arvinmeritor fy2007

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FY 2007 First Quarter Earnings Conference CallJanuary 30, 2007

FY 2007 First Quarter Earnings Conference Call

Chip McClure, Chairman, CEO & President Jim Donlon, Senior Vice President & CFO

January 30, 2007

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Forward-Looking StatementsThis presentation contains statements relating to future results of the company (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,”“anticipate,” “estimate,” “should,” “are likely to be,” “will” and similar expressions. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to global economic and market cycles and conditions; the demand for commercial, specialty and light vehicles for which the company supplies products; risks inherent in operating abroad (including foreign currency exchange rates and potential disruption of production and supply due to terrorist attacks or acts of aggression); availability and cost of raw materials, including steel; OEM program delays; demand for and market acceptance of new and existing products; successful development of new products; reliance on major OEM customers; labor relations of the company, its suppliers and customers, including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial condition of the company’s suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our suppliers; potential difficulties competing with companies that have avoided their existing contracts in bankruptcy and reorganization proceedings; successful integration of acquired or merged businesses; the ability to achieve the expected annual savings and synergies from past and future business combinations and the ability to achieve the expected benefits of restructuring actions; success and timing of potential divestitures; potential impairment of long-lived assets, including goodwill; competitive product and pricing pressures; the amount of the company’s debt; the ability of the company to continue to comply with covenants in its financing agreements; the ability of the company to access capital markets; credit ratings of the company’s debt; the outcome of existing and any future legal proceedings, including any litigation with respect to environmental or asbestos-related matters; rising costs of pension and other post-retirement benefits and possible changes in pension and other accounting rules; as well as other risks and uncertainties, including but not limited to those detailed herein and from time to time in other filings of the company with the SEC. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law.

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Highlights• Earned $0.16 per share from continuing operations

before special items in the fiscal first quarter- Results were adversely impacted by axle/ERP launch issue

and VW Brussels work stoppage

• Performance Plus initiative off to a solid start• FY 2007 EPS guidance before special items

unchanged at $1.15 to $1.25

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Items Impacting First QuarterDomestic OEM Production Cuts• Big Three North America production 13% lower than prior yearAxle Launch and New ERP System• Simultaneously launched a new axle product line and ERP system• Launch issues resulted in customer disruption• Reduced EBITDA by $13 million in the fiscal first quarter• Issue largely resolved, but may have some effects in Q2VW Brussels Work Stoppage• Labor dispute at Golf & Polo plant led to work stoppage• Local ARM facility provides door modules on a JIT basis• Reduced EBITDA by $2 million in the quarter• Workers have returned and production has resumed, but

uncertainties remain

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Improvement Areas

• Higher margins in Light Vehicle Systems and Emissions Technologies

• Higher Medium and Heavy Truck production in Europe

• Higher than anticipated Specialty and Commercial Vehicle Aftermarket volumes

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Growth StrategySharpen focus on core areas for sustainable, profitable growth

• Triple sales in Asia and with Asian OEMs within five years- $1 billion added sales in China - $300 million added sales in India- Healthy mix of local OEMs and global OEMs

• Triple aftermarket sales• Generate compelling new products that create

exceptional value for customers• Increase systems, controls and electronics

capabilities

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Talent Excellence

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Top Quartile Financial PerformanceAmong Peer Companies

Pathway to Change

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Performance Plus Success Factors

Industry challenges Reason to change

Executive alignment Agents of change

Clear strategies Pathway to change

Fast-start actions Momentum to change

Strong balance sheet Resources to change

Performance Plus will Transform ArvinMeritor into aTop-Quartile Financial Performer

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First Quarter Income Statement from Continuing Operations – Before Special Items (1)

(1) See Appendix – “Non-GAAP Financial Information”

-6%$ (0.01)$ 0.17)$ 0.16)Continuing OperationsDILUTED EARNINGS PER SHARE

-8%$ (1)$ 12)$ 11)INCOME FROM CONTINUING OPERATIONS33%1)(3)(2)Minority Interests25%1)(4)(3)Provision for Income Taxes

-16%(3)19)16)INCOME BEFORE INCOME TAXES16%5)(32)(27)Interest Expense, Net and Other29%2)7)9)Equity in Earnings of Affiliates

-23%(10)44)34)OPERATING INCOME2)-)2)Gain on Divestitures

2%2)(88)(86)SG&A-11%(14)132)118)GROSS MARGIN-13%(256)(1,966)(2,222)Cost of Sales12%$ 242)$ 2,098)$ 2,340)Sales%$

Better/(Worse)20052006

Three Months Ended December 31,(in millions, except per share amounts)

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Segment EBITDA Before Special Items (1)


-0.5 pts4.2%3.7%Total EBITDA Margins0.2 pts0.7%0.9%Emissions Technologies

-1.5 pts7.5%6.0%Commercial Vehicle System0.6 pts2.6%3.2%Light Vehicle Systems

Segment EBITDA Margins

-2%(2)$ 88$ 86EBITDA40%2)57Emissions Technologies-9%(6)7064Commercial Vehicle System15%$ 2)$ 13$ 15Light Vehicle Systems

EBITDA%$

Better/(Worse)20052006

Quarter Ended December 31,(in millions)

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(1) Excluding gains or losses on divestitures, restructuring costs, and other special items

(0.2)Other Volume & Mix0.4Restructuring Savings1.9Cost Reductions

3.2%

0.6%

(0.2)(1.3)

2.6%)

EBITDA Margin (1)

Lower Domestic OEM ProductionBrussels Work Stoppage

Fiscal Q1 2007

Net Improvement

Fiscal Q1 2006

LVS EBITDA Margins ImprovementFiscal Q1 2007 Compared to Fiscal Q1 2006

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61%59%

55%

63%

55%

51%

57%54%

56%

2003 2004 2005 2006 Dec. 31

$561

$469

$659

$409

2003 2004 2005 2006

$299

$948

$696

$93$93

2003 2004 2005 2006 Dec. 31

$1,648

$1,356 $1,383

$945$882

2003 2004 2005 2006 Dec. 31

Debt-to-capitalization ratio

Unfunded pension liability(millions)

Term debt due within 5 years(millions)

Net debt(millions)

Balance Sheet Strengthening


Market value

Book value

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Free Cash Flow (1)Quarter Ended December 31,

(37)(60)Year-end Payroll/Benefits Timing140)(41)Performance Working Capital (2)

(23)(2)Gain on Divestitures

$ 112)$ (64)Free Cash Flow

(39)7)Restructuring, Disc. Ops. and Other

37)15)Off Balance Sheet Securitization and Factoring

5)(6)Pension and Retiree Medical Net of Contributions1)12)Net Spending (D&A less Capital Expenditures)

$ 28)$ 11)Income from Continuing Operations

20052006

(1) See Appendix – “Non-GAAP Financial Information”(2) Change in payables less changes in receivables, inventory and customer tooling

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FY 2007 Light Vehicle Production

16.1

15.8

Prior Forecast

–

(3)%

Percent Change

16.1Western Europe

15.3

Current Forecast

North America

(millions of vehicles)

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CY 2005 CY 2006 CY 2007

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

78 89 92 93 85 65 35 50 50

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

FY 2006 FY 2007 FY 2008

235

200(Thousands of vehicles)

North America Class 8 TruckVolume Forecast

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CY 2005 CY 2006 CY 2007

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

111 116 114 98 123 132 123 97 110

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

FY 2006 FY 2007 FY 2008

475

462(Thousands of vehicles)

Western Europe Medium & Heavy Truck Volume Forecast

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Fiscal Year 2007 Outlook Continuing Operations Before Special Items

$ 125$ 75Free Cash Flow

$ 1.25$ 1.15Diluted Earnings Per Share

$ 89$ 82Income from Continuing Operations

24%21%Effective Tax Rate

$ (112)$ (105)Interest Expense

$ 405)$ 375)EBITDA

$ 9,100 )$ 8,900)Sales

FY 2007Full Year Outlook (1)

-

-

-

-

-

-

-

(in $millions except tax rate and EPS)


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(0.05)(100)Lower N. America Light Vehicle Production

0.15)200Higher Truck Sales in Europe–100Foreign Currency Translation

(0.10)–Q1 Launch Issue

$8,900 – $9,100

$8,700 – $8,900)

Sales ($million)

$1.15 – $1.25Updated FY 2007 Guidance Range

$1.15 – $1.25)Previous Guidance

Estimated EPS (1)

FY 2007 Outlook vs. Prior Continuing Operations Before Special Items

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FY 2007 Second Quarter Metrics

21 – 24%Tax Rate

$28 – 30 millionInterest Expense

Outlook

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Appendix

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Use of Non-GAAP Financial InformationIn addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included throughout this presentation, the Company has provided information regarding income from continuing operations and diluted earnings per share before special items, which are non-GAAP financial measures. These non-GAAP measures are defined as reported income or loss from continuing operations and reported diluted earnings or loss per share from continuing operations plus or minus special items. Other non-GAAP financial measures include “EBITDA,” “net debt” and “free cash flow”. EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and losses on sales of receivables, plus or minus special items. Net debt is defined as total debt less the fair value adjustment of notes due to interest rate swaps, less cash. Free cash flow represents net cash provided by operating activities less capital expenditures.

Management believes that the non-GAAP financial measures used in this presentation are useful to both management and investors in their analysis of the Company’s financial position and results of operations. In particular, management believes that net debt is an important indicator of the Company’s overall leverage and free cash flow is useful in analyzing theCompany’s ability to service and repay its debt. EBITDA is a meaningful measure of performance commonly used by management, the investment community and banking institutions to analyze operating performance and entity valuation. Further, management uses these non-GAAP measures for planning and forecasting in future periods.

These non-GAAP measures should not be considered a substitute for the reported results prepared in accordance with GAAP. Neither net debt nor free cash flow should be considered substitutes for debt, cash provided by operating activities or other balance sheet or cash flow statement data prepared in accordance with GAAP or as a measure of financial position or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and thus, does not reflectfunds available for investment or other discretionary uses. EBITDA should not be considered an alternative to net income as an indicator of operating performance or to cash flows as a measure of liquidity. These non-GAAP financial measures, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies.

Set forth on the following slides are reconciliations of these non-GAAP financial measures, if applicable, to the most directly comparable financial measures calculated and presented in accordance with GAAP.

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Non-GAAP Financial Information –1st Qtr FY 2007 Results Before Special Items

(in millions, except per share amounts) 3 Months BeforeReported Taxes, Special Items12/31/06 Restructuring Other 12/31/06

Sales 2,340$ -$ -$ 2,340$ Gross Margin 118 - - 118 Operating Income 33 1 - 34 Income From Continuing Operations 11 1 (1) 11

Diluted Earnings Per Share

Continuing Operations 0.16$ 0.01$ (0.01)$ 0.16$

EBITDA

Light Vehicle Systems 15$ -$ -$ 15$

Commercial Vehicle Systems 64 - - 64 Emissions Technologies 6 1 - 7

Total EBITDA 85$ 1$ -$ 86$

EBITDA Margins

Light Vehicle Systems 3.2% 3.2%

Commercial Vehicle Systems 6.0% 6.0%

Emissions Technologies 0.7% 0.9%Total EBITDA Margins 3.6% 3.7%

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Non-GAAP Financial Information –1st Qtr FY 2006 Results before Special Items

(in millions, except per share amounts) 3 Months BeforeReported Gains on Special Items12/31/05 Divestitures Restructuring Tax 12/31/05

Sales 2,098$ -$ -$ -$ 2,098$ Gross Margin 132 - - - 132

Operating Income 66 (23) 1 - 44

Income From Continuing Operations 28 (14) 1 (3) 12

Diluted Earnings Per ShareContinuing Operations 0.40$ (0.20)$ 0.01$ (0.04)$ 0.17$

EBITDALight Vehicle Systems 13$ -$ -$ -$ 13$ Commercial Vehicle Systems 92 (23) 1 - 70 Emissions Technologies 5 - - - 5

Total EBITDA 110$ (23)$ 1$ -$ 88$

EBITDA MarginsLight Vehicle Systems 2.6% 2.6%Commercial Vehicle Systems 9.9% 7.5%Emissions Technologies 0.7% 0.7%Total EBITDA Margins 5.2% 4.2%

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Non-GAAP Financial Information –1st Qtr EBITDA Reconciliation

2006 2005 Total Segment EBITDA Before Special Items $ 86 $ 88

Restructuring Costs (1) (1)

Gain on Divestitures - 23

Loss on Sale of Receivables (2) -

Depreciation and Amortization (43) (40)

Interest Expense, Net and Other (27) (32)

Provision for Income Taxes (2) (10)

Income From Continuing Operations 11$ 28$

December 31, Quarter Ended

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Non-GAAP Financial Information – Net Debt

(in millions)

12/31/06 09/30/06 06/30/06 03/31/06 12/31/05

Short-term debt 137$ 56$ 65$ 217$ 106$

Long-term debt 1,185 1,184 1,288 1,146 1,438

Total Debt 1,322 1,240 1,353 1,363 1,544

Less: Cash (369) (350) (365) (236) (302)

Less: Fair value adjustment of notes (8) (8) (3) (7) (14)

Net Debt 945$ 882$ 985$ 1,120$ 1,228$

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Non-GAAP Financial Information –Free Cash Flow

(in millions)

2006 2005

Cash Provided By (Used For) Operating Activities (33)$ 151$

Less: Capital expenditures (31) (39)

Free Cash Flow (64)$ 112$

Three Months Ended December 31,

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Other Balance Sheet Measures

(in millions)

12/31/06 09/30/06 06/30/06 03/31/06 12/31/05

Minority Interests 67 65 67 63 69

Equity 999 944 1,132 1,022 877

Total Debt to Capital 55% 55% 53% 56% 62%

Working Capital 235 146 248 338 208

Working Capital % of Sales (1) 2.0% 2.2% 2.9% 2.9% 3.1%

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arvinmeritor fy2007

Economy & Finance

quarter results

quarter issue

quarter workers

forwardlooking statements

compelling new products

future results

solid start fy

potential disruptions