3rd May 2005 - ArvinMeritor Reports Fiscal Year 2005 Second-Quarter Results

Provides Update on New Restructuring Program

ArvinMeritor, Inc. today reported financial results for its second fiscal quarter ended March 31, 2005.  Sales of $2.3 billion, up 14 percent from the same period last year.

"Despite tough conditions and many challenging issues within the industry as a whole, we are making good progress in growing our sales and managing our costs," said Chairman, CEO and President Charles G. "Chip" McClure. "ArvinMeritor has some unique strengths - among them, a balanced and diversified portfolio of core businesses across global markets - that continue to support our efforts to overcome many of the industry-wide challenges we face."

For the second quarter of fiscal year 2005, the company posted sales of $2.3 billion, a 14-percent increase when compared to the same period last year. Factors that contributed to the increase in sales included strong CVS worldwide markets, which added approximately $150 million in sales. Currency translation additionally increased sales by approximately $75 million, primarily due to the stronger euro in relation to the U.S. dollar. In addition, the formation of two joint ventures with the Volvo Group added approximately $60 million to CVS sales, but this increase was offset by the loss of sales attributable to previously announced divestitures of certain Light Vehicle Systems (LVS) businesses.

Operating loss in the second quarter of fiscal year 2005 was $23 million, compared to operating income of $78 million from the prior year's second quarter. Contributing to the operating loss were $64 million of restructuring costs, of which $62 million were related to new restructuring actions we announced today and in January; a $9 million charge resulting from the MG Rover Group bankruptcy in Europe; and a $6 million environmental remediation charge associated with a former Rockwell facility. Included in operating income in the second quarter of fiscal year 2004 was a gain of $20 million on the sale of the company's ride control joint venture, an $8 million environmental remediation charge associated with a different Rockwell facility and $6 million of restructuring costs. The benefits to operating income from the higher CVS volumes in the second quarter of fiscal year 2005 were offset by lower LVS volumes as compared to the same period last year and higher net steel costs of approximately $30 million.

Income from continuing operations before special items was $21 million, or $0.30 per diluted share, compared to $31 million, or $0.45 per diluted share a year ago. These results are in line with the guidance the company provided in January 2005.

Income from discontinued operations was $2 million, or $0.03 per diluted share, compared to $1 million, or $0.01 per diluted share last year. Net loss, including discontinued operations, was $33 million, or $0.48 per diluted share, compared to net income of $41 million, or $0.59 per diluted share last year.

"During the second quarter, we continued to make progress with the aggressive cost-cutting and restructuring initiatives we announced earlier this year," said McClure. "These initiatives support our efforts to make ArvinMeritor a more lean, flexible, efficient and competitive company."

Specific business segment financial results include:

Commenting on CVS's performance, McClure said, "CVS sales continue to be strong and all of our global regional markets are robust. Excluding the impact of restructuring costs, margins in CVS improved to 4.8 percent this quarter, compared with 4.1 percent in our previous quarter. And we expect further margin expansion in the third quarter."

Update on Restructuring

The company is on schedule with its previously announced workforce reductions of 400-500 positions worldwide. All corporate headcount reductions, and the majority of Light Vehicle and Commercial Vehicle headcount reductions in North and South America, have been completed. In Europe, reductions in salaried employees will continue over the next couple of months, as legal requirements are addressed.

In addition to the five closures or sales that were announced and completed over the last couple of years, ArvinMeritor has targeted 11 other global facilities for consolidation or closure. These actions, for the most part, will affect the LVS business.

"These restructuring actions will help us offset and better position our company for the industry cycles we primarily experience in our Commercial Vehicle business," said McClure. "Restructuring will help us right-size our company, enabling us to take out excess capacity, reduce fixed costs, increase operational efficiencies and improve our manufacturing footprint."

Six-Month Summary

For the first six months of fiscal year 2005, sales were $4.4 billion, up $446 million, or 11 percent, compared to the same period last year. Factors increasing sales during the first six months of fiscal year 2005 included higher CVS market volumes, which added approximately $250 million in sales, and currency translation, which increased sales by approximately $190 million - primarily due to the stronger euro in relation to the U.S. dollar. The formation of two joint ventures with the Volvo Group added approximately $115 million to CVS sales, but this increase was offset by sales lost as a result of previously announced divestitures of certain LVS businesses.

Operating income for the first six months of fiscal year 2005 was $13 million, compared to $120 million in the same period last year.

Operating income in fiscal year 2005 includes $74 million of restructuring costs, of which $62 million relate to new restructuring actions; $14 million of charges resulting from various customer bankruptcies; and the $6 million environmental remediation charge. Included in operating income in the first six months of fiscal year 2004 were 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); an environmental remediation charge of $8 million; $7 million of restructuring costs; and the gain on the sale of the company's ride control joint venture of $20 million.

Loss from continuing operations was $23 million, or $0.33 per diluted share, compared to income from continuing operations of $55 million, or $0.80 per diluted share a year ago. Income from discontinued operations was $8 million, or $0.11 per diluted share, compared to $5 million, or $0.08 per diluted share, last year. Net loss, including discontinued operations, was $15 million, or $0.22 per diluted share, compared to net income of $60 million, or $0.88 per diluted share last year.

Outlook

"The company's fiscal year 2005 outlook for light vehicle production is 15.6 million vehicles in North America and 16.9 million vehicles in Western Europe, down from 15.8 million units in North America and 17.0 million units in Western Europe as cited in our previous outlook," said McClure. "The forecast for North American Class 8 truck production is 307,000 units in fiscal year 2005, which is approximately the same as our previous outlook. Our outlook for Western European Heavy and Medium Truck volumes is 421,000 in fiscal year 2005.

"Our sales outlook for fiscal year 2005 remains strong and is expected to be approximately $8.8 billion, up $800 million from fiscal year 2004. This compares to our previous outlook of $8.9 billion. The decrease is principally related to a decline in light vehicle production volumes, offset partially by higher North American truck volumes.

"Steel continues to be a challenge for us going forward. We expect steel costs, net of recovery, to be approximately $10 million lower than our previous outlook. We are now forecasting net steel costs in fiscal year 2005 to be $100 million higher than the prior year.

"There continue to be a number of factors that make our ability to forecast the second half of the year challenging, including the volatility of light vehicle production volumes, and the unpredictability in the price and recovery of steel costs. Although we expect steel costs to be lower than our previous estimate, we have lowered our full-year continuing operations outlook to $1.40 to $1.60, as a result of lower light vehicle sales volumes.

"This outlook is before special items, including any new restructuring costs, the MG Rover bankruptcy charges and the environmental remediation costs, all of which were recorded in the second quarter of fiscal year 2005. Additionally, the remaining costs associated with these new restructuring actions will be recorded over the next 18 months - this has not been factored into our outlook.

"For the third quarter of fiscal year 2005, our sales forecast is $2.4 billion, and our continuing operations outlook for diluted earnings per share is in the range of $0.60 to $0.70 per diluted share, compared to $0.61 per diluted share a year ago," said McClure.

ArvinMeritor, Inc. is a premier $8 billion global supplier of a broad range of integrated systems, modules and components to the motor vehicle industry. The company serves light vehicle, commercial truck, trailer and specialty original equipment manufacturers and related aftermarkets. Headquartered in Troy, Mich., ArvinMeritor employs approximately 31,000 people at more than 120 manufacturing facilities in 25 countries. ArvinMeritor common stock is traded on the New York Stock Exchange under the ticker symbol ARM. For more information, visit the company's Web site at: www.arvinmeritor.com

Source: ArvinMeritor Press Release