arvinmeritor lehman02062007
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Transcript of arvinmeritor lehman02062007
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Lehman BrothersIndustrial Select Conference
Jim DonlonChief Financial Officer
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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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Agenda
• Emissions Technologies Divestiture
• 2007 Outlook
• Top Questions on Investors’ Minds
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Emissions Technologies Transaction Overview
• Announced Friday that we have reached a definitive agreement to sell our Emissions Technologies business to One Equity Partners for cash and other consideration of $310 million
• The transaction is expected to close in the fiscal third quarter, pending standard regulatory approvals and closing process
• ArvinMeritor will focus its capital and management talent on executing transformational goals and Performance Plus initiatives
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Narrowing Scope Enables Focused Investment
Chassis, Drivetrain and AperturesChassis, Drivetrain and Apertures
2004 2005 2006 2007 20084.2% 3.6% 3.4% 4.3% 4.3%
Emissions TechnologiesEmissions Technologies
LVA Filters & ExhaustLVA Filters & Exhaust
Roll CoaterRoll Coater
ER&D + Cap. Ex. as % of Sales
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Potential Uses of Proceeds
• Retire or fund selected long-term liabilities
• Invest in organic growth and/or bolt-on acquisitions in our focus areas- Asia- Aftermarket- Systems and controls technology for
chassis, drivetrain and apertures
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ArvinMeritor Before and After ET Divestiture
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27,500
112
$8.9 – 9.1 billion
Before
20,000Employees
75Facilities
$5.9 – 6.1 billion2007 Sales
22Countries
AfterMeasure
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Customer Base Before ET Divestiture
2006 SalesCommercial Vehicle Customers Light Vehicle Customers
DaimlerChrysler10%
General Motors9%
Volkswagen10%
Ford 7%
Asian Based OEMs 3%
BMW 2%Fiat 3%
Other LVS 9%
Other CVS15%
Fiat 2%
Asian Based OEMs 3%
Ford 1%
Volkswagen 1%
General Motors 1%
PACCAR 2%
International 3%
Volvo 11%
DaimlerChrysler8%
47% Commercial
Vehicle
53% Light
Vehicle
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Customer Base After ET Divestiture
2006 SalesCommercial Vehicle Customers Light Vehicle Customers
DaimlerChrysler8%
General Motors 3%
Volkswagen7%
Ford 3%
Asian BasedOEMs 4%
BMW 1%
Other LVS 7%
Other CVS22%
Fiat 2%
Asian Based OEMs 4%
Ford 1%Volkswagen 1%
General Motors 1%
PACCAR 2%
International5%
Volvo 17%DaimlerChrysler
12%
67% Commercial
Vehicle
33% Light
Vehicle
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Geographic/Customer Mix Before ET Divestiture
South America*6%
Asia and Asian-based OEMs *
9%
North America47%
Europe and European-
based OEMs *38%
Consolidated Revenue
* Includes local operations of companies headquartered in North America
+ Non-Consolidated Joint Ventures
South America*7%
Asia and Asian-based OEMs *
16%
North America44%
Europe and European-
based OEMs *33%
2006 Sales
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South America*8%
Asia and Asian-based OEMs *
10%
North America51%
Europe and European-
based OEMs *31%
Consolidated Revenue
* Includes local operations of companies headquartered in North America
+ Non-Consolidated Joint Ventures
South America*10%
Asia and Asian-based OEMs *
11%
North America51%
Europe and European-
based OEMs *28%
Geographic/Customer Mix After ET Divestiture2006 Sales
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Top 10 Commercial Vehicle Platforms After ET Divestiture
W-Series, T-SeriesGM MD Trucks
Stralis, TrakkerIveco HD
Military VehiclesArmor Holdings
Business Class, Cargo, 360Freightliner/Sterling MD
VT, VN, Pinnacle, VisionMack/Volvo Class 8Premium, MagnumRenault Trucks HD
Coronado, Century S/T, ColumbiaFreightliner Class 8FH, FH16Volvo Trucks HD
4000 Series, CF SeriesInternational MDProStar, 8000 Series, 9000 SeriesInternational Class 8
Key VehiclesPlatform
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Top 10 Light Vehicle Platforms After ET Divestiture
207Peugeot PF1
Focus, C-MAX, Volvo S40/V50Ford C1
RamDodge DR-DE
Megane, ScenicRenault C
Santa Fe, SonataHyundai NF/CM
Audi Q7VW 7L
Accord, Odyssey, PilotHonda CYR2/UM
TrailBlazerGMT 380/390
Polo, Ibiza, Audi A2, Skoda FabiaVW PQ24/25
Golf, Touran, Audi A1, Skoda OctaviaVW PQ34/35Key VehiclesPlatform
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Growth Strategy After ET Divestiture
• 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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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
ET Divestiture Increases Momentumand Resources to Change
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Fiscal Year 2007 Outlook
$ 100)$ 50)Free Cash Flow
$ 1.10)$ 1.00)Diluted Earnings Per Share
$ 78)$ 71)Income from Continuing Operations
20%18%Effective Tax Rate
$ (100)$ (90)Interest Expense
$ 320)$ 300)EBITDA
$ 6,100)$ 5,900)Sales
FY 2007Full Year Outlook (1)
-
-
-
-
-
-
-
(in millions except tax rate and EPS)
(1) Earnings exclude gains or losses on divestitures, restructuring costs, and other special items; assumes ET transaction closes during fiscal Q3
Continuing Operations Before Special Items
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(1) Excluding gains or losses on divestitures, restructuring costs, and other special items; assumes ET transaction closes during fiscal Q3
$5,900 – $6,100
–
(2,900) – (3,100)
$8,900 – $9,100)
Sales ($million)
(0.25) – (0.30)Emissions Technologies Divestiture and Corporate Overhead/Tax Effect
0.10 – 0.15Use Proceeds to Lower LT Liabilities
$1.00 – $1.10FY 2007 Guidance Range
$1.15 – $1.25Previous Guidance
Estimated EPS (1)
FY 2007 Outlook vs. PriorContinuing Operations Before Special Items
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Top Questions on Investors’ Minds
1. Aren’t you letting someone else make the money from restructuring the Emissions Technologies business?
2. You always talked about ET as core, growing, exciting. What changed?
3. Can the buyer really run ET better than you?4. How does this discontinued operations accounting
work?5. What’s the plan for eliminating the unabsorbed
overhead?6. What will you really do with the proceeds?
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Top Questions on Investors’ Minds
Question #1: Aren’t you letting someone else make the money from restructuring the Emissions Technologies business?
Answer:1. We were pleased with the valuation and believe that the
costs and rewards of restructuring will pass to the buyer2. Significant cash outlays would have been required for the
restructuring, ER&D and Cap. Ex. to support the products and plants
3. We believe we can get better return for our shareholders by investing that capital in our focus areas
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Top Questions on Investors’ Minds
Question #2: You always talked about ET as core, growing, exciting. What changed?
2007 2008 2009 2010
Light Vehicles
CAGR: 3%
Comm’l Vehicles
CAGR: 40%
6%15%
Expected Sales Growth Stainless Steel Spot Price
Continued rebidding/retrading by large OE customers for commodity products has limited margin growth, even as sales grow
Dec2004
Dec2005
Dec2006
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Top Questions on Investors’ Minds
Question #3: Can the buyer really run ET better than you can?
Answer:1. OEP’s management team does have experience and expertise
in running manufacturing operations, as do we2. Sole focus for OEP may change negotiation with large OE
customers relative to ARM’s consideration of other business lines
3. OEP has the ability to change the business model (growth and diversification)
4. OEP is willing to invest to restructure the light vehicle business and grow the commercial vehicle business
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Top Questions on Investors’ Minds
Question #4: How does this discontinued operations accounting work?
Answer1. When ET’s EBITDA is moved to discontinued operations,
any general corporate overhead that was allocated to it in the months before closing cannot go with it
2. We will begin to reduce general corporate overhead to resize it to our revenues after the sale
3. Interest expense in the months before closing also cannot be allocated to discontinued operations
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Top Questions on Investors’ Minds
Question #5: What is your plan for eliminating unabsorbed overhead?
Allocated Overhead
Eliminate
Service Agreement
Reallocate/ Reduce
• Labor• Purchased
Services• Insurance• Other Non-Labor
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Top Questions on Investors’ Minds
Question #6: What will you really do with the proceeds?
Long-term Liabilities as of Sept. 30, 2006
$1,184
$600
$409
$0
$300
$600
$900
$1,200
$1,500
Debt Retiree Healthcare PensionAverage Rate:Assumed Return:
7.20% 6.60%8.50%
6.60%
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Q & A