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 March 28, 2004

Commission file number 1-15983

ArvinMeritor, Inc.

(248) 435-1000

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   [  ]

69,377,477 shares of Common Stock, $1.00 par value, of ArvinMeritor, Inc. were outstanding on April 30, 2004.

ARVINMERITOR, INC.

INDEX

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

ARVINMERITOR, INC.

STATEMENT OF CONSOLIDATED INCOME

See notes to consolidated financial statements.

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ARVINMERITOR, INC.

CONSOLIDATED BALANCE SHEET

See notes to consolidated financial statements.

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ARVINMERITOR, INC.

CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS

See notes to consolidated financial statements.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

ArvinMeritor, Inc. (the company or ArvinMeritor) is a leading global supplier of a broad range of integrated systems, modules and components serving light vehicle, commercial truck, trailer and specialty original equipment manufacturers and certain aftermarkets. The company also provides coil coating applications to the transportation, appliance, construction and furniture industries. 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, 2003. The results of operations for the three and six months ended March 31, 2004, 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 second quarter of fiscal 2004 and 2003 ended on March 28, 2004, and March 30, 2003, 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. As a result of ongoing legal entity restructuring to more closely align the company’s organizational structure with the underlying operations of the businesses and the favorable tax treatment of the gain on the sale of AP Amortiguadores, S.A. (see Note 5), the company expects the fiscal 2004 effective tax rate to be approximately 30 percent. The effective tax rate was 26 percent in the second quarter of fiscal 2004 compared to 34 percent in the prior quarter. The second quarter fiscal 2004 effective tax rate reflects an adjustment to arrive at approximately 30 percent for the first six months of fiscal 2004.

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.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

3. New Accounting Standards

On December 8, 2003, President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act (the Act) into law. This law introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the benefit established by the law. In January 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” The FSP permits companies that are a sponsor of a postretirement heath care plan that provides a prescription drug benefit to either include the effects of the Act in its financial statements or to defer accounting for the Act until the FASB issues guidance on how to account for the federal subsidy. The company has elected to defer accounting for the effects of the Act until specific guidance is issued by the FASB.

In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106.” This Statement revises employers’ disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by FASB Statements No. 87, No. 88 and No. 106. It requires additional disclosures to those in the original FASB Statement No. 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. Certain of these disclosures are required for financial statements with interim periods ending after December 15, 2003. The company has included the additional disclosure requirements in Note 16.

4. Dana Corporation Tender Offer

On July 9, 2003, the company commenced a tender offer to acquire all of the outstanding shares of Dana Corporation (Dana) for $15.00 per share in cash. On July 22, 2003, Dana’s Board of Directors recommended that its shareowners reject the company’s initial cash tender offer. On November 17, 2003, the company increased its tender offer to $18.00 per share in cash and indicated it would withdraw its offer on December 2, 2003 unless the Dana Board of Directors agreed to begin negotiating a definitive merger agreement. On November 24, 2003, following

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

5. Acquisitions and Divestitures

As part of the company’s continuing strategy to divest non-core business, in the second quarter of fiscal 2004 the company completed the sale of its 75-percent shareholdings in AP Amortiguadores, S.A. (APA), a joint venture that manufactured ride control products. Net proceeds from the sale were $48 million, resulting in a pre-tax gain of $20 million.

In the second quarter of fiscal 2003, the company purchased the remaining 51-percent interest in Zeuna Stärker GmbH & Co. KG (Zeuna Stärker). The March 31, 2004 consolidated balance sheet includes $111 million of goodwill associated with the purchase price allocation. Incremental sales from Zeuna Stärker were $203 million in the first six months of fiscal year 2004.

The company completed the sale of net assets related to the manufacturing and distribution of its off-highway planetary axle products in the second quarter of fiscal 2003 for $36 million, resulting in a pre-tax gain of $2 million. The company did not consider these products core to its commercial vehicle systems business.

6. Restructuring Costs

During the first six months of fiscal 2004, the company recorded $9 million of restructuring charges. The company recorded restructuring charges of $11 million for the first six months of fiscal 2003. At March 31, 2004 and September 30, 2003, there were $13 million of restructuring reserves relating to employee termination benefits in the consolidated balance sheet.

The company approved workforce reductions and facility consolidations in its Light Vehicle Systems (LVS) business segment. These measures follow the management realignment of the company’s LVS business and are also intended to address the competitive challenges in the automotive supplier industry. The company recorded restructuring costs related to these programs of $4 million and $11 million in the first six months of fiscal 2004 and 2003, respectively. These costs included severance and other employee termination costs related to a reduction of approximately 200 salaried and 350 hourly employees. The $11 million charge recorded in the first six months of fiscal 2003 also included $5 million related to asset impairments.

Due to the declining markets that continued in the company’s Light Vehicle Aftermarket (LVA) business segment, the company approved plans for a work force reduction. During the first six months of fiscal 2004 the company recorded restructuring costs of $2 million. These costs included severance and other termination costs related to a reduction of approximately 50 salaried employees.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the second quarter of fiscal 2004, the company recorded additional restructuring costs totaling $3 million associated with certain administrative and managerial employee termination costs.

In fiscal 2003, the company recorded restructuring costs of $5 million that were incurred as a result of the acquisition of the remaining 51-percent interest in Zeuna Stärker. In the first six months of fiscal 2004, the company recorded an additional $1 million of restructuring costs. The acquisition was accounted for utilizing the purchase method of accounting and these restructuring costs were reflected in the purchase price allocation.

The changes in the restructuring reserves for the six months ended March 31, 2004 are as follows (in millions):

7. Accounts Receivable Securitization and Factoring

The company participates in U.S. and European accounts receivable securitization facilities to enhance financial flexibility and lower interest costs. Under the U.S. accounts receivable securitization facility, the company sells substantially all of the trade receivables of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly owned, special purpose subsidiary. ARC has entered into an agreement to sell an undivided interest in up to $250 million of eligible receivables to certain bank conduits. Under the European facility, the company can sell up to 50 million euro of trade receivables to a bank. As of March 31, 2004 and September 30, 2003 the company had utilized $190 million and $210 million, respectively, of the U.S. accounts receivable securitization facility and 29 million euro ($35 million) and 24 million euro ($27 million), respectively, of the European accounts receivable securitization facility.

As of March 31, 2004 and September 30, 2003 the banks had a preferential interest in $248 million and $255 million, respectively, of the remainder of the receivables held at ARC to secure the obligation under the U.S. accounts receivable securitization facility. The bank had a preferential interest in 4 million euro ($5 million) as of March 31, 2004 and September 30, 2003, of the remainder of the receivables held to secure the obligation under the European accounts receivable securitization facility.

The company has no retained interest in the receivables sold, but does perform collection and

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $2 million was recorded for the six months ended March 31, 2004 and 2003. The gross amount of proceeds received from the sale of receivables under these programs was $1,406 million and $1,113 million for the six months ended March 31, 2004 and 2003, respectively. The U.S. accounts receivable securitization program and the European program mature in September 2004 and March 2005, respectively.

If the company’s credit ratings were reduced to certain levels, or if certain receivables performance-based covenants were not met, it would constitute a termination event, which, at the option of the banks, could result in termination of the facilities. At March 31, 2004, the company was in compliance with all covenants.

In addition to its securitization programs, several of the company’s European subsidiaries factor eligible accounts receivable with financial institutions. The receivables are factored without recourse to the company and are excluded from accounts receivable. The amounts of factored receivables were $16 million and $47 million at March 31, 2004 and September 30, 2003, respectively.

8. Stock Options

The company expenses the fair value of stock options granted under its various stock-based compensation plans. The company recorded compensation expense associated with the expensing of options of $3 million ($2 million after-tax, or $0.03 per diluted share) for the six months ended March 31, 2004 and 2003.

9. Inventories

Inventories are summarized as follows (in millions):

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Other Current Assets

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

11. Other Assets

Other Assets are summarized as follows (in millions):

The company anticipates amortization expense for patents, licenses and other intangible assets of approximately $3 million per year for fiscal 2004 and 2005, $2 million in fiscal 2006 and $1 million per year for fiscal 2007 and 2008.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Other Current Liabilities

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

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

In the second quarter of fiscal 2004, the company dissolved its transmission joint venture with ZF Freidrichshafen in favor of a marketing arrangement that allows the company to provide the Freedomline^TM transmission family to its customers. As a result, the company reclassified $20 million of product warranties that were previously included as other long-term liabilities in the consolidated balance sheet.

13. Other Liabilities

Other Liabilities are summarized as follows (in millions):

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Long-Term Debt

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

   Debt Securities

The company previously filed a shelf registration statement with the Securities and Exchange Commission registering $750 million aggregate principal amount of debt securities to be offered in one or more series on terms determined at the time of sale. At March 31, 2004 the company has $150 million of debt securities available for issuance under this shelf registration.

   Subordinated Debentures

In January 1997, Arvin Capital I (the trust), a wholly owned finance subsidiary trust of ArvinMeritor, issued 9.5 percent Company-Obligated Mandatorily Redeemable Preferred Capital Securities of a Subsidiary Trust (preferred capital securities), due February 1, 2027, and callable in February 2007 at a premium and in February 2017 at par. The proceeds from the preferred capital securities are invested entirely in 9.5 percent junior subordinated debentures of the company, which are the sole assets of the trust. The company fully and unconditionally guarantees the trust’s obligation to the holders of the preferred capital securities.

Prior to fiscal 2003, the company consolidated the trust and the preferred capital securities were included in the consolidated balance sheet. During the fourth quarter of fiscal 2003, the company adopted FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” Under the provisions of FIN 46, it was determined that the trust is a variable interest entity in which the company does not have a variable interest and therefore is not the primary beneficiary. Upon adoption of FIN 46, the company no longer consolidates the trust, which issued the $39 million of outstanding preferred capital securities, and has included in long-term debt $39 million of junior subordinated debentures due to the trust.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   Bank Revolving Credit Facilities

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 March 31, 2004, the margin over the LIBOR rate was 125 basis points, and the facility fee was 25 basis points.

   Interest Rate Swap Agreements

The company has in place two interest rate swap agreements that convert $300 million of the company’s 8 3/4 percent notes and $100 million of the 6.8 percent notes to variable interest rates. The fair value of the swaps was $51 million and $46 million as of March 31, 2004 and September 30, 2003, respectively, and is recorded in Other Assets, with an offsetting amount recorded in Long-Term Debt. The swaps have been designated as fair value hedges and the impact of the changes in their fair values is offset by an equal and opposite change in the carrying value of the related notes. Under the terms of the swap agreements, the company receives a fixed rate of interest of 8 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 the agreements, the assets are held by variable interest entities. The company has determined that it has a variable interest in one of the variable interest entities, due to a $30 million residual value guarantee that obligates the company to absorb a majority of the variable interest entity’s losses. The assets and liabilities of this variable interest entity are included in the company’s consolidated balance sheet at March 31, 2004 and September 30, 2003.

The company has various other leasing arrangements that are not with variable interest entities. The company has provided a $3 million residual value guarantee associated with one of these leasing arrangements.

   Covenants

The credit facilities require the company to maintain a total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio no greater than 3.25x and a minimum fixed charge coverage ratio (EBITDA less capital expenditures to interest expense) no less than 1.50x. In addition, an operating lease requires the company to maintain financial ratios that are similar to those required under the company’s credit facilities. At March 31, 2004, the company was in

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

compliance with all covenants.

15. Financial Instruments

The company’s financial instruments include cash and cash equivalents, marketable securities, short and long-term debt, 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, generally of short duration (less than three months), for the purpose of settling foreign currency denominated payables and receivables. 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 six months ended March 31, 2004 and 2003 did not have a significant effect on the company’s results of operations. As of March 31, 2004 and September 30, 2003, the fair value of foreign exchange contracts was not material. The company does not enter into derivative instruments for speculative purposes.

   Fair Value

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

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

Marketable Securities - Fair value is based on the current market price of the underlying investment.

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

Short-term debt – The carrying value of short-term debt approximates fair value because

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of the short maturity of these borrowings.

Long-term debt - Fair values are based on the company’s current incremental borrowing rate for similar types of borrowing arrangements.

16. Retirement Benefits

Retirement Benefits consisted of the following (in millions):

The components of net periodic pension and retiree medical expense for the six months ended March 31 are as follows:

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 and remediation plan are established and the cost can

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

be reasonably estimated. At environmental sites in which more than one potentially responsible party has been identified, the company records a liability for its allocable share of costs related to its involvement with the site, as well as an allocable share of costs related to insolvent parties or unidentified shares. At environmental sites in which ArvinMeritor is the only potentially responsible party, the company records a liability for the total estimated costs of remediation before consideration of recovery from insurers or other third parties.

The company has been designated as a potentially responsible party at 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 March 31, 2004, to be approximately $30 million, of which $9 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 March 31, 2004, to be approximately $48 million, of which $27 million is recorded as a liability. During the second quarter of fiscal 2004, the company recorded environmental remediation costs of $8 million resulting from an agreement with the Environmental Protection Agency to remediate a former Rockwell facility that was sold in 1985.

Following are the components of the Superfund and Non-Superfund environmental reserves (in millions):

A portion of the environmental reserves is included in Other Current Liabilities with the majority of the amount recorded in Other 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 accurately predict actual costs. However, based on management’s assessment, and subject to the difficulties inherent in estimating these future costs, the company believes that its expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on the company’s

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

business, financial condition or results of operations. In addition, in future periods, new laws and regulations, changes in the remediation plan, advances in technology and additional information about the ultimate clean up remedy could significantly change the company’s estimates. Management cannot assess the possible effect of compliance with future requirements.

   Asbestos

Maremont Corporation (“Maremont”, a subsidiary of the company) and many other companies are defendants in suits brought by individuals claiming personal injuries as a result of exposure to asbestos-containing products. Maremont manufactured friction products containing asbestos from 1953 through 1977, when it sold its friction product business. Arvin Industries, Inc., (“Arvin”) acquired Maremont in 1986.

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

A portion of the asbestos-related recoveries and reserves are included in Other Current Assets and Liabilities, with the majority of the amounts recorded in Other Assets and Liabilities (see Notes 10 through 13).

Unbilled Committed Settlements: The liability for unbilled committed settlements relates to committed settlements that Maremont agreed to pay when Maremont participated in the Center for Claims Resolution (CCR). Maremont shared in the payments of defense and indemnity costs of asbestos-related claims with other CCR members. The CCR handled the resolution and processing of asbestos claims on behalf of its members until February 1, 2001, when it was reorganized and discontinued negotiating shared settlements. There were $1 million in billings to insurance companies related to committed settlements in the six months ended March 31, 2004.

Pending Claims: Upon dissolution of the CCR in February 2001, Maremont began handling asbestos-related claims through its own defense counsel and is committed to examining the merits of each asbestos-related claim. For purposes of establishing liabilities for pending asbestos-related claims, Maremont estimates its defense and indemnity costs based on the history and nature of filed claims to date and Maremont’s experience. Maremont developed experience factors for indemnity and litigation costs using data on actual experience in resolving claims since the dissolution of the CCR in February 2001 and its assessment of the nature of the claims.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maremont had approximately 67,000 and 63,000 pending asbestos-related claims at March 31, 2004 and September 30, 2003, 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. The decline in the pending claims liability since September 30, 2003 was due to a decline in the cost per indemnity claim. Billings to insurance companies for indemnity and defense costs of resolved cases were $6 million in the six months ended March 31, 2004.

Shortfall: Several former members of the CCR have filed for bankruptcy protection, and these members have failed, or may fail, to pay certain financial obligations with respect to settlements that were reached while they were CCR members. Maremont is subject to claims for payment of a portion of these defaulted member shares (shortfall). In an effort to resolve the affected settlements, Maremont has entered into negotiations with plaintiffs’ attorneys, and an estimate of Maremont’s 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. There were no payments by the company related to shortfall and other in the six months ended March 31, 2004.

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

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

Maremont has not recorded liabilities 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.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

ArvinMeritor estimates the cost of its expanded recall of TRW model 20-EDL tie rod ends to be approximately $17 million. On May 6, 2002, the company filed suit against TRW in the U.S. District Court for the Eastern District of Michigan, claiming breach of contract and breach of warranty, and seeking compensatory and consequential damages in connection with the recall campaign. The company recorded a liability and offsetting receivable for the estimated cost of its expanded recall campaign. As of March 31, 2004 and September 30, 2003, the company has a receivable due from TRW for $17 million. Although the outcome of this matter cannot be predicted with certainty, the company believes that it is entitled to reimbursement by TRW for its costs associated with the campaign. In addition, at March 31, 2004 and September 30, 2003, the company has a $1 million and $2 million receivable, respectively, due from TRW for reimbursement of customer claims paid to date covered by the TRW recall campaign. The company has product warranty reserves for this matter of $4 million and $7 million, net of claims paid to date, as of March 31, 2004 and September 30, 2003. See Note 12 for additional information related to the company’s product warranties.

   Indemnifications

The company has provided indemnifications in conjunction with certain transactions, primarily divestitures. These indemnities address a variety of matters, which may include environmental, tax, asbestos, 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 claims or other information that would give rise to material payments under such indemnifications.

   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

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

18. Comprehensive Income

On an annual basis, disclosure of comprehensive income is incorporated into the Statement of Consolidated Shareowners’ Equity. This statement is not presented on a quarterly basis. Comprehensive income includes net income and components of other comprehensive income, such as foreign currency translation adjustments and unrealized gains and losses on equity securities. The difference between net income and comprehensive income for the periods presented principally represents foreign currency translation adjustments. Comprehensive income is summarized as follows (in millions):

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, motorcycles, all-terrain vehicles, light trucks and sport utility vehicles to original equipment manufacturers (OEMs). CVS supplies drivetrain systems and components, including axles and drivelines, braking and suspension systems, and exhaust and ride control products, for medium- and heavy-duty trucks, trailers and specialty vehicles to OEMs and the commercial vehicle aftermarket. LVA supplies exhaust, ride control and filter products and other automotive parts to the passenger car, light truck and sport utility 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.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment information is summarized as follows (in millions):

A summary of the changes in the carrying value of goodwill for the six months ended March 31, 2004, is as follows (in millions):

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ARVINMERITOR, INC.

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

OVERVIEW and OUTLOOK

The increase in net income and diluted earnings per share in the second quarter of fiscal 2004 compared to the same period last year was principally due to:

•		Stronger North American commercial vehicle truck and trailer volumes;
•		A pre-tax gain of $20 million on the sale of the company’s 75-percent shareholdings in AP Amortiguadores, S.A. (APA); and
•		The results of the company’s productivity and cost reduction initiatives, including the benefits of restructuring programs;

  offset partially by:

•		A charge of $8 million resulting from an agreement with the Environmental Protection Agency to remediate a former Rockwell facility that was sold in 1985;
•		Higher steel, pension and retiree medical costs and premium product launch costs of $20 million; and

•

Customer pricing pressures

The increase in sales in the second quarter of fiscal 2004 compared to the same period last year was principally due to:

•		Stronger North American commercial vehicle truck and trailer volumes; and
•		The favorable impact from currency translation

During the first six months of fiscal 2004, the company has experienced significant price increases and surcharges for steel, a raw material used in Commercial Vehicles Systems, Light Vehicle Aftermarket and select Light Vehicle Systems products. The company believes this is primarily driven by an increase in worldwide demand for steel, causing a global shortage of scrap and certain base materials. The company is working with its suppliers and customers to mitigate this impact.

In the second quarter of fiscal 2004, as part of the company’s continuing strategy to divest non-core businesses, the company completed the sale of its 75-percent shareholdings in APA, a joint venture that manufactured ride control products.

Also during the quarter the company dissolved a transmission joint venture with ZF Freidrichshafen in favor of a marketing arrangement that allows the company to provide the Freedomline^TM transmission family to its customers.

In May 2004, the company completed the sale of its Commercial Vehicle Systems Kenton, OH facility to a subsidiary of Sypris Solutions, Inc. The divestiture of this facility will enable the company to concentrate on its core processes for the design and assembly of complete systems.

Over the business cycle, the company experiences periodic fluctuations in demand for light, commercial and specialty vehicles and related aftermarkets, most notably commercial vehicle markets in North America. Looking forward, the company’s fiscal 2004 outlook for light vehicle production is 16.1 million vehicles in North America and 16.6 million vehicles in Western Europe. The company expects North American Class 8 truck production of 227,000 units in fiscal 2004. Western European heavy- and medium-duty truck production is estimated at 367,000 units for fiscal 2004.

Intense competition coupled with global excess capacity has created pressure from customers to reduce prices. This leads to margin erosion unless the company can offset these price decreases with

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cost reductions and productivity improvements. The company continues to address the competitive challenges in the automotive supplier industry by restructuring operations, improving productivity and reducing costs. Anticipated restructuring actions include facility closures, business consolidations and work force downsizing. The company recorded restructuring costs of $9 million in the first six months of fiscal 2004. For the entire year, the company estimates total pre-tax restructuring costs of $18 million and annualized pre-tax savings of approximately $20 million related to these and prior restructuring actions.

Other factors that could affect the company’s results for the full fiscal year include the uncertainty of steel prices and supply, and the company’s ability to recover these costs from its customers and the impact of currency fluctuations on sales and operating income.

RESULTS OF OPERATIONS

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Fiscal 2004 Second Quarter Compared to Fiscal 2003 Second Quarter

Total Company

Sales for the second quarter of fiscal 2004 were $2,254 million, an increase of $261 million, or 13 percent, as compared to last year’s second quarter. Foreign currency translation, driven primarily by the stronger euro, increased sales by approximately $140 million. On a constant currency basis, sales would have increased approximately 6 percent, primarily due to stronger North American commercial vehicle truck and trailer volumes in the Commercial Vehicle Systems (CVS) segment.

Operating income for the second quarter of fiscal 2004 was $81 million, compared to $63 million in the same period last year. Operating income for the second quarter of fiscal 2004 included a $20 million gain on the sale of APA. This gain was partially offset by $8 million of environmental remediation costs resulting from an agreement with the Environmental Protection Agency to remediate a former Rockwell facility that was sold in 1985. Operating margin improved to 3.6 percent, from 3.2 percent in the second quarter of fiscal 2003. Operating margins were favorably impacted by the gain on the sale of APA, stronger North American commercial vehicle truck and trailer volumes and productivity and cost reduction initiatives, but were partially offset by the environmental charge, customer pricing pressures, higher pension and retiree medical costs of $8 million, higher steel costs of $8 million, and higher premium product launch costs of $4 million. Additionally, the second quarter of fiscal 2004 included restructuring costs of $8 million for severance and employee termination costs. Restructuring costs of $11 million were recorded in last year’s second quarter. For additional information concerning the company’s restructuring programs, see Note 6 of the Notes to Consolidated Financial Statements and the discussion under the heading Overview and Outlook.

Equity in earnings of affiliates for the second quarter of fiscal 2004 was $5 million, up $4 million compared to the same period last year, primarily as a result of higher commercial vehicle affiliate earnings in Brazil, Mexico and India. Interest expense, net and other of $25 million was down slightly from $27 million in last year’s second quarter.

As a result of ongoing legal entity restructuring to more closely align the company’s organizational structure with the underlying operations of the businesses and the favorable tax treatment of the gain on the sale of APA, the effective tax rate was 26 percent in the second quarter of fiscal 2004 compared to 34 percent in the prior quarter and 32 percent in the second quarter of fiscal 2003. The second quarter fiscal 2004 effective tax rate reflects an adjustment to arrive at approximately 30 percent for both the first six months of fiscal 2004 and the full year. Excluding the tax benefit of the APA sale, the company’s full-year tax rate would approximate 32 percent.

Net income for the second quarter of fiscal 2004 was $41 million, or $0.59 per diluted share, an increase of $17 million compared to last year’s second quarter net income of $24 million, or $0.36 per diluted share. Included in net income in the second quarter of fiscal 2004 was the gain on the sale of APA and associated tax benefits of $0.23 per diluted share and the environmental remediation costs of $0.08 per diluted share.

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Business Segments

Light Vehicle Systems (LVS) sales were $1,239 million, up $75 million, or 6 percent, from the second quarter of fiscal 2003. The increase is primarily attributable to favorable foreign currency translation, due to the stronger euro. On a constant currency basis and excluding the effects of the disposition of APA, sales would have been nearly flat. Operating income was $46 million, an increase of $17 million from last year’s second quarter. Operating margin was 3.7 percent, up from 2.5 percent in last year’s second quarter. Operating margin for the second quarter of fiscal 2004 was positively impacted by the $20 million gain on the sale of APA, partially offset by the $8 million of environmental remediation costs. As a result of various cost reduction initiatives, LVS was able to reduce the impact of customer pricing pressure, higher premium launch costs of $4 million and higher steel and pension and retiree medical costs. The second quarter of fiscal 2004 included restructuring costs of $3 million for severance and employee termination costs. Restructuring costs of $11 million were recorded in last year’s second quarter.

Commercial Vehicle Systems (CVS) sales were $769 million, up $180 million, or 31 percent, from last year’s second quarter. On a constant currency basis, sales would have increased approximately 25 percent, primarily due to stronger North American truck and trailer volumes. Compared to the same quarter last year, heavy truck (more commonly known as the Class 8 trucks) volumes were up 51 percent, trailer volumes were up 19 percent and medium duty truck volumes were up 31 percent in North America. Operating income was $38 million, 31 percent higher than the same period last year and operating margin was 4.9 percent unchanged from the same period last year. During the second quarter of fiscal 2004, CVS dissolved its transmission joint venture with ZF Friedrichshafen. As a result, CVS recognized sales of $8 million that would have been recognized by the joint venture prior to the dissolution. Factors negatively impacting operating margins during the quarter included $14 million higher steel and pension and retiree medical costs, investments in commercial vehicle exhaust technology and the consolidation of the transmissions business. During the second quarter of fiscal 2003, CVS sold net assets related to its off-highway planetary axle products and recognized a pre-tax gain on the sale of $2 million.

Light Vehicle Aftermarket (LVA) sales were $199 million, down $5 million or 2 percent, from last year’s second quarter. On a constant currency basis, sales would have decreased approximately 7 percent. LVA incurred an operating loss of $3 million, compared to operating income of $6 million in last year’s second quarter. Difficult market conditions continued during the quarter, particularly in the European exhaust market. In addition, increased steel costs and pricing pressures negatively impacted the results for the quarter. Management is implementing actions to improve profitability, reduce costs and align itself with current market conditions. LVA recorded $2 million of restructuring costs in the second quarter of fiscal 2004.

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Six Months Ended March 31, 2004 Compared to Six Months Ended March 31, 2003

Total Company

For the first six months of fiscal 2004, sales were $4,434, up $732 million, or 20 percent, compared to the same period last year. The company’s acquisition of the remaining 51-percent interest in Zeuna Stärker in the second quarter of fiscal 2003 added sales of $203 million and foreign currency translation, driven primarily by the stronger euro, added approximately $275 million in sales. On a constant currency basis and excluding the impact of the incremental sales associated with Zeuna Stärker, sales would have increased by 7 percent, primarily due to stronger North American commercial vehicle truck and trailer volumes.

Operating income for the first six months of fiscal 2004 was $130 million, a decline of $6 million compared to the same period last year. Operating income in fiscal year 2004 includes the costs associated with the withdrawn tender offer for Dana Corporation of $16 million (before a non-operating gain of $7 million on the sale of Dana stock owned by the company) and the environmental remediation costs of $8 million, partially offset by the gain on the sale of APA of $20 million. Operating margin was 2.9 percent for the first six months of 2004, down from 3.7 percent in the same period last year. Operating margins were also impacted by customer pricing pressures, higher premium product launch costs of $10 million, higher pension and retiree medical costs of $15 million, higher steel costs of $11 million and additional investments in commercial vehicle exhaust technology. Operating income in the first six months of fiscal 2004 and 2003 included restructuring costs of $9 million and $11 million, respectively.

Equity in earnings of affiliates for the first six months of fiscal 2004 was $7 million, an increase of $5 million compared to the same period last year, primarily due to higher earnings from commercial vehicle affiliates. Interest expense, net and other of $51 million was down slightly from $52 million in the same period last year.

The effective tax rate was approximately 30 percent in the first six months of fiscal 2004 compared to 32 percent in the prior year. The ongoing legal entity restructuring and the favorable tax treatment of the gain on the sale of APA favorably impacted the effective tax rate.

Net income for the first six months of fiscal 2004 was $60 million, or $0.88 per diluted share, an increase of $4 million, compared to last year’s net income of $56 million, or $0.83 per diluted share.

Business Segments

LVS sales were $2,490 million, up $423 million, or 20 percent, from the first six months of fiscal 2003. The company’s acquisition of the remaining 51-percent interest in Zeuna Stärker in the second quarter of fiscal 2003 added sales of $203 million and foreign currency translation, driven by the stronger euro, increased sales by approximately $180 million. On a constant currency basis and excluding the impact of the incremental sales associated with Zeuna Stärker, sales would have increased by approximately 2 percent. Operating income increased to $77 million from $71 million in the same period last year. Operating margin decreased to 3.1 percent from 3.4 percent in the same period last year. Contributing to the decline in operating margins were customer pricing pressures, higher premium product launch costs of $10 million, higher steel and pension and retiree medical costs and $8 million of environmental remediation costs. Operating margins were positively affected by the $20 million gain on the sale

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of APA. Operating income in the first six months of fiscal 2004 and 2003 includes restructuring costs of $4 million and $11 million, respectively.

CVS sales were $1,454 million, up $293 million, or 25 percent, from last year’s first six months. Foreign currency translation, driven by the stronger euro, increased sales by approximately $70 million. On a constant currency basis, sales would have increased approximately 19 percent, as a result of stronger North American truck and trailer volumes. CVS operating income increased to $70 million from $53 million in the first six months of fiscal 2003, and operating margin increased to 4.8 percent from 4.6 percent. The operating margin improvement is largely attributable to the higher sales volume. Partially offsetting the benefit of higher sales volumes on operating margins were higher steel and pension and retiree medical costs, additional investments in commercial vehicle exhaust technology and the impact of the dissolution of a transmission joint venture with ZF Friedrichshafen. During the first six months of fiscal 2003, CVS sold net assets related to its off-highway planetary axle products and recognized a pre-tax gain on the sale of $2 million. Off-highway planetary axle products had approximately $25 million of sales in the first six months of fiscal 2003.

LVA sales were $397 million for the first six months of fiscal 2004, down $4 million or 1 percent, from $401 million in the same period last year. On a constant currency basis, sales would have decreased approximately 6 percent. During the first six months of fiscal 2004, difficult industry conditions existed, particularly in the European exhaust market, where capacity exceeded demand. LVA incurred an operating loss of $2 million in the first six months of fiscal 2004 compared to operating income of $12 million in the same period last year. LVA recorded $2 million of restructuring costs in the first six months of fiscal 2004. Lower sales volumes and customer pricing pressures were the major factors behind the operating income decline.

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 $34 million for the first six months of fiscal 2004 compared to $236 million for the same period in fiscal 2003. The decrease is largely attributable to the company’s accounts receivable securitization and factoring programs. The company reduced its balances under the accounts receivable securitization and factoring programs by $27 million, compared to an increase in these balances of $180 million in the first six months of fiscal 2003. Also contributing to the decrease in operating cash flow was higher uses of cash for working capital.

Investing Activities – Cash provided by investing activities was $18 million for the first six months of fiscal 2004 compared to cash used for investing activities of $118 million for the same period last year. Capital expenditures were $71 million in the first six months of fiscal 2004 compared to $69 million in the same period last year. As a percentage of sales, capital expenditures were 1.6 percent compared to 1.9 percent for the same period last year. Investing activities in the first six months of fiscal 2004 include proceeds of $71 million from the dispositions of property and businesses. The company used this cash to reduce debt, including amounts outstanding under the accounts receivable securitization and factoring programs and for other general corporate purposes. Cash from investing

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activities also includes $18 million of proceeds from the sale of Dana stock owned by the company. In the first six months of fiscal 2003, proceeds from the disposition of property and businesses were $42 million and the company used cash of $69 million to purchase the remaining 51 percent interest in Zeuna Stärker and $22 million for other acquisitions of businesses and investments.

Financing Activities – Cash used for financing activities was $41 million in the first six months of fiscal 2004 compared to $63 million in the same period last year. During the first six months of fiscal 2004 the company used cash generated from dispositions of property and businesses and cash from operations to reduce borrowings under its bank revolving credit facilities and other debt by $32 million. During the first six months of fiscal 2003 the company reduced bank revolving credit facilities and other debt by $50 million. The company paid dividends of $14 million compared to $13 million in the first six months of 2003. The company received $5 million in cash from the exercise of stock options in the first six months of fiscal 2004.

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, 2003, which is incorporated in this Form 10-Q by reference.

Bank Revolving Credit Facilities and Other Debt – The company has two unsecured credit facilities, which mature on June 27, 2005: a three-year, $400-million revolving credit facility and a five-year, $750-million revolving credit facility. The credit facilities require the company to maintain a total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio of no greater than 3.25x and a minimum fixed charge coverage ratio (EBITDA less capital expenditures to interest expense) of no less than 1.50x. Non-compliance with these covenants would constitute an event of default, and could allow lenders to suspend additional borrowings and accelerate repayment of outstanding borrowings. At March 31, 2004, the company was in compliance with all covenants.

The company has $150 million of debt securities available for issuance under a shelf registration previously filed with the SEC (see Note 14 of the Notes to Consolidated Financial Statements).

Leases – One operating lease requires the company to maintain financial ratios that are similar to those required by the company’s revolving credit agreements. At March 31, 2004, the company was in compliance with all covenants (see Note 14 of the Notes to Consolidated Financial Statements). The company has residual value guarantees of $33 million related to two of its leases.

Accounts Receivable Securitization and Factoring Facilities - As discussed in Note 7 of the Notes to Consolidated Financial Statements, the company participates in two accounts receivable securitization programs to improve financial flexibility and lower interest costs. ArvinMeritor Receivables Corporation (ARC), a wholly owned subsidiary of the company, has entered into an agreement to sell an undivided interest in up to $250 million of eligible trade receivables of certain U.S. subsidiaries to a group of banks. The amount of available funding under the U.S. securitization program varies based on the credit ratings of the company and its obligors, the company’s receivables performance and various other factors. As of March 31, 2004 and September 30, 2003, the company had utilized $190 million and $210 million, respectively of the U.S. accounts receivable securitization facility. In

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addition to the U.S. securitization program, Zeuna Stärker had entered into an agreement to sell an undivided interest in up to 50 million euro of eligible trade receivables to a bank. As a result of the acquisition of the remaining 51-percent interest in Zeuna Stärker, the company amended this agreement and continued selling receivables under this program. The amount of available funding under the European program varies based on similar factors noted for the U.S. program. As of March 31, 2004 and September 30, 2003, the company had utilized 29 million euro ($35 million) and 24 million euro ($27 million), respectively of the accounts receivable securitization facility. The U.S. accounts receivable securitization program matures in September 2004 and the company expects to renew the facility at that time. The European program matures in March 2005.

In addition to its securitization programs, several of the company’s European subsidiaries factor accounts receivable with financial institutions. Such receivables are factored without recourse to the company and are excluded from accounts receivable. The amounts of factored receivables were $16 million and $47 million at March 31, 2004 and September 30, 2003, respectively. There can be no assurance that this facility will be used or available to the company in the future.

If the company’s credit ratings were reduced to certain levels, or if certain receivables performance-based covenants were not met, it would constitute a termination event, which, at the option of the banks, could result in termination of the securitization facilities. At March 31, 2004, the company was in compliance with all covenants.

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

On February 13, 2004, Moody’s Investor Service lowered the company’s long-term debt rating to Ba1 from Baa3.

TENDER OFFER

On July 9, 2003, the company commenced a tender offer to acquire all of the outstanding shares of Dana Corporation (Dana) for $15.00 per share in cash. On July 22, 2003, Dana’s Board of Directors recommended that its shareowners reject the company’s initial cash tender offer. On November 17, 2003, the company increased its tender offer to $18.00 per share in cash and indicated it would withdraw its offer on December 2, 2003 unless the Dana Board of Directors agreed to begin negotiating a definitive merger agreement. On November 24, 2003, following Dana’s announcement that its Board of Directors recommended that its shareowners reject the company’s increased offer, the company announced that it had withdrawn its $18.00 per share all cash tender offer. As a result of the company’s decision to withdraw its tender offer, the company recorded a pre-tax net charge of $9 million ($6 million after-tax, or $0.09 per diluted share) in the first quarter of fiscal 2004. The pre-tax charge includes $16 million in direct incremental acquisition costs and a gain on the sale of Dana stock owned by the company of $7 million.

CRITICAL ACCOUNTING POLICIES

Information concerning the company’s critical accounting policies is 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, 2003, which is incorporated in this Form 10-Q by reference.

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NEW ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements are discussed in Note 3 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 for the purpose of settling foreign currency denominated payables and receivables. The company also uses interest rate swaps to offset the effects of interest rate fluctuations on the fair value of its debt portfolio (see Note 15 of the Notes to Consolidated Financial Statements). It is the policy of the company not to enter into derivative instruments for speculative purposes, and therefore the company holds no derivative instruments for trading purposes.

The company has performed a sensitivity analysis assuming a hypothetical 10-percent movement in foreign currency exchange rates and interest rates applied to the underlying exposures described above. As of March 31, 2004, 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.

Item 4. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, management, with the participation of Larry D. Yost, Chairman of the Board and Chief Executive Officer, and S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial Officer, evaluated the effectiveness of the design and operation of the company’s disclosure controls and procedures as of March 31, 2004. 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 at a reasonable level of assurance 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.

There have been no changes in the company’s internal controls over financial reporting in the fiscal quarter ended March 31, 2004 that have materially affected or are reasonably likely to materially affect the company’s internal controls over financial reporting.

In connection with the rule, the company continues to review and document 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.

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PART II. OTHER INFORMATION

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

On January 2, 2004, the company issued 1,700 shares of Common Stock to three 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 for board service. 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).

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of shareowners of the company was held February 18, 2004. The following matters were voted on and received the specified number of votes in favor, votes withheld or against, abstentions and broker non-votes:

Election of directors: The following individuals were elected to the Board of Directors, with terms expiring at the annual meeting of shareowners in the years noted. The number of shares noted below voted in favor of their election or were withheld. Abstentions and broker non-votes were not applicable.

Appointment of auditors: The shareowners approved the selection of Deloitte & Touche LLP as the company’s auditors. A total of 61,344,011 votes were cast in favor, 1,820,840 votes were cast against, and there were 276,132 abstentions. Broker non-votes were not applicable.

Approval of 2004 Directors Stock Plan: The shareowners approved the adoption by the Board of Directors of the 2004 Directors Stock Plan. A total of 31,513,807 votes were cast in favor, 21,828,236 votes were cast against, and there were 622,914 abstentions and 9,476,026 broker non-votes.

Item 5. Other Information.

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

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

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

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(b) Reports on Form 8-K.

On January 28, 2004, we filed a Current Report on Form 8-K (i) reporting under Item 12, “Results of Operations and Financial Condition,” that on January 28, 2004, ArvinMeritor had issued a press release reporting its financial results for the fiscal quarter ended December 31, 2003 and had held a web-cast conference call to discuss its financial results for the quarter, and (ii) furnishing the press release and the presentation made on the conference call as exhibits under Item 7. “Financial Statements and Exhibits.”

On February 17, 2004, we filed a Current Report on Form 8-K reporting under Item 5, “Other Events and Regulation FD Disclosure” that on February 13, 2004, Moody’s Investors Service had lowered the rating of the company’s senior unsecured long-term debt to Ba1 from Baa3.

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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: May 7, 2004		By:	/s/ V. G. Baker, II
		V. G. Baker, II
		Senior Vice President and General Counsel (For the registrant)

Date: May 7, 2004	By:	/s/ R. Sachdev
	R. Sachdev
	Vice President and Controller (Chief Accounting Officer)

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