Date post: | 19-Jan-2015 |
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Announcement of Light Vehicle Systems Spinoff
Chip McClureChairman, CEO and President
Phil MartensPresident, Light Vehicle Systems
Carsten ReinhardtPresident, Commercial Vehicle Systems
Jim DonlonExecutive Vice President and CFO
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Forward-Looking StatementsThis presentation contains statements relating to future results of the company (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,”“anticipate,” “estimate,” “should,” “are likely to be,” “will” and similar expressions. In addition, there are risks and uncertainties relating to the planned spinoff of ArvinMeritor’s Light Vehicle Systems business, including the timing and certainty of completion of the transition. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to global economic and market cycles and conditions; the demand for commercial, specialty and light vehicles for which the company supplies products; risks inherent in operating abroad (including foreign currency exchange rates and potential disruption of production and supply due to terrorist attacks or acts of aggression); availability and sharply rising cost of raw materials, including steel and oil; OEM program delays; demand for and market acceptance of new and existing products; successful development of new products; reliance on major OEM customers; labor relations of the company, its suppliers and customers, including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial condition of the company’s suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our suppliers; potential difficulties competing with companies that have avoided their existing contracts in bankruptcy and reorganization proceedings; successful integration of acquired or merged businesses; the ability to achieve the expected annual savings and synergies from past and future business combinations and the ability to achieve the expected benefits of restructuring actions; success and timing of potential divestitures; potential impairment of long-lived assets, including goodwill; potential adjustment of the value of deferred tax assets; competitive product and pricing pressures; the amount of the company’s debt; the ability of the company to continue to comply with covenants in its financing agreements; the ability of the company to access capital markets; credit ratings of the company’s debt; the outcome of existing and any future legal proceedings, including any litigation with respect to environmental or asbestos-related matters; product liability and warranty and recall claims; rising costs of pension and other post-retirement benefits and possible changes in pension and other accounting rules; as well as other risks and uncertainties, including but not limited to those detailed from time to time in filings of the company with the SEC. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law.
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Announcing the Separation of ArvinMeritor’s Two Business Units• ArvinMeritor to spin off our Light Vehicle Systems segment
to shareholders • ArvinMeritor to continue as a commercial vehicle systems
supplier• Spinoff represents a major step in corporate transformation• Improves corporate clarity and management focus• Allows each company to reach its full shareholder value
potential• Allows holders to invest selectively• De-couples risk profiles• Improves customer dynamics
Unlocks shareholder value and increases focus
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Terms of the Spinoff• Spinoff expected to be implemented through a pro rata tax-free stock
dividend to ArvinMeritor shareholders– Upon completion, ARM shareholders will own 100% of both
companies• Spinoff expected to be completed within the next 12 months
– Subject to market conditions and regulatory and other customary approvals
• New company has applied to be listed as ARVI on the NASDAQ stockexchange
• Transaction time line:
FY 2008 Q3 Q4 FY 2009
AnnounceFile Form 10 Update the Market Spinoff Effective
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Investment Thesis• Global supplier with $2 billion of value-added sales
– Specialized in Body and Chassis Systems
– Over 60% of revenue derived outside the U.S.
• Diverse and robust business portfolio
• Global manufacturing with an expanding LCCC footprint
• Great brands and business building blocks
• Strong book of business benefiting from emerging market growth
• Experienced and respected management team
• Margin expansion from an improving cost structure
Positioned to win in the global automotive industry
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Collaborate. GROW.Innovate.
We are out to change the game through original thinking,new advances and optimized performance. We look to innovate in every aspect of our business.
We are a high-performance team. Together and with our customers we create value everyday. As great team members, we become invaluable partners.
In all we do, we aim for profitable growth. We grow value for our shareholders, associates, customers and the communitieswhere we work and live. Individually and collectively, our goal is to never stop growing.
The New Company: Arvin Innovation
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North America
38%
South America
10%
Europe46%
Asia Pacific6%
VW25%
Chrysler13%
Ford10%GM
7%
PSA7%
Renault8%
Hyundai5%
Nissan2%
Aftermkt9%
Fiat2% Other
5%BMW3%
Toyota2% Honda
2%
Diverse and Robust Business PortfolioLVS 2007 Value-Added Sales(1)
Geographic Mix Customer Mix
Body Systems
60%
Chassis Systems
40%
Only 20% of sales are to the Detroit 3 in North America
Segment Mix
Ford GM Chrysler TotalNorth America 4.1% 2.9% 12.6% 19.5%South America 0.0 2.9 0.2 3.0Europe 2.7 1.5 0.0 4.2Asia Pacific 2.7 0.0 0.0 2.7
(1) Value-added sales are defined to be total sales less pass-through sales. In 2007, LVS had value-added sales of $2.0 billion and pass-through sales of $200 million.
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A World Leader in Body and Chassis Systems
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Global Sourcing/Manufacturing ModelArvin Innovation Facilities
• 42 facilities and approximately 9,000 employees in 16 countries
• Favorable labor arrangements
Headquarters in Detroit, but center of gravity in Europe
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The worldThe world’’s best steel wheels s best steel wheels businessbusiness
• Fumagalli brand – respected around the world
• Brazil home base and home market
• Great products and processes
High valueHigh value--add products in the add products in the pipelinepipeline
• Smart motors and latches• Active chassis products• Highly-engineered wheels
Great Brands and Other Building Blocks
Existing plants in lowExisting plants in low--cost cost regionsregions
• 8 plants in Asia• 6 plants in Mexico and South
America• 6 plants in Central/Eastern
Europe
Outstanding joint venture Outstanding joint venture partnerspartners
• Local experts• Rapidly growing customers
Gabriel brand shocks & strutsGabriel brand shocks & struts• Instant name recognition• Outstanding product heritage
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Strong Growth Trajectory
• Able to offer the full product portfolio in China• Building three new plants• Expanding engineering capability
• Sales up more than 30% FYTD• Potential to double business within region • Leverage existing footprint
• Improving vehicle performance & integration• Emphasis on materials engineering• Development contracts for advanced chassis• Launching many new programs this year
• Strategic body systems supplier to Hyundai• Growing with Chery and other emerging OEMs
Asia
South America
smart systems ™
Customers
Europe• Our largest region• Growing with Central/
Eastern European customers and demand
0
2
4
6
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Industry Sales(millions of units)
Eastern Europe
Central Europe
2006 2007 2008 2014
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Experienced and Respected Management Team
James Marley
Non-Executive Chairman
Retired Chairman, AMP Inc. and current member of ArvinMeritor Board of Directors
Phil Martens
Chief Executive Officer
Current President, Light Vehicle Systems
Jim Donlon
Executive Vice President & Chief Financial Officer
Current Executive Vice President and Chief Financial Officer
Rakesh Sachdev
Executive Vice President, Chief Administrative Officer & Managing Director of Emerging Markets
Current President, Asia Pacific
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Cost Structure Is Improving
N. America S. America Europe Asia Pacific
• Toronto• Restructure
some labor agreements
• Brussels• Frankfurt
• Expand Puebla• Expand San
Luis Potosi
• Expand Brazil Body Systems
• Extend offering from Venezuela JV
• Expand Lozorno
• Romania
• Changchun• Pune• Waigaoqaio• Wuhu
Engineering• S. America Tech
Center• Consolidate
Body Engineering
• Offshore Engineering Center
Production
Out
In
• Performance Plus has accelerated cost reduction efforts and focus, especially in labor and burden productivity
• Aggressive restructuring efforts have shifted footprint toward low-cost countries and will continue to improve cost structure
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Margin Expansion Trend UnderwayLVS Segment Results(1)
2006 Actual
2007 Actual
2008 Estimate
2010Target(2)
Sales (billions) $ 2.2
$ 69
$2.2
3.1%
$2.7 - $2.9
Annual Sales Growth 0%
$ 2.4
7%
EBITDA Margin 4.0%
7 - 10%
EBITDA Before Special Items (millions)(3) $ 90
(1) Actual and estimated results and targets are on the basis of the LVS segment of ArvinMeritor, Inc. and are not on the basis of LVS as a separate, stand-alone entity. Financial results, estimates and targets for the LVS segment of ArvinMeritor will differ from, and may not be indicative of, the results of operations and financial position LVS would have had or may have if it operated as a separate, stand-alone entity during those periods.
(2) Based on management assumptions regarding pricing, currency exchange rates, volume and timing of vehicle production, option mix, and other factors not in the control of management.
(3) See Appendix – “Non-GAAP Financial Information”
3-5 year EBITDA margin target of 7-8%(2)
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LVS Segment Results (millions)(1)
2008 FYTD
2007 FYTD
2008 Better/Worse
Than 2007
Changes to Certain Benefit Programs (2) - (2)
ET Corporate Allocations 5 - 5
EBITDA Before Special Items as Reported (2) $ 36 $ 46 $ (10)
Legal/Commercial Dispute with Customer 9 - 9
Commercial Settlement with Supplier 2 - 2
Adjustments to Pricing Reserves - (5) 5
Adjusted EBITDA on Comparable Basis $ 50 $ 41 $ 9
2008 Progress on Underlying Profitability
(1) Actual results are on the basis of the LVS segment of ArvinMeritor, Inc. and are not on the basis of LVS as a separate, stand-alone entity. Financial results for the LVS segment of ArvinMeritor will differ from, and may not be indicative of, the results of operations and financial position LVS would have had if it had operated as a separate, stand-alone entity during those periods.
(2) See Appendix – “Non-GAAP Financial Information”
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ArvinMeritor After the Spinoff
• Will continue to be a leader in providing undercarriage components and systems to global truck, trailer, specialty and aftermarket customers
• Experienced management team will remain in place, with Chip McClure as CEO, Carsten Reinhardt as COO and Jay Craig as CFO
• Well positioned to benefit from significant operating improvements and expected rebound in North American truck and trailer markets
• Will continue to trade as ARM on the New York Stock Exchange
• Management will recommend that the board maintain the current dividend policy until the spinoff is completed
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Creating Value Through Transformation
• Roll Coater divestiture
• LVA divestitures
• Balance sheet restructuring
– Pay-down and re-timing
• Emissions Technologies divestiture
• Performance Plus profit improvement program
• Spinoff of Light Vehicle Systems
Optimizing structure for greatest shareholder value
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Appendix
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Use of Non-GAAP Financial Information
Included in this presentation, the Company has provided information regarding segment EBITDA and segment EBITDA margins. ArvinMeritor uses Segment EBITDA as the primary basis for the chief operating decision maker to evaluate the performance of each of the company’s reportable segments. Segment EBITDA is defined as earnings before interest, tax, depreciation and amortization and losses on sales of receivables. Segment EBITDA margins are defined as Segment EBITDA as a percentage of sales. This presentation also includes Segment EBITDA before special items (BSI) and Segment EBITDA BSI margins. Segment EBITDA before special items is defined as Segment EBITDA plus or minus special items.
Management believes that the non-GAAP financial measures used in this presentation are useful to both management and investors in their analysis of the Company’s financial position and results of operations. Segment EBITDA is a meaningful measure of performance commonly used by management, the investment community and banking institutions to analyze operating performance and entity valuation. Further, management uses these non-GAAP measures for planning and forecasting in future periods.
These non-GAAP measures should not be considered a substitute for the reported results prepared in accordance with GAAP. Segment EBITDA should not be considered an alternative to operating income as an indicator of operating performance or to cash flows as a measure of liquidity. These non-GAAP financial measures, as determined and presented by the Company, may not be comparable to related or similarly titled measures reported by other companies.
Set forth on the following slide are reconciliations of the Segment EBITDA as reported in the company’s Form 10-K and Form 10-Q to Segment EBITDA before special items.
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Non-GAAP Financial Information (1)
Segment EBITDA Before Special Items Reconciliation
(in millions) 2007 2006
Segment Sales $ 2,244 $ 2,236
Segment EBITDA - Reported $ 36 $ 58 Restructuring Costs 54 12
Ride Control Fair Value Adjustments (12) 3 Product Disruptions/Supplier Reorganizations 12 -
Gain On Divestitures - (5) Other - 1 Segment EBITDA - Before Special Items $ 90 $ 69
Segment EBITDA Margins - Before Special Items 4.0% 3.1%
2008 2007
Segment EBITDA - Reported $ 21 $ 22 Restructuring Costs 15 29
Ride Control Fair Value Adjustments - (10) Product Disruptions - 5 Segment EBITDA - Before Special Items $ 36 $ 46
March 31,
Twelve Months Ended September 30,
Six Months Ended
(1) See Slide 19 – “Non-GAAP Financial Information”