arvinmeritor UBS_Debt_Conference_050907

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UBS 2007 Leveraged Finance ConferenceMay 9, 2007

UBS 2007 Leveraged Finance Conference

Mary Lehmann, Vice President and Treasurer

May 9, 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• FY 2007 EPS guidance before special items of $0.70 to

$0.80

• Optimistic about 2008-2009 commercial vehicle volumes

• Light Vehicle Systems margins on improving trend

• Performance Plus profit improvement plan will add $150 million to EBITDA by 2009 with restructuring and cost reductions alone• Incremental opportunity from growth initiatives

• Sale of Emissions Technologies unit on track to close this quarter

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Status of Emissions Technologies Sale• Transaction is on track to close this quarter

• Received anti-trust approvals from all jurisdictions

• All major elements of the deal are as reported on February 2

• Proceeds to be used to improve balance sheet and fund restructuring and growth initiatives

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

(in millions, except per share amounts) Three Months Ended March 31,Better/(Worse)

$ %Sales $ 1,627) $ 1,629) $ (2) 0%Cost of Sales (1,490) (1,477) (13) -1%GROSS MARGIN 137) 152) (15) -10%

SG&A (99) (89) (10) -11%OPERATING INCOME 38) 63) (25) -40%

Equity in Earnings of Affiliates 7) 7) -) 0%Interest Expense, Net and Other (28) (35) 7) 20%

INCOME BEFORE INCOME TAXES 17) 35) (18) -51%Provision for Income Taxes (2) (7) 5) 71%Minority Interests (3) (4) 1) 25%

INCOME FROM CONTINUING OPERATIONS $ 12) $ 24) $ (12) -50%

DILUTED EARNINGS PER SHAREContinuing Operations $ 0.17) $ 0.34) $ (0.17) -50%

2007 2006

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

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(1) See Appendix – “Non-GAAP Financial Information”(2) Adjusted to reflect the impact of reduced volumes in our Brussels operation

(in millions) Quarter Ended March 31,Better/(Worse)

$ %EBITDA

Light Vehicle Systems $ 30) $ 16) $ 14) 88%Commercial Vehicle System 59) 88) (29) -33%

Segment EBITDA 89) 104) (15) -14%Unallocated Corporate Costs (1) -) (1) -100%ET Corporate Allocations (11) (6) (5) -83%

Total EBITDA $ 77) $ 98) $ (21) -21%

EBITDA MarginsLight Vehicle Systems (2) 5.2% 2.8% 2.4 ptsCommercial Vehicle System 5.5% 8.3% -2.8 pts

Segment EBITDA Margins 5.4% 6.4% -1.0 ptsTotal EBITDA Margins 4.7% 6.0% -1.3 pts

2007 2006

Segment EBITDA Before Special Items(1)

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(1) See Appendix – “Non-GAAP Financial Information”(2) Excluding gains or losses on divestitures, restructuring costs, and other special items

EBITDA Margin (2)

Other Volume 1.5Other Improvements 0.4

2.8 %

1.6(1.1)

2.4%

5.2%

Fiscal Q2 2006

Cost Reductions Net of PricingNorth America Volume

Net Improvement

Fiscal Q2 2007

LVS EBITDA Margin Improvement Showcases Improving Operational Excellence(1)Fiscal Q2 2007 Compared to Fiscal Q2 2006

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RevenueCOGSET Specific SG&A

38

Corporate Costs (18)

Continuing Operations

Discontinued Operations

EBITDA 20

RevenueCOGSET Specific SG&A

38

Corporate Costs (18)

EBITDA (18)

1H Before Divestiture

EBITDA 38EBITDA 0

Discontinuation of Emissions Technologies

x

1H After DivestitureIn millions; excludes asset impairment

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Free Cash Flow(1)Quarter Ended

March 31,

2007 2006

Income (Loss) from Continuing Operations $ (13) $ 32

Net Spending (D&A less Capital Expenditures) 6 9Pension and Retiree Medical Net of Contributions (63) 12Performance Working Capital (2) (7) (56)Off Balance Sheet Securitization and Factoring 17 5Restructuring, Disc. Ops. and Other (11) (67)

Free Cash Flow $ (71) $ (65)

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

In millions

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61%59%

56%

63%

55%

51%

57%54%

56%

2003 2004 2005 2006 Mar. 31

$561$469

$659

$265

$409

2003 2004 2005 2006 2007

$299

$948

$696

$368

$93

2003 2004 2005 2006 Mar. 31

$1,629

$1,338 $1,368

$1,007$872

2003 2004 2005 2006 Mar. 31

Debt-to-capitalization ratio

Unfunded pension liability(millions)

Term debt due within 5 years(millions)

Net debt(millions)

Market value

Book value

Balance Sheet Is a Competitive Strength(1)

8-3/4% due March 2012

Projected status at 9/30/07

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

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Global Pension Plan Funded Status

2006 Year-End Underfunded Status $ (409)

Discount Rate (-50 bps in U.S and Canada) (85)UK Elective Contribution (1) 40Other Plan Year Activity (2) 124Plan Freeze 30ET Divestiture 35

Estimated 2007 Underfunded Status $ (265)

In millions

(1) $10 million pull-ahead and $30 million incremental 2007 contributions applied to significantly reduce underfunding levy over next six years

(2) Includes other plan contributions and asset returns net of interest and service cost

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Fiscal Year 2007 Outlook Continuing Operations Before Special Items

FY 2007Full Year Outlook (1)

Sales $ 6,000 $ 6,200

EBITDA 275 295

Interest Expense (95) (105)

Effective Tax Rate 8% 12%Income from Continuing Operations $ 50 $ 57

Diluted Earnings Per Share 0.70 0.80

Free Cash Flow 50 100

(in millions except tax rate and EPS)

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

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

Sales (millions)

Weaker North America Truck Market (50) – (75) (0.10) – (0.15)

Lower Achievement of NA Offsets (25) – (50) (0.05) – (0.10)

Stronger European Truck Volumes 125 – 175 0.10 – 0.15

Unrecovered Commodity Cost Increases (0.05)Lower EU Productivity & Volume Penalties (0.15) – (0.20)

$5,900 – $6,100

$6,000 – $6,200

Estimated EPS (1)

Previous Guidance $1.00 – $1.10

Updated FY 2007 Guidance Range $0.70 – $0.80

FY 2007 Outlook vs. Prior Continuing Operations Before Special Items

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Improvement Factors

CY -48% +47% +20%

FY -35% +12% +25%

Performance Plus Cost Initiatives (YOY) Baseline +$75

million+$75

million

Performance Plus Growth Initiatives Baseline +$TBD +$TBD

Profitability Profitable EBITDA +50%

EBITDA +30%

Cash Flow Positive Improved Improved

North America Class 8 Demand

2007 2008 2009

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Factors Affecting 2008-2009 Upturn

(1) Global Insight April 2007 (2) MacKay & Co.

Tonnage Trends Improving4.9

3.43.7

2.62.1

'05 '06 '07 '08 '09

Industrial Production(1)

Housing Starts(1)

Light Vehicle Sales(1)

1.9 1.62.1

1.51.5

'05 '06 '07 '08 '09

16.416.5

17.3 16.8

16.4

'05 '06 '07 '08 '09

3.3 3.23.3

2.62.3

'05 '06 '07 '08 '09

Real GDP Growth(1)

FleetAge(2)

Operating Cost of 2005 Truck

7.7

8.07.9 8.0

7.9

'05 '06 '07 '08 '09

'05 '06 '07 '08 '09

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Performance Plus

Steering Committee

Operational ExcellenceCost Improvements

Commercial ExcellenceRevenue Enhancement

Materials Mfg. OverheadProduct

Strategy & Growth

Aftermarket

C. Reinhardt C. Reinhardt J. Craig P. Martens P. Martens &

M. Lehmann J. Craig

ER&D

Corporate Officers

Talent ExcellenceSponsor: R. Ostrov

App

roac

hFo

unda

tion

Program OfficeSponsors: J. Craig and J. Donlon

Sponsors

Goa

l

Top Quartile Financial Performance Among Peer Companies

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Performance Plus Profit Improvements

REVENUEElements

COST Elements

~$50-$150

~$350-$450

~$400-$600

Run rate by 2009 in millions

Reduce 8%-10%$5 Billion Base

Grow $1.2 Billion7-13% Margins

(Addressable Costs)

Improvement

Base

$200-300

NetRisk

$150

TBD TBD

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Performance Plus High-Confidence Improvement –Adjusted for Emissions Technologies

2006 2007 2008 2009

$365 $275-$295 $335-$380 $385-$445

$365 $275-$295 $410-$455 $535-$595

Updated Baseline

High-Confidence Cost Savings

Total

Growth Actions TBD TBD

EBITDA Before Special Items

75 150

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Restructuring is a Subset ofPerformance Plus

Calendarization of Restructuring Expenses and Benefits(millions) 2007 2008 2009 Total

$115 $100

$80

$75-$80

$100

$325

$280

$25-$30 $130-$140

$65

$50

$5

Restructuring Expense

Restructuring Cash

Cumulative Annual Run-Rate Benefits by 2011

OverheadIn millions

Lever/Sub-Team 2009 EBITDATarget

Non-Manufacturing $35-$40

10-20

45-50

Indirect Materials

Activity/Process Labor

Total $90-$100

Manufacturing OptimizationIn millions


Restructuring $35-$40

25-30Lean

Total $60-$70

Engineering Research & DevelopmentIn millions


Efficiency TBD

Consolidation TBD

TBDPortfolio Rationalization/Optimization

Total $TBD

Net of transitioncosts, but not

restructuring costs

Net of transitioncosts, but not

restructuring costs

Run Rate$45-$55

APortion

APortion

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Performance Plus Restructuring

(millions except plants) North America Europe

$170 $155

$125

4

$50 - 55

$155

9

$80 - 85

Total

Restructuring Expense $325

Restructuring Cash $280

Number of Plants Affected 13

Cumulative Annual Run-Rate Benefits by 2012 $130 - $140

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Calendarization of Expenses and Benefits

(millions) 2007 2008 2009 Total

$115 $100

$80

$75-$80

$100

$325

$280

$25-$30 $130-$140

$65

$50

$5

Restructuring Expense

Restructuring Cash

Cumulative Annual Run-Rate Benefits by 2011

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Personnel Reductions Include Manufacturing and White Collar Workers

High-Cost SitesPositions Eliminated (2,400) (400) (2,800)

Positions Added 900 900

Net (1,500) (400) (1,900)

Low-Cost Sites

Positions Added 800 TBD TBD

Manufacturing White Collar Total

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Detailed Cost Reduction Targets

Cost Reductions (millions) 2008 2009

Overhead $ 65

100

Manufacturing (20) 65

Risk (70) (215)

$ 100

Materials 200

High Confidence Net of Risk $ 75 $ 150

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Overhead

Lever / Sub-Team Opportunities2009 EBITDA

Target

Non-Manufacturing- Travel and Entertainment- Reduction in Energy Consumption- Temp Labor- Supplier Consolidation- Re-bid Contracts- Demand Management- Commonization (SKU Reduction)- Outsourcing

Activity / Process Labor

- Outsourcing- Foot Print Rationalization 45 – 50

Total $90 - $110

$35 – $40

Indirect Materials 10 – 20

In millions

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Material OptimizationIn millions

Lever / Sub-Team Opportunities 2009 EBITDA

Target

Design Optimization

- Material / process standardization- Design improvements for lower cost- Key tools: competitive teardowns and

supplier conferences

LCCC Sourcing

- Leverage spend across regions and product lines to gain scale

- Invest time and resources to develop world-class suppliers

55 – 60

Clean-Sheet Negotiations

- Understand detailed supplier cost structure and “should-be” costs

- Take a total cost approach- Transparent and stable relationships with suppliers to jointly eliminate waste

40 – 45

Freight - Reduce freight rates across all modes- Reduce frequency, costly modes, expedites 25 – 30

Total $190 – $210

$70 – $75

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Manufacturing Optimization

Lever / Sub-Team Opportunities2009 EBITDA

Target

Restructuring - Optimize manufacturing footprint

- Improve productivity through consistent implementation of lean manufacturing principles

Total $60 - $70

$35 – $40

Lean 25 – 30

In millions

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Progress to Revenue Improvement Target

$400

$1,000

$0 $200 $400 $600 $800 $1,000 $1,200

BeingImplemented

IdentifiedInitiatives

TargetRevenue growth in millions by 2010

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Product Strategy & Growth:$1 Billion Identified Growth Initiatives• LVS New Products 30%

• Chassis systems: wheels, electronic ride control • Apertures: joint product development (roofs/doors)

• Asia/Pacific 20%• Increased China LVS OEM growth• Global program awards manufactured in Asia

• Specialty and Trailer 20 %• Strong organic growth

• Aftermarket/Other 30 %• Global expansion underway• Strong remanufacturing operations

• 100%

Clear Focus on Higher Margin Products and Growth in Asia

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Engineering, Research & Development:Increasing PD Capability and Throughput• Achieve and sustain a competitive cost and technology position

• “One ArvinMeritor” Product Development system focused on global synergies

• Underlying competencies in engineering delivery being strengthened to support cost reduction efforts

• Focus on quality paramount in all technical areas• Deliver “gotta have” products with increased focus on value add

• Electronic motors/electronic control systems common focus • Technical acquisitions aimed at accelerating controls/ software development

under study• Consolidate and leverage corporate technical capabilities to increase

speed to market• Global capability being expanded and realigned to support new product

introductions and growth initiatives

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Aftermarket Growth:Building on an Existing Strength

• Double in three years, triple in five • Leverage strong distribution channel for further

organic growth in North America• Strengthen capability and offering in Europe and

Asia, replicating successful North American formula

• Expand remanufacturing scale and scope

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2008-2009 Opportunities

Sound Investment

Success factors…

• Significant cost savings• Improve operating efficiency• Develop products and

technologies

Launched PerformancePlus Initiatives

• Rebounding truck volumes ahead of 2010 emissions change

Market

• Enhanced global footprint• Consolidate LVS/CVS

engineering facilities• Overhead

Restructuring

• Changed U.S. retirement plan effective Jan. 1, 2008

• Implemented consumer-driven healthcare initiatives in Jan. 2007

Addressing Pension and Healthcare Issues

Solid Balance Sheet• Reduced debt• Increased liquidity

• Customer base• Global presence• Product portfolio

Diversified

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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 Information2nd Qtr FY 2006 Results before Special items

(in millions, except per share amounts)Q2 FY 06 Reported Environmental Restructuring

Debt Extinguishment Income Taxes

Q2 FY 06 BeforeSpecial

Items

Sales 1,629$ -$ -$ -$ -$ 1,629$

Gross Margin 152 - - - - 152

Operating Income 53 3 7 - 63

Income from Continuing Operations 32 2 4 6 (20) 24

Diluted Earnings Per Share - Continuing Operations 0.46$ 0.03$ 0.06$ 0.09$ (0.30)$ 0.34$

Segment EBITDA

Light Vehicle Systems 10$ -$ 6$ -$ -$ 16$

Commercial Vehicle Systems 87 - 1 - -$ 88 Total Segment EBITDA 97$ -$ 7$ -$ -$ 104$

Segment EBITDA Margins

Light Vehicle Systems 1.7% 2.8%

Commercial Vehicle Systems 8.3% 8.3%

Total Segment EBITDA Margins 6.0% 6.4%

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Non-GAAP Financial Information2nd Qtr EBITDA Reconciliation

(in millions)

2007 2006

Total EBITDA - Before Special Items $ 77 $ 98

Restructuring Costs (37) (7)

Fair Value Adjustment 10 -

Impact of Work Stoppages 6 -

Environmental Remediation Costs - (3)

Loss on Sale of Receivables (1) - Depreciation and Amortization (34) (32) Interest Expense, Net and Other (34) (44) Benefit for Income Taxes - 20

Income (Loss) From Continuing Operations (13)$ 32$

Quarter Ended March 31,

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Non-GAAP Financial InformationFree Cash Flow

(in millions)

2007 2006

Cash Used For Operating Activities (30)$ (25)$

Less: Capital expenditures (41) (40)

Free Cash Flow (71)$ (65)$

Three Months Ended March 31,

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Non-GAAP Financial InformationNet Debt

(in millions)

03/31/07 12/31/06 09/30/06 06/30/06 03/31/06

Short-term debt 17$ 137$ 56$ 65$ 217$

Long-term debt 1,220 1,174 1,174 1,275 1,133

Total Debt 1,237 1,311 1,230 1,340 1,350

Less: Cash (222) (369) (350) (365) (236)

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

Net Debt 1,007$ 934$ 872$ 972$ 1,107$

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arvinmeritor UBS_Debt_Conference_050907

Economy & Finance

increasing

free cash

gaap financial

minus special

gaap financial

balance sheet

gaap measures

research amp