Arvinmeritor2000 Annual Report

I n n o v a t i v e S o l u t i o n s T h a t M o v e Y o u r W o r l d

Printed on recycled paper.

F A S T E RS T R O N G E RB I G G E R S T R O N G E RB I G G E R

THE NEW ARVINMERITOR

IS THE INDUSTRY’S 11TH

LARGEST INDEPENDENT

GLOBAL SUPPLIER, WITH

OPERATIONS IN MORE

THAN 25 COUNTRIES.

ARVINMERITOR IS NO. 1

OR NO. 2 IN MOST OF OUR GLOBAL

SUPPLIER MARKET SEGMENTS

AND GENERATES SIGNIFICANT

COST, OPERATING

AND SALES SYNERGIES.

2 0 0 0 A n n u a l R e p o r t

“If you’re not leading the pack, you’re falling behind.”

— Larry Yost, chairman, CEO

“We choose to lead.”— Bill Hunt, vice chairman, president

$2.0

$4.0

$6.0

$8.0

$5.3

96 97 98 99 00 96 97 98 99 00

$5.6$6.3

$7.5 $7.7

$200

$400

$600

5.8%$1.85

$2.30

$3.11

$3.66 $3.56

6.2%

7.1%

7.1% 6.7%

96 97 98 99 00

$1.00

$2.00

$3.00

$4.00

A R V I N M E R I T O R P R O F I L E

Offering the most complete drivetrains in

the industry, ArvinMeritor CVS content

per vehicle is more than $3,000, with a

potential content of up to $17,000.

ArvinMeritor LVS contributes

more than $100 to the content of

most light vehicles manufactured

today, with a potential of $1,500.

We are a $7.7-billion supplier of a broad range of

integrated automotive systems, modules and

components that capitalize on innovative technology

and engineering expertise to provide solutions that

meet our customers’ needs.

The new ArvinMeritor represents an ongoing pursuit

to be an admired enterprise, with the industry scale

and scope to successfully compete in the top tier of

the global motor vehicle supplier industry.

H I G H L I G H T S O F T H E Y E A R

Letter to Shareowners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Light Vehicle Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Commercial Vehicle Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Light Vehicle Aftermarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Other (Coil Coating) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

2000 Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Corporate Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

A R V I N M E R I T O R , I N C . G E N E R A L I N F O R M A T I O N

A R V I N M E R I T O R H E A D Q U A R T E R S

2135 West Maple RoadTroy, MI 48084-7186Phone: 248-435-1000Fax: 248-435-1393www.arvinmeritor.com

I N V E S T O R R E L A T I O N S

Securities analysts and professional investors should contact: Investor Relations248-655-2159

C O R P O R A T E P U B L I C R E L A T I O N S

Members of the media should contact: Public Relations248-435-7774

S H A R E O W N E R S E R V I C E S

Communications about share ownership, book-entryaccounts, dividend payments, transfer requirements,changes of address, lost stock certificates, accountstatus and sale of shares should be directed to:EquiServe Trust Company, N.A.P.O. Box 2500Jersey City, NJ 07303-2500800-519-3111www.equiserve.com

For Internet access to account information call 877-843-9327 toll free to receive a password by mail.

E-mail: www.equiserve.comTelecommunications Devices for the Deaf (TDDs) may be accessed by calling 201-222-4955.

For copies of annual reports, Forms 10-K and 10-Q and other ArvinMeritor publications, please contact: ArvinMeritor, Inc. 2135 West Maple RoadTroy, MI 48084-7186 Attention: Investor Relations248-435-1545E-mail: [email protected]

D I V I D E N D R E I N V E S T M E N T A N D

A D D I T I O N A L I N V E S T M E N T S I N

A R V I N M E R I T O R C O M M O N S T O C K

EquiServe Trust Company, N.A. provides theDirectSERVICE Investment Program forArvinMeritor shareowners, under which currentshareowners may elect to reinvest dividendsand/or make optional cash investments inadditional shares of ArvinMeritor common stock.The program also allows cash investments inArvinMeritor common stock by first-time investors,with a $500 minimum initial investment.Shareowners may also sell their shares through the DirectSERVICE Investment Program.

For a brochure and details of the program, please direct inquiries to:DirectSERVICE Investment ProgramEquiServe Trust Company, N.A.P.O. Box 2598Jersey City, NJ 07303-2598Registered shareowners: 800-414-6280Other interested investors: 800-483-2277

I N D E P E N D E N T A U D I T O R S

Deloitte & Touche LLP600 Renaissance CenterDetroit, MI 48243-1704313-396-3000

T R A N S F E R A G E N T A N D

R E G I S T R A R

EquiServe Trust Company, N.A.P.O. Box 2500 Jersey City, NJ 07303-2500 800-519-3111

N E W Y O R K S T O C K E X C H A N G E

Common Stock (Symbol: ARM)

A N N U A L M E E T I N G

The company’s annual meeting of shareowners willbe held at the ArvinMeritor headquarters at 9 a.m.Wednesday, February 14, 2001. A notice of meetingand proxy material will be mailed to shareowners onor about December 29, 2000.

Special ItemsOperating income before special items as a percent of sales

�

%

Pro Forma Sales

$ in billions

Pro Forma Operating Income

$ in millions

Pro Forma Diluted Earnings Per Share

12% Other

12% LVA6% CVA

9% International Trucks/Trailers

17% North AmericanTrucks/Trailers

16% European Light Vehicles

28% North American Light Vehicles

Sector Diversity

% of fiscal year 2000 pro forma sales

L I G H T V E H I C L E S Y S T E M S

LVS competes in three major light vehicle areas:

apertures, undercarriage and exhaust. Strategic

alliances and advanced engineering solutions drive

LVS efforts to become a global provider of original

equipment integrated systems.

C O M M E R C I A L V E H I C L E S Y S T E M S

CVS counts the top ten players in heavy- and

medium-duty truck and trailer original equipment as its

key customers. The merger adds emissions systems,

ride and stability control and filtration systems to the

CVS comprehensive drivetrain portfolio.

A strong business with tremendous potential for

low-investment growth, market-leading CVS

aftermarket leverages a sound supply chain

infrastructure with solid brand recognition. A broad

range of products for after the original sale, as well as

responsive customer service further strengthen this

business unit.

L I G H T V E H I C L E A F T E R M A R K E T

With leading market share in each of the segments

it serves, LVA is committed to providing top-notch

customer service, delivery and support after the

original sale, with a growing portfolio of superior

products and strong brands.

O T H E R ( C O I L C O A T I N G )

Processing millions of square feet of steel every day,

coil coating applies primer and finish coats on both

sides of a wide metal strip. Pre-painted strips are

then used in a variety of durable, low-maintenance

applications that improve insulation, energy

efficiency and weather resistance.

LVA - Light Vehicle AftermarketCVA - Commercial Vehicle Aftermarket

F I N A N C I A L H I G H L I G H T SIn millions, except per share amounts

Pro Forma(1)

Year Ended September 30, 2000 1999 1998 Sales

Light Vehicle Systems $ 3,668 $ 3,474 $ 3,041Commercial Vehicle Systems 2,926 2,941 2,425Light Vehicle Aftermarket 950 906 686Other 178 170 116

Total Sales $ 7,722 $ 7,491 $ 6,268Operating income(2) $ 515 $ 531 $ 444

As a percent of sales 6.7% 7.1% 7.1%Net income(3) $ 254 $ 279 $ 236Diluted earnings per share(3) $ 3.56 $ 3.66 $ 3.11Diluted common shares outstanding 71.4 76.3 75.9Cash provided by operations $ 344 $ 415 $ 383Pre-tax interest coverage 3.9x 4.9x 5.8xLong-term debt to capitalization ratio (4) 64% 56% 45%

(1) Pro forma financial information presented as if the merger had occured at the beginning of each fiscal year and reflects (a) the amortization of goodwill from the merger and the elimination of historical Arvin goodwill amortization expense; (b) the adjustment to interest expense for borrowings to fund the Arvin cash consideration and other financing costs; (c) the income tax effects of (a) and (b) above; and (d) the adjustment of shares outstanding representing the exchange of one share of Meritor common stock for 0.75 shares of ArvinMeritor common stock and one share of Arvin common stock for one share of ArvinMeritor common stock, based on the average shares outstanding for each year.

(2) Operating income excludes restructuring and other charges of $30 million, $35 million and $7 million in fiscal year 2000, 1999 and 1998, respectively, and gain on sale of business and other of $89 million and $31 million in fiscal year 2000 and 1999, respectively. Operating income also excludes merger-related expenses of $70 million in fiscal year 2000.

(3) Net income and earnings per share exclude the special items discussed in (2) above and non-operating one-time expenses of $3 million , $1 million and $25 million in fiscal 2000, 1999 and 1998, respectively.

(4) Long-term debt to capitalization ratio based on combined results of Arvin and Meritor as of September 30 of each year presented.

1

On July 7, 2000, we realized our goal to merge the strength, expertise

and resources of two industry leaders into one company, thereby

creating the new ArvinMeritor. Together, we will provide extraordinary

value to our employees, our customers and our shareowners. With

our strong leadership team, we’re meeting the future with the

combined strengths of our best-in-class technologies, systems,

practices and people.

T O G E T H E R , W E ’ R E B I G G E R .

Achieving $7.7 billion in pro forma sales in fiscal year 2000,

ArvinMeritor’s broad product portfolio gives us the ability to supply

systems, modules and components to almost every vehicle on the

road today. Above all, together, we have the diversity, balance and

range of capabilities to create a sustainable competitive advantage.

T O G E T H E R , W E ’ R E S T R O N G E R .

Combined, ArvinMeritor has the engineering and technological

expertise and the program management capabilities to develop

new systems and products, as well as the ability to move quickly

when significant growth opportunities arise. We are committed to

10-percent top-line growth, as well as to increasing our earnings per

share by 15 to 18 percent annually over the business cycle. We intend

to achieve these goals primarily through margin expansion, driven by

new higher-value products and aggressive cost-reduction initiatives.

T O G E T H E R , W E ’ R E F A S T E R .

ArvinMeritor has the resources to provide around-the-clock, cost-

effective solutions and to deliver them to our customers faster,

wherever they do business, around the world.

Because the new ArvinMeritor is bigger, stronger and faster,

we’re well on our way to becoming the supplier of choice for the

global motor vehicle industry.

F I N A N C I A L R E S U LT S F O R F I S C A L Y E A R 2 0 0 0

During the first six months, most of our businesses benefited from

strong markets. However, for the remainder of the year, we faced

many challenges that were spawned by conditions that affected the

entire industry. Our pro forma net income in fiscal year 2000, excluding

special items, was $254 million, nine percent lower than pro forma

1999, excluding special items. On a diluted basis, the related earnings

per share were $3.56 compared to $3.66 per share a year ago.

Our aggressive measures to drive down costs focus sharply on

delivering improved financial performance and building a stronger

global Tier One supplier position. To that end, we must anticipate

T O A R V I N M E R I T O R S H A R E O W N E R S

Larry Yost, chairman & CEO (right)

Bill Hunt, vice chairman & president

THE NEW ARVINMERITOR HAS

THE FLEXIBILITY AND FINANCIAL

STRENGTH TO SEIZE NEW

OPPORTUNITIES AND EXPAND

INTO GLOBAL MARKETS.

F A S T E R

C R E A T I N G A W I N N I N G C U LT U R E

Since Day One, Road Tour

2000 has taken senior

leaders to more than 70

ArvinMeritor sites around

the world, where they have

provided employees with

integration updates,

met with media and

community representatives

and listened to employees’

concerns and ideas.

The “You Have a Part in It”

Road Tour 2000 recognizes

the essential contribution

that all ArvinMeritor

employees can make to

the new company’s

future success. It also

salutes employees in

their efforts to develop

advanced products

and solutions for

ArvinMeritor customers.

ArvinMeritor’s collaborative

energy drives us toward

our aggressive goals.

3

and respond quickly to economic changes. That’s why we are

making considerable effort to align our cost structure with current

market conditions to:

• Reduce capital spending;

• Act on every opportunity to improve operating efficiencies;

• Adjust our salaried work force downward;

• Restructure the company’s operations; and

• Streamline and consolidate manufacturing facilities around the world.

During ArvinMeritor’s first 100 days, our disciplined integration

process helped the new company identify ways to exceed its

initial expectations for 2001 cost-savings synergy targets by 33

percent. We have identified $40 million in after-tax savings so far

— significantly more than our original $30-million after-tax goal.

These savings will come from adopting best practices and

eliminating duplication wherever possible, including in areas such

as procurement and logistics, human resources, facilities, finance

and manufacturing. There are still additional opportunities for

significant cost savings across the business units, and we expect

to trim $100 million in pre-tax costs by 2003.

Several industry-wide factors in the fourth quarter contributed

significantly to the disappointing fiscal year 2000 results, including

substantial softening in Class 8 commercial truck production in North

America, weakened light vehicle aftermarket sales, a weak euro and

interruptions in North American automotive production schedules.

With formidable tasks ahead, ArvinMeritor begins the 21st century

with confidence that we will provide value to our shareowners by:

• Focusing on our core competencies and prudently divesting a

number of non-core functions;

• Generating cash through operational excellence;

• Growing the business by delivering advanced technologies to

our customers; and

• Delivering a rate of return on invested capital above peer

group averages.

We also will continue our relentless efforts to drive down fixed costs,

with strategies such as outsourcing non-core products; establishing

a low-cost infrastructure; rationalizing and consolidating assets; and

improving labor productivity and inventory turnover.

ArvinMeritor also has targeted revenue enhancements to deliver an

additional $450 million in sales by 2004. These new marketing

opportunities were created by the merger and are incremental, not

previously viable for either enterprise operating alone.

ArvinMeritor and GM combined

technological innovation and

corporate vision to bring racing

technology to the street, with

the first-ever, mass-produced

titanium exhaust system for the

2001 Corvette Z06.

4

E X PA N D T H E P O T E N T I A L : G E T T I N G I N G E A R

We know that the new ArvinMeritor can succeed only if we pull

together and create a dynamic team. Thanks to the talent and

dedicated efforts of our people, we’re doing just that. Besides

meeting and exceeding many of our synergy targets, we also have

streamlined and standardized systems and processes in areas that

impact the entire organization, such as quality, information

technology, finance, procurement and operations.

We also have identified a number of exciting new marketing

opportunities. Some of those, such as our undercarriage and

corner module strategies, combine several Arvin and Meritor

products into an integrated solution. We also will leverage Arvin’s

light vehicle exhaust technology expertise to develop exhaust

and emission solutions for commercial trucks — a market where

Meritor traditionally holds leading market share positions.

Our technical expertise drives superior responsiveness and customer

service. With considerable engineering strength, ArvinMeritor continues

to propel innovation and product breakthroughs to develop advanced,

affordable technologies for the global motor vehicle industry.

A T T H E S T A R T I N G L I N E : T A K I N G

A D V A N T A G E O F C H A N G E

The integration of ArvinMeritor operations provides a solid

platform for turning challenges into opportunities. Managing a

successful integration process depends on how well people are

engaged and work together toward a common goal. All parties

must discover new, more effective ways to do things. And that is

exactly what our team is doing.

To advance the new ArvinMeritor, we established 19 integration

teams who began meeting weekly, well before the July merger. Team

leaders report to both of us directly. Not only are these 400 highly

dedicated team members charged with determining the long- and

short-term objectives for the whole enterprise, they also are

responsible for eliminating waste, overlap and duplication of effort.

Additionally, they are charged with developing a shared vision and

purpose for the new venture. Fully accountable, the teams work

closely with integration experts and track their real-time progress on

a new Web-based integration tool.

Change provides the catalyst for innovation. As we move forward,

the ArvinMeritor continuous improvement organization — a key

group that reports directly to the vice chairman — will ensure the

Last year alone — in new or

expanded ArvinMeritor global

technical centers — our

engineers submitted

more than 700 invention

disclosures for consideration.

Am 7. Juli 2000 setzten wir unseren Plan in die Tatum, die Stärke, Erfahrung und Mittel zweierBranchenführer zu einem integrierten, höchsteffizienten Unternehmen, dem neuen ArvinMeritor, zuvereinen. Zusammen stellen wir einen enormen Wertfür unsere Mitarbeiter, Kunden und Aktionäre dar. Mitunserem starken Führungsteam treten wir der Zukunftmit vereinten Kräften entgegen, mit erstklassigenTechnologien, Systemen, Verfahren und Mitarbeitern.

Zusammen sind wir größer.Mit einem vorläufigen Umsatz von 7,7 Milliarden USDollar im Jahr 2000 verfügt ArvinMeritor über eineumfassendere Produktpalette, die es uns ermöglicht,Systeme, Module und Komponenten für fast alleFahrzeuge auf unseren Straßen zu bieten. Darüberhinaus sind unsere gemeinsamen Leistungen sovielfältig, ausgewogen und weitreichend, daß sie einendauerhaften Wettbewerbsvorteil darstellen.

Zusammen sind wir stärker. Vereint hat ArvinMeritor das technische undtechnologische Know-how sowie die notwendigeKompetenz im Programm-Management, neueSysteme und Produkte zu entwickeln und aufWachstumsmöglichkeiten schnell zu reagieren. Auchfür die Zukunft haben wir uns zum Ziel gesetzt, eineUmsatzsteigerung von 10 Prozent zu erreichen, undwir beabsichtigen, den Aktiengewinn um 15 auf 18Prozent in diesem Konjunkturzyklus zu erhöhen. Wirwollen dieses Ziel in erster Linie durch Erhöhung derMargen realisieren, durch neue, hochwertige Produktesowie konsequente Kostenreduzierung.

Zusammen sind wir schneller.ArvinMeritor ist in der Lage, rund um die Uhr zureagieren: kostengünstige Lösungen schnell undweltweit zu liefern – wo immer sie benötigt werden.

Weil das neue ArvinMeritor größer, stärker undschneller ist, sind wir auf dem besten Wege, uns alsLieferant erster Wahl für die Kraftfahrzeugindustriezum Marktführer zu entwickeln.

Ergebnisse 2000In den ersten sechs Monaten profitierte der Großteilunserer Geschäftstätigkeit von gesunden Märkten. Inder zweiten Jahreshälfte jedoch hatten wir unsHerausforderungen zu stellen, die die gesamte Industriebetrafen. Unser vorläufiger Gewinn im Finanzjahr 2000betrug 254 Millionen US Dollar ohne außerordentlichePosten, das sind 9 Prozent weniger als im Jahr 1999.Der Gewinn pro Aktie (verwässert) sank auf 3,56 USDollar im Vergleich zu 3,66 US Dollar im Vorjahr.

Unsere konsequenten Maßnahmen zurKostenreduzierung konzentrieren sich stark auf dasErzielen eines verbesserten Geschäftsergebnisses undeine stärkere Positionierung als globaler Direkt-Lieferant. Um dies zu erreichen, müssen wirwirtschaftliche Veränderungen vorhersehen undschnell auf sie reagieren. Aus diesem Grundunternehmen wir große Anstrengungen, unsereKostenstruktur mit den heutigen Gegebenheiten desMarktes in Einklang zu bringen. Wir werden• Investitionsausgaben konsequent reduzieren• jede Gelegenheit zur Verbesserung der

betrieblichen Effizienz wahrnehmen • die Löhne unserer Mitarbeiter nach unten anpassen• die Unternehmensbereiche restrukturieren und • die Produktionsstätten in aller Welt rationalisieren

und konsolidieren.

In den ersten einhundert Tagen desIntegrationsprozesses hat ArvinMeritor Mittel undWege gefunden, seine ursprünglich für 2001geplanten Ziele im Bereich Kosteneinsparung durchSynergieeffekte um 33 Prozent zu überschreiten. Dasbedeutet, daß wir bisher mit 40 Millionen US DollarEinsparungen nach Steuern rechnen können – weitmehr als die angestrebten 30 Millionen US DollarEinsparungen nach Steuern. Diese Einsparungenresultieren aus der Anwendung der geeignetstenVerfahren und der weitmöglichsten Vermeidungidentischer Vorgänge. Hiervon betroffen sind vor allemBereiche wie Einkauf und Logistik, Personal, Anlagen,

Finanzen und Produktion. In den verschiedenenGeschäftsbereichen bestehen weitere Möglichkeitenfür signifikante Kosteneinsparungen, wodurch wir miteiner Verringerung der Kosten vor Steuern um 100Millionen US Dollar bis zum Jahr 2003 rechnen.

Verschiedene, die gesamte Industrie betreffendeFaktoren im vierten Quartal waren für dieenttäuschenden Ergebnisse im Finanzjahr 2000ausschlaggebend. Zu diesen Faktoren gehören einbedeutender Rückgang in der Produktion vonNutzfahrzeugen der Klasse 8 in Nordamerika, eingeschwächter Ersatzteilmarkt für Personenkraftwagen,ein schwacher Euro und Unterbrechungen in derplanmäßigen Automobilproduktion in Nordamerika.

Mit gewaltigen Aufgaben für die Zukunft und in dertiefen Überzeugung, daß wir für unsere Anlegerdauerhafte Werte schaffen werden, startetArvinMeritor in das 21. Jahrhundert. Wir werden• uns auf unsere Kernkompetenzen konzentrieren

und wohlüberlegt einige nicht zum Kernbereichzählende Tätigkeiten aufgeben

• Gewinn durch herausragende betrieblicheLeistungen erwirtschaften

• unsere Geschäftsaktivitäten ausweiten, indem wirunseren Kunden fortschrittlichste Technologienbieten

• und eine für die Branche überdurchschnittlicheRendite auf investiertes Kapital erreichen.

Weiterhin werden wir in unseren Bemühungen nichtnachlassen, die fixen Kosten auf ein niedrigeresNiveau zu bringen. Als Strategien hierfür sind zunennen: das Outsourcen von Produkten, die nicht zuunserem Kerngeschäft gehören, der Aufbau einerkostengünstigen Infrastruktur, Rationalisierung undKonsolidierung des Anlagevermögens sowie dieVerbesserung der Arbeitsproduktivität und desLagerumschlags.

ArvinMeritor hat sich bis zum Jahr 2004Umsatzsteigerungen in Höhe von 450 Millionen USDollar als Ziel gesetzt. Neue Marketingmöglichkeitenhaben sich durch den Unternehmenszusammenschlußergeben und bedeuten einen Zuwachs, der für dieEinzelunternehmen nicht realisierbar gewesen wäre.

Neue Wege beschreiten: dieStartvoraussetzungenUns ist bewußt, daß das neue ArvinMeritor nur Erfolghaben kann, wenn wir gut zusammenarbeiten und eindynamisches Team bilden. Dank dem Talent undEhrgeiz unserer Mitarbeiter gehen wir genau diesenWeg. Wir haben nicht nur unsere Erwartungen in dieSynergieeffekte erreicht und übertroffen, wir habenauch Systeme und Prozesse rationalisiert undvereinheitlicht, die die gesamte Organisationbetreffen - wie Qualität, Informationstechnologie,Finanzen, Einkauf, Fertigung und Logistik.

Dabei haben wir eine Reihe neuer, spannenderMarketingmöglichkeiten entdeckt. Einige davon,wie zum Beispiel unsere Fahrgestell- oderKurvenmodul-Strategie, verbinden mehrere Arvin- undMeritor-Produkte zu integrierten Lösungen. Auchwerden wir Arvins Erfahrung in der Auspufftechnologiefür Leichtfahrzeuge nutzen, indem wir Auspuff- undAbgaslösungen für Nutzfahrzeuge entwickeln – einemMarkt, in dem Meritor traditionell Marktführer ist.

Unser technisches Know-how bringt Überlegenheit imBereich Reaktionsvermögen und Kundenservice mitsich. Mit seinen beträchtlichen technischenMöglichkeiten treibt ArvinMeritor immer wiederInnovationen und durchschlagende Produktneuheitenvoran und entwickelt so moderne Technologien für dieweltweite Fahrzeugindustrie zu angemessenenPreisen.

An der Startlinie: von VeränderungenprofitierenDer Zusammenschluß der Geschäftsbereiche vonArvin und Meritor bietet die geeignete Plattform,grundlegende Veränderungen im Rahmen dieserHerausforderung einzuleiten. Damit ein solcher

Integrationsprozeß erfolgreich verläuft, müssen alleBeteiligten engagiert auf ein gemeinsames Zielhinarbeiten. Alle Beteiligten müssen neue, effektivereWege beschreiten. Und genau das tut unser Team.

Um dem neuen ArvinMeritor zum Aufstieg zuverhelfen, haben wir 19 Integrationsteams aufgestellt,die lange vor dem Zusammenschluß im Juli damitbegannen, sich wöchentlich zu treffen. Die 400hochmotivierten Teammitglieder bekamen nicht nurdie Aufgabe, die lang- und kurzfristigen Ziele desGesamtunternehmens festzulegen, sondern auchunnötige, sich überschneidende und mehrfachausgeführte Tätigkeiten zu beseitigen. Darüber hinaussollen sie gemeinsame Visionen und Ziele für dasneue Unternehmen entwerfen. Die Teams arbeiteneigenverantwortlich und eng mit Integrationsexpertenzusammen und verfolgen ihren tatsächlichenFortschritt über ein neues web-basiertesIntegrationstool. Die Leiter der jeweiligen Teamsberichten wöchentlich direkt an uns beide.

Änderungen wirken als Katalysator für Innovationen.Auch in der Zukunft wird die “ArvinMeritor ContinuousImprovement Organization” – eine Gruppe mitSchlüsselfunktion, die direkt an den Vice Chairmanberichtet, – die ständige Beobachtung undUmsetzung der festgelegten Verfahrensweisen undSynergien sicherstellen. Es liegt ferner in ihremVerantwortungsbereich, die offensivenLeistungskriterien, wie das ArvinMeritor PerformanceSystem (AMPS), welches auf dem wirkungsvollenArvin Total Quality Production System (ATQPS)basiert, innerhalb des Unternehmens durchzusetzen.

Ein Blick voraus: wir liegen vorneDie Geschichte von ArvinMeritor ist eine Geschichtedes Wachstums durch integrierte Systeme undModullösungen, die unseren Anteil an jedem Fahrzeugund gleichzeitig unseren Marktanteil erhöhen sollen.Zusammen verfügen wir über ein erfahrenesManagementteam mit herausragenden Fähigkeitenund einem weltweiten Kundenstamm sowie über dieFinanzkraft, neue Gelegenheiten in einem immerweiter zusammenwachsenden Industriezweig zunutzen.

Wir werden auch weiterhin unseren Schwerpunkt aufdas Cash Management sowie auf die Transparenzunserer Managementmethoden unter Beweis stellen.Leistungsanreize und Entlohnung bleiben streng anunsere Ziele gebunden, die die Norm für die jeweiligeBezugsgruppe darstellen.

Gestärkt durch unsere vereinte Finanzkraft wird dasneue ArvinMeritor sowohl intern als auch extern durchsorgsam durchdachte Partnerschaften wachsen.

Wir setzen alles daran, in dieser wettbewerbsintensiven,wertorientierten Wirtschaft in der Führungsposition zusein. Die höchste Priorität hat dabei für uns dieSchaffung eines dauerhaften Wertes für unsereMitarbeiter, Kunden und Aktionäre. Mit Ihrerandauernden Ermutigung und Unterstützung werden wirdieses Ziel durch konsequentes Wachstum bei Umsatzund Gewinn umsetzen. Dabei werden wir unsereErfahrung in Technik und Technologie nutzen und einstarkes und flexibles Unternehmen führen.

Unsere Mitarbeiter haben sich eingesetzt, um daslaufende Jahr zum denkwürdigsten überhaupt zumachen. Mit “unsere Mitarbeiter” meinen wir all jeneengagierten ArvinMeritor-Mitarbeiter, die aus derganzen Welt zusammengekommen sind, um vollerEnthusiasmus ein neues Unternehmen aufzubauen.Dies ist eine außergewöhnliche Leistung – eineLeistung, auf die wir äußerst stolz sein können.

Zusammen . . . sind wir größer, sind wir stärker, sindwir schneller.

Wir sind ArvinMeritor, und wir sind in Bewegung.

A n u n s e r e A k t i o n ä r e :

El 7 de julio del 2000, realizamos nuestra metaperseguida largamente, de ese modo creamos lanueva ArvinMeritor, al unir la fuerza, la experienciay los recursos de dos líderes de la industria bajouna sola compañía. Juntos, le brindaremos unvalor extraordinario a nuestros empleados, anuestros clientes y a nuestros accionistas. Con unequipo directivo fuerte, nos enfrentamos alfuturo con las fuerzas combinadas de nuestrastecnologías, sistemas, prácticas y personal querepresentan lo mejor de su clase.

JUNTOS, SOMOS MÁS GRANDES.Logrando ventas pro forma de $7.700 millones dedólares en el año fiscal 2000, ArvinMeritor tieneuna lista de productos más amplia que nos da lacapacidad para suministrar sistemas, módulos ocomponentes para casi todo vehículo encirculación en la actualidad. Sobre todo, juntos,poseemos la diversidad, equilibrio y gama deposibilidades para crear una ventaja competitivasostenible.

JUNTOS, SOMOS MÁS FUERTES.En forma combinada, ArvinMeritor posee laexperiencia de tecnológica e ingeniería, y lacapacidad de manejar programas para el desarrollode nuevos sistemas y productos, así como lahabilidad de poder actuar con rapidez cuando surgenoportunidades de crecimiento significativo. Seguimoscomprometidos a lograr un crecimiento del 10 porciento de primera línea, así como también aumentarlos dividendos por acción en un 15 a 18 por cientoanuales sobre el ciclo de negocios. Nuestro propósitoes lograr estas metas en primer lugar por medio deun aumento de los márgenes, impulsado por losproductos de mayor valor y por las iniciativasagresivas en la reducción de costos.

JUNTOS, SOMOS MÁS RÁPIDOS.ArvinMeritor tiene los recursos para proporcionar soluciones rentables durante las veinticuatro horasdel día, y entregárselas a nuestros clientes másrápidamente, alrededor del mundo.

Ya que la nueva ArvinMeritor es más grande, y cadavez más fuerte y más rápida, estamos bienencaminados a convertirnos en el proveedor elegidode la industria global de vehículos automotores.

RESULTADOS FINANCIEROS PARAEL AÑO FISCAL 2000Durante los primeros seis meses, la mayoría denuestros negocios se beneficiaron de mercadosfuertes. Sin embargo, durante el resto del año,enfrentamos muchos desafíos generados por lascondiciones que afectaron a toda la industria.Nuestros ingresos netos pro forma para el año fiscal2000, excluyendo las partidas especiales, fueron de$254 millones de dólares, lo cual representa el 9 porciento menos que la pro forma 1999, excluyendo laspartidas especiales. En forma diluida, el rendimientorelacionado por acción fue de $3.56 dólarescomparado con $3.66 dólares del año anterior.

Nuestras medidas agresivas para reducir los costosse enfocan sostenidamente en la entrega de unrendimiento financiero mejorado y en edificar unaposición global más fuerte como proveedor deprimer nivel. Con ese fin, debemos de anticipar loscambios económicos y responder rápidamente aellos. Por esta razón estamos realizando unesfuerzo considerable para alinear nuestra estructurade costos con las condiciones del mercado actualespara: • Reducir las inversiones de capital;• Aprovechar cada oportunidad para mejorar los

rendimientos operativos; • Ajuste del personal asalariado hacia abajo; • Reestructurar las operaciones de la compañía; y • Racionalizar y consolidar las plantas de

fabricación todo el mundo.

Durante los primeros 100 días de existencia deArvinMeritor, nuestro proceso de integracióndisciplinado contribuyó a que la nueva compañíaidentificara formas de sobrepasar sus expectativas

en un 33 por ciento sus metas iniciales de sinergia de los ahorros de costos para el año 2001.

Eso significa que hasta ahora hemos identificado$40 millones de dólares en ahorros después dedescontar los impuestos - significativamente másque nuestra meta original de $30 millones dedólares después de descontar los impuestos. Estosahorros se realizarán por medio de la adopción demejores prácticas y la eliminación de duplicacióndonde sea posible, incluyendo áreas tales comocompras y logística, recursos humanos, plantas,finanzas y manufactura. Existen aún oportunidadespara ahorros significativos en los costos en todaslas unidades comerciales, y esperamos recortar$100 millones de dólares en costos antes dedescontar impuestos para el año 2003.

Varios factores que afectaron toda la industria en el cuarto trimestre contribuyeron significativamente a losresultados decepcionantes del año fiscal 2000,induyendo el ablandamiento considerable en laproducción de camiones de la clase 8 enNorteamérica, debilitamiento del mercado depost-venta de vehículos ligeros, un euro débil einterrupciones a los programas de fabricación deautomóviles en Norteamérica.

Con tareas formidables por delante, ArvinMeritorcomienza el siglo 21 con la confianza que leproporcionaremos valor a nuestros accionistas mediante:• El enfoque de nuestro esfuerzo en las

aptitudes esenciales y despojándonosprudentemente de un número de funciones noesenciales;

• La generación de efectivo a través de excelenciaoperante;

• Aumentar el negocio mediante la oferta detecnología avanzada;

• La entrega de una tasa de rentabilidad sobre elcapital invertido por encima del promedioparitario.

También continuaremos con nuestros esfuerzosimplacables hacia la reducción de costos fijos,mediante estrategias tales como la subcontrataciónde productos no esenciales; el establecimiento deuna infraestructura de costo bajo; la racionalizacióny consolidación del activo; y el mejoramiento de laproductividad de la mano de obra y de la rotaciónde inventario.

ArvinMeritor también ha previsto mejoras en losingresos que rendirán $450 millones de dólaresadicionales en ventas para el año 2004. Estasnuevas oportunidades de mercadeo fueron creadaspor la fusión y son adicionales, no eran viablesanteriormente para ninguna de las empresas cuandooperaban en forma independiente.

AMPLIAR LA POTENCIALIDAD:ENTRANDO EN ACCIÓNSabemos que la nueva ArvinMeritor sólo podrá teneréxito si aunamos esfuerzos y creamos un equipodinámico. Gracias al talento y los esfuerzos dedicadosde nuestra gente es esto lo que estamos haciendo.Además de estar satisfaciendo y excediendo muchasde nuestras metas de sinergia, también hemosmodernizado y estandarizado los sistemas y losprocedimientos en áreas que impactan a toda laorganización, tales como; la calidad, la informática, lasfinanzas, las compras y las operaciones.

También hemos identificado nuevas oportunidadesinteresantes de comercialización. Algunas de ellas,tales como nuestras estrategias del chasis y el módulode esquina, combinan varios productos de Arvin yMeritor para producir una solución integrada. Tambiénaprovecharemos la experiencia tecnológica de Arvinrelativa a sistemas de escape para vehículos ligerospara desarrollar soluciones de escape y emisiones paracamiones comerciales — un mercado en el que laparticipación de Meritor ocupa tradicionalmenteposiciones de liderazgo.

Nuestra experiencia técnica impulsa un grado dereacción y servicio al cliente superior. Con una fuerzade ingeniería considerable, ArvinMeritor siguepropulsando la innovación y la creación de productos

para desarrollar tecnologías avanzadas alcanzablespara la industria global de vehículos automotores.

DEL INICIO: APROVECHANDO ELCAMBIOLa integración de las operaciones de ArvinMeritorprovee una plataforma sólida para la transformaciónde desafíos en oportunidades. El manejo de unproceso de integración próspero depende de locomprometido que estén las personas y de lo bienque trabajen hacia una meta común. Esto significaque todos deben descubrir maneras nuevas y máseficaces para llevar a cabo su cometido. Y esexactamente lo que nuestro equipo está haciendo.

Para adelantar la nueva ArvinMeritor, establecimos 19equipos de integración que empezaron a reunirsesemanalmente con mucha antelación a la fusiónrealizada en el mes de julio. Los líderes de los equiposnos rinden cuenta semanalmente directamente alos dos. No solamente se les encomendaron losobjetivos a corto y largo plazo para toda la empresa aestos 400 miembros del equipo altamente dedicados,sino que también son responsables de la eliminaciónde desperdicios, superposición de tareas y duplicaciónde esfuerzos. Además, se les encomendó desarrollaruna visión y un propósito compartido para la nuevaempresa. Los equipos totalmente responsables,trabajan estrechamente con expertos y siguen suprogreso en tiempo real por medio de una ayuda nuevade integración basada en el Internet.

El cambio proporciona un catalizador para lainnovación. A medida que avancemos, laorganización de mejora continua de ArvinMeritor —un grupo clave que rinde cuenta directamente alVicepresidente de la Junta de Administración —asegurará el examen continuo y la realización de lasmejores prácticas y sinergias identificadas. Tambiénson responsables de impulsar estándares agresivosde desempeño a través de toda la compañía, talcomo el Sistema de Desempeño de ArvinMeritor(AMPS), que está basado en el Sistema de CalidadTotal en la Producción de Arvin (ATQPS).

NO NOS VERÁN NI EL POLVO:MIRANDO HACIA EL FUTUROLa historia de ArvinMeritor es un relato de crecimientocon sistemas integrados y soluciones modulares queaumentarán nuestro contenido por vehículo yaumentaría nuestra participación del mercado. Juntos,tenemos un equipo directivo experto, relacionessólidas con clientes a través del mundo así como lafuerza financiera para aprovechar las oportunidades deuna industria que está en consolidación.

Seguiremos demostrando importancia sólida en lagestión de caja, así como también nuestrocompromiso de comunicar nuestro planeamientode gestión. Los incentivos de desempeño y com-pensación continuarán ligados a nuestras metas.

Fortalecidos por una posición financiera combinada,la nueva ArvinMeritor planea crecer orgánicamente,así como por medio de asociaciones señaladascuidadosamente. Estamos comprometidos a estar ala vanguardia en una economía altamentecompetitiva impulsada por los precios. Ante todo,estamos comprometidos a entregar valor de largaduración a nuestros empleados, clientes yaccionistas. Con su estímulo y apoyo, lo lograremosprocurando el crecimiento a nivel superior y delresultado final, por medio del mejoramiento denuestra experiencia en tecnología e ingeniería, asícomo el mantenimiento de un negocio ágil y fuerte.

Nuestra gente ha trabajado muy duro para lograr queeste año fuera uno de los más memorables. Al decir“nuestra gente”, nos referimos a todos los empleadosde ArvinMeritor que han dedicado sus esfuerzos entodo el mundo para crear con entusiasmo una nuevacompañía. Este es un logro extraordinario — del cualtodos podemos estar sumamente orgullosos.

Juntos… Somos más grandes. Somos más fuertes.Somos más rápidos. Somos ArvinMeritor, y estamosen marcha.

A L O S A C C I O N I S T A S D E A R V I N M E R I T O R

Le 7 juillet 2000, nous avons concrétisé notreobjectif de longue date en fusionnant la force,l’expertise et les ressources de deux leaders del’industrie au sein d’une unique entité :ArvinMeritor. Ensemble, nous apportons une plusvalue extraordinaire à nos employés, clients etactionnaires. Avec une forte équipe de manage-ment, nous abordons le futur avec les forcescombinées de nos meilleurs technologies,systèmes, savoir faire et employés.

Ensemble, nous sommes plusgrands.Avec un chiffre d’affaire pro forma de 7.7 milliardsde dollars pour l’année fiscale 2000 et un largeportefeuille de produits, ArvinMeritor fournit dessystèmes, des modules et des composants sur laquasi totalité des véhicule en circulationaujourd’hui. Mais par dessus tout, nous avonsensemble la diversité, l’équilibre, l’étendue decapacités nécessaires pour créer un avantagecompétitif soutenu.

Ensemble, nous sommes plus forts.Uni, ArvinMeritor possède l’expertise en ingénierie eten technologie et les capacités de gestion de projetpour développer de nouveaux systèmes et produits.Nous avons la capacité d’évoluer rapidement lorsquedes opportunités de croissance se présentent. Nousmaintenons notre engagement à une croissance de10%, ainsi qu’à une croissance annuelle de nos gainspar action de 15 à 18%. Nous projetons d’atteindreces objectifs grâce à une augmentation de notremarge au moyen de nouveaux produits à forte valeurajoutée et d’initiatives majeures de réduction descoûts.

Ensemble, nous sommes plusrapides.ArvinMeritor a les ressources pour fournir enpermanence des solutions rentables et pour livrerrapidement nos clients dans le monde entier.

Parce que le nouvel ArvinMeritor est plus grand,plus fort et plus rapide, nous sommes en bonnevoie pour devenir le fournisseur incontournable del’industrie automobile mondiale.

Résultats financiers pour l’annéefiscale 2000Durant les six premiers mois, la plupart de nosactivités ont bénéficié d’un marché fort.Cependant pour le reste de l’année, nous avonsfait face à des événements engendrés par desconditions qui ont affecté l’industrie entière. Nosrevenus pro forma nets pour l’année fiscale 2000,à l’exception des évènements spéciaux, étaientde 254 millions de dollars, c’est à dire 9%inférieurs à ceux de 1999. Ramenés en gain paraction, ils représentaient $3.56 comparés à $3.66pour l’année précédente.

Nos initiatives agressives pour réduire les coûtsont pour but de fournir une meilleure rentabilitéfinancière et de se construire une position defournisseur de premier rang. Pour cela, nousdevons anticiper et répondre rapidement auxchangements économiques. C’est pourquoi nousnous efforçons d’aligner notre structure de coûtsaux conditions du marché actuel :• par une réduction des investissements ;• par une intervention sur chaque opportunité afin

d’améliorer notre efficacité d’exploitation ;• par un ajustement à la baisse de nos ressources

humaines ;• par une restructuration des opérations du

groupe; et• par une consolidation des installations

industrielles dans le monde entier.

Durant les cent premiers jours d’ArvinMeritor, notreprocessus d’intégration a permis à notre nouvellecompagnie de dépasser de 33% les objectifs 2001de réduction de coûts par synergie. Nous avonsdéjà identifié 40 millions de dollars d’économieaprès impôts, chiffre nettement plus élevé que notre

objectif initial de 30 millions de dollars aprèsimpôts. Ces économies viennent de l’adoption desmeilleures pratiques et de l’élimination des redon-dances dans des domaines comme les achats et lalogistique, les ressources humaines, leséquipements, la finance et la production. Denombreuses opportunités nous sont encore offertesdans certaines unités commerciales pour diminuerles coûts et nous nous attendons à réduire noscharges de 100 millions de dollars avant impôtsd’ici 2003.

Plusieurs facteurs industriels dans le quatrièmetrimestre ont contribué significativement auxrésultats décevants de l’année fiscale 2000 commela forte réduction de la production de camionsclasse 8- commerciaux, l’affaiblissement del’après-vente pour les véhicules légers, un Eurofaible et l’interruption en Amérique du nord desprogrammes de production automobile.

Avec de formidables enjeux a venir, ArvinMeritoraborde le 21ième siècle avec confiance afin defournir une valeur sûre à nos actionnaires :• en se focalisant sur nos compétences

fondamentales et en nous séparant prudemmentdes fonctions non essentielles ;

• en générant du cash par une efficacitéopérationnelle ;

• en fournissant un taux de retour surinvestissement au-dessus de la moyenne.

Nous continuerons aussi nos efforts implacables deréduction des coûts fixes avec des stratégies tellesque la sous-traitance des produits non essentiels, lamise en place d’une infrastructure aux coûts bas, larationalisation et la consolidation des biens,l’amélioration de la productivité de la main d’œuvreet de la rotation des stocks.

ArvinMeritor vise aussi des améliorations derevenu pour rapporter 450 millions de dollarssupplémentaires d’ici 2004. Ces nouvelles opportu-nités de marché proviennent de la fusion et sontincrémentales, n’étant pas auparavant viables pourchacune des entreprises opérant séparément.

Élargir le potentiel : Se mettre enmarcheNous savons que le nouvel ArvinMeritor ne peutréussir que si nous travaillons ensemble et créonsune équipe dynamique. C’est ce que nous faisonsgrâce au talent et aux efforts dévoués de nosemployés. En plus d’avoir atteint et dépassé laplupart de nos objectifs de synergie, nous avonsaussi simplifié et standardisé les systèmes etprocessus dans des domaines qui ont un impactsur l’organisation entière, comme la qualité, latechnologie de l’information, la finance, les achatset les opérations.

Nous avons aussi identifié de nombreuses etnouvelles opportunités de marketing. Certainesd’entre elles, comme nos stratégies de châssis et« corner module », sont le résultat de l’associationdes produits Arvin et Meritor dans une solutionintégrée. Nous utiliserons aussi l’expertise d’Arvin entechnologie d’échappement pour véhicules légersafin de développer des solutions d’échappement etd’émission pour camions utilitaires, marché oùMeritor a traditionnellement une position clé.

Notre expertise technique nous a conduit à uneréponse et un support client supérieurs. Avec uneconsidérable force de développement, ArvinMeritorcontinue à propulser l’innovation ainsi que desproduits qui développent des technologiesavancées et accessibles pour l’industrie automobile.

Sur la ligne de départ : Tirer partidu changementL’intégration des opérations d’ArvinMeritor est unexemple où des défis sont transformés enopportunités. Diriger avec succès un processusd’intégration dépend de la qualité de l’engagementet du travail d’équipe vers un but commun. Toutes

les parties doivent découvrir de nouvelles manièresplus efficaces d’agir. Et c’est exactement ce quenotre équipe est en train de réaliser.

Pour préparer le nouvel ArvinMeritor, nous avonscréé 19 équipes d’intégration qui se sont réuniesune fois par semaine bien avant la fusion de Juillet.Les leaders des équipes reportent directement ànous deux. Ces 400 collaborateurs très dévouéssont non seulement chargés de définir les objectifsà long et à court termes pour toute l’entreprise,mais ils ont aussi la responsabilité d’éliminer legaspillage, les redondances et la duplication desefforts. De plus, ils sont chargés de développer unevision et un sens communs pour la nouvelle entité.Entièrement responsabilisées, ces équipestravaillent en étroite collaboration avec des expertsen intégration et elles suivent leurs progrès entemps réel à l’aide d’un nouvel outil d’intégrationbasé sur le Web.

Le changement est un vecteur d’innovation. Au furet à mesure que nous avançons, l’organisationd’amélioration continue d’ArvinMeritor – un groupeclé qui réfère directement au Vice-Président –assurera l’analyse et la mise en place continuelledes meilleures pratiques et synergies. Il est ausside la responsabilité de ce groupe de promouvoirpartout au sein de la compagnie des standards deperformance agressifs, tels que le système deperformance ArvinMeritor (AMPS), qui est basé surle puissant Système de Production Qualité Totale(ATQPS - Arvin Total Quality Production System).

L’avenir nous appartient : Regardervers l’avantL’histoire d’ArvinMeritor est une histoire decroissance fondée sur des systèmes intégrés etdes solutions modules qui vont augmenter notrecontenu par véhicule et nos parts de marché.Ensemble, nous avons une équipe de directionexpérimentée,des liens forts avec nos clientsglobaux ainsi que la force financière pour profiterdes opportunités d’une industrie en phase deconsolidation.

Nous allons poursuivre notre effort sur la gestion ducash ainsi que la communication de nos méthodesde management. Les bonus de performance et lesrétributions vont continuer à être fortement liés ànos objectifs.

Renforcés par notre position financière, le nouvelArvinMeritor va croître de manière interne ainsi quepar des partenariats soigneusement choisis.

Nous nous engageons à être le leader dans cetteéconomie ultra-compétitive. D’abord et surtout,nous nous engageons à procurer un bénéfice àlong terme à nos employées, clients et actionnaires.Avec votre encouragement et votre soutienpermanents, nous réaliserons ceci par la recherched’une croissance agressive en améliorant notreexpertise en technologie et ingénierie, et enmaintenant une activité à la fois forte et souple.

Nos hommes et femmes ont travaillé très dur pourfaire de cette année une des années les plusmémorables. Par « nos hommes et nos femmes »,nous entendons tous les employés dévouésd’ArvinMeritor venant du monde entier qui créeronspar leur enthousiasme cette nouvelle compagnie.C’est une réussite extraordinaire dont nouspouvons être extrêmement fiers..Ensemble… Nous sommes plus grands. Noussommes plus forts. Nous sommes plus rapides.

A L ’ A T T E N T I O N D E S A C T I O N N A I R E S D ’ A R V I N M E R I T O R

ongoing examination and implementation of the identified best

practices and synergies. It is also their responsibility to push

aggressive performance standards throughout the company, such

as the ArvinMeritor Performance System (AMPS), which is based

on the Arvin Total Quality Production System (ATQPS).

W A T C H O U R D U S T : L O O K I N G A H E A D

The ArvinMeritor story is a growth story with integrated systems and

modular solutions that should increase our content per vehicle and

grow market share. Together, we have an experienced management

team, strong relationships with global customers and the financial

strength to take advantage of opportunities in a consolidating industry.

We will continue to demonstrate our strong emphasis on cash

management, as well as to communicate our management

approach. Performance incentives and compensation will continue

to be closely tied to our goals.

Strengthened by our combined financial position, the new

ArvinMeritor plans to grow organically, as well as through carefully

targeted partnerships. We are committed to lead the pack in this

highly competitive, value-driven economy. First and foremost, we are

committed to delivering long-term value to our employees, to our

customers and to our shareowners. With your ongoing encouragement

and support, we will do this by pursuing top- and bottom-line growth,

by enhancing our expertise in technology and engineering, as well as

by maintaining a business that is strong and agile.

Our people have worked very hard to make this year one of the

most memorable ever. By “our people,” we mean all of those

dedicated ArvinMeritor employees who have come together from

all around the world to enthusiastically create a new company.

This is an extraordinary accomplishment — one of which we all

can be extremely proud.

Together . . . We’re bigger. We’re stronger. We’re faster.

We’re ArvinMeritor, and we’re on the move.

Sincerely,

Larry Yost Bill Hunt

Chairman Vice Chairman

Chief Executive Officer President

December 6, 2000

5

We continue to win new

contracts as a result of our

ability to provide integrated

systems-based solutions

and new products to

address complex issues.

Em 7 de julho de 2000, cumprimos o nossoobjetivo de unir a força, a habilidade e osrecursos de dois líderes da indústria em umaempresa, criando assim a nova ArvinMeritor.Juntos, proporcionaremos um valor extraordinárioaos nossos funcionários, nossos clientes enossos acionistas. Com nossa forte equipe deliderança, caminhamos em direção ao futuroreunindo as forças de nossas melhorestecnologias, sistemas, práticas e profissionais.

JUNTOS, SOMOS MAIORES.Atingindo US$ 7,7 bilhões em vendas pro forma noexercício de 2000, a carteira bastante ampla deprodutos da ArvinMeritor oferece-nos, atualmente,a capacidade de suprir sistemas, módulos ecomponentes para praticamente qualquer veículo.Acima de tudo, juntos, possuímos diversidade,equilíbrio e variedade de capacidades para adquiriruma vantagem sustentável e competitiva.

JUNTOS, SOMOS MAIS FORTES.Combinada, a ArvinMeritor possui perícia emengenharia e tecnologia, bem como acapacidade de administração de programas paradesenvolver novos sistemas e produtos, além dacapacidade de adaptar-se rapidamente diante deoportunidades significativas de crescimento.Temos o nosso compromisso de oferecer umcrescimento topo de linha de 10%, além deaumentar nossos rendimentos por cota em 15 a18% anualmente em relação ao ciclo denegócios. Pretendemos atingir esses objetivosbasicamente através do aumento da margem,direcionada por novos produtos de valor superiore iniciativas agressivas para redução de custo.

JUNTOS, SOMOS MAIS RÁPIDOS.A ArvinMeritor tem recursos para providenciarsoluções contínuas e lucrativas e para oferecê-lasa nossos clientes da forma mais rápida, emqualquer lugar em que eles estejam.

Por ser maior, mais forte e mais rápida, aArvinMeritor está a caminho de tornar-se ofornecedor número um para a indústria global deveículos automotores.

RESULTADOS FINANCEIROS PARAO EXERCÍCIO DO ANO 2000Durante os primeiros seis meses, a maior parte dosnegócios se beneficiou através de mercados fortes.No entanto, no restante do ano, enfrentamos muitosdesafios que foram reproduzidos por condições queafetaram toda a indústria. Nossa renda líquida proforma no exercício de 2000, excluindo os itensespeciais, foi de US$ 254 milhões, 9% abaixo dovalor pro forma de 1999, excluindo-se os itensespeciais. Em uma base diluída, os ganhosrelacionados por cota foram de US$ 3,56, compara-dos a US$ 3,66 por cota há um ano.

Nossas medidas agressivas para baixar os custosconcentram-se basicamente em oferecer umdesempenho financeiro aprimorado e construiruma posição mais forte como o fornecedor globalde Tier One. Para este fim, devemos prever eresponder rapidamente a mudanças econômicas.É por isso que estamos fazendo um esforçoconsiderável para alinhar nossa estrutura de cus-tos com as condições atuais de mercado para: • Reduzir o gasto de capital;• Atuar em cada oportunidade para melhorar a

eficiência operacional;• Diminuir nossa força de trabalho assalariada;• Reestruturar as operações da empresa; e• Modernizar e consolidar as instalações de

fabricação no mundo.

Durante os primeiros 100 dias de ArvinMeritor,nosso processo de integração disciplinada ajudoua nova empresa a identificar os meios paraexceder em 33% suas expectativas iniciais dasmetas de sinergia econômica para 2001.Identificamos US$ 40 milhões em economialíquida até o momento – valor significativamentesuperior à meta original de US$ 30 milhões

líquidos. Esta economia virá através da adoção demelhores práticas e eliminação da duplicação, ondepossível, incluindo áreas tais como aprovisionamentoe logística, recursos humanos, instalações, finançase manufatura. Ainda há mais oportunidades para aeconomia significativa de custos através dasunidades comerciais, em que esperamos equilibrarUS$ 100 milhões em custos brutos até 2003.

Vários fatores negativos da indústria no quartotrimestre contribuíram significativamente para osresultados decepcionantes do exercício de 2000,inclusive o abrandamento substancial naprodução de caminhões comerciais Classe 8 naAmérica do Norte, o enfraquecimento nas vendasde mercado em substituição aos veículos leves, oenfraquecimento do euro e as interrupções naprogramação da produção automotivanorte-americana.

Com uma tarefa difícil a cumprir, a ArvinMeritorentra no século XXI confiante de que nósproporcionaremos um valor significativo paranossos acionistas através de:• Centralização em nossas competências

principais e delegação prudente de diversasfunções menores;

• Geração de capital através de excelênciaoperacional;

• Investimento na empresa aplicando-setecnologias avançadas para nossos clientes; e

• Oferecimento de uma taxa de restituição nocapital investido acima da média dos gruposde parceiros.

Porém, continuaremos nossos esforçosimplacáveis para reduzir os custos fixos, comestratégias como, por exemplo, terceirização deprodutos secundários; estabelecimento de umainfra-estrutura de baixo custo; racionalização econsolidação do ativo; e melhora da produtividadeelaborada e rotatividade de estoque.

A ArvinMeritor ainda tem por objetivo aumentar areceita para oferecer mais US$ 450 milhões emvendas até 2004. Estas novas oportunidades demarketing foram criadas pela fusão e representamacréscimo, não sendo anteriormente viável paranenhuma companhia individualmente.

EXPANDIR O POTENCIAL:ENGRENAGEM Nós sabemos que a nova ArvinMeritor somentevai ter sucesso se trabalharmos em conjunto ecriarmos uma equipe dinâmica. Graças ao talentoe esforços dedicados de nossos profissionais,estamos fazendo exatamente isso. Além desatisfazer e exceder muitas de nossas metas desinergia, também aerodinamizamos epadronizamos os sistemas e processos em áreasque causam impacto em toda a organização, taiscomo qualidade, tecnologia da informação,finanças, aprovisionamento e operações.

Identificamos, ainda, novas e interessantesoportunidades de marketing. Algumas delas, taiscomo estratégias de módulos especulativos e deestrutura, combinam diversos produtos Arvin eMeritor em uma solução integrada. Nós aindaimpulsionaremos a tecnologia de escape deveículos leves da Arvin para desenvolver soluçõesde escape e emissão para caminhões comerciais– um mercado onde a Meritor tradicionalmentemantém posições de liderança de mercado.

Nossa habilidade técnica direciona o serviço deatendimento a clientes e receptividade superior.Com uma força de engenharia considerável, aArvinMeritor continua a impulsionar inovações edescobertas de produtos para desenvolvertecnologias avançadas e viáveis para a indústriaglobal de veículos motores.

NA LINHA INICIAL: A VANTAGEMDE UMA MUDANÇAA integração de operações ArvinMeritor propor-ciona uma plataforma sólida para transformar

desafios em oportunidades. A administração deum processo de integração com sucessodepende da maneira como as pessoas seengajam e trabalham em conjunto para atingiruma meta comum. Todas as partes devemdescobrir maneiras novas e mais eficazes derealizar as coisas. E isto é exatamente o quenossa equipe está fazendo.

Para promover a nova ArvinMeritor, estabelece-mos 19 equipes de integração que começaram areunir-se semanalmente bem antes da fusão emjulho. Todas as semanas, os líderes das equipesapresentam os relatórios diretamente para nós.Estes 400 integrantes das equipes, altamentededicados, não somente são encarregados dedeterminar os objetivos a curto e longo prazopara toda a empresa, mas também sãoresponsáveis por eliminar o desperdício,sobreposição e repetição de esforço. Alem disso,são encarregados de desenvolver uma visãoconjunta e um propósito para a nova venture.Totalmente responsáveis, as equipes trabalhamde forma integrada com peritos e acompanhamseu progresso em tempo real em uma novaferramenta de integração baseada na Web.

A mudança propicia o catalisador para ainovação. Conforme avançamos, a organizaçãode contínuo aperfeiçoamento ArvinMeritor – umgrupo-chave que apresenta relatóriosdiretamente para o vice-diretor – assegurará oexame contínuo e implementação das melhoressinergias e práticas identificadas. Também éresponsabilidade deles promover padrõesagressivos de desempenho através da empresa,tais como o Sistema de DesempenhoArvinMeritor (AMPS), que é baseado no Sistemade Produção de Qualidade Total Arvin (ATQPS).

OBSERVE-NOS: PENSAMOS NOFUTUROA história da ArvinMeritor é uma história decrescimento com sistemas integrados e soluçõesmodulares que deverão aumentar nossacapacidade por veículo e nossa cota nomercado. Juntos, temos uma equipe deadministração experiente e fortes relações comos clientes, aliada a uma força financeira paratirar vantagem de oportunidades em umaindústria que está se tornando sólida.

Nós continuaremos a demonstrar nossa forteênfase na administração de capitais, assim comocomunicar nossa abordagem de administração. Aremuneração e incentivos ao desempenhocontinuarão intimamente ligados a nossas metas.

Reforçado por nossa posição financeira combina-da, a nova ArvinMeritor planeja crescerorganicamente, bem como através de parceriascuidadosamente planejadas. Temos o compro-misso de liderar o pacote nesta economia alta-mente competitiva e direcionada aos valores.Primeiramente, temos o compromisso deoferecer um valor a longo prazo para nossosfuncionários, para nossos clientes e para nossosacionistas. Com nosso constante incentivo eapoio, isto será feito através da busca por umcrescimento de topo e base de linha, aumentan-do nossa perícia em tecnologia e engenharia,bem como mantendo a empresa forte edinâmica.

Nossos profissionais trabalharam muito paratornar este ano memorável. Quando dizemos“nossos profissionais”, referimo-nos a todos osdedicados funcionários ArvinMeritor que sereuniram, vindos de toda parte do mundo paracriar, com entusiasmo, uma nova empresa. Esta éuma realização extraordinária, da qual podemosnos orgulhar profundamente.

Juntos… somos maiores, somos mais fortes,somos mais rápidos, somos ArvinMeritor eestamos crescendo.

P A R A O S A C I O N I S T A S D A A R V I N M E R I T O R T R A N S L A T I O N S

Original equipment manufacturers (OEMs) are expanding to

serve both current and emerging global markets. They are

choosing suppliers with matching global capabilities.

These suppliers must provide state-of-the-art technology

and engineering capabilities, as well as integrated system

solutions and seamless customer service.

The changing automotive industry is composed of a shrinking

number of “mega-suppliers.” Customers are cutting supplier

lists and relying on only those who are the most competent,

efficient, focused and agile. In this dynamic environment,

suppliers must anticipate customer needs to provide integrated

systems and innovative solutions. Only the most trusted partners —

those who can be counted on to constantly supply the highest

quality products and deliver the most value at the best price —

will survive.

Automotive industry consolidation drives customer demand for

technology-enhanced modules and fully integrated systems,

rather than discrete parts. For OEMs, that translates into reduced

costs, shorter assembly time, higher quality and more durable

products. For suppliers, it means working closely with OEMs to

combine individual components into innovative modular units or

systems solutions. Winning suppliers must think of themselves as

system integrators, rather than as parts manufacturers.

The Internet is rapidly changing the way the world conducts

business. In the automotive industry, many new electronic

options are causing players to re-examine the fundamentals of

supply chain management. Suppliers are beginning to realize

benefits from e-commerce, including the ability to lower costs

faster than prices; shorten time to market through compressed

processing time; and reduce inventory. E-commerce also

automates and simplifies procurement transactions, while

boosting accuracy and response time.

As a result of the premium-free merger, ArvinMeritor is a $7.7-billion

global supplier. By combining our resources, strategic partnerships

and talent, we have the geographic and financial scope and scale to

invest in the development of advanced technologies. With more

than 150 manufacturing facilities around the world, we work where

our increasingly global customers need us. Our newly combined

engineering team capitalizes on an unmatched ability to meet

customers’ fast-changing technology needs. Joining forces has

greatly extended our ability to engineer full-system solutions and

opens previously untapped pathways to a new range of customers.

The ArvinMeritor Performance System (AMPS) enables us to lower

costs and ensure top quality and delivery, as we compress product-

development cycles with our Concept to Customer process. We also

are investing in improved business and information systems to make it

easier to do business with us. We’ve applied a number of aggressive

business development initiatives, including layered manufacturing

capacity; supply-base consolidation; streamlined distribution and

logistics systems; and lean manufacturing. We also have increased

commonality of products and material source integration. Finally, to

strengthen our market positions, we continue to pursue strategic

alliances and customer relationships worldwide.

The ArvinMeritor merger produces a blend of best practices that

would be virtually impossible in either organization operating alone.

The combined enterprise has the complementary technology to

deliver a number of innovative applications to the world’s major

automakers, including complete undercarriage offerings; upper

corner and cross car modules; and a first-of-its-kind titanium

exhaust system. In addition, we are leveraging industry-leading

light vehicle exhaust technology for the commercial truck market.

On site with OEMs or at one of our global centers of expertise,

engineering teams work closely with customers to meet their

needs and deliver quality systems solutions.

As an industry leader, we know the potential value that

e-commerce can bring to the overall efficiency of the supply

chain. That’s why ArvinMeritor has a number of Web-enabled

initiatives in place and under development, including an online

customer catalog and ordering system to speed turnaround time.

ArvinMeritor also was the first supplier to participate in Covisint,

a Web-based supply exchange sponsored by global automakers.

The company serves on Covisint’s Customer Advisory Council

and was the first supplier to conduct cost-efficient, online

auctions for global procurement.

Globalization Leverage Our Combined Strength

Consolidation Improve Our Business

Engineering and Technology Bring Together Best Practices

E-Commerce Take Advantage of Change

E M E R G I N G I N D U S T R Y

T R E N D S

A R V I N M E R I T O R

S T R A T E G I E S

A P E R T U R E S A N D U N D E R C A R R I A G E

The ongoing quest of this business is to become the integrator of

choice among the world’s automakers. Our pursuit is focused on four

primary initiatives: passion for customers, innovative technologies,

lean operations and global reach. All have contributed to positioning

the business for significant growth over the next five years.

W H O W E A R E . . .

LVS has leading market positions in both apertures and

undercarriage, with an estimated $2 billion in revenue in fiscal

year 2000. Apertures include engineered products, such as

sunroofs and roof systems, window regulators, latch systems,

gas springs and integrated door modules. Undercarriage

addresses vehicle ride control, safety and styling. Products

include shock/strut components and modules, suspension

systems and steel wheels.

W H A T W E ’ V E D O N E . . .

During fiscal year 2000, the ArvinMeritor merger brought

together complementary technologies. That, in turn, has

accelerated our ability to be a major force in such areas as

chassis systems and corner modules.

An intense focus on customer advocacy is embedded into our

business culture. We continually examine customer concerns and

needs, in order to meet them each day.

W H E R E W E ’ R E G O I N G . . .

A heritage of innovation — along with added post-merger size and

scope — promises to pay growth dividends in a number of areas.

We will:

• Raise the bar and excite customers with our industry-leading

door module technology. We can fully integrate LVS products,

such as power window regulators, latches and electronics.

• Develop access control technologies, such as the signature-

feel door opening, which is winning new business and drawing

wide interest from major vehicle builders.

• Actively pursue original equipment (OE) manufacturer awards

for corner modules (shown at right) and chassis systems. We

are pursuing numerous other growth areas, such as expanded

applications of sunroofs in light trucks and the continued

globalization in Europe and South America.


7

THEN Our business success is based on an unparalleled

record of dependability and high-value delivery solutions.

NOW Working closely with customers, LVS responds to

increasing demand for integrated components and

systems for light vehicles.

SOON Expanding global markets — especially in Europe and

South America — hold significant growth opportunities

for providers of well-engineered, customer-focused

products. LVS is ready.

The ArvinMeritor merger

broadens an already extensive

LVS portfolio of technologically

advanced aperture and

undercarriage systems.

LVS initiatives in lean

processes and

measurement-based

quality systems are

paying off in operational

excellence and

recognized by key

customers such

as DaimlerChrysler

and General Motors.

“We are intensely customer-focused. That obsession fuels our drive to become the global integrator of choice.”

— Terry O’Rourke, president, LVS

“Other suppliers may talk about high-quality and lean manufacturing. We deliver.”

— Craig Stinson, president, Exhaust

E X H A U S T S Y S T E M S

This business is leveraging our core competencies around the

world to not only maintain our long-standing position as an industry

leader, but also to apply our capabilities to engineering innovations,

premium products and expanded market opportunities.

W H O W E A R E . . .

LVS Exhaust Systems is a world-leading automotive exhaust

supplier. Our success is based on an unparalleled record of

dependability, delivery, value, quality and waste elimination.

W H A T W E ’ V E D O N E . . .

Last year brought a number of noteworthy developments, including

the launch of our new air-to-air service (Air2Air), which expands our

focus to a full-air systems approach and leverages Purolator™ air

induction technology and noise/vibration/harshness expertise.

Also, the strength of our partnerships with Germany’s Zeuna Stärker

and Japan’s Sango became increasingly evident. New business

opportunities stem from our common vision and joint strategy.

Further, the establishment of a Research and Innovation (R&I) team

provides the framework from which to expand the business into

potential new markets. This initiative applies our core capabilities

and technology network to new products and emerging

technologies within, as well as outside the automotive industry.

Finally, our global Commercial Vehicle Systems exhaust team

migrates experience and know-how from the passenger vehicle

segment to address the needs of the commercial truck market.


In addition to being a leader in OE exhaust systems, we are

well-positioned to reinforce a full-systems, full-service reputation

with vehicle builders around the world. As a result, our Exhaust

Systems business is poised to expand into new segments.

Although in its infancy, Air2Air brings light vehicle OE customers

an optimized approach to air systems management.

Finally, growth driven by our partnerships is accelerating and shows

great promise. Leveraging our capabilities and know-how through

the R&I initiative provides an optimistic charter for expansion.

10

We will continue

to leverage our

sunroof and roof

module technology

to lead the industry

trend toward

integrated full roof

opening systems.

O R I G I N A L E Q U I P M E N T

ArvinMeritor’s Commercial Vehicle Systems (CVS) continues to

strengthen our position as a worldwide leader in commercial

vehicle drivetrain systems and components for the original

equipment (OE) market. We’re doing that by further expanding

and refining our product portfolio as we leverage global

production, supply and service resources.

The ongoing CVS strategy positions our operations to capitalize

on the global consolidation of commercial truck and trailer

manufacturers and suppliers and the increasing globalization of

the industry. CVS also fills the growing need for technologically

advanced suppliers who can provide complete systems from a

single source.

W H O W E A R E . . .

CVS is a $2.4-billion business with operations that are complemented

by joint ventures in every major region of the world. We supply a

complete range of drivetrain systems and components for medium-

and heavy-duty trucks, trailers, off-highway equipment and specialty

vehicles. In Europe and North America, CVS is a market leader in

virtually every segment we supply, and we are supported by an

unmatched sales, service and technical support network.

In 2000, the RHP Highway Parallelogram system — winner of the

1999 PACE™ (Premier Automotive Suppliers’ Contributions to

Excellence) Award — was adopted as standard equipment by

Wabash National Corporation, a world leader in trailer manufacturing.

W H A T W E ’ V E D O N E . . .

ArvinMeritor’s tradition of market leadership through innovation

continued through the year, with the introduction of a number of

new products. Two of these are:

• FreedomLine™ — A revolutionary transmission system that

eliminates the clutch pedal. Fully automated, it electronically

synchronizes engine and road speed to provide a smooth

electronic shift.

• Drive Axles with Unitized Wheel Ends — Integrates the

bearing seals into a hub “package,” eliminating one more

assembly step by the vehicle manufacturer. With improved

quality and reliability, the new, leak-free package joins the

popular wheel-end maintenance-free technology of CVS

steer and trailer axles.


11

THEN CVS is well-positioned to capitalize on industry trends

toward consolidation and globalization.

NOW The new, fully automatic Meritor ® Tire Inflation

System by PSI (shown at far right) is just one

example of how CVS technology responds to

trailer customer needs.

SOON As a result of strategic alliances and acquisitions, a

wider CVS portfolio will provide customers with a

one-stop source for technologically advanced solutions.

Significant business awards during the year include a multi-year

supply contract for axles, cam and hydraulic disc brakes, hubs,

drums and ABS with the Blue Bird Corporation. Blue Bird is a

leading manufacturer of school buses, commercial buses and

motor coaches. We have also taken a number of cost-reducing

steps during the year to further strengthen our ability to compete

in an extremely demanding marketplace.


The global commercial vehicle industry is undergoing significant

change. That change includes a decreased demand in North

America and further industry consolidation. It also includes

vehicle manufacturers’ increased insistence that suppliers be

globally based, one-stop sources for complete systems.

ArvinMeritor is well-positioned to respond successfully to

these challenges:

• CVS product and geographic diversity provides the

stability and financial strength to balance depressed

market conditions. While the market is softening in North

America, demands by our European customers keep

the company’s plants in that region operating at capacity.

And, while OE production has fallen, the demand for CVS

aftermarket products has risen.

• Aggressive cost-reduction measures, including plant

restructuring and resource rationalization targeted for 2001,

are supporting margin targets during market shifts.

• The CVS strategy moves beyond components to modules and

systems, providing ArvinMeritor OE and end-user customers

with a one-stop source for critical, technologically advanced

drivetrain solutions.

• With our global reach — extended by the resources added

through the ArvinMeritor merger — CVS can draw on

manufacturing, technical and service resources in virtually

every major region of the world.

• ArvinMeritor’s broadly based technical expertise is focused

on developing technologically innovative new components,

modules and systems to meet customer needs. We intend to

provide these high-quality components and systems at the

lowest, most competitive cost.

With our well-established lines of hydraulic disc brake systems,

ABS, and steer and drive axles, CVS is poised to make major

inroads in a promising, emerging market driven by the needs

of e-commerce for local and urban delivery vehicles. In this

environment, the demand for smaller, light-medium to medium-

duty trucks will grow. CVS will be ready.

13

FreedomLine’s on-board computer

automatically selects and shifts

gears, based on load and driving

conditions, providing a smooth

electronic shift. The result is

improved fuel economy, reduced

driver fatigue and increased safety.

“We listen to our customers and respond to their needs — to the people who build the

trucks and the people who use the trucks.”— Tom Gosnell, president, CVS

Driver-friendly

developments like

the clutch-free

FreedomLine

transmission help

the trucking industry

meet the growing need

for qualified drivers.

CVS Drive Axles with

Unitized Wheel Ends are

virtually maintenance-free

and allow operators to

increase payload by

reducing system weight.

Safety advances such as Electronic

Stability Control and ABS combine

with weight-reducing drivetrain

advances such as SteelLite X30™

brake drums help reduce customer

operating costs.

We provide more than

100,000 products to the

aftermarket with a

multi-channel, international

logistics organization.

The development of an Internet-accessible,

electronic catalog strongly positions

the business in the industry’s

fastest-growing distribution dynamic.

“Our broad aftermarket product portfolio and efficient delivery make it easy to do business with us.”

— Tom Gosnell, president, CVS

A F T E R M A R K E T

With a global strategy to expand product offerings, grow distribution

networks and increase attendant services, ArvinMeritor’s commercial

vehicle aftermarket is committed to being an indispensable factor in

our customers’ prosperity.

W H O W E A R E . . .

Commercial Vehicle Systems (CVS) has long been recognized as

the premier supplier of replacement components for commercial

vehicles. Further, during the past four years, CVS aftermarket has

secured an international presence, offering the broadest product

portfolio in the industry.

W H A T W E ’ V E D O N E . . .

In fiscal year 2000, we continued a strategy of expanding our

addressable market. Here are some highlights:

• The integration of the Euclid acquisition, finalized in 1999, is

now complete. We are positioned to further advance the

brand’s strong loyalty.

• The launch of a European headquarters and warehousing

distribution center provides the infrastructure we need

to become a premier supplier and partner in that region

of the world.

• An earlier strategic marketing alliance with Pressure Systems

International positions us as an exclusive distributor of one

of the industry’s most advanced automated tire inflation

systems for new and aftermarket vehicles.

• Through the ArvinMeritor merger, we are migrating exhaust,

filter and shock technologies, as well as strong brand

names and expanded geographic reach to the commercial

vehicle aftermarket.


Over the past year, we’ve experienced a North American

growth rate of 13 percent. Moving forward, forecasts point

to significant growth in the overall commercial vehicle

replacement parts market, with especially bright spots in

Mexico and South America.

The combination of decreasing new commercial vehicle

production, the business’ expanding accessible market, a

growing product portfolio and enhanced service offerings

point to significant growth and strong profits in the coming

year. Over the next four to five years, our continued strategy

of expansion is expected to double the size of our business.

16

We’ve made industry-leading

strides in the remanufacture of

various components, adding to

product breadth and depth at

lower price points.

With revenue of nearly $1 billion and a well-established global

customer base, ArvinMeritor’s Light Vehicle Aftermarket (LVA) is well-

positioned in a tightening marketplace that is marked by customer

consolidation and longer original equipment (OE) life cycles.

W H O W E A R E . . .

LVA is a leading supplier of aftermarket exhaust systems; ride control

products; and air, oil and fuel filters. We provide customers with

some of the best-known brand names in North America and Europe.

W H A T W E ’ V E D O N E . . .

Throughout fiscal year 2000, we took important measures to

continue increasing our global presence. We stepped up efforts to

partner with strategic customers, launch new products, increase

premium product sales and grow our global alliances.

Strategic highlights included:

• The Toyota Quality Alliance recognizing our OE filtration systems

with the Gold Award for product excellence, service and support;

• Contracting to supply AC Delco shock absorbers to General

Motors service outlets around the world;

• Expanding our sales of Metal Cat, a premium catalytic converter

in Europe; and

• Developing a premium shock absorber for the North American

performance and sport utility vehicle markets.


LVA continues to focus on increasing margins in shrinking

markets. Gains will be based on our tradition of fast, flexible

and reliable customer service, plus ArvinMeritor’s inherent

quality, market coverage and brand strength. A growing

e-commerce capability will further enhance our service, delivery

and business performance.

We also are expanding product offerings through internal

development, including the introduction of premium

replacement filters and shock absorbers in 2001 and

through acquisitions, strategic partnering and alliances.

Opportunities to expand into new markets — most notably South

America and Asia/Pacific — are rapidly developing. We’re also

extending our exhaust, ride control and filter product lines into the

$1-billion commercial vehicle market, which until the merger had

not been feasible. All of these measures are planned to offset the

current market conditions in North America, while at the same time

positioning LVA to grow in the global aftermarket segment.


17

THEN We set the industry standard by delivering our

customers a 99-percent order fill rate.

NOW We are industry leaders in service and quality.

SOON The new year holds real opportunity to boost sales,

increase market penetration and improve margins.

“Outstanding service is critical to customers. That’s our competitive advantage.”

— Dan Daniel, president, LVA

In 2000, LVA launched an

Internet-based, business-to-

business portal to streamline

customer service. Visit us at

http://armlva.arvinmeritor.com

We have expanded

business with our

strategic partners,

Advance Auto Parts;

AutoZone™; Discount

Auto Parts; Kwik-Fit™;

Meineke; Midas;

Texaco; and Pennzoil

Quaker State to

address the growing

retail market.

Our manufacturing

alliance with Midas

holds significant

potential for growth.

As a principal supplier to a growing $1-billion market,

ArvinMeritor’s coil coating business is taking a number of

aggressive steps toward our goal of being the logical choice

for innovative pre-painted coating solutions.

W H O W E A R E . . .

ArvinMeritor’s Roll Coater operations are the largest steel coil

coater in the world, coating enough steel in one year to circle

the globe four times. As the leading coil coater for the North

American home appliance industry, revenue has doubled in

the last 10 years.

W H A T W E ’ V E D O N E . . .

During fiscal year 2000, we reorganized operations to improve

processing consistency, customer service, project management

and inter-functional coordination. We also have completed the

integration of the state-of-the-art Hawesville, Kentucky,

production facility acquired from WorldSource Coil Coating, Inc.

in early 1999.

This year, Don Ebert, who guided Roll Coater through its

remarkable period of growth, retired after 37 years of service.

A.R. Sales, former Roll Coater chief financial officer, succeeds

him as president.


Roll Coater has set clearly defined goals to ensure continued

growth and financial strength.

We intend to:

• Grow the use of pre-painted steel panels in core markets, as the

quality, value and environmental advantages of the process gain

increased recognition.

• Leverage automotive opportunities in support of other

ArvinMeritor operations, such as the fabrication of roof panels.

• Penetrate the residential roofing market, as coated steel

and aluminum shingles gain acceptance as a lightweight,

recyclable alternative to asphalt shingles and other

roofing materials.

• Integrate the supply chain and expand value-added

customer services.

• Expand further into Mexico and markets in the southeastern U.S.

By taking advantage of these emerging market opportunities,

our coil coating business can further enhance its consistently

strong financial performance.


19

THEN Roll Coater has posted a compounded annual growth

rate of 10.5 percent for the past five years.

NOW A business reorganization includes naming a strong

manufacturing vice president, establishing sales and

marketing as a stand-alone function, and creating a

separate Business Operations group.

SOON We will dramatically increase sales through

concentrating on process excellence, customer

service improvements and product innovation.

“By forging close partnerships with paint manufacturers and steel producers, we discover new applications, as well

as find better ways to leverage existing ones.”— A.R. Sales, president, Roll Coater

The automotive

industry is beginning

to recognize the

quality, value and

environmental

advantages of coil

coating over in-house

post-painting.

Roll Coater has a diversified

customer base that can help

ArvinMeritor benefit from

market fluctuations in the

automotive industry.

Appointing a vice president

of Manufacturing ensures

maximum coordination and

process consistency across

all coil coating operations.

$2.0$2.0$2.0$2.0

$4.0$4.0$4.0$4.0

$6.0$6.0$6.0$6.0

$8.0$8.0$8.0$8.0

$10.0$10.0$10.0$10.0

98 99 00 98 99 00 98 99 00

$200

$400

$600

$100

$200

$300

$400

Affiliate Sales

Other

Light Vehicle Aftermarket

Commercial Vehicle Systems

Light Vehicle Systems

(1) Including affiliate sales

Other




(2) Business segment

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Other




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21

Pro Forma Sales (1)

$ in billions

Pro Forma Operating Income (2)

$ in millions

Pro Forma Capital Expenditures

$ in millions

2 0 0 0 F I N A N C I A L R E V I E W

Chief Financial Officer’s Review: Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Management’s Responsibility for Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

Pro Forma Summary of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

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O V E R V I E W A N D O U T L O O K

The merger of Meritor and Arvin helps to positionArvinMeritor as a leader within the automotivesupply industry (see Notes 1 and 3 of Notes toConsolidated Financial Statements). Our industry is rapidly transforming to keep pace with theglobalization and consolidation of the originalequipment manufacturers (OEMs), as well as thecontinued trends towards outsourcing by theOEMs and integrated systems. The increasedcompetitive pressures and complexity of theindustry presents suppliers with many challengesand growth opportunities. We believe that themerger of Arvin and Meritor provides enhancedfinancial strength, flexibility and product mix, aswell as stronger customer and market positions,that enables the company to take furtheradvantage of these industry trends.

The company is making excellent progress in themerger integration process. To date, we haveidentified projected cost-reduction synergies for2001 of $50 million pre-tax, or $40 million after-tax. This includes a $10-million annualrecurring reduction in income taxes, which isexpected to contribute to the reduction of the fiscal2001 effective tax rate to 35.5 percent. We are onschedule to increase these cost synergies to $100 million pre-tax in 2003.

With our newly merged company, we are even moreconfident in our ability to meet, over a multi-yearperiod, our stated long-term financial goals todeliver annual average sales growth of 10 percentand earnings per share growth of 15 to 18 percent,while maintaining a strong emphasis on cash andinvestment grade ratios.

Our long-term goals have been established with therecognition that the industry in which the companyoperates has been characterized historically byperiodic fluctuations in overall demand for light,commercial and specialty vehicles, and relatedaftermarkets, resulting in corresponding fluctuations indemand for products of the company. Accordingly, thecompany will measure its performance against theselong-term financial goals over a multi-year period.

The outlook for our major served markets aroundthe world is somewhat mixed. There are signs of amodest weakening in North American and WesternEuropean light vehicle production during fiscal 2001.Within the heavy-duty commercial truck and trailermarkets, we expect North American production willcontinue to decline 30 percent or more in fiscal2001, while European production is expected to bedown modestly. The light vehicle replacementmarket should remain weak over the same period.Additionally, it is difficult to predict the impact theeuro and other currencies will have on sales andoperating income in the upcoming year. While weremain cautious regarding the current marketoutlook, we will continue to drive strong financialperformance through aggressive ongoing cost-reduction efforts, restructuring actions andsynergy realization programs.

In addition to the progress being made by ourmerger integration teams, we are taking actions toalign our operations with the existing andanticipated declines in some of the company’s majormarkets. On November 8, 2000, the companyannounced restructuring actions to realignoperations at selected facilities around the world,with a total cost of approximately $90 million (see Note 24 of Notes to Consolidated FinancialStatements). The company expects theserestructuring activities to reduce operating costs byabout $25 million in fiscal 2001, growing to $50 million in fiscal 2002 and thereafter.

We also continually evaluate other value-enhancinginitiatives, such as stock repurchase programs.During the last month of fiscal 1999 and the first twoquarters of fiscal 2000, Meritor purchased 5.1 millionshares at an aggregate cost of approximately $125 million, or an average of $24.51 per share. In July 2000, ArvinMeritor announced a program torepurchase up to $100 million of the company’scommon stock, of which 3.1 million shares hadbeen purchased at an aggregate cost of approximately $53 million, or an average of $16.98 per share through September 30, 2000.

C H I E F F I N A N C I A L O F F I C E R ’ S R E V I E W

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

22

F I N A N C I A L C O N D I T I O N

Operating Cash Flow — Our cash flowfrom operations was $228 million in fiscal 2000,which was used to partially fund capitalexpenditures, dividend payments, merger-relatedexpenses and the repurchase of treasury stock.Cash flow from operations was $262 million and$280 million in fiscal 1999 and 1998, respectively.The decline in cash provided by operating activitiesin fiscal 2000 from fiscal 1999 is primarily the resultof working capital levels not being reducedcommensurate with the decline in sales during thefourth quarter of fiscal 2000. In addition, increasedpension funding and retiree medical paymentscontributed to the reduction from 1999 levels.

Investing Cash Flow — Our operating cashflow has allowed the company to fund capital expenditures of $225 million in fiscal 2000, $170 million in fiscal 1999 and $139 million in fiscal1998. The company continues to invest in the property, plant and equipment needed for futurebusiness requirements. Capital expenditures in fiscal 2000 included equipment to support newproduct introductions, capacity expansion and newproduction processes and costs to continue toimplement new information systems. The companyis currently evaluating additional aggressive costand spending reduction strategies, includingreductions in capital spending, and expects capitalexpenditures in fiscal 2001 to be between $225 million and $300 million. The capital spendingincrease in 2000 and the potential increase for2001 are primarily related to the inclusion of Arvincapital expenditures for a quarter in fiscal 2000and for a full year in fiscal 2001.

In fiscal 2000, cash used for investing activitiesincluded the capital expenditures described above,cash payments of $49 million relating to the mergerbetween Arvin and Meritor and cash used foracquisitions of businesses and investments of $74 million. This cash used was partially offset by$148 million of proceeds from dispositions ofassets, property and businesses, primarily relating tothe sale of the seat adjusting systems business.

In fiscal 1999, cash used for investing activitiesincluded capital expenditures of $170 million andcash used for three acquisitions of $573 million,offset somewhat by $51 million of proceeds from theformation of the transmission and clutch jointventure with ZF Friedrichshafen AG (ZF). In fiscal1998, cash used for investing activities and capitalexpenditures was $147 million. These cash outflowswere partially offset by $17 million of proceedsreceived from the sale of assets.

Financing Cash Flow — Net cash providedby financing activities was $38 million in fiscal 2000.During July 2000, the company entered into twounsecured credit facilities for a total of $1.5 billion.These new credit facilities became effective on thedate of the merger, replacing existing creditagreements of Arvin and Meritor. In addition, duringSeptember 2000, the company instituted acommercial paper program with authorizedborrowings of up to $1 billion. The net increase indebt in fiscal 2000 was $245 million. The companymade payments of $172 million for the repurchaseof its stock and $35 million for cash dividends. InNovember 2000, the board of directors declared a$0.22 per share quarterly dividend payable inDecember 2000.

Net cash provided by financing activities was $441 million in fiscal 1999. This amount includes a$507-million increase in debt, primarily related to theFebruary 1999 public offering of $500 million of debtsecurities. The proceeds were used to repay existingindebtedness, including short-term credit facilitiesentered into to facilitate three acquisitions. In addition,the company made payments of $6 million for therepurchase of its stock, $29 million for cash dividendsand $31 million for the settlement of interest rateagreements entered into in 1998 (see Note 14 ofNotes to Consolidated Financial Statements).


M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S (continued)

23

24

Net cash used for financing activities was $216 million in 1998. This amount reflects netpayments of $129 million to reduce debt. In addition,the company made net payments of $58 millionrelating to certain Canadian tax obligations andpayments of $29 million for cash dividends.

Other Information — The company’s long-term debt to capitalization ratio was 64 percentat September 30, 2000, down from 68 percent atSeptember 30, 1999. Pre-tax interest coverage was5.0x for fiscal 2000, down from 6.3x for fiscal 1999.Excluding special items, pre-tax interest coveragewas 4.4x for fiscal 2000, down from 6.4x for fiscal1999. On a pro forma basis, excluding special items,pre-tax interest coverage was 3.9x and 4.9x forfiscal 2000 and 1999, respectively. Standard &Poors and Moody’s have assigned “BBB/Baa2”credit ratings, respectively, to the company’s long-term debt and “A2/P2” credit ratings, respectively,to the company’s commercial paper program.

The company has retirement medical and definedbenefit pension plans that cover most of its U.S.and certain non-U.S. employees (see Notes 17 and18 of Notes to Consolidated Financial Statements).Retirement medical plan payments aggregated $49 million in fiscal 2000, $41 million in fiscal 1999and $36 million in fiscal 1998, and are expected toapproximate $45 million in fiscal 2001. The companymade pension plan contributions of $40 million infiscal 2000, $30 million in fiscal 1999 and $28 millionin fiscal 1998. Management expects to fund at leastthe minimum pension plan contributions required bygovernment regulations for the various plans andanticipates that pension plan funding will bebetween $20 million and $40 million in fiscal 2001.

The company regularly considers various strategicand business opportunities, including acquisitions.Although no assurance can be given as to whetheror when any acquisitions will be consummated, if anagreement were to be reached, the company couldfinance such acquisitions by issuance of additionaldebt or equity securities. The additional debt fromany acquisitions, if consummated, could increasethe company’s debt to capitalization ratio.

Based upon the company’s projected cash flowfrom operations and existing bank credit facilities,management believes that sufficient liquidity isavailable to meet anticipated operating, capital anddividend requirements over the next 12 months.

R E S U LT S O F O P E R A T I O N S

The merger of Arvin and Meritor was accounted foras a purchase with Meritor designated as theacquiror. Accordingly, the historic financialinformation for periods prior to July 7, 2000, reflectsonly the results of Meritor and its consolidatedsubsidiaries. The information for the period afterJuly 7, 2000, represents the results of ArvinMeritorand its consolidated subsidiaries. All prior periods’share and per share data have been restated toconform with the exchange of Meritor shares toArvinMeritor shares on a one Meritor share for 0.75 ArvinMeritor shares basis, in connection withthe merger (see Note 3 of Notes to ConsolidatedFinancial Statements). All earnings per shareamounts are on a diluted basis. All references to pro forma amounts assume that the mergeroccurred at the beginning of each period presented,and does not give pro forma effect to anyacquisitions or divestitures made by Arvin or Meritor.

The following sets forth the sales, operating incomeand net income of the company for the years endedSeptember 30, 2000, 1999 and 1998, as well as

pro forma amounts for each year (dollars in millions,except per share amounts):



25

As Reported Pro Forma(unaudited)(1)

Year Ended September 30, 2000 1999 1998 2000 1999 1998

Sales

Light Vehicle Systems $ 2,031 $ 1,575 $ 1,475 $ 3,668 $ 3,474 $ 3,041

Commercial Vehicle Systems 2,872 2,875 2,361 2,926 2,941 2,425

Light Vehicle Aftermarket 209 — — 950 906 686

Other 41 — — 178 170 116

Total Sales $ 5,153 $ 4,450 $ 3,836 $ 7,722 $ 7,491 $ 6,268

Operating income

Light Vehicle Systems $ 149 $ 129 $ 86 $ 232 $ 198 $ 155

Commercial Vehicle Systems 221 232 212 231 244 224

Light Vehicle Aftermarket 6 — — 43 72 62

Other — — — 9 17 3

Segment Operating Income 376 361 298 515 531 444

Gain on sale of business and other 89 24 — 89 31 —

Restructuring costs and other (26) (28) — (30) (35) (7)

Merger costs (10) — — — — —

Total Operating Income 429 357 298 574 527 437

Other income — 2 — — 2 (2)

Equity in earnings of affiliates 29 35 28 40 45 32

Non-operating one-time items — — (31) (3) (1) (25)

Interest expense, net (89) (61) (39) (142) (117) (80)

Provision for income taxes (141) (129) (102) (177) (169) (135)

Minority interest (10) (10) (7) (5) (7) (9)

Net Income $ 218 $ 194 $ 147 $ 287 $ 280 $ 218

Diluted Earnings per Share $ 4.12 $ 3.75 $ 2.84 $ 4.02 $ 3.67 $ 2.87

Diluted Earnings per Share

Before Special Items(2) $ 3.52 $ 3.73 $ 3.20 $ 3.56 $ 3.66 $ 3.11

(1) Pro forma financial information presented as if the merger had occurred at the beginning of each fiscal year and reflects (a) the amortization of goodwill frommerger and the elimination of historical Arvin goodwill amortization expense; (b) the adjustment to interest expense for borrowings to fund the Arvin cash consideration and other financing costs; (c) the income tax effects of (a) and (b) above; and (d) the adjustment of shares outstanding representing the exchange of one share of Meritor common stock for 0.75 shares of ArvinMeritor common stock and one share of Arvin common stock for one share of ArvinMeritor common stock, based on the average shares outstanding for each year.

(2) Special items in fiscal 2000 include gain on the sale of the seat adjusting systems business and other assets of $89 million ($54 million after-tax, or $1.01 pershare), restructuring costs of $26 million ($16 million after-tax, or $0.30 per share), and merger expenses of $10 million ($6 million after-tax, or $0.11 per share).Special items in fiscal 1999 include gain on formation of the ZF Meritor joint venture of $24 million ($18 million after-tax, or $0.34 per share) and restructuringcosts of $28 million ($17 million after-tax, or $0.33 per share). Special items in fiscal 1998 include interest rate settlement costs of $31 million ($19 million after-tax, or $0.36 per share). Pro forma amounts in fiscal 2000 exclude merger costs of $70 million ($58 million after-tax, or $0.81 per share). In addition to thespecial items discussed above, pro forma special items in fiscal 2000 include restructuring and other charges of $4 million ($3 million after-tax, or $0.04 pershare), and $3 million ($2 million after-tax, or $0.03 per share) non-operating one-time items. Pro forma amounts in fiscal 1999 also include a gain on sale of affiliate of $7 million ($5 million after-tax, or $0.07 per share), restructuring and other charges of $7 million ($4 million after-tax, or $0.05 per share) and non-operating one-time items of $1 million ($1 million after-tax, or $0.01 per share). Pro forma amounts in fiscal 1998 also include restructuring and other costsof $7 million ($5 million after-tax, or $0.07 per share) and a gain in non-operating one-time items of $6 million ($6 million after-tax, or $0.08 per share).

Served Markets Product Mix Geographic Presence

26

The following charts demonstrate the strength, diversity and balance of our served markets, product mix andgeographic presence for the fiscal yearended September 30, 2000, as apercent of sales on a pro forma basis.

2000 Compared to 1999

Sales — Sales for fiscal 2000 were $5.2 billion, up $703 million, or 16 percent, over last year’s salesof $4.5 billion. Included in fiscal 2000 sales are $714 million of sales attributable to the merger withArvin and a decrease of about $130 million due tocurrency exchange. Excluding the impact of currencyand the merger with Arvin, fiscal 2000 sales wouldhave been up 3 percent from fiscal 1999. The sale ofthe company’s seat adjusting systems business inNovember 1999 resulted in a decrease of $98 millionin sales year-over-year. Additionally, the company’stransmission and clutch business contributed salesof $166 million in fiscal 1999. The results of thisbusiness are now reported as equity income, due tothe formation of the ZF Meritor joint venture in fiscal1999. Pro forma sales, as if Arvin and Meritor hadoperated as a merged company in all periods, were$7.7 billion in fiscal 2000, an increase of 3 percentover pro forma 1999 sales.

Light Vehicle Systems (LVS) Sales —

LVS sales grew 29 percent, to $2.0 billion, from $1.6 billion a year ago. Fiscal 2000 sales include $447 million of sales from Arvin businesses, offsetsomewhat by $84 million of negative currencyexchange. Adjusting to exclude the sales attributableto the merger with Arvin, LVS sales would have been1 percent higher than fiscal 1999 sales. Marketpenetration gains, principally in the door, suspension,wheel and seat motor lines, combined with strongindustry volumes drove this growth, which was offsetby the sale of the LVS seat adjusting systemsbusiness in early fiscal 2000 and the negative impactof currency. On a pro forma basis, LVS sales for fiscal2000 were $3.7 billion, up $194 million or 6 percentfrom $3.5 billion in 1999. Additional marketpenetration gains in the exhaust business drove thisfurther growth. LVS sales in North America grew 48 percent (11 percent on a pro forma basis). Sales inSouth America and Asia/Pacific grew 7 percent and 5 percent, respectively (up 4 percent and 6 percent ona pro forma basis, respectively). Sales in Europe wereup 15 percent (down 2 percent on a pro forma basis).

12% Other

12% Light Vehicle Aftermarket6% Commercial Vehicle Aftermarket

9% International Commercial Trucks and Trailers

17% North American Commercial Trucks and Trailers



15% Other

30% Truck and Trailer Axles and Brakes

15% Aperture Systems

14% Undercarriage Systems

26% Exhaust Systems

3% Asia/Pacific and Other3% South America

28% Europe

12% Canada/Mexico

54% U.S.

Commercial Vehicle Systems (CVS)

Sales — CVS reported $2.9 billion in sales ofcomponents and systems for original equipmentand the aftermarket in fiscal 2000, including$17 million attributable to the merger with Arvin,which was down slightly from fiscal 1999 sales. CVS sales in North America were $2.0 billion, down $148 million or 7 percent from $2.2 billion in fiscal1999. The decline in North American heavy truckmarkets of approximately 7 percent drove thisdecline. European sales were up $103 million, or 18 percent, and South American sales were up $18 million, or 27 percent, while sales in the rest ofthe world were up $24 million. On a pro formabasis, CVS sales would have been $2.9 billion infiscal 2000, down $15 million, or 1 percent, frompro forma 1999 sales.

Light Vehicle Aftermarket (LVA)

Sales — LVA sales were $209 million in fiscal2000 with no sales in fiscal 1999, because thisbusiness is attributable to Arvin and is accordinglyincluded in the consolidated results only from July 7, 2000, and forward. On a pro forma basis,LVA sales in fiscal 2000 were $950 million, anincrease of 5 percent, or $44 million from pro forma1999 levels. The increase in pro forma sales isattributable primarily to the inclusion of a full year ofresults of the Purolator business, which wasacquired by Arvin in March 1999. Purolatorgenerated $318 million of pro forma sales in fiscal2000, as compared to $203 million in pro formasales in fiscal 1999. These increases were partiallyoffset by price reductions and product mix issues,the negative impact of currency translation and asoftening of markets in both North America andEurope in the latter part of the fiscal year.

Operating Income — Fiscal 2000 operatingincome was $429 million, up $72 million from fiscal1999. In fiscal 2000, the company completed the saleof its LVS seat adjusting systems business forapproximately $135 million in cash, resulting in a one-time gain of $83 million ($51 million after-tax, or$0.96 per share). The seat adjusting systemsbusiness had fiscal 1999 sales of approximately $130 million. Also during fiscal 2000, the companyrecorded a restructuring charge of $26 million ($16 million after-tax, or $0.30 per share) relating toworkforce reductions and other facility-related costsfor the rationalization of operations and merger

expenses of $10 million ($6 million after-tax, or $0.11 per share). Fiscal 1999 operating income was$357 million, and includes a restructuring charge of$28 million ($17 million after-tax, or $0.33 per share)and a one-time gain of $24 million ($18 million after-tax, or $0.34 per share) in connection with theformation of a transmission and clutch joint venturewith ZF Friedrichshafen AG.

Excluding the restructuring charges, merger costs andone-time gains from sales of businesses and assets,operating income would have been $376 million infiscal 2000, up $15 million from $361 million in fiscal1999. This increase is attributable to the results ofArvin, included in the company’s results since July 7, 2000. Operating margins were 8.3 percent infiscal 2000 (7.3 percent, excluding the special items),versus 8.0 percent in fiscal 1999 (8.1 percent,excluding the special items). On a pro forma basis,excluding special items, operating income would have been $515 million in fiscal 2000, down 3 percentfrom $531 million in fiscal 1999. Pro forma operatingmargins before special items declined from 7.1 percent in fiscal 1999 to 6.7 percent in fiscal 2000.

LVS Operating Income — LVS operatingincome was $149 million in fiscal 2000, withoperating margins of 7.3 percent. Operating income was up $20 million, or 16 percent, from1999, although operating margins decreased 90 basis points. Results from the merger with Arvincontributed $7 million of operating income in fiscal2000. Operating income increased due to thevolume contribution from higher sales and favorableproduct mix. On a pro forma basis, operatingincome for fiscal 2000 increased $34 million, or 17 percent, to $232 million. Pro forma operatingmargins increased from 5.7 percent in fiscal 1999 to 6.3 percent in fiscal 2000.

CVS Operating Income — CVS operatingincome was $221 million in fiscal 2000, a decreaseof 5 percent from 1999. Operating margins declinedby 40 basis points to 7.7 percent in fiscal 2000. The decline in margins was driven by higher costsdue to unfavorable economics, the negative impactof currency exchange and higher warranty expenses.On a pro forma basis, operating income for fiscal2000 was $231 million, also down 5 percent frompro forma fiscal 1999. Pro forma operating marginsof 7.9 percent also declined by 40 basis points.



27

28

LVA Operating Income — LVA operatingincome was $6 million in fiscal 2000, with operatingmargins of 2.9 percent. This business was acquiredas part of the merger with Arvin and is, accordingly,included in the consolidated results from July 7, 2000, and forward. On a pro forma basis,operating income and margins for fiscal 2000 were$43 million and 4.5 percent, respectively, down fromfiscal 1999 pro forma operating income of $72 million and related margins of 7.9 percent. Thedecline in LVA pro forma operating income relatesprimarily to reduced pricing and product mix issues,and was partially offset by increased volume. Thedecline in operating income also reflects the softmarket conditions experienced in late fiscal 2000and consolidation of the distribution channel base.

Equity in Earnings of Aff i l iates —

Equity in earnings of affiliates was down $6 millionin fiscal 2000, to $29 million, primarily as a result ofthe lower North American truck volumes.

Interest Expense, Net — Interestexpense, net for fiscal 2000 was $89 million, up $28 million from fiscal 1999 interest expense, net of $61 million. The increase is primarily attributable tohigher debt levels associated with acquisitions andthe share repurchase programs. On a pro formabasis, fiscal 2000 interest expense, net increased $25 million, to $142 million, primarily as a result ofthe share repurchase programs and acquisitionsmade during fiscal 1999.

Net Income — Net income for fiscal 2000 was$218 million, or $4.12 per share, an increase of 12 percent and 10 percent, respectively, ascompared with fiscal 1999 net income of$194 million, or $3.75 per share. Net income beforespecial items was $186 million, or $3.52 in fiscal2000, compared with 1999 net income beforespecial items of $193 million, or $3.73 per share.Special items include the restructuring charges,gains and merger expenses discussed earlier. On apro forma basis, excluding special items, fiscal 2000net income was down $25 million, or 9 percent, to$254 million, with earnings per share of $3.56,compared to 1999 earnings per share of $3.66.

1999 Compared to 1998

Sales — Sales for fiscal 1999 were $4.5 billion,up $614 million, or 16 percent, over fiscal 1998sales of $3.8 billion.

LVS Sales — LVS sales grew $100 million, or 7 percent, to $1.6 billion for fiscal year 1999.Market penetration gains, principally in the door,suspension and seat adjusting systems productlines, combined with strong North American vehiclevolumes drove the higher sales. This growth waspartially offset by weakness in European roofsystems sales and the negative impact of currencyexchange and lower vehicle volumes in SouthAmerica. LVS fiscal 1999 sales in North Americaincreased $127 million, or 22 percent, and sales inAsia/Pacific were up $21 million, or 38 percent.Sales in Europe and South America were down $37 million and $11 million, respectively.

CVS Sales — CVS reported $2.9 billion in fiscal 1999 sales, an increase of $514 million, or 22 percent, over 1998. Excluding acquisitions, CVSsales increased $119 million, or 5 percent. Recordproduction volumes in the North American heavytruck market drove North American sales of truckaxles, brakes and transmissions to $1.3 billion, anincrease of $245 million, or 22 percent. NorthAmerican sales of other CVS products were $657 million, down $65 million from 1998, primarilyas a result of lower government program sales.European sales, excluding acquisitions, were down$21 million, or 6 percent, and South American salesfell $47 million, or 41 percent, while CVS sales in therest of the world were up $7 million.

Operating Income — Fiscal 1999 operatingincome was up $59 million over fiscal 1998.Excluding the restructuring charge and gain on salediscussed earlier, fiscal 1999 operating income of$361 million was up 21 percent over the prior year’soperating income of $298 million. Operatingmargins, before the special items, improved to 8.1 percent in fiscal 1999, from 7.8 percent in fiscal1998. This improvement reflects the company’scontinued focus on process improvement and costreductions, offset somewhat by premium costsassociated with meeting the record levels ofdemand in the North American truck markets.

The company’s process improvement and cost-reduction programs relate to (1) purchasing, whichincludes outsourcing non-core manufacturing andusing lower cost global sourcing of materials andsupply base management; and (2) manufacturing,which includes shifting production to lower costfacilities, consolidating common processes, improvingmaterial flow and investing in capital and systems.

LVS Operating Income — LVS operatingmargins improved dramatically in fiscal 1999 to 8.2 percent, from 5.8 percent in 1998. Substantialsavings were realized in fiscal 1999 from materialand other cost-reduction programs. The operatingmargin improvement also reflects the volume contribution from the higher sales.

CVS Operating Income — CVS operatingincome for fiscal 1999 was $232 million, an increaseof 9 percent over fiscal 1998. Operating marginsdeclined to 8.1 percent in fiscal 1999 from 9.0 percentin 1998. This margin decline was driven primarily by an increase in premium freight costs and the useof higher-cost alternate component suppliers to meet the record demand in the North Americanheavy truck market. Fiscal 1999 operating marginswere also adversely impacted by the decline ofhigher-margin government program sales.

Equity in Earnings of Aff i l iates —

Equity in earnings of affiliates increased $7 million in fiscal 1999, to $35 million, primarily as a result ofhigher sales of anti-lock brakes and related systemsby the company’s WABCO affiliate.

Net Income — Net income for the year was$194 million, or $3.75 per share, an increase of 32 percent as compared with 1998 net income of$147 million, or $2.84 per share. Net income beforespecial items was $193 million in fiscal 1999, or$3.73 per share, compared with 1998 net incomebefore special items of $166 million, or $3.20 pershare, an improvement of 17 percent in earnings pershare. Special items include the one-time gainrelated to the formation of the ZF Meritor jointventure and a restructuring charge recorded in fiscal1999 and the one-time charge in fiscal 1998 for thesettlement of interest rate agreements.

E N V I R O N M E N T A L M A T T E R S

Federal, state and local requirements relating to thedischarge of substances into the environment, thedisposal of hazardous wastes and other activitiesaffecting the environment have, and will continue tohave, an impact on the manufacturing operations ofthe company. To date, compliance with environmentalrequirements and resolution of environmental claimshas been accomplished without material effect on thecompany’s liquidity and capital resources, competitiveposition, or financial statements.

The company has been designated as a potentiallyresponsible party at 10 Superfund sites, excludingsites as to which the company’s records disclose no involvement or as to which the company’spotential liability has been finally determined.Management estimates the total, reasonablypossible costs the company could incur for theremediation of Superfund sites at September 30,2000, to be approximately $20 million, of whichprobable costs of $13 million have been accrued.

Various other lawsuits, claims and proceedings havebeen asserted against the company, allegingviolations of federal, state and local environmentalprotection requirements, or seeking remediation ofalleged environmental impairments, principally atpreviously disposed-of properties. For thesematters, ArvinMeritor expects that any amounts thatmay be required to be paid in excess of recordedreserves of $25 million will not have a materialadverse effect on the company’s financial condition.

Based on its assessment, management believes that the company’s expenditures for environmentalcapital investment and remediation necessary tocomply with present regulations governing environ-mental protection and other expenditures for theresolution of environmental claims will not have amaterial adverse effect on the company’s liquidity andcapital resources, competitive position or financialstatements. Management cannot assess the possibleeffect of compliance with future requirements.



29

30

A F F I L I A T E S

The company has 16 joint ventures, which areaccounted for under the equity method ofaccounting. These strategic alliances provide for sales, product design, development andmanufacturing in certain product and geographicareas. Aggregate sales of these affiliates were $924 million, $488 million and $443 million in fiscal2000, 1999 and 1998, respectively. The increase infiscal 2000 is due to the inclusion of approximately$290 million in sales from Arvin’s affiliates and $146 million attributable to sales of the ZF Meritorjoint venture created in late fiscal 1999.

The company’s equity in earnings of affiliates was$29 million in fiscal 2000, compared to $35 million infiscal 1999 and $28 million in fiscal 1998. Cashdividends to ArvinMeritor from these joint ventureswere $32 million, $28 million and $27 million in fiscal2000, 1999 and 1998, respectively. The decrease infiscal 2000 earnings of affiliates from fiscal 1999 isprimarily a result of the lower North American truckvolumes, which resulted in lower sales and lowerearnings of certain affiliates. The increase in equityincome in fiscal 1999 from fiscal 1998 relatesprimarily to the company’s 50 percent-owned jointventure with WABCO, a leading supplier of anti-lockbraking systems for North American heavy-dutycommercial vehicles. This growth was attributed tothe growing use of anti-lock braking systems acrossNorth America.

I N C O M E T A X E S

The company’s effective income tax rate in fiscal2000 was 38.2 percent, compared to 38.8 percent infiscal 1999 and 40.0 percent in fiscal 1998. The taxrate decline in fiscal 2000 from the 1999 level wasprimarily due to the company’s legal entityrealignment, which resulted in lower state incometaxes. Income taxes on the one-time gain related tothe formation of the ZF Meritor joint venture in fiscal1999 were recorded at an effective tax rate of 25 percent, due to a book-tax basis difference onassets transferred into the joint venture, whichreduced the company’s overall effective tax rate forfiscal 1999 by 1.2 percentage points, as comparedto 1998’s effective tax rate.

I N T E R N A T I O N A L O P E R A T I O N S

Approximately 44 percent of the company’s totalassets as of September 30, 2000, and 37 percent offiscal 2000 sales were outside North America.Management believes that international operationshave significantly benefited the financialperformance of the company. However, thecompany’s international operations are subject to anumber of risks inherent in operating abroad. Therecan be no assurance that these risks will not have amaterial adverse impact on the company’s ability toincrease or maintain its foreign sales or on itsfinancial condition or results of operations. Duringfiscal 2000, the company’s sales and operatingincome were both negatively impacted by approximately $130 million and $20 million, respectively, due to exchange rate changes. Theimpact the euro and other currencies will have onthe company’s sales and operating income isdifficult to predict in the upcoming year.

On January 1, 1999, the euro became the commoncurrency of eleven countries of the European Union.During a three-year transition period, the presentnational currencies of these eleven countries willbecome sub-units of the euro at fixed exchangerates. The European Union’s current plans call for thetransition period to be completed by July 1, 2002, at which time the euro will become the sole legaltender in those participating countries.

The company is engaged in business in some of thecountries that participate in the European MonetaryUnion, and sales for fiscal 2000 in these countrieswere approximately 17 percent of the company’stotal sales. In addition, the company enters intoforeign currency forward exchange contracts withrespect to several of the existing currencies thathave been subsumed into the euro and hasborrowings in participating currencies primarilyunder its revolving Credit Facility. The company hasanalyzed the potential effects of the euro conversionon competitive conditions, information technologyand other systems, currency risks, financialinstruments and contracts, and has examined thetax and accounting consequences of euroconversion, and believes that the conversion will nothave a material adverse effect on its business,operations and financial condition.

The company is making the necessary adjustmentsto accommodate the conversion, including modifications to its information technology systemsand programs, pricing schedules and financialinstruments. The company expects that allnecessary actions will be completed in a timelymanner, and that the costs associated with theconversion to the euro will not be material.

Q U A N T I T A T I V E A N D

Q U A L I T A T I V E D I S C L O S U R E S

A B O U T M A R K E T R I S K

The company is exposed to foreign currencyexchange rate risk inherent in its purchases, sales,assets and liabilities denominated in currenciesother than the U.S. dollar and interest rate riskassociated with the company’s debt.

The company enters into foreign currency forwardexchange contracts to minimize the risk of unanticipated gains and losses from currency ratefluctuations on foreign currency commitmentsentered into in the ordinary course of business (see Note 14 of Notes to Consolidated FinancialStatements). It is the policy of the company not toenter into derivative financial instruments forspeculative purposes, and therefore the companyholds no derivative instruments for trading purposes.

The company has performed a sensitivity analysisassuming a hypothetical 10-percent adversemovement in foreign currency exchange rates andinterest rates applied to the underlying exposuresdescribed above. As of September 30, 2000, theanalysis indicated that such market movementswould not have a material effect on the company’sconsolidated financial position, results of operationsor cash flows. Actual gains or losses in the futuremay differ significantly from that analysis, however,based on changes in the timing and amount ofinterest rate and foreign currency exchange ratemovements and the company’s actual exposures.

N E W A C C O U N T I N G

P R O N O U N C E M E N T S

There were no new accounting pronouncementsadopted by the company in fiscal 2000 that had amaterial impact on the company’s financial conditionor results of operations. On October 1, 2000, thecompany adopted Statement of FinancialAccounting Standards No. 133, “Accounting forDerivative Instruments and Hedging Activities.” Theadoption of this standard did not have a materialimpact on the company (see Note 2 of Notes toConsolidated Financial Statements).

C A U T I O N A R Y S T A T E M E N T

This Management’s Discussion and Analysis, as wellas other sections of this annual report, containsstatements relating to future results of the company(including certain projections and business trends)that are “forward-looking statements” as defined inthe Private Securities Litigation Reform Act of 1995.Forward-looking statements are typically identifiedby words or phrases such as “believe,” “expect,”“anticipate,” “estimate,” “should,” “are likely to be”and similar expressions. Actual results may differmaterially from those projected as a result of certainrisks and uncertainties, including, but not limited to,global economic and market conditions; thedemand for commercial, specialty and light vehiclesfor which the company supplies products; risksinherent in operating abroad; OEM program delays;demand for and market acceptance of new andexisting products; successful development of newproducts; reliance on major OEM customers; laborrelations of the company, its customers andsuppliers; successful integration of acquired ormerged businesses; the failure to achieve theexpected annual savings and synergies from pastand future business combinations; competitiveproduct and pricing pressures; the amount of thecompany’s debt, as well as other risks anduncertainties, such as those described underOverview and Outlook, Environmental Matters,International Operations, and Quantitative andQualitative Disclosures About Market Risk and thosedetailed herein and from time to time in the filings ofthe company with the Securities and ExchangeCommission. These forward-looking statements aremade only as of the date hereof, and the companyundertakes no obligation to update or revise theforward-looking statements, whether as a result ofnew information, future events or otherwise.



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M A N A G E M E N T ’ S R E S P O N S I B I L I T Y

F O R F I N A N C I A L R E P O R T I N G

32

The consolidated financial statements of ArvinMeritor, Inc. have been prepared by management, which isresponsible for their integrity and objectivity. These statements have been prepared in conformity with generallyaccepted accounting principles of the U.S. and, where appropriate, reflect estimates based on judgements ofmanagement.

The company’s system of internal controls is designed to provide reasonable assurance that company assets aresafeguarded from loss or unauthorized use or disposition, and that transactions are executed in accordance withmanagement’s authorization and properly recorded to permit the preparation of financial statements inaccordance with generally accepted accounting principles of the U.S. This system is augmented by carefulselection and training of qualified personnel, proper division of responsibilities, the dissemination of writtenpolicies and procedures, and an internal audit program to monitor its effectiveness.

The financial statements have been audited by Deloitte & Touche LLP, independent certified public accountants,whose report appears on page 33.

The board of directors, through its audit committee consisting of six outside directors, oversees management’sfinancial reporting responsibilities and programs for ethical business conduct. As part of these responsibilities, the audit committee meets regularly with representatives of management, the independent accountants and thecompany’s general auditor. The independent accountants and the company’s general auditor have full and freeaccess to the audit committee and meet with the committee both with and without the presence of management.

Larry Yost Bill Hunt Tom Madden

Chairman of the Board Vice Chairman Senior Vice President

Chief Executive Officer President Chief Financial Officer

T O T H E B O A R D O F D I R E C T O R S A N D S H A R E O W N E R S

O F A R V I N M E R I T O R , I N C . :

We have audited the accompanying consolidated balance sheets of ArvinMeritor, Inc. and subsidiaries (formerly Meritor Automotive, Inc. and subsidiaries – see Note 1) as of September 30, 2000 and 1999, and therelated consolidated statements of income, shareowners’ equity and cash flows for each of the three years inthe period ended September 30, 2000. These financial statements are the responsibility of the company’smanagement. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financialposition of ArvinMeritor, Inc. and subsidiaries at September 30, 2000 and 1999, and the results of theiroperations and their cash flows for each of the three years in the period ended September 30, 2000 inconformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLPDetroit, MichiganNovember 7, 2000

I N D E P E N D E N T A U D I T O R S ’ R E P O R T

33

S T A T E M E N T O F C O N S O L I D A T E D I N C O M EIn millions, except per share amounts

34

Year Ended September 30, 2000 1999 1998

Sales $ 5,153 $ 4,450 $ 3,836

Cost of sales 4,410 3,798 3,287

Gross Margin 743 652 549

Selling, general and administrative (348) (280) (248)

Amortization expense (19) (11) (3)

Restructuring costs (26) (28) —

Merger expenses (10) — —

Gain on sale of business and other 89 24 —

Operating Income 429 357 298

Other income — 2 —

Equity in earnings of affiliates 29 35 28

Interest rate settlement cost — — (31)

Interest expense, net (89) (61) (39)

Income Before Income Taxes 369 333 256

Provision for income taxes (141) (129) (102)

Minority interests (10) (10) (7)

Net Income $ 218 $ 194 $ 147

Basic and Diluted Earnings per Share $ 4.12 $ 3.75 $ 2.84

Average Common Shares Outstanding - Basic and Diluted 52.9 51.8 51.8

See Notes to Consolidated Financial Statements.

September 30, 2000 1999

Assets

Current Assets

Cash and cash equivalents $ 116 $ 68

Receivables (less allowance for doubtful accounts: 2000, $22; 1999, $10) 1,278 742

Inventories 583 392

Other current assets 212 130

Total current assets 2,189 1,332

Net Property 1,348 766

Net Goodwill (less accumulated amortization: 2000, $48; 1999, $35) 756 454

Other Assets 427 244

Total Assets $ 4,720 $ 2,796

Liabilities and Shareowners’ Equity

Current Liabilities

Short-term debt $ 183 $ 44

Accounts payable 1,058 712

Accrued compensation and benefits 203 144

Accrued income taxes 27 28

Other current liabilities 254 196

Total current liabilities 1,725 1,124

Long-Term Debt 1,537 802

Accrued Retirement Benefits 382 371

Other Liabilities 113 116

Minority Interests 96 35

Company-Obligated Mandatorily Redeemable Preferred Capital Securities 74 —

Shareowners’ Equity

Common stock (2000, 71.0 shares issued and 67.9 outstanding;

1999, 69.1 shares issued and 68.8 outstanding) 71 69

Additional paid-in capital 546 158

Retained earnings 466 283

Treasury stock (2000, 3.1 shares; 1999, 0.3 shares) (53) (6)

Accumulated other comprehensive loss (237) (156)

Total shareowners’ equity 793 348

Total Liabilities and Shareowners’ Equity $ 4,720 $ 2,796


C O N S O L I D A T E D B A L A N C E S H E E TIn millions

35

S T A T E M E N T O F C O N S O L I D A T E D C A S H F L O W SIn millions

36


Operating Activities

Net income $ 218 $ 194 $ 147

Adjustments to net income to arrive at cash

provided by operating activities:

Depreciation 143 120 99

Amortization 19 11 3

Gain on sale of business and other (89) (24) —

Restructuring, net of expenditures 19 23 —

Deferred income taxes 32 17 (10)

Pension and retiree medical expense 58 52 50

Pension and retiree medical contributions (89) (71) (64)

Changes in assets and liabilities, excluding effects of

acquisitions, divestitures and foreign currency adjustments:

Receivables 15 (95) (88)

Inventories (10) — (34)

Accounts payable (28) 45 129

Change in other working capital (66) (18) 64

Other assets and liabilities 6 8 (16)

Cash Provided by Operating Activities 228 262 280

Investing Activities

Capital expenditures (225) (170) (139)

Acquisitions of businesses and investments, net of cash acquired (74) (573) (8)

Payment of certain merger-related assumed liabilities (49) — —

Proceeds from disposition of assets, property and businesses 148 51 17

Cash Used for Investing Activities (200) (692) (130)

Financing Activities

Net increase (decrease) in revolving and other debt 245 9 (129)

Proceeds from issuance of notes — 498 —

Net increase (decrease) in debt 245 507 (129)

Cash dividends (35) (29) (29)

Purchases of treasury stock (172) (6) —

Payment of interest rate settlement cost — (31) —

Distribution tax obligation, net — — (58)

Cash Provided by (Used for) Financing Activities 38 441 (216)

Effect of Exchange Rate Changes on Cash (18) (8) (2)

Increase (Decrease) in Cash 48 3 (68)

Cash at Beginning of Year 68 65 133

Cash at End of Year $ 116 $ 68 $ 65



Common Stock

Beginning balance $ 69 $ 69 $ 69

ArvinMeritor merger: — —

Shares issued to Arvin shareowners 24 — —

Conversion of outstanding Meritor shares (15) — —

Cancellation of Meritor treasury stock (7) — —

Ending balance 71 69 69

Additional Paid-In Capital

Beginning balance 158 156 154

ArvinMeritor merger:

Shares issued to Arvin shareowners and

Arvin stock options converted 492 — —

Conversion of outstanding Meritor shares 15 — —

Cancellation of Meritor treasury stock (119) — —

Other — 2 2


Retained Earnings

Beginning balance 283 118 —

Net income 218 194 147

Cash dividends (per share: 2000, $0.64; 1999 and 1998, $0.56) (35) (29) (29)


Treasury Stock

Beginning balance (6) — —

Cancellation of treasury stock in connection with merger 125 — —

Purchase of treasury stock (172) (6) —

Ending balance (53) (6) —

Accumulated Other Comprehensive Loss

Beginning balance (156) (77) (72)

Foreign currency translation adjustments (81) (79) (5)

Ending balance (237) (156) (77)

Total Shareowners’ Equity $ 793 $ 348 $ 266

Comprehensive Income

Net income $ 218 $ 194 $ 147

Foreign currency translation adjustments (81) (79) (5)

Total Comprehensive Income $ 137 $ 115 $ 142


S T A T E M E N T O F C O N S O L I D A T E D S H A R E O W N E R S ’ E Q U I T YIn millions, except per share amounts

37

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

38

1 . B A S I S O F P R E S E N T A T I O N

ArvinMeritor, Inc. (the company or ArvinMeritor) is aleading global supplier of a broad range ofintegrated systems, modules and componentsserving light vehicle, commercial truck, trailer andspecialty original equipment manufacturers andcertain aftermarkets. The company also providescoil coating applications to the transportation,appliance, construction and furniture industries.

On July 7, 2000, Meritor Automotive, Inc. (Meritor)and Arvin Industries, Inc. (Arvin) merged intoArvinMeritor. The merger was accounted for utilizingthe purchase method of accounting. The financialinformation for the periods prior to July 7, 2000,reflect the results of Meritor and its consolidatedsubsidiaries prior to the merger. The information forthe period after July 7, 2000, represents the resultsof ArvinMeritor and its consolidated subsidiaries.

All prior periods’ share and per share data havebeen restated to conform with the exchange ofMeritor shares to ArvinMeritor shares on a one to0.75 basis in connection with the merger with Arvin(see Note 3).

Certain prior year amounts have been reclassified toconform with current year presentation.

2 . A C C O U N T I N G P O L I C I E S

Use of Est imates

The financial statements of ArvinMeritor have been prepared in accordance with accountingprinciples generally accepted in the U.S. that requiremanagement to make estimates and assumptionsthat affect the amounts reported in the financialstatements. Actual results could differ from those estimates.

Consol idat ions and Joint Ventures

The consolidated financial statements include theaccounts of the company and those majority-ownedsubsidiaries in which the company has control. Allsignificant intercompany accounts and transactionsare eliminated in consolidation. The accounts andresults of operations of controlled subsidiaries whereownership is greater than 50 percent, but less than100 percent, are included in the consolidated resultsand are offset by a related minority interest expenseand liability recorded for the minority interestownership. Investments in affiliates that are notmajority-owned and controlled are reported using theequity method of accounting for investments.

Foreign Currency

Local currencies are considered the functionalcurrencies outside the U.S., except for subsidiarieslocated in countries with highly inflationaryeconomies. For operations reporting in localcurrencies, assets and liabilities are translated atyear-end exchange rates with cumulative currencytranslation adjustments included as a component ofAccumulated Other Comprehensive Loss. Incomeand expense items are translated at average rates ofexchange during the year.

Cash Equivalents

The company considers all highly liquid investmentspurchased with a maturity of three months or less tobe cash equivalents.

Inventories

Inventories are stated at the lower of cost (using LIFO,FIFO or average methods) or market (determined onthe basis of estimated realizable values).

Tool ing

Costs incurred by the company for certainengineering and tooling projects, principally for lightvehicle products, for which customer reimbursementis contractually guaranteed are classified as OtherCurrent Assets in the accompanying ConsolidatedBalance Sheet. Provisions for losses are providedat the time management anticipates costs to exceed anticipated customer reimbursement. Company-owned tooling is classified as propertyand depreciated over its expected life or the life ofthe related vehicle platform, whichever is shorter.

Property and Depreciat ion

Property is stated at cost. Depreciation of propertyis based on estimated useful lives, generally usingthe straight-line method. Significant renewals andbetterments are capitalized, and replaced units arewritten off. Maintenance and repairs, as well asrenewals of minor amounts, are charged to expense.

Intangible Assets

Goodwill represents the excess of the cost ofpurchased businesses over the fair value of their netassets at the date of acquisition and is amortizedusing the straight-line method for periods not toexceed 40 years. All intangibles, including patents,trademarks and licenses, are reviewed periodicallyto determine whether the carrying amount of theasset is impaired. Adjustments to the carrying valueare made if the review indicates this amount will notbe recoverable.

Capital ized Software

Costs relating to internally developed or purchasedsoftware are capitalized and amortized utilizing thestraight-line basis over periods not to exceed sevenyears. These amounts are included in Other Assetsin the accompanying Consolidated Balance Sheet.

Impairment of Long-Lived Assets

Management periodically reviews the realizability oflong-lived assets, based on an evaluation ofremaining useful lives, cash flows and profitabilityprojections.

Revenue Recognit ion

Revenues are recognized upon shipment ofproducts to customers.

Earnings per Share

Basic earnings per share are based upon theweighted average number of shares outstandingduring each year. Diluted earnings per shareassumes the exercise of common stock optionswhen dilutive.

Environmental Matters

The company records accruals for environmentalissues in the accounting period in which its responsibility is established and the cost can bereasonably estimated. At environmental sites inwhich more than one potentially responsible partyhas been identified, the company records a liabilityfor its allocable share of costs related to itsinvolvement with the site, as well as an allocableshare of costs related to insolvent parties or unidentified shares. At environmental sites in whichArvinMeritor is the only responsible party, thecompany records a liability for the total estimatedcosts of remediation before consideration ofrecovery from insurers or other third parties. If recovery from a third party is determined to beprobable, the company records a receivable for theestimated recovery.

Stock-Based Compensation

The company accounts for its stock-based compensation using the intrinsic value approachunder Accounting Principles Board Opinion (APB)No. 25, “Accounting for Stock Issued toEmployees,” and has adopted the disclosure-onlyprovisions of Statement of Financial AccountingStandards No. 123 (SFAS 123), “Accounting forStock-Based Compensation” (see Note 16).

New Accounting Standards

In June 1998, the Financial Accounting StandardsBoard (FASB) issued Statement of FinancialAccounting Standards No. 133 (SFAS 133),“Accounting for Derivative Instruments and HedgingActivities,” as amended, effective for all fiscal quartersof fiscal years beginning after June 15, 2000. SFAS 133 requires that all derivatives be recognizedas either assets or liabilities in the statement offinancial position and be measured at fair value. Theprimary type of derivative financial instruments thecompany uses is forward foreign exchange contractsto minimize the foreign currency exposure of variousreporting locations related to certain commitmentsdenominated in currencies other than the location’sfunctional currency. The company adopted thisstandard, as amended, effective October 1, 2000.The adoption of this standard did not have a materialimpact on the financial position or results ofoperations of the company.

3 . A R V I N M E R I T O R M E R G E R

On July 7, 2000, Meritor and Arvin merged to formArvinMeritor. Under the terms of the mergeragreement, each share of Meritor common stock wasconverted into the right to receive 0.75 shares ofcommon stock of ArvinMeritor, and each share ofArvin common stock was converted into the right toreceive one share of common stock of ArvinMeritorplus $2.00 in cash. In total, approximately 62.3 millionshares of Meritor, 24.3 million shares of Arvin and$48.5 million in cash were exchanged for approximately 70.1 million shares of ArvinMeritor.

The merger was accounted for by the purchasemethod of accounting. Accordingly, the results ofoperations of Arvin are included for the periodsubsequent to the date of the merger. The totalestimated merger consideration of $576 million wasallocated first to assets and liabilities based on theirfair values as of the merger date, with the residualallocated to goodwill, which is being amortized on a straight-line basis over 40 years. Since thecompany assumed the stock options outstanding of Arvin, the fair value of these options was includedin determining the fair value. The purchase priceallocation is preliminary and may be revised up toone year from the date of acquisition due toappraisals of fixed assets, other fair valueadjustments and the finalization of any potentialplans of restructuring.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S (continued)

39

40

A summary of the estimated fair market value ofassets and liabilities acquired is as follows:

Current assets $ 946Property, plant and equipment 610Goodwill 329Other assets 246Total assets 2,131Current liabilities (988)Long-term liabilities (169)Long-term debt and capital securities (398)Fair market value $ 576

The following unaudited pro forma consolidatedresults of operations assume that the ArvinMeritormerger occurred as of the beginning of each period and excludes merger expenses (in millions, exceptper share amounts):

2000 1999 Net sales $ 7,722 $ 7,491Net income 287 280Basic earnings per share 4.02 3.68Diluted earnings per share 4.02 3.67

Pro forma net income and basic and diluted earningsper share amounts for the fiscal year endedSeptember 30, 2000, exclude a non-recurring chargeof $70 million ($58 million after-tax, or $0.81 pershare) for merger-related expenses. The pro formaadjustments are based upon available informationand certain assumptions that management believesare reasonable. The pro forma data is not necessarilyindicative of the results of operations of ArvinMeritorthat would have been achieved if the merger had infact occurred on such dates, or the results ofoperations of ArvinMeritor for any future period. Thepro forma data does not give effect to any potentialrestructuring costs or to any potential cost savings orother synergies that could result from the merger.

4 . A C Q U I S I T I O N O F B U S I N E S S E S

During fiscal 1999, the company completed threeacquisitions. On December 28, 1998, the companyacquired the assets of Euclid Industries andassumed substantially all of Euclid’s liabilities. Thecompany completed its acquisition of the heavytruck axle manufacturing operations of Volvo TruckCorporation on December 31, 1998. The purchaseprice for the Volvo heavy truck axle business wasapproximately $135 million in cash, of which $34 million is deferred at September 30, 2000. OnJanuary 29, 1999, the company acquired the Heavy Vehicle Braking Systems (HVBS) business ofLucasVarity plc for approximately $400 million incash. These acquisitions were accounted for by thepurchase method of accounting, and accordingly,the results of operations of the acquired businessesare included with those of the company for theperiods subsequent to the dates of acquisition.The assets and liabilities have been recorded at fairvalue as of the acquisition dates. The excess of thepurchase price of these acquisitions over the fairmarket value of assets acquired of $424 million isincluded in Net Goodwill in the accompanyingConsolidated Balance Sheet and is being amortizedon a straight-line basis over 40 years. Theseacquisitions would have added pro forma sales of$173 million with no impact on net income on a pro forma basis in 1999, assuming the acquisitionsoccurred at the beginning of 1999.

5 . S A L E O F B U S I N E S S E S

In the first quarter of 2000, the company completedthe sale of its LVS seat adjusting systems businessfor approximately $135 million cash, resulting in a one-time gain of $83 million ($51 million after-tax, or $0.96 per basic and diluted share). The seatadjusting systems business had fiscal 1999 sales ofapproximately $130 million.

In the fourth quarter of 1999, a one-time gain of $24 million ($18 million after-tax, or $0.34 per share)was recorded to reflect the formation of a transmissionand clutch joint venture with ZF Friedrichshafen AG(ZF). Under the terms of the joint venture agreement,the company transferred the assets of its transmissionand clutch businesses into the joint venture, while ZF contributed technology and made a $51-millioncash payment to the company. ArvinMeritor and ZF each own 50 percent of the joint venture.

6 . R E S T R U C T U R I N G C O S T S

The company recorded a restructuring charge of$26 million ($16 million after-tax, or $0.30 per basicand diluted share) in the third quarter of fiscal 2000.The charge included severance and other employeecosts of approximately $19 million, related to a netreduction of approximately 500 employees, with thebalance primarily associated with facility-relatedcosts from the rationalization of operations. As ofSeptember 30, 2000, approximately $6 million hadbeen paid in termination benefits, with a netreduction of approximately 160 employees. As ofSeptember 30, 2000, approximately $14 million ofthe reserve remains in Other Current Liabilities in theaccompanying Consolidated Balance Sheet. Thecompany expects the remaining restructuringactions will be substantially completed by the end ofthe third quarter of fiscal 2001.

The company recorded a restructuring charge of$28 million ($17 million after-tax, or $0.33 per basicand diluted share) in fiscal 1999. The original chargeincluded severance and other employee costs ofapproximately $16 million, related to a net reductionof approximately 350 employees, with the balanceprimarily associated with facility-related costs fromthe rationalization of operations. All restructuringactions had been completed as of June 30, 2000,and have resulted in lower-than-expected severanceand other employee costs of approximately $2 million and higher facility-related costs of approximately $2 million. As of September 30, 2000,approximately $12 million has been paid intermination benefits for a net reduction of approximately 500 employees, with approximately $2 million remaining in Other Current Liabilities forfinal termination benefits. The net reduction ofemployees primarily related to LVS businesses.

These charges are included in the caption Restructuring Costs in the accompanying Statementof Consolidated Income.

7 . I N V E N T O R I E S

Inventories are summarized as follows (in millions):

September 30, 2000 1999 Finished goods $ 298 $ 181Work in process 142 117Raw materials, parts and supplies 195 145Total 635 443Less allowance to adjust the carrying

value of certain inventories (2000, $125; 1999, $135) to a LIFO basis 52 51

Inventories $ 583 $ 392

8 . O T H E R C U R R E N T A S S E T S

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

September 30, 2000 1999 Current deferred income taxes

(see Note 19) $ 122 $ 83Customer tooling 37 30Prepaid and other 53 17 Other Current Assets $ 212 $ 130

9 . N E T P R O P E R T Y

Net Property is summarized as follows (in millions):

September 30, 2000 1999 Property at cost:

Land and land improvements $ 66 $ 33Buildings 400 308Machinery and equipment 1,572 1,217Company-owned tooling 190 194Construction in progress 221 113

Total 2,449 1,865Less accumulated depreciation 1,101 1,099Net Property $ 1,348 $ 766


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1 0 . O T H E R A S S E T S

Other Assets are summarized as follows (in millions):

September 30, 2000 1999 Long-term deferred income taxes

(see Note 19) $ 9 $ 71Investments in affiliates 200 50Prepaid pension costs (see Note 18) 78 66Net capitalized computer software costs 41 34Patents, trademarks and licenses 38 8Other 61 15Other Assets $ 427 $ 244

1 1 . O T H E R C U R R E N T L I A B I L I T I E S

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

September 30, 2000 1999Accrued product warranties $ 95 $ 95Accrued taxes other than income taxes 36 27Accrued restructuring 16 11Environmental reserves 11 10Other 96 53Other Current Liabilities $ 254 $ 196

1 2 . O T H E R L I A B I L I T I E S

Other Liabilities are summarized as follows (in millions):

September 30, 2000 1999Environmental reserves $ 27 $ 14Deferred payments 34 44Other 52 58Other Liabilities $ 113 $ 116

1 3 . L O N G - T E R M D E B T

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

September 30, 2000 19996 7/8 percent notes due 2001 $ 75 $ —7.94 percent notes due 2005 50 —6 3/4 percent notes due 2008 100 —7 1/8 percent notes due 2009 150 —6.8 percent notes due 2009 498 498Commercial paper 560 —Bank revolving credit facilities 194 239Lines of credit and other 93 109

Subtotal 1,720 846Less: current maturities (183) (44)Long-Term Debt $ 1,537 $ 802

During July 2000, the company entered into twounsecured credit facilities: a 364-day, $750-millioncredit facility which matures on June 27, 2001, withthe option to convert borrowings thereunder to atwo-year term loan, and a five-year, $750-millionrevolving credit facility, which matures on June 27, 2005. The new credit facilities becameeffective on the date of the merger, cancelingexisting credit agreements of Arvin and Meritor, andwill be used for general corporate purposes of thecompany. Borrowings are subject to interest basedon quoted market rates plus a margin, in addition toa facility fee, both of which are based on thecompany’s credit rating. At September 30, 2000, themargin over the LIBOR rate was 57.5 basis points,which includes the facility fee of 12.5 basis points.At September 30, 2000, the company was incompliance with all covenants and there have beenno events of default.

During September 2000, the company instituted acommercial paper program with authorizedborrowings of up to $1 billion. At September 30, 2000,borrowings under the commercial paper programtotaled approximately $560 million, at an averageinterest rate of 6.8 percent. Commercial paperborrowings are backed by the revolving credit facility,of which $500 million is classified as long-term debtand $60 million is classified as short-term debt.

The company has $85 million of unsecured lines ofcredit with interest rates determined at the time ofborrowing. At September 30, 2000, there were nooutstanding borrowings under these facilities. These lines of credit expire in September 2001.

Included in the Balance Sheet are $74 million of9.5-percent company-obligated mandatorilyredeemable preferred capital securities (“capitalsecurities”), issued by a wholly owned subsidiarytrust of ArvinMeritor, due February 1, 2027, andcallable in February 2007. The company fully andunconditionally guarantees the subsidiary trust’sobligation under the capital securities.

Future minimum lease payments on operatingleases are $28 million in 2001, $27 million in 2002,$19 million in 2003, $15 million in 2004, $14 millionin 2005 and $58 million thereafter.

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1 4 . F I N A N C I A L I N S T R U M E N T S

ArvinMeritor’s financial instruments include cash, short- and long-term debt and foreigncurrency forward exchange contracts. As ofSeptember 30, 2000 and 1999, the carrying valuesof the company’s financial instruments approximated their fair values, based on prevailingmarket prices and rates. It is the policy of thecompany not to enter into derivative financialinstruments for speculative purposes. The companydoes enter into foreign currency forward exchangecontracts to minimize the risk of unanticipated gainsand losses from currency rate fluctuations on foreigncurrency commitments entered into in the ordinarycourse of business. These foreign currency forwardexchange contracts relate to purchase and salestransactions and are generally for terms of less thanone year. The foreign currency forward exchangecontracts are executed with creditworthy banks and are denominated in currencies of majorindustrial countries. The notional amount ofoutstanding foreign currency forward exchangecontracts aggregated $222 million and $266 millionat September 30, 2000 and 1999, respectively.ArvinMeritor does not anticipate any materialadverse effect on its results of operations orfinancial position relating to these foreign currencyforward exchange contracts.

In anticipation of offering debt securities in October 1998, the company entered into interest rateagreements in April 1998 to secure interest rates. The planned issuance of the debt securities did notoccur in fiscal 1998, and the company settled certaininterest rate agreements associated with the then-planned offering of debt securities, resulting in apayment in the first quarter of fiscal 1999 of $31 million. The accounting treatment of thesettlement payment was a one-time charge of $31 million ($19 million after-tax, or $0.36 per basicand diluted share).

1 5 . C A P I T A L S T O C K

The company is authorized to issue 500 millionshares of Common Stock, with a par value of $1 per share, and 30 million shares of PreferredStock, without par value, of which two million sharesare designated as Series A Junior ParticipatingPreferred Stock (Junior Preferred Stock). Under theCompany Rights Plan, a Preferred Share PurchaseRight (Right) is attached to each share of CommonStock pursuant to which the holder may, in certaintakeover-related circumstances, become entitled topurchase from the company 1/100th of a share ofJunior Preferred Stock at a price of $100, subject toadjustment. Also, in certain takeover-related circumstances, each Right (other than those held byan acquiring person) will be exercisable for shares ofCommon Stock or stock of the acquiring personhaving a market value of twice the exercise price. In certain events, each Right may be exchanged bythe company for one share of Common Stock or1/100th of a share of Junior Preferred Stock. TheRights will expire on July 7, 2010, unless earlierexchanged or redeemed at a redemption price of$0.01 per Right. Until a Right is exercised, theholder, as such, will have no voting, dividend orother rights as a shareowner of the company.

The company has reserved approximately 9.5 millionshares of Common Stock in connection with its1997 Long-Term Incentives Plan (the 1997 LTIP),Directors Stock Plan and Incentive CompensationPlan for grants of non-qualified stock options,incentive stock options, stock appreciation rights,restricted stock and stock awards to key employees and the company’s directors. AtSeptember 30, 2000, there were 6.0 million sharesavailable for future grants under these plans.

In July 2000, the company’s board of directorsauthorized a program to repurchase up to $100 millionof its common stock. Under the program, thecompany will purchase shares periodically in the openmarket or through privately negotiated transactions asmarket conditions warrant and in accordance withSecurities and Exchange Commission rules. As ofSeptember 30, 2000, 3.1 million shares of ArvinMeritorcommon stock had been purchased under thisprogram at an aggregate cost of approximately $53 million, or an average of $16.98 per share.


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44

In September 1999, Meritor’s board of directorsauthorized the purchase of up to $125 million ofMeritor’s common stock and in February 2000, theboard of directors authorized an additional $75 millionfor such purpose. Meritor purchased 5,120,400 sharesat an aggregate cost of approximately $125 million, oran average of $24.51 per share, under these programsbefore they were suspended in February 2000 inanticipation of entering into a definitive agreement tomerge with Arvin. The treasury stock was cancelled inconnection with the merger.

1 6 . S T O C K O P T I O N S

Stock options granted under the plans described inNote 15 expire ten years from the date of grant andgenerally have a vesting period of three years. Thestock options granted are exercisable at pricesequal to the fair market value of Common Stock onthe dates the options are granted; accordingly, nocompensation expense has been recognized for thestock option plans. All Meritor option quantities andexercise prices have been adjusted for the oneMeritor share for 0.75 ArvinMeritor shares exchangeratio as part of the merger (see Note 3).

Upon completion of the merger, each outstandingoption to purchase one share of Arvin commonstock was converted into an option to purchase oneshare of ArvinMeritor common stock, plus $1.00 pershare reduction of the exercise price. The convertedoptions generally expire ten years from the date ofthe original grant and vested immediately upon themerger being consummated. The Arvin stockoptions originally granted were exercisable at pricesnot less than the fair market value of Arvin’scommon stock on the dates the options weregranted. Accordingly, no compensation expense hasbeen recognized for the stock option plans. TheArvin stock options were valued using the Black-Scholes options model and the fair value ofthe options was included in the purchase price ofArvin, as described in Note 3. All of the convertedoptions are exercisable at prices greater than the fairmarket value of ArvinMeritor common stock on thedate of the conversion.

Information relative to stock options is as follows(shares in thousands):

WeightedAverageExercise

Shares Price

Options outstanding on October 1, 1997 276 $ 31.71

Granted 2,282 29.87Exercised (3) 30.21Cancelled (220) 29.91Options outstanding

at September 30, 1998 2,335 30.08Granted 629 27.37Exercised (22) 29.83Cancelled (218) 29.62Options outstanding

at September 30, 1999 2,724 29.49Granted 729 22.09Conversion of Arvin options

at July 7, 2000 3,118 28.10Exercised — —Cancelled (176) 29.96Options outstanding

at September 30, 2000 6,395 $ 28.04Exercisable at September 30, 1998: 85 $ 31.73Exercisable at September 30, 1999: 621 30.42Exercisable at September 30, 2000: 4,878 28.77

Options outstanding at September 30, 2000, aresummarized as follows (shares in thousands):

Weighted average

Number of options Remaining Exercise price

Price Range Outstanding Exercisable life (yrs) Outstanding Exercisable

$17.01-$23.00 1,914 1,200 8.3 $ 20.45 $ 19.52$23.01-$29.00 983 626 5.8 $ 26.88 $ 26.49$29.01-$35.00 2,459 2,013 6.9 $ 30.17 $ 30.20$35.01-$41.00 1,039 1,039 7.9 $ 38.06 $ 38.06

If the company accounted for its stock-basedcompensation plans using the fair value methodprovided by SFAS 123, the company’s 2000, 1999and 1998 net income and earnings per share wouldhave been reduced to pro forma net income of $212 million, $188 million and $142 million, respectively, and pro forma earnings per share of$4.01, $3.63 and $2.74, respectively. The weightedaverage fair value of options granted was $8.16,$7.79 and $9.34 per share in 2000, 1999 and 1998, respectively. The fair value of each option wasestimated on the date of grant using the Black-Scholes pricing model utilizing the followingassumptions:

2000 1999 1998 Volatility 35.0% 31.0% 31.0% Life 5 years 5 years 5 years Dividend yield rate 5.0% 2.0% 2.0%Risk-free interest rate 6.1% 4.8% 5.8%

1 7 . R E T I R E M E N T M E D I C A L P L A N S

ArvinMeritor has retirement medical plans that coverthe majority of its U.S. and certain non-U.S.employees and provide for medical payments toeligible employees and dependents upon retirement.

The components of retirement medical expense areas follows (in millions):

2000 1999 1998 Service cost $ 2 $ 3 $ 2 Interest cost 33 29 28Amortization of

unrecognized amounts (1) 1 (1) Retirement medical expense $ 34 $ 33 $ 29

The accumulated benefit obligation is summarizedas follows (in millions):

Accumulated benefit obligation:

2000 1999 Retirees $ 397 $ 384 Employees eligible to retire 22 19Employees not eligible to retire 46 34Total accumulated benefit obligation $ 465 $ 437

The following reconciles the change in retireemedical accumulated benefit obligation and theamounts included in the balance sheet (in millions):

Change in accumulated benefit obligation:

2000 1999 Accumulated benefit obligation

at beginning of year $ 437 $ 454 Service cost 2 3Interest cost 33 29Plan amendments (1) —Acquisitions 47 2Divestitures (2) —Actuarial gains (2) (10)Benefits paid

($36 million in fiscal 1998) (49) (41)Accumulated benefit

obligation at end of year 465 437Items not recognized

in the balance sheet:Plan amendments 10 15Actuarial losses (150) (157)

Recorded liability at September 30 $ 325 $ 295

The weighted average discount rates (using a June 30 measurement date) were 8.0 percent infiscal 2000 and 7.5 percent in fiscal 1999. Formeasurement purposes, a 6.9-percent and 8.3-percent annual increase in the pre- and post-65 per capita cost of covered health care benefits wasassumed for 2000. The rate was assumed todecrease gradually to 5.0 percent for 2011 andremain at that level thereafter.


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Increasing the health care cost trend rates by one percentage point would increase theaccumulated obligation at September 30, 2000, byapproximately $40 million and would increase totalexpense by approximately $4 million. Decreasingthe health care cost trend rates by one percentagepoint would decrease the accumulated obligationat September 30, 2000, by approximately $36 million and would decrease total expense by approximately $3 million.

1 8 . R E T I R E M E N T P E N S I O N P L A N S

ArvinMeritor sponsors defined benefit pension plansthat cover most of its U.S. employees and certainnon-U.S. employees. Pension benefits for salariedemployees are based on years of credited serviceand compensation. Pension benefits for hourlyemployees are based on years of service andspecified benefit amounts. The company’s fundingpolicy provides that annual contributions to thepension trusts will be at least equal to the minimumamounts required by ERISA in the U.S. and theactuarial recommendations or statutoryrequirements in other countries.

Certain of the company’s non-U.S. subsidiariesprovide limited non-pension benefits to retirees in addition to government-sponsored programs. The cost of these programs is not significant to the company. Most retirees outside the U.S. arecovered by government-sponsored and -administered programs.

Net pension expense consisted of the following (in millions):

2000 1999 1998 Service cost $ 22 $ 21 $ 15 Interest cost 37 22 18 Assumed return

on plan assets (40) (25) (15)Amortization of

unrecognized amounts 5 1 3 Net pension expense $ 24 $ 19 $ 21

The following reconciles the change in pensionprojected benefit obligation, the change in planassets and the amounts included in the balancesheet (in millions):

Change in projected benefit obligation:

2000 1999 Projected benefit obligation

at beginning of year $ 445 $ 318Service cost 22 21Interest cost 37 22Participant contributions 1 2Plan amendments (1) 3Acquisitions 423 81Divestitures (4) —Actuarial (gains) losses (21) 19Special termination benefits — 1Benefits paid (21) (19)Foreign exchange rate changes (29) (3) Projected benefit obligation

at end of year 852 445

Change in plan assets:

Fair value of plan assets at beginning of year 368 237

Actual return on plan assets 29 10Employer contributions 40 30Plan participants’ contributions 1 2Acquisitions 443 109Divestitures (2) —Benefits paid (21) (19)Foreign exchange rate changes (28) (1) Fair value of plan assets at end of year 830 368Funded status (22) (77)Items not recognized in the balance sheet:Actuarial losses 26 41Prior service cost 9 15Net initial asset (9) (12)Net prepaid (accrued) pension costs $ 4 $ (33)

Amounts recognized in the balance sheet atSeptember 30 consisted of:

2000 1999Prepaid pension asset $ 78 $ 66Accrued pension liability (76) (104)Intangible asset 2 5Net amount recognized $ 4 $ (33)

The projected benefit obligation, accumulated benefitobligation, and fair value of plan assets for thepension plans with accumulated benefit obligationsin excess of plan assets were $73 million, $61 millionand $0 million, respectively, as of September 30, 2000,and $235 million, $177 million and $80 million,respectively, as of September 30, 1999.

Assumptions used (June 30 measurement date):

2000 1999 Discount rate 6.3-8.0% 6.0-7.5%Compensation increase rate 2.8-4.5% 2.5-4.5%Long-term rate of return

on plan assets 9.0-9.5% 9.0%

The company also sponsors certain defined contribution savings plans for eligible employees.Expense related to these plans was $8 million, $6 million and $6 million for fiscal 2000, 1999 and1998, respectively.

1 9 . I N C O M E T A X E S

The components of the Provision for Income Taxesare summarized as follows (in millions):

2000 1999 1998Current tax expense:

U.S. $ 17 $ 38 $ 37Foreign 91 64 66State and local 1 10 9

Total current tax expense 109 112 112

Deferred tax expense (benefit): U.S. 30 13 (4)Foreign (3) 3 (3)State and local 5 1 (3)

Total deferred tax expense (benefit) 32 17 (10)

Provision for income taxes $ 141 $ 129 $ 102

The deferred tax expense represents tax deductionsrelated to previously accrued expenses. Thedeferred tax benefit represents the tax impactrelated to certain accrued expenses that have beenrecorded for financial statement purposes but arenot deductible for income tax purposes until paid.

Net deferred income tax benefits included in OtherCurrent Assets in the accompanying ConsolidatedBalance Sheet consist of the tax effects of temporarydifferences related to the following (in millions):

September 30, 2000 1999Accrued product warranties $ 32 $ 31Accrued compensation and benefits 36 26Accrued restructuring 5 3Inventory costs 29 (7)Receivables 16 5Other-net 4 25Current deferred income taxes $ 122 $ 83

Net deferred income tax benefits included in OtherAssets in the accompanying Consolidated BalanceSheet consist of the tax effects of temporarydifferences related to the following (in millions):

September 30, 2000 1999Accrued retirement medical costs $ 111 $ 100Property (99) (54)Pensions (16) 8Loss and credit carryforwards 38 30Other (10) 4Subtotal 24 88Valuation allowance (15) (17)Long-term deferred income taxes $ 9 $ 71


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Management believes it is more likely than not thatcurrent and long-term deferred tax benefits willreduce future current income tax expense andpayments. Significant factors considered bymanagement in its determination of the probabilityof the realization of the deferred tax benefitsincluded: (a) historical operating results,(b) expectations of future earnings and (c) theextended period of time over which the retirementmedical liability will be paid. The valuation allowancerepresents the amount of tax benefits related to netoperating loss and tax credit carryforwards, whichmanagement believes are not likely to be realized.The carryforward periods for $20 million of netoperating losses and tax credit carryforwards expirebetween 2001 and 2010. The carryforward periodfor the remaining net operating losses and taxcredits is indefinite.

The company’s effective tax rate was different fromthe U.S. statutory rate for the reasons set forth below:

2000 1999 1998Statutory tax rate 35.0% 35.0% 35.0%State and local income taxes 1.2 2.3 1.6Foreign income taxes 1.4 1.1 2.7Recognition of tax loss

carryforwards — — (2.0)Sale of business –

basis difference — (1.2) —Tax on undistributed

foreign earnings 0.7 1.2 1.6Other (0.1) 0.4 1.1Effective tax rate 38.2% 38.8% 40.0%

The income tax provisions were calculated basedupon the following components of income beforeincome taxes (in millions):

2000 1999 1998U.S. income $ 139 $ 160 $ 86Foreign income 230 173 170 Total $ 369 $ 333 $ 256

No provision has been made for U.S., state oradditional foreign income taxes related to approximately $208 million of undistributed earningsof foreign subsidiaries that have been or areintended to be permanently reinvested.

2 0 . S U P P L E M E N T A L F I N A N C I A L

I N F O R M A T I O N

2000 1999 1998(In millions)Statement of income data:Maintenance and

repairs expense $ 86 $ 74 $ 72Research, development

and engineering expense 115 117 111Rental expense 26 23 18Statement of cash flows data:Interest payments $ 95 $ 61 $ 43Income tax payments 100 95 116Distribution tax payment — — 72

2 1 . C O N T I N G E N T L I A B I L I T I E S

Federal, state and local requirements relating to thedischarge of substances into the environment, thedisposal of hazardous wastes and other activitiesaffecting the environment have, and will continue tohave, an impact on the manufacturing operations ofthe company. Thus far, compliance with environmentalrequirements and resolution of environmental claimshave been accomplished without material effect onthe company’s liquidity and capital resources,competitive position or financial statements.

The company has been designated as a potentiallyresponsible party at 10 Superfund sites, excludingsites as to which the company’s records disclose noinvolvement or as to which the company’s potentialliability has been finally determined. Managementestimates the total, reasonably possible costs thecompany could incur for the remediation of Superfundsites at September 30, 2000, to be approximately $20 million, of which $13 million has been accrued.

Various other lawsuits, claims and proceedings havebeen asserted against the company, allegingviolations of federal, state and local environmentalprotection requirements, or seeking remediation ofalleged environmental impairments, principally atpreviously disposed-of properties. For thesematters, management has estimated the total,reasonably possible costs the company could incurat September 30, 2000, to be approximately $50 million, of which $25 million has been recorded.

Based on its assessment, management believes thatthe company’s expenditures for environmental capitalinvestment and remediation necessary to comply withpresent regulations governing environmentalprotection and other expenditures for the resolution ofenvironmental claims will not have a material adverseeffect on the company’s liquidity and capitalresources, competitive position or financialstatements. Management cannot assess the possibleeffect of compliance with future requirements.

Various other lawsuits, claims and proceedings have been or may be instituted or asserted againstthe company, relating to the conduct of its business,including those pertaining to product liability,intellectual property, safety and health, andemployment matters. Although the outcome oflitigation cannot be predicted with certainty, andsome lawsuits, claims or proceedings may bedisposed of unfavorably to the company,management believes the disposition of matters thatare pending or asserted will not have a materialadverse effect on the company’s financial statements.

2 2 . B U S I N E S S S E G M E N T

I N F O R M A T I O N

ArvinMeritor currently has three reportable operatingsegments: LVS, CVS and LVA. LVS is a majorsupplier of exhaust systems, aperture systems(primarily roof and door systems) and undercarriagesystems (primarily suspension, ride and motioncontrol, and wheel products) for passenger cars, lighttrucks and sport utility vehicles to original equipmentmanufacturers. CVS is a leading supplier of drivetrainsystems and components, including axles, brakes,and drivelines, for medium- and heavy-duty trucks,trailers and off-highway equipment and specialtyvehicles. LVA supplies exhaust, ride control, filterproducts and accessories to the light vehicleaftermarket. Business units that are not focused onautomotive products are classified as “Other.” Thecompany’s Coil Coating division is the primarycomponent of this classification. Revenues areattributed to geographic areas, based on the locationof the assets producing the revenue.

Segment information is summarized as follows:

Sales (in millions):

2000 1999 1998Light Vehicle Systems $ 2,031 $ 1,575 $ 1,475Commercial Vehicle

Systems 2,872 2,875 2,361Light Vehicle Aftermarket 209 — —Other 41 — —Total $ 5,153 $ 4,450 $ 3,836

Earnings (in millions):

2000 1999 1998Operating income:Light Vehicle Systems $ 149 $ 129 $ 86Commercial Vehicle

Systems 221 232 212Light Vehicle Aftermarket 6 — —Other — — —Restructuring costs (26) (28) —Merger expenses (10) — —Gain on sale of business

and other 89 24 —Operating income 429 357 298

Other income — 2 —Equity in earnings of affiliates 29 35 28Interest rate settlement cost — — (31)Interest expense, net (89) (61) (39)Income before income taxes 369 333 256Provision for income taxes (141) (129) (102)Minority interests (10) (10) (7)Net income $ 218 $ 194 $ 147


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Depreciation and Amortization (in millions):

2000 1999 1998Light Vehicle Systems $ 55 $ 45 $ 44Commercial Vehicle

Systems 98 86 58Light Vehicle Aftermarket 7 — —Other 2 — —Total depreciation

and amortization $ 162 $ 131 $ 102

Capital Expenditures (in millions):

2000 1999 1998Light Vehicle Systems $ 106 $ 55 $ 58Commercial Vehicle

Systems 112 115 81Light Vehicle Aftermarket 5 — —Other 2 — —Total capital expenditures $ 225 $ 170 $ 139

Segment Assets (in millions):

2000 1999 1998Light Vehicle Systems $ 1,739 $ 701 $ 741Commercial Vehicle

Systems 1,783 1,814 1,049Light Vehicle Aftermarket 751 — —Other 107 — —

Segment total assets 4,380 2,515 1,790Corporate(1) 340 281 296Total assets $ 4,720 $ 2,796 $ 2,086(1) Consists primarily of cash, taxes and prepaid pension costs.

Information on the company’s geographic areas issummarized as follows:

Sales by Geographic Area (in millions):

2000 1999 1998U.S. $ 2,576 $ 2,249 $ 1,848Canada 441 476 414Mexico 235 145 124

Total North America 3,252 2,870 2,386France 394 398 411U.K. 345 271 251Other Europe 769 584 431

Total Europe 1,508 1,253 1,093Other 393 327 357Total sales $ 5,153 $ 4,450 $ 3,836

Assets by Geographic Area (in millions):

2000 1999 1998U.S. $ 2,251 $ 1,375 $ 937Canada 220 150 146Mexico 149 83 82

Total North America 2,620 1,608 1,165U.K. 602 346 128France 256 191 202Other Europe 842 402 309

Total Europe 1,700 939 639Other 400 249 282Total assets $ 4,720 $ 2,796 $ 2,086

Sales to one original equipment manufacturerrepresented 18 percent of the company’s sales infiscal 2000 and 23 percent of the company’s sales in fiscal 1999 and 1998. These sales include othercustomers acquired or merged with this customer.No other customer comprised 10 percent or more of the company’s sales in the three years endedSeptember 30, 2000.

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2 3 . Q U A R T E R LY F I N A N C I A L I N F O R M A T I O N ( U N A U D I T E D )

The following is a condensed summary of the company’s unaudited quarterly results of operations for fiscal2000 and 1999 and stock price data for fiscal 2000. The per share amounts are based on the weighted averageshares outstanding for that quarter. All historical per share amounts, including stock prices, prior to the mergerdate have been adjusted for the one for 0.75 exchange ratio as part of the merger (see Note 3).

2000 Fiscal QuartersFirst Second Third Fourth 2000

(In millions, except share-related data)Sales $ 1,136 $ 1,196 $ 1,141 $ 1,680 $ 5,153Cost of sales 966 1,000 956 1,488 4,410Net income 97 57 40 24 218Net income per share (basic and diluted) 1.94 1.22 0.86 0.35 4.12Stock Prices

High $ 28.58 $ 26.50 $ 22.33 $ 18.63 $ 28.58Low $ 20.00 $ 18.17 $ 14.67 $ 13.75 $ 13.75

First quarter 2000 net income included a gain on sale of business of $83 million ($51 million after-tax, or $1.02 per share) (see Note 5) and third quarter 2000 net income included a restructuring charge of $26 million($16 million after-tax, or $0.34 per share) (see Note 6), and a gain on the sale of land of $6 million ($3 millionafter-tax, or $0.06 per share). Third and fourth quarters include merger expenses of $2 million and $8 million,respectively ($1 million and $5 million after-tax, respectively and $0.02 and $0.07 per share, respectively).

1999 Fiscal QuartersFirst Second Third Fourth 1999

(In millions, except share-related data)Sales $ 944 $ 1,163 $ 1,217 $ 1,126 $ 4,450Cost of sales 815 988 1,033 962 3,798Net income 40 50 39 65 194Net income per share (basic and diluted) 0.77 0.97 0.75 1.25 3.75

Third quarter 1999 net income included a restructuring charge of $28 million ($17 million after-tax, or $0.33 per share) (see Note 6) and fourth quarter 1999 net income included a gain on sale of business of $24 million ($18 million after-tax, or $0.35 per share) (see Note 5).

2 4 . S U B S E Q U E N T E V E N T ( U N A U D I T E D )

On November 8, 2000, the company announced restructuring actions to realign operations at selected facilitiesaround the world. These actions are expected to have a total cost of approximately $90 million, with the majorityof the cost accounted for as a restructuring charge of $60 million in the first quarter of 2001. Of the remainingcost, $15 million will be accounted for as an adjustment to the fair value of liabilities assumed in conjunctionwith the ArvinMeritor merger, and $15 million will be accounted for as period costs during 2001, as incurred.

The total restructuring cost of $90 million is comprised of employee severance benefits of $50 million related to a net reduction of 1,500 employees, asset rationalization costs of $25 million, and equipment relocation andother costs of $15 million. The costs of these restructuring activities relate approximately 50 percent to CVS,35 percent to LVS and 15 percent to LVA.


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S E L E C T E D F I N A N C I A L D A T AIn millions, except per share amounts

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Year Ended September 30, 2000 1999 1998 1997 1996

Summary of Operations

Sales

Light Vehicle Systems $ 2,031 $ 1,575 $ 1,475 $ 1,352 $ 1,317

Commercial Vehicle Systems 2,872 2,875 2,361 1,957 1,827

Light Vehicle Aftermarket 209 — — — —

Other 41 — — — —

Total $ 5,153 $ 4,450 $ 3,836 $ 3,309 $ 3,144

Net income $ 218(1) $ 194(1) $ 147(1) $ 109 $ 114

Basic and diluted earnings per share(2) 4.12(1) 3.75(1) 2.84(1) N/A N/A

Cash dividends per share(2) 0.64 0.56 0.56 N/A N/A

Financial Position at September 30

Total assets $ 4,720 $ 2,796 $ 2,086 $ 2,002 $ 1,830

Short-term debt 183 44 34 21 8

Long-term debt 1,537 802 313 465 24

Capital securities 74 — — — —

(1) Net income and basic and diluted earnings per share for fiscal year 2000 includes a one-time gain of $89 million ($54 million after-tax, or $1.01 per share) for the sale of the seat adjusting systems business and other assets, restructuring costs of $26 million ($16 million after-tax, or $0.30 per share), and merger expenses of $10 million ($6 million after-tax, or $0.11 per share). Net income and basic and diluted earnings per share for fiscal year 1999 includes restructuringcosts of $28 million ($17 million after-tax, or $0.33 per share) and a one-time gain of $24 million ($18 million after-tax, or $0.34 per share) recorded to reflect the formation of a transmission and clutch joint venture with ZF Friedrichshafen AG. Net income and basic and diluted earnings per share for fiscal year 1998 includesa one-time charge of $31 million ($19 million after-tax, or $0.36 per share) relating to the settlement of interest rate agreements.

(2) As the company began operations as a stand-alone entity on September 30, 1997, per share data for years ending prior to September 30, 1998, are not applicable.

Pro Forma(1)

Year Ended September 30, 2000 1999 1998 1997 1996

Summary of Operations

Sales

Light Vehicle Systems $ 3,668 $ 3,474 $ 3,041 $ 2,865 $ 2,728

Commercial Vehicle Systems 2,926 2,941 2,425 2,016 1,876

Light Vehicle Aftermarket 950 906 686 649 607

Other 178 170 116 114 108

Total $ 7,722 $ 7,491 $ 6,268 $ 5,644 $ 5,319

Operating Income(2)

Light Vehicle Systems $ 232 $ 198 $ 155 $ 117 $ 108

Commercial Vehicle Systems 231 244 224 163 141

Light Vehicle Aftermarket 43 72 62 52 47

Other 9 17 3 16 12

Segment Operating Income $ 515 $ 531 $ 444 $ 348 $ 308

Operating margins(2) 6.7% 7.1% 7.1% 6.2% 5.8%

Net income(3) $ 254 $ 279 $ 236 $ 172 $ 144

Diluted earnings per share(3) $ 3.56 $ 3.66 $ 3.11 $ 2.30 $ 1.85

Cash Activity

Operating cash flow $ 344 $ 415 $ 383 $ 401 $ 307

Depreciation and amortization expense 248 239 190 191 180

Capital expenditures 338 306 248 209 231

Combined stock repurchase programs(4) 175 6 — — —

Combined aggregate cash dividends(4) 52 54 47 17 13

Combined Financial Position at September 30(4)

Working capital(5) $ 464 $ 332 $ 426 $ 391 $ 380

Property, plant and equipment 1,348 1,428 1,172 1,113 1,098

Total assets 4,720 4,829 3,633 3,412 3,260

Long-term debt 1,537 1,218 619 695 380

Capital securities 74 89 89 99 —

Short-term debt 183 219 38 75 68

Equity and minority interests(6) 889 1,033 854 668 1,078

(1) Pro forma financial information presented as if the merger had occurred at the beginning of each fiscal year and reflects (a) the amortization of goodwill from merger and the elimination of historical Arvin goodwill amortization expense; (b) the adjustment to interest expense for borrowings to fund the Arvin cash consideration and other financing costs; (c) the income tax effects of (a) and (b) above; and (d) the adjustment of shares outstanding representing the exchange of one share of Meritor common stock for 0.75 shares of ArvinMeritor common stock and one share of Arvin common stock for one share of ArvinMeritor common stock, based on the average shares outstanding for each year. Additionally, fiscal 1997 and 1996 include adjustments to reflect the pro forma impact ofthe spin-off of Meritor from Rockwell, which occurred in September 1997.

(2) Operating income excludes restructuring and other charges of $30 million, $35 million, $7 million, $29 million and $37 million in fiscal years 2000, 1999, 1998,1997 and 1996, respectively. Operating income also excludes gain on sale of businesses and other of $89 million, $31 million and $14 million in fiscal years 2000,1999 and 1996, respectively, and excludes merger-related expenses in fiscal year 2000.

(3) Net income and earnings per share exclude the special items discussed in (2) above and non-operating one-time expenses of $3 million, $1 million and $25 million in fiscal 2000, 1999 and 1998, respectively, and non-operating one-time income of $16 million and $9 million in fiscal 1997 and 1996, respectively.

(4) Information provided on a combined basis with no pro forma adjustments. Meritor dividends have been restated for the share conversion (see Note 1 of Notes toFinancial Statements). Also, as Meritor began operations as a stand-alone entity on September 30, 1997, dividend information for Meritor for years ending prior toSeptember 30, 1998 are not applicable.

(5) Working capital consists of all current assets and liabilities, including cash and short-term debt.

(6) Equity amounts for September 1996 for Meritor represent the net investment of Rockwell prior to the spin-off of Meritor on September 30, 1997.

P R O F O R M A S U M M A R Y O F O P E R A T I O N SDollars in millions, except per share amountsUnaudited

53

54

C O R P O R A T E R E S P O N S I B I L I T Y

ArvinMeritor and its employees have a long traditionof making a difference in the lives of many people inthe communities where we work and live.

In those communities that are home to ArvinMeritorfacilities, we seek to utilize our human and financialresources in partnership with local, private andpublic agencies to achieve measurableimprovements in the quality of life. We do sothrough a focus on education, cultural programs,civic responsibility, health and human services.

In fiscal year 2000, hundreds of grants to not-for-profit organizations were made in ArvinMeritorcommunities worldwide. More than half of thosecharitable contributions, which total close to $2.5million, went to support education. That’s because

ArvinMeritor understands that an educatedworkforce is a critical factor that enhances ourlong-term competitiveness. Through these contributions, we help foster awareness and participation in programs that have a strong focuson engineering, science and technology.

We are particularly interested in programs thatencourage ArvinMeritor employees to volunteer theirtime. By leveraging financial resources andvolunteerism in the community, we can contribute tolong-term solutions, rather than short-term relief.

We will continue to focus on meeting the mostcritical needs and determining how the ArvinMeritorContributions Program can best make a significantdifference in the future of ArvinMeritor communities.


A N D T H E C O M M U N I T Y

55

Larry D. Yost

Chairman of the Board Chief Executive Officer

V. William Hunt

Vice ChairmanPresident

Joseph B. Anderson, Jr.

Chairman of the Board and Chief Executive Officer Chivas Industries LLC

Donald R. Beall

Former Chairman of the Board and Chief Executive Officer

Rockwell International Corporation

Steven C. Beering

President Emeritus Purdue University

Rhonda L. Brooks

PresidentExterior Systems Business Owens Corning, Inc.

John J. Creedon

Former President and Chief Executive OfficerMetropolitan Life

Insurance Company

Joseph P. Flannery

Chairman of the Board President and Chief Executive Officer Uniroyal Holding, Inc.

Robert E. Fowler, Jr.

Former Chairman and Chief Executive Officer IMC Global Inc.

William D. George, Jr.

Former President and Chief Executive Officer S.C. Johnson Wax

Ivan W. Gorr

Former Chairman and Chief Executive Officer Cooper Tire & Rubber Company

Richard W. Hanselman

Chairman of the Board Health Net, Inc.

Charles H. Harff

Former Senior Vice President, General CounselSecretary Rockwell International Corporation

Victoria B. Jackson

Former President and Chief Executive OfficerDSS/Prodiesel, Inc.

Don J. Kacek

Chairman of the BoardChief Executive Officer Advanced Automation

Technologies, Inc.

James E. Marley

Former Chairman of the Board AMP Inc.

James E. Perrella

Chairman of the Board Ingersoll-Rand Company

Harold A. Poling

Former Chairman of the Board and Chief Executive Officer

Ford Motor Company

Martin D. Walker

Former Chief Executive Officerand Chairman of the Board

M.A. Hanna Company


B O A R D O F D I R E C T O R S

E X E C U T I V E O F F I C E R S

Larry D. Yost

Chairman of the BoardChief Executive Officer

V. William Hunt

Vice ChairmanPresident

Vernon G. Baker, II

Senior Vice President General Counsel and Secretary

Gary L. Collins

Senior Vice PresidentHuman Resources

Linda M. Cummins

Senior Vice PresidentCommunications

William K. Daniel

Senior Vice President President, Light Vehicle

Aftermarket

Juan L. De La Riva

Senior Vice President Corporate Development

and Strategy

Thomas A. Gosnell

Senior Vice President President, Commercial

Vehicle Systems

Perry L. Lipe

Senior Vice President Chief Information Officer

William M. Lowe

Vice President Controller

Thomas A. Madden

Senior Vice President Chief Financial Officer

Terrence E. O’Rourke

Senior Vice President President, Light Vehicle Systems

A.R. Sales

Senior Vice PresidentPresident, Roll Coater

S. Carl Soderstrom

Senior Vice President Engineering, Quality and

Procurement

Diane M. Stelfox

Vice President Corporate Development

Craig M. Stinson

Senior Vice PresidentPresident, Exhaust Systems

Frank A. Voltolina

Vice PresidentTreasurer

$2.0

$4.0

$6.0

$8.0

$5.3

96 97 98 99 00 96 97 98 99 00

$5.6$6.3

$7.5 $7.7

$200

$400

$600

5.8%$1.85

$2.30

$3.11

$3.66 $3.56

6.2%

7.1%

7.1% 6.7%

96 97 98 99 00

$1.00

$2.00

$3.00

$4.00

A R V I N M E R I T O R P R O F I L E

Offering the most complete drivetrains in

the industry, ArvinMeritor CVS content

per vehicle is more than $3,000, with a

potential content of up to $17,000.

ArvinMeritor LVS contributes

more than $100 to the content of

most light vehicles manufactured

today, with a potential of $1,500.

We are a $7.7-billion supplier of a broad range of

integrated automotive systems, modules and

components that capitalize on innovative technology

and engineering expertise to provide solutions that

meet our customers’ needs.

The new ArvinMeritor represents an ongoing pursuit

to be an admired enterprise, with the industry scale

and scope to successfully compete in the top tier of

the global motor vehicle supplier industry.

H I G H L I G H T S O F T H E Y E A R

Letter to Shareowners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Light Vehicle Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Commercial Vehicle Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Light Vehicle Aftermarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Other (Coil Coating) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

2000 Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Corporate Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

A R V I N M E R I T O R , I N C . G E N E R A L I N F O R M A T I O N

A R V I N M E R I T O R H E A D Q U A R T E R S

2135 West Maple RoadTroy, MI 48084-7186Phone: 248-435-1000Fax: 248-435-1393www.arvinmeritor.com

I N V E S T O R R E L A T I O N S

Securities analysts and professional investors should contact: Investor Relations248-655-2159

C O R P O R A T E P U B L I C R E L A T I O N S

Members of the media should contact: Public Relations248-435-7774

S H A R E O W N E R S E R V I C E S

Communications about share ownership, book-entryaccounts, dividend payments, transfer requirements,changes of address, lost stock certificates, accountstatus and sale of shares should be directed to:EquiServe Trust Company, N.A.P.O. Box 2500Jersey City, NJ 07303-2500800-519-3111www.equiserve.com

For Internet access to account information call 877-843-9327 toll free to receive a password by mail.

E-mail: www.equiserve.comTelecommunications Devices for the Deaf (TDDs) may be accessed by calling 201-222-4955.

For copies of annual reports, Forms 10-K and 10-Q and other ArvinMeritor publications, please contact: ArvinMeritor, Inc. 2135 West Maple RoadTroy, MI 48084-7186 Attention: Investor Relations248-435-1545E-mail: [email protected]

D I V I D E N D R E I N V E S T M E N T A N D

A D D I T I O N A L I N V E S T M E N T S I N

A R V I N M E R I T O R C O M M O N S T O C K

EquiServe Trust Company, N.A. provides theDirectSERVICE Investment Program forArvinMeritor shareowners, under which currentshareowners may elect to reinvest dividendsand/or make optional cash investments inadditional shares of ArvinMeritor common stock.The program also allows cash investments inArvinMeritor common stock by first-time investors,with a $500 minimum initial investment.Shareowners may also sell their shares through the DirectSERVICE Investment Program.

For a brochure and details of the program, please direct inquiries to:DirectSERVICE Investment ProgramEquiServe Trust Company, N.A.P.O. Box 2598Jersey City, NJ 07303-2598Registered shareowners: 800-414-6280Other interested investors: 800-483-2277

I N D E P E N D E N T A U D I T O R S

Deloitte & Touche LLP600 Renaissance CenterDetroit, MI 48243-1704313-396-3000

T R A N S F E R A G E N T A N D

R E G I S T R A R

EquiServe Trust Company, N.A.P.O. Box 2500 Jersey City, NJ 07303-2500 800-519-3111

N E W Y O R K S T O C K E X C H A N G E

Common Stock (Symbol: ARM)

A N N U A L M E E T I N G

The company’s annual meeting of shareowners willbe held at the ArvinMeritor headquarters at 9 a.m.Wednesday, February 14, 2001. A notice of meetingand proxy material will be mailed to shareowners onor about December 29, 2000.

Special ItemsOperating income before special items as a percent of sales

�

%

Pro Forma Sales

$ in billions

Pro Forma Operating Income

$ in millions

Pro Forma Diluted Earnings Per Share

12% Other

12% LVA6% CVA

9% International Trucks/Trailers

17% North AmericanTrucks/Trailers



Sector Diversity

% of fiscal year 2000 pro forma sales


LVS competes in three major light vehicle areas:

apertures, undercarriage and exhaust. Strategic

alliances and advanced engineering solutions drive

LVS efforts to become a global provider of original

equipment integrated systems.


CVS counts the top ten players in heavy- and

medium-duty truck and trailer original equipment as its

key customers. The merger adds emissions systems,

ride and stability control and filtration systems to the

CVS comprehensive drivetrain portfolio.

A strong business with tremendous potential for

low-investment growth, market-leading CVS

aftermarket leverages a sound supply chain

infrastructure with solid brand recognition. A broad

range of products for after the original sale, as well as

responsive customer service further strengthen this

business unit.


With leading market share in each of the segments

it serves, LVA is committed to providing top-notch

customer service, delivery and support after the

original sale, with a growing portfolio of superior

products and strong brands.


Processing millions of square feet of steel every day,

coil coating applies primer and finish coats on both

sides of a wide metal strip. Pre-painted strips are

then used in a variety of durable, low-maintenance

applications that improve insulation, energy

efficiency and weather resistance.

LVA - Light Vehicle AftermarketCVA - Commercial Vehicle Aftermarket

F I N A N C I A L H I G H L I G H T SIn millions, except per share amounts

Pro Forma(1)

Year Ended September 30, 2000 1999 1998 Sales

Light Vehicle Systems $ 3,668 $ 3,474 $ 3,041Commercial Vehicle Systems 2,926 2,941 2,425Light Vehicle Aftermarket 950 906 686Other 178 170 116

Total Sales $ 7,722 $ 7,491 $ 6,268Operating income(2) $ 515 $ 531 $ 444

As a percent of sales 6.7% 7.1% 7.1%Net income(3) $ 254 $ 279 $ 236Diluted earnings per share(3) $ 3.56 $ 3.66 $ 3.11Diluted common shares outstanding 71.4 76.3 75.9Cash provided by operations $ 344 $ 415 $ 383Pre-tax interest coverage 3.9x 4.9x 5.8xLong-term debt to capitalization ratio (4) 64% 56% 45%

(1) Pro forma financial information presented as if the merger had occured at the beginning of each fiscal year and reflects (a) the amortization of goodwill from the merger and the elimination of historical Arvin goodwill amortization expense; (b) the adjustment to interest expense for borrowings to fund the Arvin cash consideration and other financing costs; (c) the income tax effects of (a) and (b) above; and (d) the adjustment of shares outstanding representing the exchange of one share of Meritor common stock for 0.75 shares of ArvinMeritor common stock and one share of Arvin common stock for one share of ArvinMeritor common stock, based on the average shares outstanding for each year.

(2) Operating income excludes restructuring and other charges of $30 million, $35 million and $7 million in fiscal year 2000, 1999 and 1998, respectively, and gain on sale of business and other of $89 million and $31 million in fiscal year 2000 and 1999, respectively. Operating income also excludes merger-related expenses of $70 million in fiscal year 2000.

(3) Net income and earnings per share exclude the special items discussed in (2) above and non-operating one-time expenses of $3 million , $1 million and $25 million in fiscal 2000, 1999 and 1998, respectively.

(4) Long-term debt to capitalization ratio based on combined results of Arvin and Meritor as of September 30 of each year presented.

I n n o v a t i v e S o l u t i o n s T h a t M o v e Y o u r W o r l d

Printed on recycled paper.

F A S T E RS T R O N G E RB I G G E R S T R O N G E RB I G G E R

THE NEW ARVINMERITOR

IS THE INDUSTRY’S 11TH

LARGEST INDEPENDENT

GLOBAL SUPPLIER, WITH

OPERATIONS IN MORE

THAN 25 COUNTRIES.

ARVINMERITOR IS NO. 1

OR NO. 2 IN MOST OF OUR GLOBAL

SUPPLIER MARKET SEGMENTS

AND GENERATES SIGNIFICANT

COST, OPERATING

AND SALES SYNERGIES.

2 0 0 0 A n n u a l R e p o r t

“If you’re not leading the pack, you’re falling behind.”

— Larry Yost, chairman, CEO

“We choose to lead.”— Bill Hunt, vice chairman, president

Arvinmeritor2000 Annual Report

Economy & Finance

Transcript of Arvinmeritor2000 Annual Report