-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JWa8Bji7cIpz+8xUV6PZWy3kzMfcScYTKfuPmsYfQcHr8oK0mMD65+1lCMwxs6lX 7IHmiDaSsFsuPdtnnnPBLQ== 0000950124-02-000269.txt : 20020414 0000950124-02-000269.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950124-02-000269 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011230 FILED AS OF DATE: 20020208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARVINMERITOR INC CENTRAL INDEX KEY: 0001113256 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 383354643 STATE OF INCORPORATION: IN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15983 FILM NUMBER: 02532277 BUSINESS ADDRESS: STREET 1: 2135 W MAPLE ROAD CITY: TROY STATE: MI ZIP: 48084 BUSINESS PHONE: 2484351000 FORMER COMPANY: FORMER CONFORMED NAME: MU SUB INC DATE OF NAME CHANGE: 20000501 10-Q 1 k67202e10-q.txt FORM 10-Q FOR QUARTER ENDING DECEMBER 30, 2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended December 30, 2001 -------------------------- Commission file number 1-15983 ------------------------------- ArvinMeritor, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Indiana 38-3354643 - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2135 West Maple Road, Troy, Michigan 48084-7186 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (248) 435-1000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 66,690,775 shares of Common Stock, $1.00 par value, of ArvinMeritor, Inc. were outstanding on January 31, 2002. ARVINMERITOR, INC. INDEX PART I. FINANCIAL INFORMATION:
Page Item 1. Financial Statements: No. Statement of Consolidated Income - - Three Months Ended December 31, 2001 and 2000.............................. 2 Consolidated Balance Sheet - - December 31, 2001 and September 30, 2001............................. 3 Condensed Statement of Consolidated Cash Flows - - Three Months Ended December 31, 2001 and 2000........................ 4 Notes to Consolidated Financial Statements........................... 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition..................... 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................................... 18 PART II. OTHER INFORMATION: Item 1. Legal Proceedings......................................................... 19 Item 2. Changes in Securities and Use of Proceeds................................. 19 Item 5. Other Information......................................................... 20 Item 6. Exhibits and Reports on Form 8-K.......................................... 20
Part I. FINANCIAL INFORMATION ITEM 1. Financial Statements ARVINMERITOR, INC. STATEMENT OF CONSOLIDATED INCOME (In millions, except per share amounts)
Three Months Ended December 31, ------------------ 2001 2000 ---- ---- (Unaudited) Sales....................................................... $ 1,566 $ 1,659 Cost of sales............................................... (1,408) (1,487) -------- ------- GROSS MARGIN................................................ 158 172 Selling, general and administrative....................... (95) (102) Goodwill amortization..................................... - (6) Restructuring costs....................................... (15) (46) -------- ------- OPERATING INCOME............................................ 48 18 Equity in earnings of affiliates.......................... - 5 Interest expense, net and other........................... (28) (35) -------- ------- INCOME (LOSS) BEFORE INCOME TAXES........................... 20 (12) (Provision) benefit for income taxes...................... (6) 4 Minority interests........................................ (3) (2) -------- ------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.............................. 11 (10) Cumulative effect of accounting change.................... (42) - -------- ------- NET LOSS.................................................... $ (31) $ (10) ======== ======= Basic and diluted earnings (loss) per share: Earnings (loss) per share before cumulative effect of accounting change........................... $ 0.17 $ (0.15) Cumulative effect of accounting change.................... (0.64) - -------- ------- Loss per share............................................ $ (0.47) $ (0.15) ======== ======= Basic average common shares outstanding..................... 65.7 67.0 ======== ======= Diluted average common shares outstanding................... 66.0 67.0 ======== ======= Cash dividends per common share............................. $ 0.10 $ 0.22 ======== =======
See notes to consolidated financial statements. - -------------------------------------------------------------------------------- 2 ARVINMERITOR, INC. CONSOLIDATED BALANCE SHEET (In millions)
December 31, September 30, 2001 2001 ----------------- ---------------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents............................................ $ 107 $ 101 Receivables (less allowance for doubtful accounts: December 31, 2001, $20 and September 30, 2001, $18) .......... 897 965 Inventories.......................................................... 470 457 Other current assets................................................. 235 232 ------- ------- TOTAL CURRENT ASSETS............................................. 1,709 1,755 ------- ------- NET PROPERTY.............................................................. 1,186 1,200 NET GOODWILL (less accumulated amortization: December 31, 2001 and September 30, 2001, $73) 793 835 OTHER ASSETS.............................................................. 546 572 ------- ------- TOTAL ASSETS..................................................... $ 4,234 $ 4,362 ======= ======= LIABILITIES AND SHAREOWNERS' EQUITY CURRENT LIABILITIES: Short-term debt...................................................... $ 43 $ 94 Accounts payable..................................................... 1,004 1,054 Accrued compensation and benefits.................................... 185 184 Accrued income taxes................................................. 29 26 Other current liabilities............................................ 311 314 ------- ------- TOTAL CURRENT LIABILITIES........................................ 1,572 1,672 ------- ------- LONG-TERM DEBT............................................................ 1,353 1,313 ACCRUED RETIREMENT BENEFITS............................................... 448 459 OTHER LIABILITIES......................................................... 140 141 MINORITY INTERESTS........................................................ 57 69 PREFERRED CAPITAL SECURITIES.............................................. 39 57 SHAREOWNERS' EQUITY: Common stock (December 31, 2001 and September 30, 2001, 71.0 shares issued and 65.6 outstanding)...................... 71 71 Additional paid-in capital........................................... 547 547 Retained earnings.................................................... 412 450 Treasury stock (December 31, 2001 and September 30, 2001, 5.4 shares) (69) (69) Unearned compensation................................................ (11) (12) Accumulated other comprehensive loss................................. (325) (336) ------- ------- TOTAL SHAREOWNERS' EQUITY........................................ 625 651 ------- ------- TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 4,234 $ 4,362 ======= =======
See notes to consolidated financial statements. - -------------------------------------------------------------------------------- 3 ARVINMERITOR, INC. CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS (In millions)
Three Months Ended December 31, --------------------------- 2001 2000 (Unaudited) OPERATING ACTIVITIES Income (loss) before cumulative effect of accounting change..................... $ 11 $ (10) Adjustments to arrive at cash provided by operating activities: Depreciation and other amortization....................................... 48 43 Goodwill amortization...................................................... - 6 Restructuring costs, net of expenditures................................... 14 45 Pension and retiree medical expense........................................ 18 15 Pension and retiree medical contributions.................................. (31) (20) Changes in assets and liabilities, excluding effects of acquisitions, divestitures and foreign currency adjustments.............. 19 (10) ------- ------ CASH PROVIDED BY OPERATING ACTIVITIES.................................. 79 69 ------- ------ INVESTING ACTIVITIES Capital expenditures............................................................ (34) (50) Acquisition of businesses and investments....................................... (8) (14) ------- ------ CASH USED FOR INVESTING ACTIVITIES.................................... (42) (64) ------- ------ FINANCING ACTIVITIES Net (decrease) increase in revolving debt....................................... (7) 41 Purchase of preferred capital securities........................................ (18) (10) Cash dividends.................................................................. (7) (15) Purchases of treasury stock..................................................... - (22) ------- ------ CASH USED FOR FINANCING ACTIVITIES..................................... (32) (6) ------- ------ Effect of exchange rate changes on cash......................................... 1 - ------- ------ CHANGE IN CASH AND CASH EQUIVALENTS............................................. 6 (1) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 101 116 ------- ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 107 $ 115 ======= ======
See notes to consolidated financial statements. - -------------------------------------------------------------------------------- 4 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. ArvinMeritor, Inc. (the company or ArvinMeritor) is a leading global supplier of a broad range of integrated systems, modules and components serving light vehicle, commercial truck, trailer and specialty original equipment manufacturers and certain aftermarkets. The company also provides coil coating applications to the transportation, appliance, construction and furniture industries. The consolidated financial statements are those of the company and its consolidated subsidiaries. In the opinion of the company, the unaudited financial statements contain all adjustments, consisting solely of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. These statements should be read in conjunction with the company's financial statements included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2001. The results of operations for the three-month period ended December 31, 2001 are not necessarily indicative of the results for the full year. It is the company's practice for each interim reporting period to make an estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate so determined is used in providing for income taxes on a year-to-date basis. The company's fiscal year ends on the Sunday nearest September 30. The company's fiscal quarters end on the Sundays nearest December 31, March 31, and June 30. All year and quarter references relate to the company's fiscal year and fiscal quarters unless otherwise stated. Basic earnings per share are based upon the weighted average number of shares outstanding during each quarter. Diluted earnings per share assumes the exercise of common stock options when dilutive and the impact of restricted stock. Certain prior period amounts have been reclassified to conform with current period presentation. 2. In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of Long-Lived Assets." The new standard requires one model of accounting for long-lived assets to be disposed of, and broadens the definition of discontinued operations to include a component of a segment. SFAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early adoption encouraged. The company does not expect the adoption of SFAS 144 to have a significant impact on its financial position or results of operations. 3. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." Effective October 1, 2001, the company adopted SFAS 142, which requires goodwill to be subject to an annual impairment test, or more frequently if certain indicators arise, and also eliminates goodwill amortization. 5 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) As required by this standard, the company reviewed the fair values of each of its reporting units using discounted cash flows and market multiples. As a result of this review, the company recorded an impairment loss on goodwill as a cumulative effect of accounting change for its Coil Coating operations (classified as "other" for segment reporting) of $42 million ($42 million after-tax, or $0.64 per diluted share) in the first quarter of fiscal 2002. Recent increases in competition, consolidation in the coil coating applications industry and the struggling U. S. steel market caused a decrease in the fair value of this business. There have been no changes in the carrying value of goodwill since September 30, 2001, other than the impairment loss on goodwill for the company's Coil Coating operations. The company's income (loss) before cumulative effect of accounting change and basic and diluted earnings (loss) per share before cumulative effect of accounting change would have been as follows had the company been accounting for its goodwill under SFAS 142 for the three months ended December 31, 2000 (in millions, except per share amounts):
Three Months Ended December 31, ---------------------------- 2001 2000 ---------------------------- Reported income (loss) before cumulative effect of accounting change................................ $ 11 $ (10) Add back goodwill amortization expense, net of tax............... - 5 ---------- ----------- Adjusted income (loss) before cumulative effect of accounting change................................ $ 11 $ (5) ========== =========== Reported basic and diluted earnings (loss) per share before cumulative effect of accounting change.............. $ 0.17 $ (0.15) Add back goodwill amortization expense, net of tax............... - 0.08 ---------- ----------- Adjusted basic and diluted earnings (loss) per share before cumulative effect of accounting change........... $ 0.17 $ (0.07) ========== ===========
Information regarding the company's other intangible assets, which includes trademarks, patents and licenses, is included in Note 8, and goodwill by segment is included in Note 15. 6 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. The company sells substantially all of the trade receivables of certain subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly owned subsidiary of the company. ARC has entered into an agreement to sell an undivided interest in up to $250 million of the receivables to a group of banks. As of December 31, 2001 and September 30, 2001, $198 million and $211 million, respectively, of trade receivables had been sold and are excluded from receivables in the consolidated balance sheet. The company has no retained interest in the receivables sold, but does retain collection and administrative responsibilities. The receivables were sold at fair market value and a discount on the sale of $2 million was recorded in interest expense, net and other in the three months ended December 31, 2001. As of December 31, 2001 and September 30, 2001, the banks had a preferential interest in $217 million and $202 million, respectively, of the remainder of the receivables held at ARC to secure the obligation under the asset securitization facility. 5. In the first quarter of fiscal 2002, the company recorded a restructuring charge of $15 million ($10 million after-tax, or $0.15 per diluted share) for severance and other employee costs related to a net reduction of approximately 450 employees. As of December 31, 2001, approximately 100 employees had been terminated under this restructuring action, and $14 million of restructuring reserves remained in the consolidated balance sheet. During fiscal 2001, the company recorded a net restructuring charge of $67 million ($45 million after-tax, or $0.68 per diluted share). The restructuring charge was net of $4 million of restructuring reserves established in fiscal 2000 that were reversed due to a change in circumstances, and $12 million of restructuring reserves established in fiscal 2001 that were reversed primarily due to actions taken to minimize severance costs related to cost-reduction programs in Europe. The fiscal 2001 net charge includes severance and other employee costs of $48 million related to a net reduction of approximately 1,350 employees, with the balance primarily associated with facility related costs from the rationalization of operations. As of December 31, 2001 approximately 1,000 employees had been terminated under this restructuring action. 7 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A summary of the restructuring activity as of December 31, 2001 is as follows (in millions):
Employee Termination Asset Benefits Impairment Other Total -------- ---------- ----- ----- Fiscal 2001 original charge................ $ 60 $ 19 $ 4 $ 83 Reversal of charge in fiscal 2001.......... (12) - - (12) Write-down of assets....................... - (19) - (19) Cash payments through 12/31/01............. (23) - (3) (26) --------- --------- --------- --------- Subtotal.............................. 25 - 1 26 --------- --------- --------- --------- Fiscal 2002 first quarter charge........... 15 - - 15 Cash payments through 12/31/01............. (1) - - (1) --------- --------- --------- --------- Subtotal.............................. 14 - - 14 --------- --------- --------- --------- Reserve balance at 12/31/01................ $ 39 $ - $ 1 $ 40 ========= ========= ========= =========
In fiscal 2001, the company also recorded $34 million of restructuring costs that were incurred as a result of the ArvinMeritor merger. These costs include $17 million related to a net reduction of approximately 1,200 employees, with the balance primarily associated with facility related costs from the rationalization of operations. As of December 31, 2001, approximately 850 employees had been terminated under this restructuring action, and $5 million of reserves remained in the consolidated balance sheet. 6. Inventories are summarized as follows (in millions):
December 31, September 30, 2001 2001 ------------------- -------------------- Finished goods.............................................. $ 236 $ 238 Work in process............................................. 123 118 Raw materials, parts and supplies........................... 162 152 --------- ---------- Total.................................................. 521 508 Less allowance to adjust the carrying value of certain inventories to a LIFO basis.................... 51 51 --------- ---------- Inventories............................................ $ 470 $ 457 ========= ==========
8 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 7. Other Current Assets are summarized as follows (in millions):
December 31, September 30, 2001 2001 ------------------ -------------------- Current deferred income taxes............................... $ 130 $ 138 Customer tooling............................................ 31 30 Asbestos-related recoveries................................. 24 24 Prepaid and other........................................... 50 40 --------- ---------- Other Current Assets................................... $ 235 $ 232 ========= ==========
8. Other Assets are summarized as follows (in millions):
December 31, September 30, 2001 2001 ------------------ -------------------- Investments in affiliates................................... $ 165 $ 186 Long-term deferred income taxes............................. 122 119 Prepaid pension costs....................................... 88 87 Net capitalized computer software costs..................... 42 42 Asbestos-related recoveries................................. 36 36 Trademarks.................................................. 23 23 Patents and licenses (less accumulated amortization: December 31, 2001 and September 30, 2001, $2) .................................. 13 13 Other....................................................... 57 66 --------- ---------- Other Assets........................................... $ 546 $ 572 ========= ==========
The company's trademarks, which were determined to have an indefinite life, are not amortized, and patents and licenses are amortized over their contractual lives. The company anticipates amortization expense for patents and licenses of approximately $2 million per year for fiscal years 2002 through 2004 and approximately $1 million per year for fiscal years 2005 through 2007. 9. Other Current Liabilities are summarized as follows (in millions):
December 31, September 30, 2001 2001 ------------------ -------------------- Accrued product warranties.................................. $ 84 $ 94 Accrued taxes other than income taxes....................... 46 48 Accrued restructuring....................................... 45 46 Asbestos-related liabilities................................ 24 24 Environmental reserves...................................... 14 18 Other....................................................... 98 84 --------- ---------- Other Current Liabilities.............................. $ 311 $ 314 ========= ==========
9 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 10. Other Liabilities are summarized as follows (in millions):
December 31, September 30, 2001 2001 ------------------ -------------------- Asbestos-related liabilities................................ $ 47 $ 47 Deferred payments........................................... 29 29 Environmental reserves...................................... 25 25 Other....................................................... 39 40 --------- ---------- Other Liabilities...................................... $ 140 $ 141 ========= ==========
11. Long-Term Debt, net of discount where applicable, is summarized as follows (in millions):
December 31, September 30, 2001 2001 ------------------ -------------------- 6 3/4 percent notes due 2008................................ $ 100 $ 100 7 1/8 percent notes due 2009................................ 150 150 6.8 percent notes due 2009.................................. 498 498 Bank revolving credit facilities............................ 597 495 Lines of credit and other................................... 51 164 --------- ---------- Subtotal................................................. 1,396 1,407 Less: current maturities................................... (43) (94) --------- ----------- Long-Term Debt..................................... $ 1,313 $ 1,353 ========= ===========
The company has two unsecured credit facilities: a 364-day, $750-million credit facility and a five-year $750-million revolving credit facility. The 364-day facility matures on June 26, 2002, with the option to convert borrowings thereunder to a one-year term loan. The five-year facility matures on June 27, 2005. In addition, the company has $50 million of unsecured lines of credit and a commercial paper program with authorized borrowings of up to $1 billion. Interest rates applicable to the company's commercial paper borrowings are currently higher than the cost of other available sources of financing, and no borrowings were outstanding as of December 31, 2001 or September 30, 2001. On April 12, 2001, the company filed a shelf registration statement with the Securities and Exchange Commission registering $750 million aggregate principal amount of debt securities that may be offered in one or more series on terms to be determined at the time of sale. The registration statement became effective on April 18, 2001. Except as may otherwise be determined at the time of sale, the net proceeds would be used for repayment of outstanding indebtedness and for other general corporate purposes. Included in lines of credit and other above at December 31, 2001 and September 30, 2001 were $21 million and $50 million, respectively, of borrowings with a non-consolidated affiliate. 10 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 12. Accrued Retirement Benefits consisted of the following (in millions):
December 31, September 30, 2001 2001 ------------------ -------------------- Accrued retirement medical costs............................ $ 316 $ 318 Accrued pension costs....................................... 149 158 Other....................................................... 33 33 --------- ---------- Subtotal................................................ 498 509 Less: current liability..................................... (50) (50) --------- ---------- Accrued Retirement Benefits $ 448 $ 459 ========= ==========
13. The company uses forward exchange contracts to offset the effect of exchange rate fluctuations on foreign currency denominated payables and receivables. These contracts help minimize the risk of loss from changes in exchange rates, and are generally of short duration (less than three months). The foreign currency denominated payables and receivables are remeasured on a quarterly basis and the forward exchange contracts are utilized to help offset the earnings impact of the remeasurement. The company has elected not to designate the forward exchange contracts as hedges. Therefore, change in the fair value of the foreign exchange contracts is recognized in operating income. The net income impact of recording these items in the three-month period ended December 31, 2001 and 2000 did not have a significant effect on the results of operations. Forward exchange contracts were also utilized to hedge the purchase of equipment payable in foreign currency and were designated as fair value hedges of the firm commitment. The fair value of the firm commitment was recorded as an asset, the value of the forward contracts was recorded as a liability, and there was no impact to earnings during both quarters. The value of both the firm commitment and the forward exchange contracts are determined using the forward exchange rates, with all other critical terms of the forward contracts and the hedged transaction being the same. Therefore, the company has determined the change in fair value attributable to the risk being hedged is expected to be completely offset by the change in fair value of the forward contracts. Future assessments of hedge effectiveness will include verifying and documenting if the critical terms of the forward contracts and the firm commitment have changed. The company's financial instruments include cash and cash equivalents, short- and long-term debt and foreign currency forward exchange contracts. As of December 31, 2001, the carrying values of the company's financial instruments approximated their fair values based on prevailing market prices and rates. The notional amount of outstanding foreign currency forward exchange contracts aggregated $64 million at December 31, 2001 and $68 million at September 30, 2001. It is the policy of the company not to enter into derivative instruments for speculative purposes. 14. In July 2000, the company's board of directors authorized a program to repurchase up to $100 million of its common stock. As of December 31, 2001 and September 30, 2001, 5.4 million shares of ArvinMeritor common stock had been purchased under this program at an aggregate cost of approximately $84 million, or an average of $15.39 per share. This program was terminated in November 2001. 11 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 15. ArvinMeritor currently has three reportable operating segments: Light Vehicle Systems (LVS), Commercial Vehicle Systems (CVS) and Light Vehicle Aftermarket (LVA). LVS is a major supplier of aperture systems (primarily roof, door and access control systems and motion control products), undercarriage systems (primarily suspension, ride control and wheel products) and exhaust systems for passenger cars, light trucks and sport utility vehicles to original equipment manufacturers. CVS is a leading supplier of drivetrain systems and components, including axles, brakes, drivelines and ride control products, for medium- and heavy-duty trucks, trailers and off-highway equipment and specialty vehicles. LVA supplies exhaust, ride control, filter products and accessories to the light vehicle aftermarket. Business units that are not focused on automotive products are classified as "Other." The company's Coil Coating operation is the primary component of this classification. Segment information is summarized as follows (in millions):
Three Months Ended December 31, ----------------------------- 2001 2000 ------------- ------------- Sales: Light Vehicle Systems................................... $ 852 $ 870 Commercial Vehicle Systems.............................. 483 552 Light Vehicle Aftermarket............................... 194 197 Other................................................... 37 40 ---------- ----------- Total............................................... $ 1,566 $ 1,659 ========== =========== Operating income: Light Vehicle Systems................................... $ 44 $ 52 Commercial Vehicle Systems.............................. 11 12 Light Vehicle Aftermarket............................... 9 3 Other................................................... (1) (3) ---------- ----------- Segment operating income.......................... 63 64 Restructuring costs..................................... (15) (46) ---------- ----------- Operating income................................... 48 18 Equity in earnings of affiliates........................ - 5 Interest expense, net and other......................... (28) (35) ---------- ----------- Income (loss) before income taxes....................... 20 (12) (Provision) benefit for income taxes.................... (6) 4 Minority interests...................................... (3) (2) ---------- ----------- Income (loss) before cumulative effect of accounting change.................................. $ 11 $ (10) ========== ===========
12 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The carrying value of goodwill for the company's segments as of December 31, 2001 was as follows (in millions): Light Vehicle Systems............................................ $ 222 Commercial Vehicle Systems....................................... 400 Light Vehicle Aftermarket........................................ 171 Other............................................................ - ---------- Net Goodwill.............................................. $ 793 ==========
16. Comprehensive loss is summarized as follows (in millions):
Three Months Ended December 31, --------------------------- 2001 2000 ---------- --------- Net loss.............................. $ (31) $ (10) Foreign currency translation.......... 11 5 --------- --------- Comprehensive loss.................... $ (20) $ (5) ========= =========
17. Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes and other activities affecting the environment have, and will continue to have, an impact on the manufacturing operations of the company. Thus far, compliance with environmental requirements and resolution of environmental claims has been accomplished without material effect on the company's business, financial condition or results of operations. The company has been designated as a potentially responsible party at 8 Superfund sites, excluding sites as to which the company's records disclose no involvement or as to which the company's potential liability has been finally determined. Management estimates the total, reasonably possible costs the company could incur for the remediation of Superfund sites at December 31, 2001, to be approximately $33 million, of which $15 million has been accrued. Various other lawsuits, claims and proceedings have been asserted against the company, alleging violations of federal, state and local environmental protection requirements, or seeking remediation of alleged environmental impairments, principally at previously disposed-of properties. For these matters, management has estimated the total, reasonably possible costs the company could incur at December 31, 2001, to be approximately $52 million, of which $24 million has been recorded. 13 ARVINMERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Based on its assessment, management believes that the company's expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on the company's business, financial condition or results of operations. Management cannot assess the possible effect of compliance with future requirements. Various other lawsuits, claims and proceedings have been or may be instituted or asserted against the company, relating to the conduct of its business, including those pertaining to product liability, intellectual property, safety and health, and employment matters. Included in these matters are claims for alleged asbestos-related personal injuries, which arose from products manufactured prior to 1977 by a subsidiary acquired by Arvin in 1986. During fiscal years 1996 through 2001, the company and its predecessors paid asbestos-related claims of approximately $40 million, substantially all of which were reimbursed by insurance. As of December 31, 2001, the company has accrued $71 million for contingent asbestos-related liabilities, and recorded assets of $60 million for probable recoveries from insurance. Based on its assessment of the history and nature of filed claims to date, management believes that existing insurance coverage will reimburse substantially all of the potential liabilities and expenses related to pending and future claims. Prior to February 1, 2001, the Center for Claims Resolution (the "CCR") handled the processing and settlement of asbestos claims on behalf of the company. The company shared in the payments of defense costs and settlements of the asbestos claims with other CCR members. Several members of the CCR have filed for bankruptcy protection, and these members have failed, or may fail, to pay certain financial obligations with respect to settlements that were reached while they were CCR members. The company expects to be subject to claims for payment of a portion of the defaulted shares. In effort to resolve the affected settlements, the company has entered into negotiations with plaintiffs' attorneys, and an estimate of the company's obligation has been included in the recorded reserves. The company and its insurers are engaged in proceedings to determine whether existing insurance coverage should reimburse any potential liability related to this issue. Although the outcome of litigation cannot be predicted with certainty, and some lawsuits, claims or proceedings may be disposed of unfavorably to the company, management believes the disposition of matters that are pending or asserted will not have a material adverse effect on the company's business, financial condition or results of operations. 14 ARVINMERITOR, INC. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS 2002 First Quarter Compared to 2001 First Quarter Sales for the first quarter of fiscal 2002 were $1,566 million, a decrease of $93 million, or 6 percent, as compared to last year's first quarter results. The sales decline was driven primarily by the Commercial Vehicle Systems (CVS) business, which has been affected by reduced build rates for North American Class 8 trucks. The softening in North American and Western European light vehicle production also contributed to the company's lower sales. Effective October 1, 2001, the company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets", which requires goodwill to be subject to an annual impairment test, or more frequently if certain indicators arise, and also eliminates goodwill amortization. As required by this standard, the company reviewed the fair values of each of its reporting units using discounted cash flows and market multiples. As a result of this review, the company recorded an impairment loss on goodwill as a cumulative effect of accounting change for its Coil Coating operations (classified as "other" for segment reporting) of $42 million ($42 million after-tax, or $0.64 per diluted share) in the first quarter of fiscal 2002. Recent increases in competition, consolidation in the coil coating applications industry and the struggling U.S. steel market caused a decrease in the fair value of this business. The adoption of the new accounting standard also eliminated goodwill amortization expense of $6 million ($5 million after-tax, or $0.08 per diluted share) for the first quarter of fiscal 2002 and will eliminate $24 million ($20 million after-tax, or $0.30 per diluted share) for the full year. First quarter fiscal 2002 operating income was $48 million, compared to $18 million in the first quarter of 2001. Included in operating income were restructuring charges of $15 million ($10 million after-tax, or $0.15 per diluted share) in the first quarter of fiscal 2002 and $46 million ($30 million after-tax, or $0.45 per diluted share) in the first quarter of fiscal 2001. The first quarter fiscal 2002 restructuring charge of $15 million related to employee severance benefits for approximately 450 salaried employees. The company expects to recover these costs in less than one year and estimates these actions, when fully implemented, will reduce annual operating costs by approximately $24 million ($16 million after-tax). The company's Light Vehicle Systems (LVS) business is expected to account for approximately 50 percent of the annual savings, CVS business about 42 percent, and Light Vehicle Aftermarket (LVA) and other about 8 percent. Excluding restructuring costs, operating income was $63 million, compared to $64 million for the same period last year ($70 million after adjusting for goodwill amortization expense of $6 million). Operating margin was 4.0 percent, compared to last year's 3.9 percent (4.2 percent after adjusting for amortization expense). The LVS segment primarily drove the operating income and margin decline, as described below. Equity in earnings of affiliates declined $5 million, compared to the same period last year, primarily due to declining earnings from commercial vehicle affiliates. Net interest expense decreased $7 million, or 20 percent, compared to the same period last year, primarily reflecting lower interest rates and debt levels. Debt levels have been reduced as a result of strong operating cash flow and the impact of the company's accounts receivable securitization program (see below). 15 ARVINMERITOR, INC. The first quarter effective tax rate of 32 percent was down from 35.5 percent for the first quarter of the prior year. The company expects the full year effective tax rate to approximate the first quarter rate of 32 percent. Income before cumulative effect of accounting change was $11 million, or $0.17 per basic and diluted share for the quarter ended December 31, 2001, as compared to a net loss of $10 million, or $0.15 per basic and diluted share for the same period last year. As discussed above, the company recorded a cumulative effect of accounting change, upon the adoption of SFAS 142, of $42 million ($42 million after-tax, or $0.64 per diluted share) in the first quarter of fiscal 2002. Net loss in fiscal 2002 first quarter was $31 million. LVS sales were $852 million, down $18 million, or 2 percent, from the first quarter of fiscal 2001 and operating income was $44 million, a decrease of $8 million from last year's first quarter. Operating margin fell to 5.2 percent from 6.0 percent in last year's first quarter (6.2 percent adjusted to exclude goodwill amortization expense of $2 million). Continued margin pressures from the vehicle manufacturers and production declines contributed to the operating margin decline. LVS continues to offset these margin challenges through restructuring and other programs aimed at lowering fixed costs. In addition, start-up costs associated with the new Detroit manufacturing facility, as well as higher engineering and launch costs associated with new product development negatively impacted the first quarter of fiscal 2002 results by approximately $6 million. CVS sales were $483 million, down $69 million, or 13 percent, from last year's first quarter and operating income was $11 million, compared to $12 million in last year's first quarter. CVS operating margin was 2.3 percent, compared to 2.2 percent in the first quarter of fiscal 2001 (2.7 percent after excluding goodwill amortization expense of $3 million). The continued decline in Class 8 North American truck volumes was the major factor in the sales decrease. CVS has been able to offset much of the impact of the sales decline on its margins by lowering its fixed-cost structure through restructuring programs and other cost-reduction activities. LVA sales were $194 million, down slightly from $197 million in last year's first quarter. Operating income increased to $9 million from $3 million in the prior year's first quarter. LVA operating margin increased to 4.6 percent, up from 1.5 percent in the first quarter of fiscal 2001 (2.0 percent after excluding goodwill amortization expense of $1 million). While the markets remained weak for aftermarket parts, LVA was able to increase its operating margin as a result of improved pricing and the impact of ongoing cost reductions. 16 ARVINMERITOR, INC. FINANCIAL CONDITION Cash provided by operating activities for the first three months of fiscal 2002 was $79 million, an increase of $10 million compared to the first three months of fiscal 2001 and reflects the company's continued focus on working capital management. Depreciation and other amortization expense was $48 million for the first quarter of fiscal 2002. The company anticipates depreciation and other amortization expense to be approximately $195 million to $205 million for the entire fiscal year. The company participates in an asset securitization facility to improve financial flexibility and lower interest costs. ArvinMeritor Receivables Corporation (ARC), a wholly owned subsidiary of the company, has entered into an agreement to sell an undivided interest in up to $250 million of trade receivables to a group of banks. The accounts receivable sold are reflected as a reduction to accounts receivable in the consolidated balance sheet. As of December 31, 2001, the company had utilized $198 million of the asset securitization facility (see Note 4 to the Consolidated Financial Statements). Capital expenditures were $34 million in the first three months of fiscal 2002, compared to $50 million in the first three months of fiscal 2001. The decrease was driven by the company's fiscal 2002 cost-reduction initiatives, which include salaried workforce reductions (discussed above), delays in merit increases and limitations on capital spending. The company anticipates full year fiscal 2002 capital expenditures of approximately $170 million to $180 million. Cash used for financing activities in the fiscal 2002 first quarter includes payments totaling $25 million to reduce debt and purchase preferred capital securities. Cash used for financing activities also includes payment of $7 million for cash dividends. The company's first quarter dividend of $0.10 cents per share was paid on December 17, 2001, to shareowners of record on November 26, 2001. Cash used for financing activities for the first three months of fiscal 2001 included the purchase of preferred capital securities of $10 million, and payments for purchases of the company's common stock of $22 million and cash dividends of $15 million, offset by an increase in revolving debt of $41 million. The company's total debt to capitalization ratio increased slightly to 68 percent at December 31, 2001, from 67 percent at September 30, 2001. The company has two unsecured credit facilities: a 364-day, $750-million credit facility and a five-year $750-million revolving credit facility. The 364-day facility matures on June 26, 2002, with the option to convert borrowings thereunder to a one-year term loan. The five-year facility matures on June 27, 2005. In addition, the company has $50 million of unsecured lines of credit and a commercial paper program with authorized borrowings of up to $1 billion. Interest rates applicable to the company's commercial paper borrowings are currently higher than the cost of other available sources of financing, and no borrowings were outstanding as of December 31, 2001 or September 30, 2001. On April 12, 2001, the company filed a shelf registration statement with the Securities and Exchange Commission registering $750 million aggregate principal amount of debt securities that may be offered in one or more series on terms to be determined at the time of sale. The registration statement became effective on April 18, 2001. The company anticipates issuing debt securities under this shelf registration at some time during the remainder of fiscal 2002. Except as may otherwise be determined at the time of sale, the net proceeds would be used for repayment of outstanding indebtedness and for other general corporate purposes. 17 ARVINMERITOR, INC. INTERNATIONAL OPERATIONS On January 1, 2002, the Euro became the sole legal tender in eleven countries of the European Union. The company is engaged in business in many of the countries that participate in the European Monetary Union, and sales for fiscal 2001 in these countries were approximately 18 percent of the company's total sales. In addition, the company enters into foreign currency forward exchange contracts denominated in the Euro and has borrowings in participating countries. The company has made the necessary adjustments to accommodate the Euro conversion, including modifications to its information technology systems and programs, pricing schedules and financial instruments, and believes that the conversion has not had and will not have a material adverse effect on its business, financial condition or results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency exchange rate risk related to its transactions denominated in currencies other than the U.S. dollar and interest rate risk associated with the company's debt. The company enters into foreign currency forward exchange contracts to minimize the risk of unanticipated gains and losses from currency rate fluctuations on foreign currency commitments entered into in the ordinary course of business (See Note 13 to the Consolidated Financial Statements for information on accounting for these contracts). It is the policy of the company not to enter into derivative financial instruments for speculative purposes, and therefore, the company holds no derivative instruments for trading purposes. The company has performed a sensitivity analysis assuming a hypothetical 10 percent adverse movement in foreign currency exchange rates and interest rates applied to the underlying exposures described above. As of December 31, 2001, the analysis indicated that such market movements would not have a material effect on the company's business, financial condition, or results of operations. Actual gains or losses in the future may differ significantly from that analysis, however, based on changes in the timing and amount of interest rate and foreign currency exchange rate movements and the company's actual exposures. 18 ARVINMERITOR, INC. PART II. OTHER INFORMATION Item 1. Legal Proceedings Various lawsuits, claims and proceedings have been or may be instituted or asserted against the company, relating to the conduct of its business, including those pertaining to product liability, intellectual property, safety and health, and employment matters. Included in these matters are claims for alleged asbestos-related personal injuries, which arose from products manufactured prior to 1977 by a subsidiary acquired by Arvin in 1986. During fiscal years 1996 through 2001, the company and its predecessors paid asbestos-related claims of approximately $40 million, substantially all of which were reimbursed by insurance. As of December 31, 2001, the company has accrued $71 million for contingent asbestos-related liabilities, and recorded assets of $60 million for probable recoveries from insurance. Based on its assessment of the history and nature of filed claims to date, management believes that existing insurance coverage will reimburse substantially all of the potential liabilities and expenses related to pending and future claims. Prior to February 1, 2001, the Center for Claims Resolution (the "CCR") handled the processing and settlement of asbestos claims on behalf of the company. The company shared in the payments of defense costs and settlements of the asbestos claims with other CCR members. Several members of the CCR have filed for bankruptcy protection, and these members have failed, or may fail, to pay certain financial obligations with respect to settlements that were reached while they were CCR members. The company expects to be subject to claims for payment of a portion of the defaulted shares. In effort to resolve the affected settlements, the company has entered into negotiations with plaintiffs' attorneys, and an estimate of the company's obligation has been included in the recorded reserves. The company and its insurers are engaged in proceedings to determine whether existing insurance coverage should reimburse any potential liability related to this issue. Although the outcome of litigation cannot be predicted with certainty, and some lawsuits, claims or proceedings may be disposed of unfavorably to the company, management believes the disposition of matters that are pending or asserted will not have a material adverse effect on the company's business, financial condition or results of operations. Item 2. Changes in Securities and Use of Proceeds On October 1, 2001, the company issued 599 shares of Common Stock to each of James E. Perrella and Martin D. Walker, non-employee directors of the company, pursuant to the terms of the company's Directors Stock Plan, in lieu of cash payment of the quarterly retainer fee for board service. The issuance of these securities was exempt from registration under the Securities Act of 1933, as a transaction not involving a public offering under Section 4(2). 19 ARVINMERITOR, INC. Item 5. Other Information. Cautionary Statement This Quarterly Report on Form 10-Q 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" and similar expressions. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to global economic and market conditions; the demand for commercial, specialty and light vehicles for which the company supplies products; risks inherent in operating abroad; 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 customers and suppliers; successful integration of acquired or merged businesses; achievement of the expected annual savings and synergies from past and future business combinations; competitive product and pricing pressures; the amount of the company's debt; the ability of the company to access capital markets; the credit ratings of the company's debt; the outcome of litigation; as well as other risks and uncertainties, including but not limited to those detailed herein and from time to time in other filings of the company with the Securities and Exchange Commission. See also "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Quantitative and Qualitative Disclosures about Market Risk" herein. 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. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10 - First Amendment to Amended and Restated Receivables Sale Agreement, dated as of December 21, 2001, among ArvinMeritor Receivables Corporation, the company, Amsterdam Funding Corporation, ABN Amro Bank N.V., Giro Balanced Funding Corporation, Atlantic Asset Securitization Corp., Bauyerische Landesbank, Cayman Islands Branch, Bayerische Landesbank, New York Branch and Credit Lyonnais. 12 - Computation of ratio of earnings to fixed charges. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended December 31, 2001. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ARVINMERITOR, INC. ---------------------------------------- (Registrant) Date February 8, 2002 By V.G. Baker, II -------------------------------------------- ---------------------------------------- V.G. Baker, II Senior Vice President and General Counsel (For the Registrant) Date February 8, 2002 By D. S. Bullock -------------------------------------------- ---------------------------------------- D. S. Bullock Vice President and Controller (Principal Accounting Officer)
21 INDEX TO EXHIBITS Exhibit Number Description - ------- ---------------------------------------- 10 First Amendment To Amended and Restated Receivables Sale Agreement 12 Computation of Earnings to Fixed Charges Quarter Ended December 31, 2001 22 EX-10 3 k67202ex10.txt 1ST AMEND - AMENDED/RESTATED RECEIVABLES SALE AGMT EXHIBIT 10 FIRST AMENDMENT TO AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT THIS FIRST AMENDMENT (the "Amendment"), dated as of December 21, 2001, is entered into among ArvinMeritor Receivables Corporation, a Delaware corporation (the "Seller"), ArvinMeritor, Inc., an Indiana corporation (the "Initial Collection Agent," and, together with any successor thereto, the "Collection Agent"), the Related Committed Purchasers party hereto (the "Related Committed Purchasers"), Amsterdam Funding Corporation, a Delaware corporation ("Amsterdam"), Giro Balanced Funding Corporation ("GBFC"), Atlantic Asset Securitization Corp. ("Atlantic"), the other Conduit Purchasers from time to time party hereto, ABN AMRO Bank N.V., as agent for the Purchasers (the "Agent") and as a Purchaser Agent, Bayerische Landesbank, New York Branch ("BLB"), as a Purchaser Agent, Credit Lyonnais ("CL"), acting through its New York Branch, as a Purchaser Agent, and the other Purchaser Agents from time to time to the party hereto; WITNESSETH: WHEREAS, the Seller, Collection Agent, the Related Committed Purchasers, the Conduit Purchasers, the Agent and the Purchaser Agents have heretofore executed and delivered a Receivables Sale Agreement dated as of September 27, 2001 (as amended, supplemented or otherwise modified through the date hereof, the "Sale Agreement"), WHEREAS, the parties hereto desire to amend the Sale Agreement as provided herein; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree that the Sale Agreement shall be and is hereby amended as follows: Section 1. Section 3.3 of the Sale Agreement is hereby amended in its entirety and as so amended shall read as follows: Section 3.3. Reports. On or before the 25th day of each month, and at such other times covering such other periods as is requested by the Agent or the Instructing Group (which such other periods shall not be shorter than a calendar month if no Termination Event has occurred), the Collection Agent shall deliver to the Agent and each Purchaser Agent a report reflecting information as of the close of business of the Collection Agent for the immediately preceding calendar month or such other preceding period as is requested (each a "Periodic Report"), containing the information described on Exhibit B (with such modifications or additional information as requested by the Agent or the Instructing Group); provided, however, if the Parent's long-term unsecured debt rating from both Moody's and S&P is less than Baa3 and BBB-, the Collection Agent shall deliver the Periodic Report to the Agent and each Purchaser Agent on or before Tuesday of each week for the immediately preceding calendar week; provided, further, however if the Parent's long-term unsecured debt rating is less than "Ba1" from Moody's or less than "BB+" from S&P, respectively, the Collection Agent shall deliver the Periodic Report to the Agent and each Purchaser Agent on a daily basis. Section 2. The defined term "Concentration Limit" appearing in Schedule I to the Sale Agreement is hereby amended in its entirety and as so amended shall read as follows: "Concentration Limit" means (i) an amount not to exceed 10% of the aggregate outstanding principal balance of all Eligible Receivables for Obligors (other than Special Obligors) with unsecured debt ratings of at least "A-" and "A3" by S&P and Moody's, respectively, (ii) an amount not to exceed 5% of the aggregate outstanding principal balance of all Eligible Receivables for Obligors (other than Special Obligors) with unsecured debt ratings of at least "BBB-" and "Baa3" but less than A- and A3 by S&P and Moody's, respectively, and (iii) an amount not to exceed 2.5% of the aggregate outstanding principal balance of all Eligible Receivables for Obligors (other than Special Obligors) with unsecured debt ratings of below BBB- and Baa3 by S&P and Moody's, respectively; provided, however, that if any Obligor (other than Special Obligors) is not rated by either S&P or Moody's, the applicable Concentration Limit shall be 2.5%. Section 3. The defined term "Downgrade" appearing in Schedule I to the Sale Agreement is hereby deleted. Section 4. Clause (i) of the defined term "Loss Reserve Percentage" appearing in Schedule I to the Sale Agreement is hereby amended by deleting the percentage "12.5%" contained therein and inserting in its place the percentage "15.0%". Section 5. The defined term "Special Limit" appearing in Schedule I to the Sale Agreement is hereby amended in its entirety and as so amended shall read as follows: "Special Limit" means (i) an amount not to exceed 35% of the aggregate outstanding principal balance of all Eligible Receivables for Special Obligors with unsecured debt ratings of at least "A-" and "A3" by S&P and Moody's, respectively, (ii) an amount not to exceed 15% of the aggregate outstanding principal balance of all Eligible Receivables for Special Obligors with unsecured debt ratings of at least "BBB+" and "Baa1" but less than "A-" and "A3" by S&P and Moody's, respectively, (iii) an amount not to exceed 10% of the aggregate outstanding principal balance of all Eligible Receivables for Special Obligors with unsecured debt ratings of at least "BBB" and "Baa2" but less than "BBB+" and "Baa1" by S&P and Moody's, respectively, (iv) an amount not to exceed 7.5% of the aggregate outstanding principal balance of all Eligible Receivables for Special Obligors with unsecured debt ratings of at least "BBB-" and "Baa3" but less than "BBB" and "Baa2" by S&P and Moody's, respectively, and (v) an amount not to exceed 2.5% of the aggregate outstanding principal balance of all Eligible Receivables for Special Obligors with unsecured debt ratings of below "BBB" and "Baa3" by S&P and Moody's, respectively; provided, however, that if any Special -2- Obligor is not rated by either S&P or Moody's, the applicable Concentration Limit shall be 2.5%. Section 6. The defined term "Special Obligors" appearing in Schedule I to the Sale Agreement is hereby amended in its entirety and as so amended shall read as follows: "Special Obligors" means Ford Motor Company, General Motors Corporation and Daimler Chrysler Corporation. Section 7. Clause (j) of the defined term "Termination Event" appearing in Schedule I to the Sale Agreement is hereby amended in its entirety and as so amended shall read as follows: (j) (i) the Parent's long-term unsecured, unsubordinated indebtedness is rated less than "BB+" by S&P and "Ba1" by Moody's (or S&P and Moody's has withdrawn or suspended such ratings) or (ii) the Parent's long-term unsecured, unsubordinated indebtedness is rated less than "BB" by S&P or "Ba2" by Moody's (or S&P or Moody's has withdrawn or suspended such rating); or Section 8. Concurrently upon the execution hereof, the Seller shall pay to each Related Committed Purchaser for its own account, an amendment fee of $50,000. Section 9. This Amendment shall become effective on the date the Agent has received (i) counterparts hereof executed by the Seller, Collection Agent, each Related Committed Purchaser, each Conduit Purchaser, each Purchaser Agent and the Agent. Section 10.1. To induce the Agent and the Related Committed Purchasers to enter into this Amendment, the Seller and Collection Agent represent and warrant to the Agent and the Related Committed Purchasers that: (a) the representations and warranties contained in the Transaction Documents, are true and correct in all material respects as of the date hereof with the same effect as though made on the date hereof (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date); (b) no Potential Termination Event exists; (c) this Amendment has been duly authorized by all necessary corporate proceedings and duly executed and delivered by each of the Seller and the Collection Agent, and the Sale Agreement, as amended by this Amendment, and each of the other Transaction Documents are the legal, valid and binding obligations of the Seller and the Collection Agent, en forceable against the Seller and the Collection Agent in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity; and (d) no consent, approval, authorization, order, registration or qualification with any governmental authority is required for, and in the absence of which would adversely effect, the legal and valid execution and delivery or performance by the Seller or the Collection Agent of this Amendment or the performance by the Seller or the Collection Agent of the Sale Agreement, as amended by this Amendment, or any other Transaction Document to which they are a party. -3- Section 10.2. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. Section 10.3. Except as specifically provided above, the Sale Agreement and the other Transaction Documents shall remain in full force and effect and are hereby ratified and confirmed in all respects. The execution, delivery, and effectiveness of this Amendment shall not operate as a waiver of any right, power, or remedy of any Agent or any Related Committed Purchaser under the Sale Agreement or any of the other Transaction Documents, nor constitute a waiver or modification of any provision of any of the other Transaction Documents. All defined terms used herein and not defined herein shall have the same meaning herein as in the Sale Agreement. The Seller agrees to pay on demand all costs and expenses (including reasonable fees and expenses of counsel) of or incurred by the Agent and each Purchaser Agent in connection with the negotiation, preparation, execution and delivery of this Amendment. Section 10.4. This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the State of Illinois. -4- IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first above written. ABN AMRO BANK N.V., as the Agent, a Purchaser Agent and a Committed Purchaser and as the Enhancer By:____________________________________ Title: __________________________________ By:____________________________________ Title: __________________________________ AMSTERDAM FUNDING CORPORATION, as a Conduit Purchaser By:____________________________________ Title: __________________________________ GIRO BALANCED FUNDING CORPORATION, as a Conduit Purchaser By:____________________________________ Title: __________________________________ BAYERISCHE LANDESBANK, New York Branch, as a Purchaser Agent By:____________________________________ Title: __________________________________ BAYERISCHE LANDESBANK, Cayman Islands Branch, as a Committed Purchaser By:____________________________________ Title: __________________________________ -5- ATLANTIC ASSET SECURITIZATION CORP., as a Conduit Purchaser By:____________________________________ Title: __________________________________ CREDIT LYONNAIS, acting through its New York Branch, as a Purchaser Agent and a Committed Purchaser By:____________________________________ Title: __________________________________ ARVINMERITOR RECEIVABLES CORPORATION, as the Seller By:____________________________________ Title: __________________________________ ARVINMERITOR, INC., as the Initial Collection Agent By:____________________________________ Title: __________________________________ -6- EX-12 4 k67202ex12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 ArvinMeritor, Inc. Computation of Earnings to Fixed Charges Quarter Ended December 31, 2001 Earnings Available for Fixed Charges: Income before income taxes $ 20 Adjustments: Undistributed income of affiliates 7 ----- 27 Add fixed charges included in earnings: Interest expense 30 Interest element of rentals 2 ----- Total 32 ----- Total earnings available for fixed charges: $ 59 ----- Fixed Charges: Fixed charges included in earnings $ 32 Capitalized interest - ----- Total fixed charges $ 32 ----- Ratio of Earnings to Fixed Charges (1) 1.84 =====
1 = "Earnings" are defined as pre-tax income from continuing operations, adjusted for undistributed earnings of less than majority owned subsidiaries and fixed charges excluding capitalized interest. "Fixed charges" are defined as interest on borrowings (whether expensed or capitalized), the portion of rental expense applicable to interest, and amortization of debt issuance costs. -----END PRIVACY-ENHANCED MESSAGE-----