds no derivative instruments for trading purposes.
The company has performed a sensitivity analysis assuming a hypothetical
10-percent adverse movement in foreign currency exchange rates and interest
rates applied to the underlying exposures described above. As of June 30, 2003,
the analysis indicated that such market movements would not have a material
effect on the company's business, financial condition or results of operations.
Actual gains or losses in the future may differ significantly from that
analysis, however; based on changes in the timing and amount of interest rate
and foreign currency exchange rate movements and the company's actual exposures.
32
ARVINMERITOR, INC.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, the
company carried out an evaluation under the supervision and with the
participation of ArvinMeritor's management, including Larry D. Yost, Chairman of
the Board and Chief Executive Officer, and S. Carl Soderstrom, Jr., Senior Vice
President and Chief Financial Officer, of the effectiveness of the design and
operation of the company's disclosure controls and procedures as of June 30,
2003. Based upon that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that the company's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports the company files or submits under the Securities Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. In the fiscal
quarter ended June 30, 2003, there have been no changes in ArvinMeritor's
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect ArvinMeritor's internal control over
financial reporting.
In connection with the rule, the company is in the process of further reviewing
and documenting its disclosure controls and procedures, including the company's
internal control over financial reporting, and may from time to time make
changes aimed at enhancing their effectiveness and ensuring that the company's
systems evolve with the business.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On April 1, 2003, the company issued 1,308 shares of Common Stock to two
non-employee directors of the company, pursuant to the terms of the company's
Directors Stock Plan, in lieu of cash payment of the quarterly retainer fee and
committee meeting fees for board service. In each case, the issuance of these
securities was exempt from registration under the Securities Act of 1933, as a
transaction not involving a public offering under Section 4(2).
33
ARVINMERITOR, INC.
Item 5. Other Information.
(a) Tender Offer for Common Stock of Dana Corporation
On July 9, 2003, the company commenced a tender offer to acquire the outstanding
common stock of Dana Corporation for $15.00 per share in cash. Following
completion of the tender offer, the company expects to consummate a second-step
merger in which all remaining Dana shareholders would receive the same cash
price paid in the tender offer. The offer is conditioned on, among other things,
the tender and acceptance of more than two-thirds of Dana's shares; the removal
or invalidation of Dana's "poison pill," an anti-takeover defense mechanism;
receipt of necessary regulatory approvals; obtaining sufficient financing and
other customary conditions. On July 22, 2003, Dana announced that its Board of
Directors had recommended that its shareholders reject the tender offer. The
tender offer is scheduled to expire at 5:00 p.m. on August 28, 2003, unless
extended.
See the company's Schedule TO, as amended, filed with the Securities and
Exchange Commission (File No. 5-10058), for further information on the terms and
conditions of the tender offer. See also "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 20 of the Notes to
Consolidated Financial Statements in Part I of this Form 10-Q.
(b) Cautionary Statement
This Quarterly Report on Form 10-Q 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 other expressions. Actual results may differ
materially from those projected as a result of certain risks and uncertainties,
including but not limited to global economic and market conditions; the demand
for commercial, specialty and light vehicles for which the company supplies
products; risks inherent in operating abroad, including foreign currency
exchange rates; the availability and cost of raw materials; OEM program delays;
demand for and market acceptance of new and existing products; successful
development of new products; reliance on major OEM customers; labor relations of
the company, its customers and suppliers; the outcome of the company's tender
offer for Dana Corporation's common stock; successful integration of acquired or
merged businesses; achievement of the expected annual savings and synergies from
past and future business combinations; competitive product and pricing
pressures; the amount of the company's debt; the ability of the company to
access capital markets; the credit ratings of the company's debt; the outcome of
existing and any future legal proceedings, including any litigation with respect
to environmental or asbestos-related matters; as well as other risks and
uncertainties, including but not limited to those detailed herein and from time
to time in other filings of the company with the Securities and Exchange
Commission. See Also "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Quantitative and Qualitative
Disclosures about Market Risk" herein. 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.
34
ARVINMERITOR, INC.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3 -- By-laws of the company, as currently in effect.
12 -- Computation of ratio of earnings to fixed charges.
31-a -- Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended
(Exchange Act).
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.
(b) Reports on Form 8-K.
On April 23, 2003, the company filed a Current Report on Form 8-K reporting
under Item 12. "Results of Operations and Financial Condition" that on April 23,
2003, the company had issued a press release reporting its financial results for
the fiscal quarter ended March 31, 2003, and filing the press release as an
exhibit under Item 7. "Financial Statements and Exhibits."
On May 27, 2003, the company filed a Current Report on Form 8-K reporting under
Item 5. "Other Events and Regulation FD Disclosure" that on May 20, 2003,
Standard & Poor's Corporation lowered the rating on the company's long-term debt
to BB+ from BBB- and withdrew the rating on the company's short-term debt.
35
ARVINMERITOR, INC.
SIGNATURES
Pursuant to the requirements 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.
Date: August 13, 2003 By: /s/ V. G. Baker, II
-------------------
V. G. Baker, II
Senior Vice President
and General Counsel
(For the registrant)
Date: August 13, 2003 By: /s/ S. C. Soderstrom, Jr.
-------------------------
S.C. Soderstrom, Jr.
Senior Vice President and Chief Financial
Officer (Chief Accounting Officer)
36
ARVINMERITOR, INC.
Exhibit Index
Description of exhibits
Exhibits.
3 - By-laws of the company, as currently in effect.
12 - Computation of ratio of earnings to fixed charges.
31-a - Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended
(Exchange Act).
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.
37