-----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, K7g07B9hNFN9B8FLZdrukAjRtqVgpdggRWTGYm9y7qpsq8w4XmMrGhtzA1FMN3zV 0eZ7fpsc8G99wYuTSPcdNg== 0001206774-11-000198.txt : 20110203 0001206774-11-000198.hdr.sgml : 20110203 20110203172118 ACCESSION NUMBER: 0001206774-11-000198 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20110102 FILED AS OF DATE: 20110203 DATE AS OF CHANGE: 20110203 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: 11571432 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 arvinmeritor_10q.htm QUARTERLY REPORT arvinmeritor_10q.htm
UNITED STATES
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 January 2, 2011
 
Commission File No. 1-15983
 
ARVINMERITOR, INC.
(Exact name of registrant as specified in its charter)
 
Indiana 38-3354643
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification
organization) 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    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).
       Yes [    ]     No [    ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
 
Large accelerated filer                X         Accelerated filer          
Non-accelerated filer       Smaller reporting company           

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes        No   X

94,234,334 shares of Common Stock, $1.00 par value, of ArvinMeritor, Inc. were outstanding on January 2, 2011.
 
 

INDEX
 
        Page
No.
PART I.   FINANCIAL INFORMATION:    
             
        Item 1.       Financial Statements:        
             
        Consolidated Statement of Operations - - Three Months
Ended December 31, 2010 and 2009		   3
             
        Condensed Consolidated Balance Sheet - -
December 31, 2010 and September 30, 2010		   4
             
        Condensed Consolidated Statement of Cash Flows - -
Three Months Ended December 31, 2010 and 2009		   5
             
        Condensed Consolidated Statement of Equity (Deficit) and
Comprehensive Income (Loss) - -
Three Months Ended December 31, 2010 and 2009		   6
             
        Notes to Consolidated Financial Statements   7
             
    Item 2.   Management’s Discussion and Analysis
of Financial Condition and Results of Operations		   30
             
    Item 3.   Quantitative and Qualitative Disclosures About
Market Risk		   43
             
    Item 4.   Controls and Procedures   44
             
PART II.   OTHER INFORMATION:    
         
    Item 1.   Legal Proceedings   44
             
    Item 1A.   Risk Factors   44
             
    Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   44
             
    Item 5.   Other Information   45
             
    Item 6.   Exhibits   46
             
Signatures       47

2
 
 

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
 
ARVINMERITOR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
 
    Three Months Ended
    December 31,
        2010       2009  
    (Unaudited)
Sales   $      971   $      800  
Cost of sales     (867 )   (711 )
GROSS MARGIN     104     89  
       Selling, general and administrative     (72 )   (66 )
       Restructuring costs     (3 )   —  
OPERATING INCOME     29     23  
       Equity in earnings of affiliates     13     9  
       Interest expense, net     (27 )   (23 )
INCOME BEFORE INCOME TAXES     15     9  
       Provision for income taxes     (20 )   (10 )
LOSS FROM CONTINUING OPERATIONS     (5 )   (1 )
INCOME FROM DISCONTINUED OPERATIONS, net of tax     7     4  
NET INCOME     2     3  
Less: Net income attributable to noncontrolling interests     (4 )   (3 )
NET INCOME (LOSS) ATTRIBUTABLE TO ARVINMERITOR, INC.   $ (2 ) $ —  
               
NET INCOME (LOSS) ATTRIBUTABLE TO ARVINMERITOR, INC.              
       Net loss from continuing operations   $ (9 ) $ (4 )
       Income from discontinued operations     7     4  
       Net income (loss)   $ (2 ) $ —  
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE              
       Continuing operations   $ (0.10 ) $ (0.06 )
       Discontinued operations     0.07     0.06  
       Basic and diluted earnings (loss) per share   $ (0.03 ) $ —  
               
Basic and diluted average common shares outstanding     93.3     72.7  
               
See notes to consolidated financial statements. Amounts for prior period have been recast for discontinued operations.
 
3
 
 

ARVINMERITOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
 
        December 31,   September 30,  
    2010       2010  
    (Unaudited)
ASSETS              
CURRENT ASSETS:              
       Cash and cash equivalents   $      276   $      343  
       Receivables, trade and other, net     528     579  
       Inventories     428     382  
       Other current assets     75     76  
       Assets of discontinued operations     354     341  
              TOTAL CURRENT ASSETS     1,661     1,721  
NET PROPERTY     384     389  
GOODWILL     429     432  
OTHER ASSETS     340     337  
              TOTAL ASSETS   $ 2,814   $ 2,879  
               
LIABILITIES AND EQUITY (DEFICIT)              
CURRENT LIABILITIES:              
       Accounts payable   $ 646   $ 670  
       Other current liabilities     327     358  
       Liabilities of discontinued operations     331     362  
              TOTAL CURRENT LIABILITIES     1,304     1,390  
LONG-TERM DEBT     1,031     1,029  
RETIREMENT BENEFITS     1,164     1,162  
OTHER LIABILITIES     305     321  
EQUITY (DEFICIT):              
       Common stock (December 31 and September 30, 2010, 94.2 and 94.1              
              shares issued and outstanding, respectively)     92     92  
       Additional paid-in capital     890     886  
       Accumulated deficit     (1,222 )   (1,220 )
       Accumulated other comprehensive loss     (785 )   (812 )
              Total equity (deficit) attributable to ArvinMeritor, Inc.     (1,025 )   (1,054 )
       Noncontrolling interest     35     31  
              TOTAL EQUITY (DEFICIT)     (990 )   (1,023 )
              TOTAL LIABILITIES AND EQUITY (DEFICIT)   $ 2,814   $ 2,879  
               
See notes to consolidated financial statements.
 
4
 
 

ARVINMERITOR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
 
    Three Months Ended December 31,  
        2010       2009  
    (Unaudited)
OPERATING ACTIVITIES              
       CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (See              
              Note 9)   $      (49 ) $      27  
INVESTING ACTIVITIES              
       Capital expenditures     (19 )   (13 )
       Other investing activities     3     1  
              Net investing cash flows used for continuing operations     (16 )   (12 )
       Net investing cash flows used for discontinued operations     (6 )   (4 )
CASH USED FOR INVESTING ACTIVITIES     (22 )   (16 )
FINANCING ACTIVITIES              
              Borrowings on revolving credit facility, net     —     7  
              Borrowings on accounts receivable securitization program, net     —     2  
              Payments on lines of credit and other, net     —     (1 )
       Net change in debt     —     8  
       Proceeds from exercise of stock options     2     —  
              Net financing cash flows provided by continuing operations     2     8  
       Net financing cash flows used by discontinued operations     —     (10 )
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES     2     (2 )
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE              
       RATES ON CASH AND CASH EQUIVALENTS     2     1  
CHANGE IN CASH AND CASH EQUIVALENTS     (67 )   10  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     343     95  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 276   $ 105  
               
See notes to consolidated financial statements. Amounts for prior period have been recast for discontinued operations.
 
5
 
 

ARVINMERITOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(In millions, except per share amounts)
 
    Three Months Ended December 31,  
        2010       2009  
    (Unaudited)  
ArvinMeritor, Inc. Shareowners:              
COMMON STOCK              
       Beginning and ending balance   $      92   $      72  
ADDITIONAL PAID-IN CAPITAL              
       Beginning balance   $ 886   $ 699  
       Equity based compensation expense     2     2  
       Exercise of stock options     2     —  
       Ending balance   $ 890   $ 701  
ACCUMULATED DEFICIT              
       Beginning balance   $ (1,220 ) $ (1,232 )
       Net income (loss) attributable to ArvinMeritor, Inc.     (2 )   —  
       Ending balance   $ (1,222 ) $ (1,232 )
ACCUMULATED OTHER COMPREHENSIVE LOSS              
       Beginning balance   $ (812 ) $ (734 )
       Foreign currency translation adjustments     27     17  
       Impact of sale of business     —     31  
       Unrealized gains     —     2  
       Ending balance   $ (785 ) $ (684 )
TOTAL DEFICIT ATTRIBUTABLE TO ARVINMERITOR, INC.   $ (1,025 ) $ (1,143 )
Noncontrolling Interests:              
       Beginning balance   $ 31   $ 29  
       Net income attributable to noncontrolling interests     4     3  
       Dividends declared or paid     —     (1 )
       Ending balance   $ 35   $ 31  
       TOTAL DEFICIT   $ (990 ) $ (1,112 )
COMPREHENSIVE INCOME              
       Net income   $ 2   $ 3  
       Foreign currency translation adjustments     27     17  
       Impact of sale of business     —     31  
       Unrealized gains     —     2  
Total comprehensive income     29     53  
       Less: Net income attributable to non-controlling interests     4     3  
Comprehensive income attributable to ArvinMeritor, Inc.   $ 25   $ 50  
               
See notes to consolidated financial statements.
 
6
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1. Basis of Presentation
 
     ArvinMeritor, Inc. (the "company" or "ArvinMeritor"), headquartered in Troy, Michigan, is a premier global supplier of a broad range of integrated systems, modules and components to original equipment manufacturers (“OEMs”) and the aftermarket for the commercial vehicle, transportation and industrial sectors. The company serves commercial truck, trailer, off-highway, military, bus and coach and other industrial OEMs and certain aftermarkets, and light vehicle OEMs. The consolidated financial statements are those of the company and its consolidated subsidiaries.
 
     Certain businesses are reported in discontinued operations in the consolidated statement of operations, statement of cash flows and related notes for all periods presented. Additional information regarding discontinued operations is discussed in Note 4.
 
     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 audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K, for the fiscal year ended September 30, 2010. The results of operations for the three months ended December 31, 2010, are not necessarily indicative of the results for the full year.
 
     The company’s fiscal year ends on the Sunday nearest September 30. The first quarter of fiscal years 2011 and 2010 ended on January 2, 2011 and January 3, 2010, respectively. All year and quarter references relate to the company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, September 30 and December 31 are used consistently throughout this report to represent the fiscal year end and first quarter end, respectively.
 
     The company has evaluated subsequent events through the date that the consolidated financial statements were issued. Additional information on subsequent events is included in Note 20.
 
2. Shareowners’ Equity (Deficit) and Earnings per Share
 
     Basic earnings per share is calculated using the weighted average number of shares outstanding during each period. The diluted earnings per share calculation includes the impact of dilutive common stock options, restricted stock, performance share awards and convertible securities, if applicable. Basic and diluted average common shares outstanding at December 31, 2010 and 2009 were 93.3 million and 72.7 million, respectively.
 
     The potential effects of restricted stock and stock options were excluded from the diluted earnings per share calculation for the three months ended December 31, 2010 and 2009 because their inclusion in a net loss period would reduce the net loss per share. Therefore, at December 31, 2010 and 2009 options to purchase 1.2 million and 1.5 million shares of common stock, respectively, were excluded from the computation of diluted earnings per share. In addition, 0.2 million and 1.0 million shares of restricted stock were excluded from the computation of diluted earnings per share at December 31, 2010 and 2009. The company’s convertible senior unsecured notes are excluded from the computation of diluted earnings per share, as the stock price at the end of the quarter is less than the conversion price.
 
3. New Accounting Standards
 
   Accounting standards implemented in fiscal year 2011
 
     In June 2009, the Financial Accounting Standards Board (FASB) issued guidance on accounting for transfer of financial assets, which changes the requirements for recognizing the transfer of financial assets and requires additional disclosures about a transferor’s continuing involvement in transferred financial assets. The guidance also eliminates the concept of a qualifying special purpose entity when assessing transfers of financial instruments. As required, the company adopted this guidance effective October 1, 2010. The adoption of this guidance did not have any impact on the company’s consolidated financial statements.
 
     In June 2009, the FASB issued guidance for the consolidation of variable interest entities (VIEs) to address the elimination of the concept of a qualifying special purpose entity. This guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of the variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, the new guidance requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a v ariable interest entity. As required, the company adopted this guidance effective October 1, 2010. The adoption of this guidance did not have any impact on the company’s consolidated financial statements.
 
7
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
     The company holds a variable interest in a joint venture accounted for under the equity method of accounting. The joint venture manufactures components for commercial vehicle applications primarily on behalf of the company. The variable interest relates to a supply arrangement between the company and the joint venture whereby the company supplies certain components to the joint venture at a cost-plus basis. The company is not the primary beneficiary of the joint venture, as the joint venture partner has shared or absolute control over key manufacturing operations, labor relationships, financing activities and certain other functions of the joint venture. Therefore, the company does not consolidate the joint venture. At December 31, 2010, the company’s investment in the joint venture was $30 million, classified as Other Assets in the condensed consolidated balance sheet (see Note 12), representing the company’s maximum exposure to loss.
 
4. Discontinued Operations
 
     Results of discontinued operations are summarized as follows (in millions):
 
    Three Months Ended  
    December 31,  
        2010       2009  
Sales   $      303   $      359  
Operating income, net   $ 17   $ 9  
Net gain on sale of business     —     8  
Restructuring costs     (1 )   (2 )
Other expenses, net     (3 )   (8 )
       Income before income taxes     13     7  
Provision for income taxes     (6 )   (3 )
Income from discontinued operations attributable to ArvinMeritor, Inc.   $ 7   $ 4  
               
     In conjunction with the company’s long-term strategic objective to focus on supplying the commercial vehicle on- and off-highway markets for original equipment manufacturers, aftermarket and industrial customers, the company previously announced its intent to divest the Light Vehicle Systems (LVS) business groups in their entirety. The following summarizes the company’s divestiture related activities associated with its LVS business groups. Results of the company’s LVS businesses are reflected in discontinued operations through the date of disposition. Upon completion of these activities, the company will have substantially exited the light vehicle markets.
 
     Remaining Chassis Businesses
 
     The remaining chassis operations include two facilities in Europe. The facility in Leicester, England makes and distributes gas springs for industrial applications and the facility in Bonneval, France makes ride control parts (shock absorbers) for sales in Europe. The company continues to pursue strategic alternatives for these businesses, which had combined sales of $5 million in the first three months of fiscal year 2011.
 
     Divestitures
 
     Body Systems
 
     On January 3, 2011, the company completed the sale of its Body Systems business to Inteva Products Holding Coöperatieve U.A., an assignee of 81 Acquisition LLC and an affiliate of Inteva Products, LLC (see Note 20).
 
     Assets of the Body Systems disposal group are included in assets of discontinued operations in the consolidated balance sheet and primarily consist of accounts receivable, inventory and other current assets of $274 million, fixed assets of $49 million and other long term assets of $23 million. Liabilities of the Body Systems disposal group are included in liabilities of discontinued operations in the consolidated balance sheet and primarily consist of accounts payable, payroll and employee related accruals and other current liabilities of approximately $269 million, accrued pension and post retirement benefits of $31 million and other long-term liabilities of $24 million. There are also approximately $54 million of favorable accumulated foreign currency translation adjustments related to the Body Systems disposal group. These accumulated foreign cur rency translation adjustments are included in accumulated other comprehensive loss in the consolidated statement of shareowners’ equity (deficit) and are expected to be included in the computation of net gain (loss) on sale upon recognition of the sale transaction during the second quarter of fiscal year 2011.
 
     Meritor Suspension Systems Company (MSSC) – On June 24, 2009, the company entered into a binding letter of intent to sell its 57 percent interest in MSSC, a joint venture that manufactured and supplied automotive coil springs, torsion bars and stabilizer bars in North America, to the joint venture partner, a subsidiary of Mitsubishi Steel Mfg. Co., LTD (MSM). The sale transaction closed in October 2009. The purchase price was $13 million, which included a cash dividend of $12 million received by the company in June 2009. The remaining purchase price was received by the company at the time of closing.
 
8
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
     Wheels – In September 2009, the company completed the sale of its Wheels business to Iochpe-Maxion S.A., a Brazilian producer of wheels and frames for commercial vehicles, railway freight cars and castings, and affiliates.
 
     Gabriel Ride Control Products North America – The company’s Gabriel Ride Control Products North America (Gabriel Ride Control) business supplied motion control products, shock absorbers, struts, ministruts and corner modules, as well as other automotive parts to the passenger car, light truck and sport utility vehicle aftermarket industries. During fiscal year 2009, the company completed the sale of Gabriel Ride Control to Ride Control, LLC, a wholly owned subsidiary of OpenGate Capital, a private equity firm.
 
     Gabriel de Venezuela – The company’s former consolidated subsidiary, Gabriel de Venezuela, supplied shock absorbers, struts, exhaust systems and suspension modules to light vehicle industry customers, primarily in Venezuela and Colombia. On June 5, 2009, the company sold its 51 percent interest in Gabriel de Venezuela to its joint venture partner.
 
     The following summarizes significant items included in income from discontinued operations in the consolidated statement of operations for the three-month periods ended December 31, 2010 and 2009:
 
     Operating income from discontinued operations represents income from normal operating activities of businesses included in discontinued operations.
 
     Net gain on sale of business: In connection with the sale of the company’s interest in MSSC, the company recognized a pre-tax gain on sale of $16 million ($16 million after tax), net of estimated indemnity obligations during the first quarter of fiscal year 2010. The company provided certain indemnifications to the buyer for its share of potential obligations related to taxes, pension funding shortfall, environmental and other contingencies, and valuation of certain accounts receivable and inventories. The company’s estimated exposure under these indemnities is approximately $14 million and is included in other liabilities in the condensed consolidated balance sheet at December 31, 2010. Also included in net gain on sale of businesses for the first quarter of fiscal year 2010 are $8 million of charges associated with the Gabriel Ride Control working capital adjustments.
 
     Restructuring costs: Restructuring costs recognized in the first quarter of fiscal year 2011 and 2010 relate to charges associated with certain ongoing actions in the company’s Body Systems business and other charges in the remaining chassis business.
 
     Other: Other charges primarily relate to charges for changes in estimates and adjustments related to certain assets and liabilities retained from previously sold businesses and indemnities provided at the time of sale, and costs associated with the divestiture actions.
 
5. Goodwill
 
     A summary of the changes in the carrying value of goodwill are presented below (in millions):
 
    Commercial         Aftermarket        
        Truck       Industrial       & Trailer       Total  
Balance at September 30, 2010   $      151   $      109   $      172   $      432  
       Foreign currency translation     (2 )   —     (1 )   (3 )
Balance at December 31, 2010   $ 149   $ 109   $ 171   $ 429  
                           
9
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
6. Restructuring Costs
 
     At December 31 and September 30, 2010, $9 million and $11 million, respectively, of restructuring reserves primarily related to unpaid employee termination benefits remained in the consolidated balance sheet. The changes in restructuring reserves for the three months ended December 31, 2010 and 2009 are as follows (in millions):
 
    Employee  
        Termination  
    Benefits  
Balance at September 30, 2010   $      11  
Activity during the period:        
       Charges to continuing operations     3  
       Cash payments - continuing operations     (4 )
       Other     (1 )
Balance at December 31, 2010   $ 9  
         
Balance at September 30, 2009   $ 28  
Activity during the period:        
       Charges to discontinued operations, net of reversals(1)     2  
       Cash payments - continuing operations     (3 )
       Other(2)     (3 )
Balance at December 31, 2009   $ 24  
         
  (1)   Charges to discontinued operations are included in loss from discontinued operations in the consolidated statement of operations.
               
  (2)   Includes $2 million of payments in the three months ended December 31, 2009 associated with discontinued operations.

     Performance Plus: During fiscal year 2007, the company launched a long-term profit improvement and cost reduction initiative called “Performance Plus.” As part of this program, the company identified significant restructuring actions which would eliminate up to 2,800 positions in North America and Europe and consolidate and combine certain global facilities. The company’s continuing operations recognized restructuring costs in its Commercial Truck business segment of $3 million in the first three months of fiscal year 2011 related to Performance Plus. Cumulative restructuring costs recorded for this program as of December 31, 2010 are $149 million, including $93 million reported in discontinued operations in the conso lidated statement of operations. These costs primarily relate to employee severance and related costs of $105 million, asset impairment charges of $19 million and $25 million primarily associated with pension termination benefits. The company’s Commercial Truck segment has recognized cumulative restructuring costs associated with Performance Plus of $45 million. Cumulative restructuring costs of $11 million were recognized by corporate locations and the company’s Aftermarket & Trailer segment. The majority of the restructuring actions associated with Performance Plus were complete as of December 31, 2010, with remaining costs of approximately $6 million expected to be incurred in fiscal year 2011, primarily in the company’s Commercial Truck segment.
 
7. Income Taxes
 
     For each interim reporting period, the company makes an estimate of the effective tax rate expected to be applicable for the full fiscal year pursuant to FASB Accounting Standards Codification (ASC) Topic 740-270, “Accounting for Income Taxes in Interim Periods.” The rate so determined is used in providing for income taxes on a year-to-date basis. Jurisdictions with a projected loss for the year or an actual year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.
 
     Income tax expense (benefit) is allocated between continuing operations, discontinued operations and other comprehensive income (OCI). Such allocation is applied by tax jurisdiction, and in periods in which there is a pre-tax loss from continuing operations and pre-tax income in another category, such as discontinued operations or OCI, income tax expense is allocated to the other sources of income, with a related benefit recorded in continuing operations.
 
     For the first quarter of fiscal year 2011, the company had approximately $51 million of net pre-tax losses in tax jurisdictions in which a tax benefit is not recorded. Tax benefits arising from these jurisdictions resulted in increasing the valuation allowance, rather than reducing income tax expense.
 
10
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
8. Accounts Receivable Securitization and Factoring
 
     Off-balance sheet arrangements
 
     Swedish Securitization Facility: In March 2006, the company entered into a European arrangement to sell trade receivables through one of its European subsidiaries. Under this arrangement, which expires in March 2011, the company can sell up to, at any point in time, €125 million of eligible trade receivables. The receivables under this program are sold at face value and excluded from the consolidated balance sheet. The company continues to perform collection and administrative functions related to these receivables. The gross amount of proceeds received from the sale of receivables under this arrangement was $120 million and $73 million for the three months ended December 31, 2010 and 2009, respectively. The company had utilized €115 million ($153 million) and €62 million ($84 million) of this accounts receivable securitization facility as of December 31 and September 30, 2010, respectively. The company had notes receivable from the purchaser of the receivables of $4 million and $3 million under this program at December 31 and September 30, 2010, respectively. The company is in the process of renewing this arrangement.
 
     French Factoring Facility: In November 2007, the company entered into an arrangement to sell trade receivables through one of its French subsidiaries. Under this arrangement, the company can sell up to, at any point in time, €125 million of eligible trade receivables. The receivables under this program are sold at face value and excluded from the consolidated balance sheet. The company had utilized €59 million ($78 million) and €36 million ($49 million) of this accounts receivable securitization facility as of December 31 and September 30, 2010, respectively.
 
     Both of the above facilities are backed by 364-day liquidity commitments from Nordea Bank which were renewed through June 2011 for the French facility and July 2011 for the Swedish facility. The commitments are subject to standard terms and conditions for these types of arrangements (including, in the case of the French commitment, a sole discretion clause whereby the bank retains the right to not purchase receivables, which to the company’s knowledge has never been invoked).
 
     U.S. Factoring Facility: In October 2010, the company entered into a two-year arrangement to sell trade receivables from AB Volvo and its subsidiaries. Under this arrangement, the company can sell up to, at any point in time, €32 million ($43 million) of eligible trade receivables. The receivables under this program are sold at face value and are excluded from the consolidated balance sheet. The company had utilized $22 million of this accounts receivable securitization facility as of December 31, 2010.
 
     In addition, several of the company’s subsidiaries, primarily in Europe, factor eligible accounts receivable with financial institutions. Certain receivables are factored without recourse to the company and are excluded from accounts receivable in the consolidated balance sheet. The amount of factored receivables excluded from accounts receivable was $11 million and $5 million at December 31 and September 30, 2010, respectively.
 
     Total costs associated with these off-balance sheet arrangements were $1 million in each of the three month periods ended December 31, 2010 and 2009 and are included in operating income in the consolidated statement of operations.
 
     On-balance sheet arrangements
 
     Since 2005 the company participated in a U.S. accounts receivable securitization program to enhance financial flexibility and lower interest costs. In September 2009 the company entered into a new, two year $125 million U.S. receivables financing arrangement which is provided on a committed basis by a syndicate of financial institutions led by GMAC Commercial Finance LLC. In October 2010, the company extended the expiration of the program to October 2013. Under this program, the company has the ability to sell substantially all of the trade receivables of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly-owned, special purpose subsidiary. ARC funds these purchases with borrowings under a loan agreement with participating lenders. Amounts outstanding under this agreement are collateralized by eligible receivables purch ased by ARC and are reported as short-term debt in the consolidated balance sheet. At December 31 and September 30, 2010, no amount was outstanding under this program. This program does not have specific financial covenants; however, it does have a cross-default provision to the company’s revolving credit facility agreement.
 
11
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
9. Operating Cash Flow
 
     The reconciliation of net income to cash flows provided by (used for) operating activities is as follows (in millions):
 
    Three Months Ended
    December 31,
    2010       2009      
OPERATING ACTIVITIES              
Net income       $      2   $      3  
Less: Income from discontinued operations, net of tax     7     4  
       Loss from continuing operations     (5 )   (1 )
       Adjustments to loss from continuing operations to arrive at cash provided by (used for)              
              operating activities:              
              Depreciation and amortization     16     18  
              Restructuring costs, net of payments     (1 )   (3 )
              Equity in earnings of affiliates, net of dividends     (9 )   (8 )
              Other adjustments to loss from continuing operations          8     6  
              Pension and retiree medical expense     18     23  
       Pension and retiree medical contributions     (17 )   (19 )
       Changes in off-balance sheet receivable securitization and factoring     127     55  
       Changes in assets and liabilities, excluding effects of acquisitions, divestitures, foreign currency              
              adjustments and discontinued operations     (159 )   (62 )
       Operating cash flows provided by (used for) continuing operations     (22 )   9  
       Operating cash flows provided by (used for) discontinued operations     (27 )   18  
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES   $ (49 ) $ 27  
               

10. Inventories
 
     Inventories are stated at the lower of cost (using FIFO or average methods) or market (determined on the basis of estimated realizable values) and are summarized as follows (in millions):
 
        December 31,       September 30,
    2010   2010
Finished goods   $      169   $      156
Work in process     56     62
Raw materials, parts and supplies     203     164
       Total   $ 428   $ 382
             

11. Other Current Assets
 
     Other current assets are summarized as follows (in millions):
 
        December 31,       September 30,
    2010   2010
Current deferred income tax assets, net   $      38   $      46
Asbestos-related recoveries (see Note 18)     11     11
Deposits and collateral     8     3
Prepaid and other     18     16
       Other current assets   $ 75   $ 76
             

12
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
12. Other Assets
 
     Other assets are summarized as follows (in millions):
 
    December 31, 2010   September 30, 2010
Investments in non-consolidated joint ventures       $     174       $     164
Asbestos-related recoveries (see Note 18)     55     55
Non-current deferred income tax assets, net     20     23
Unamortized debt issuance costs     30     32
Capitalized software costs, net     22     21
Prepaid pension costs     15     8
Other     24     34
       Other assets   $ 340   $ 337
             

     In accordance with FASB ASC Topic 350-40, costs relating to internally developed or purchased software in the preliminary project stage and the post-implementation stage are expensed as incurred. Costs in the application development stage that meet the criteria for capitalization are capitalized and amortized using the straight-line basis over the estimated economic useful life of the software.
 
13. Other Current Liabilities
 
     Other current liabilities are summarized as follows (in millions):
 
        December 31,       September 30,
    2010   2010
Compensation and benefits   $     132   $     179
Income taxes     17     18
Taxes other than income taxes     32     32
Product warranties     26     28
Restructuring (see Note 6)     9     11
Asbestos-related liabilities (see Note 18)     18     18
Interest     25     5
Other     68     67
       Other current liabilities   $ 327   $ 358
             

     The company records estimated product warranty costs at the time of shipment of products to customers. Warranty reserves are primarily based on factors that include past claims experience, sales history, product manufacturing and engineering changes and industry developments. Liabilities for product recall campaigns are recorded at the time the company’s obligation is known and can be reasonably estimated. Product warranties, including recall campaigns, not expected to be paid within one year are recorded as a non-current liability.
 
13
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
     A summary of the changes in product warranties is as follows (in millions):
 
        Three Months Ended
    December 31,
    2010       2009 (1)  
Total product warranties – beginning of period   $     54   $     109  
       Accruals for product warranties     2     3  
       Payments     (3 )   (9 )
       Change in estimates and other     (2 )   (2 )
       Product warranty activity related to discontinued operations     —     2  
Total product warranties – end of period     51     103  
Less: Non-current product warranties (see Note 14)     (25 )   (50 )
       Product warranties – current   $ 26   $ 53  
               

(1)      At September 30 and December 31, 2009, product warranty liabilities include $39 million and $41 million, respectively, related to light vehicle businesses, which are included in liabilities of discontinued operations in the accompanying condensed consolidated balances sheet at September 30 and December 31, 2010.

14. Other Liabilities
 
     Other liabilities are summarized as follows (in millions):
 
        December 31,       September 30,
    2010   2010
Asbestos-related liabilities (see Note 18)   $     66   $     66
Non-current deferred income tax liabilities     92     94
Liabilities for uncertain tax positions     43     47
Product warranties (see Note 13)     25     26
Environmental     9     13
Indemnity obligations     32     32
Other     38     43
       Other liabilities   $ 305   $ 321
             

15. Long-Term Debt
 
     Long-Term Debt, net of discounts where applicable, is summarized as follows (in millions):
 
        December 31,       September 30,  
    2010   2010  
8-3/4 percent notes due 2012   $     84   $     84  
8-1/8 percent notes due 2015     250     250  
10-5/8 percent notes due 2018     245     245  
4.625 percent convertible notes due 2026(1)     300     300  
4.0 percent convertible notes due 2027(1)     200     200  
Lines of credit and other     9     9  
Unamortized gain on interest rate swap termination     17     18  
Unamortized discount on convertible notes     (74 )   (77 )
       Long-term debt   $ 1,031   $ 1,029  
               
 
(1)      The 4.625 percent and 4.0 percent convertible notes contain a put and call feature, which allows for earlier redemption beginning in 2016 and 2019, respectively.

14
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
   Revolving Credit Facility
 
     On February 5, 2010 the company signed an agreement to amend and extend its revolving credit facility, which became effective February 26, 2010. Pursuant to the revolving credit facility as amended, the company has a $539 million revolving credit facility (excluding approximately $28 million of commitments that are currently unavailable due to the bankruptcy of Lehman Brothers in 2008), $143 million of which matures in June 2011 for banks that elected not to extend their original commitments (non-extending banks) and the other $396 million matures in January 2014 for banks that elected to extend their commitments (extending banks). Availability under the revolving credit facility is subject to a collateral test, pursuant to which borrowings on the revolving credit facility cannot exceed 1.0x the collateral test value. The collateral test is performed on a quarterly basis and under the most recent collateral test , the full amount of the revolving credit facility was available for borrowing at December 31, 2010. Availability under the revolving credit facility is also subject to certain financial covenants based on (i) the ratio of the company’s priority debt (consisting principally of amounts outstanding under the revolving credit facility, U.S. securitization program, and third-party non-working capital foreign debt) to EBITDA and (ii) the amount of annual capital expenditures. The company is required to maintain a total priority debt-to-EBITDA ratio, as defined in the agreement, of (i) 2.50 to 1 as of the last day of each fiscal quarter commencing with the fiscal quarter ended September 30, 2010 through and including the fiscal quarter ended June 30, 2011; (ii) 2.25 to 1 as of the last day of each fiscal quarter commencing with the fiscal quarter ended September 30, 2011 through and including the fiscal quarter ended June 30, 2012 and (iii) 2.00 to 1 as of the last day of each fiscal quarter thereafter throu gh maturity. At December 31, 2010, the company was in compliance with all covenants under its credit agreement with a ratio of approximately 0.13x for the priority debt-to-EBITDA covenant.
 
     The revolving credit facility includes a $100 million limit on the issuance of letters of credit. At December 31, 2010, and September 30, 2010, approximately $13 million and $26 million of letters of credit were issued, respectively. The company had an additional $15 million and $2 million outstanding at December 31, 2010 and September 30, 2010, respectively, on letters of credit available through other facilities.
 
     Borrowings under the revolving credit facility are collateralized by approximately $593 million of the company’s assets, primarily consisting of eligible domestic U.S. accounts receivable, inventory, plant, property and equipment, intellectual property and the company’s investment in all or a portion of certain of its wholly-owned subsidiaries.
 
     Borrowings under the revolving credit facility are subject to interest based on quoted LIBOR rates plus a margin, and a commitment fee on undrawn amounts, both of which are based upon the company’s current credit rating for the senior secured facility. At December 31, 2010, the margin over the LIBOR rate was 275 basis points for the $143 million available under the facility from non-extending banks, and the commitment fee was 50 basis points. At December 31, 2010, the margin over LIBOR rate was 500 basis points for the $396 million available under the revolving credit facility from extending banks, and the commitment fee was 75 basis points.
 
     Certain of the company’s subsidiaries, as defined in the credit agreement, irrevocably and unconditionally guarantee amounts outstanding under the revolving credit facility. Similar subsidiary guarantees are provided for the benefit of the holders of the publicly-held notes outstanding under the company’s indentures (see Note 21).
 
16. Financial Instruments
 
     The company’s financial instruments include cash and cash equivalents, short-term debt, long-term debt and foreign exchange forward contracts. The company uses derivatives for hedging and non-trading purposes in order to manage its interest rate and foreign exchange rate exposures.
 
   Foreign Exchange Contracts
 
     As a result of the company’s substantial international operations, it is exposed to foreign currency risks that arise from normal business operations, including in connection with transactions that are denominated in foreign currencies. In addition, the company translates sales and financial results denominated in foreign currencies into U.S. dollars for purposes of its consolidated financial statements. As a result, appreciation of the U.S. dollar against these foreign currencies generally will have a negative impact on reported revenues and operating income while depreciation of the U.S. dollar against these foreign currencies will generally have a positive effect on reported revenues and operating income.
 
15
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
     The company has a foreign currency cash flow hedging program to reduce the company’s exposure to changes in exchange rates on foreign currency purchases and sales. The company uses foreign currency forward contracts to manage the company’s exposures arising from foreign currency exchange risk. Gains and losses on the underlying foreign currency exposures are partially offset with gains and losses on the foreign currency forward contracts. Under this foreign currency cash flow hedging program, the company has designated the foreign exchange contracts (the “contracts”) as cash flow hedges of underlying forecasted foreign currency purchases and sales. The effective portion of changes in the fair value of the contracts is recorded in Accumulated Other Comprehensive Loss (AOCL) in the consolidated balance sheet and is recognized in operating income when the underlying forecasted transaction im pacts earnings. The terms of the foreign exchange contracts generally require the company to place cash on deposit as collateral if the fair value of these contracts represents a liability for the company at any time. The fair values of the foreign exchange derivative instruments and any related collateral cash deposits are presented on a net basis as the derivative contracts are subject to master netting arrangements. The company’s foreign exchange contracts generally mature within twelve months.
 
     At December 31, 2010, the company had outstanding contracts with notional amounts of $66 million under its foreign currency cash flow hedging program. These notional values consisted primarily of contracts for the European euro and Canadian dollar, and are stated in U.S. dollar equivalents at spot exchange rates at the respective dates. At December 31, 2010, there was a $1 million of income recorded in AOCL. At September 30, 2010, the company had no foreign exchange contracts outstanding under its foreign currency cash flow hedging program.
 
     The company classifies the cash flows associated with the contracts in cash flows from operating activities in the consolidated statement of cash flows. This is consistent with the classification of the cash flows associated with the underlying hedged item.
 
     The company generally has not hedged against its foreign currency exposure related to translations to U.S. dollars of financial results denominated in foreign currencies. In the fourth quarter of fiscal year 2010, due to the volatility of the Brazilian real as compared to the U.S. dollar, the company entered into foreign currency option contracts to reduce volatility in the translation of Brazilian real earnings to U.S. dollars. Gains and losses on these option contracts are recorded in other income (expense), net, in the consolidated statement of operations, generally reducing the exposure to translation volatility during a full-year period. The impact of these option contracts was not significant to the results of operations or financial position at December 31, 2010.
 
   Fair Value
 
     Fair values of financial instruments are summarized as follows (in millions):
 
        December 31,   September 30,
    2010   2010
    Carrying       Fair       Carrying       Fair
    Value   Value   Value   Value
Cash and cash equivalents   $      276   $      276   $      343   $      343
Foreign exchange forward contracts – asset     1     1     —     —
Long-term debt     1,031     1,237     1,029     1,132

     Cash and cash equivalents — All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. The carrying value approximates fair value because of the short maturity of these instruments.
 
     Foreign exchange forward contracts — The company uses foreign exchange forward purchase and sale contracts with terms of one year or less to hedge its exposure to changes in foreign currency exchange rates. The fair value of foreign exchange forward contracts is based on a model which incorporates observable inputs including quoted spot rates, forward exchange rates and discounted future expected cash flows utilizing market interest rates with similar quality and maturity characteristics.
 
     Long-term debt — Fair values are based on interest rates that would be currently available to the company for issuance of similar types of debt instruments with similar terms and remaining maturities.
 
16
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
17. Retirement Benefit Liabilities
 
     Retirement benefit liabilities consisted of the following (in millions):
 
  December 31,       September 30,  
  2010   2010  
Retiree medical liability $     596   $     594  
Pension liability   596     595  
Other   25     26  
       Subtotal   1,217     1,215  
Less: current portion (included in compensation and benefits)   (53 )   (53 )
       Retirement benefit liabilities $ 1,164   $ 1,162  
             
     The components of net periodic pension and retiree medical expense included in continuing operations for the three months ended December 31 are as follows:
 
  2010       2009  
  Pension       Retiree Medical   Pension       Retiree Medical  
Service cost $     3   $     —   $     4   $     —  
Interest cost   24     7     23     8  
Assumed return on plan assets   (30 )   —     (28 )   —  
Amortization of prior service costs   —     (3 )   —     (2 )
Recognized actuarial loss   9     8     9     9  
       Total expense $ 6   $ 12   $ 8   $ 15  
                         

18. Contingencies
 
   Environmental
 
     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 operations of the company. The process of estimating environmental liabilities is complex and dependent upon evolving physical and scientific data at the sites, uncertainties as to remedies and technologies to be used and the outcome of discussions with regulatory agencies. The company records liabilities for environmental issues in the accounting period in which they are considered to be probable and the cost can be reasonably estimated. At environmental sites in which more than one potentially responsible party has been identified, the company records a liability for its allocable share of costs related to its involvement with the site, as well as an allocable share of costs related to insolvent parties or unidentified shares. At environmental sites in which ArvinMeritor is the only potentially responsible party, the company records a liability for the total probable and estimable costs of remediation before consideration of recovery from insurers or other third parties.
 
     The company has been designated as a potentially responsible party at eight Superfund sites, excluding sites as to which the company’s records disclose no involvement or as to which the company’s 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, 2010 to be approximately $20 million, of which $3 million is recorded as a liability.
 
     In addition to the Superfund sites, 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, 2010 to be approximately $41 million, of which $16 million is recorded as a liability.
 
17
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
     Included in the company’s environmental liabilities are costs for on-going operation, maintenance and monitoring at environmental sites in which remediation has been put into place. This liability is discounted using a discount rate of 5-percent and is approximately $6 million at December 31, 2010. The undiscounted estimate of these costs is approximately $10 million.
 
     Following are the components of the Superfund and non-Superfund environmental reserves (in millions):
 
  Superfund Sites       Non-Superfund Sites       Total  
Balance at September 30, 2010 $     3   $     18   $     21  
Payments and other   —     (2 )   (2 )
Balance at December 31, 2010 $ 3   $ 16   $ 19  
                   

     Environmental reserves are included in Other Current Liabilities (see Note 13) and Other Liabilities (see Note 14) in the consolidated balance sheet.
 
     The actual amount of costs or damages for which the company may be held responsible could materially exceed the foregoing estimates because of uncertainties, including the financial condition of other potentially responsible parties, the success of the remediation, discovery of new contamination and other factors that make it difficult to predict actual costs accurately. However, based on management’s assessment, after consulting with outside advisors that specialize in environmental matters, and subject to the difficulties inherent in estimating these future costs, the company believes that its 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 th e company’s business, financial condition or results of operations. In addition, in future periods, new laws and regulations, changes in remediation plans, advances in technology and additional information about the ultimate clean-up remedies could significantly change the company’s estimates. Management cannot assess the possible effect of compliance with future requirements.
 
   Asset Retirement Obligations
 
     The company has identified conditional asset retirement obligations for which a reasonable estimate of fair value could not be made because the potential settlement dates cannot be determined at this time. Due to the long term, productive nature of the company’s manufacturing operations, absent plans or expectations of plans to initiate asset retirement activities, the company was not able to reasonably estimate the settlement date for the related obligations. Therefore, the company has not recognized conditional asset retirement obligations for which there are no plans or expectations of plans to retire the asset.
 
   Asbestos
 
     Maremont Corporation (“Maremont”), a subsidiary of ArvinMeritor, manufactured friction products containing asbestos from 1953 through 1977, when it sold its friction product business. Arvin Industries, Inc., a predecessor of the company, acquired Maremont in 1986. Maremont and many other companies are defendants in suits brought by individuals claiming personal injuries as a result of exposure to asbestos-containing products. Maremont had approximately 26,000 pending asbestos-related claims at December 31, 2010 and September 30, 2010. Although Maremont has been named in these cases, in the cases where actual injury has been alleged, very few claimants have established that a Maremont product caused their injuries. Plaintiffs̵ 7; lawyers often sue dozens or even hundreds of defendants in individual lawsuits on behalf of hundreds or thousands of claimants, seeking damages against all named defendants irrespective of the disease or injury and irrespective of any causal connection with a particular product. For these reasons, Maremont does not consider the number of claims filed or the damages alleged to be a meaningful factor in determining its asbestos-related liability.
 
     Maremont’s asbestos-related reserves and corresponding asbestos-related recoveries are summarized as follows (in millions):
 
  December 31, 2010       September 30, 2010
Pending and future claims $     67   $     67
Asbestos-related insurance recoveries   57     57

     A portion of the asbestos-related recoveries and reserves are included in Other Current Assets and Liabilities, with the majority of the amounts recorded in Other Assets and Liabilities (see Notes 11, 12, 13 and 14).
 
     Prior to February 2001, Maremont participated in the Center for Claims Resolution (“CCR”) and shared with other CCR members in the payment of defense and indemnity costs for asbestos-related claims. The CCR handled the resolution and processing of asbestos claims on behalf of its members until February 2001, when it was reorganized and discontinued negotiating shared settlements. Since the CCR was reorganized in 2001, Maremont has handled asbestos-related claims through its own defense counsel and has taken a more aggressive defensive approach that involves examining the merits of each asbestos-related claim. Although the company expects legal defense costs to continue at higher levels than when it participated in the CCR, the company believes its litigation strategy has reduced the average indemnity cost per claim. 
 
18
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
     Pending and Future Claims: Maremont engages Bates White LLC (Bates White), a consulting firm with extensive experience estimating costs associated with asbestos litigation, to assist with determining the estimated cost of resolving pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against Maremont. Bates White prepares these cost estimates on a semi-annual basis in March and September each year. Although it is not possible to estimate the full range of costs because of various uncertainties, Bates White advised Maremont that it would be possible to determine an estimate of a reasonable forecast of the cost of the probable settlement and defense costs of resolving pending and future asbestos-related claims, based on historical data and certain a ssumptions with respect to events that may occur in the future.
 
     Bates White provided an estimate of the reasonably possible range of Maremont’s obligation for asbestos personal injury claims over the next ten years of $63 million to $72 million. After consultation with Bates White, Maremont determined that as of September 30, 2010 the probable liability for pending and future claims over the next ten years is $63 million. The ultimate cost of resolving pending and future claims is estimated based on the history of claims and expenses for plaintiffs represented by law firms in jurisdictions with an established history with Maremont.
 
     Assumptions: The following assumptions were made by Maremont after consultation with Bates White and are included in their study:
  • Pending and future claims were estimated for a ten year period ending in fiscal year 2020. The ten-year assumption is considered appropriate as Maremont has reached certain longer-term agreements with key plaintiff law firms and filings of mesothelioma claims have been relatively stable over the last few years resulting in an improvement in the reliability of future projections over a longer time period;
     
  • Maremont believes that the litigation environment will change significantly beyond ten years and that the reliability of estimates of future probable expenditures in connection with asbestos-related personal injury claims will decline for each year further in the future. As a result, estimating a probable liability beyond ten years is difficult and uncertain;
     
  • The ultimate cost of resolving pending and future claims filed in Madison County, Illinois, a jurisdiction where a substantial amount of Maremont’s claims are filed, will decline to reflect average outcomes throughout the United States;
     
  • Defense and processing costs for pending and future claims filed outside of Madison County, Illinois will be at the level consistent with Maremont’s prior experience; and
     
  • The ultimate indemnity cost of resolving nonmalignant claims with plaintiffs’ law firms in jurisdictions without an established history with Maremont cannot be reasonably estimated. Recent changes in tort law and insufficient settlement history make estimating a liability for these nonmalignant claims difficult and uncertain.
     Recoveries: Maremont has insurance that reimburses a substantial portion of the costs incurred defending against asbestos-related claims. The coverage also reimburses Maremont for any indemnity paid on those claims. The coverage is provided by several insurance carriers based on insurance agreements in place. Incorporating historical information with respect to buy-outs and settlements of coverage, and excluding any policies in dispute, the insurance receivable related to asbestos-related liabilities is $57 million as of December 31 and September 30, 2010. The difference between the estimated liability and insurance receivable is primarily related to proceeds received from settled insurance policies. Certain insurance policies have been set tled in cash prior to the ultimate settlement of the related asbestos liabilities. Amounts received from insurance settlements generally reduce recorded insurance receivables. Receivables for policies in dispute are not recorded.
 
     The amounts recorded for the asbestos-related reserves and recoveries from insurance companies are based upon assumptions and estimates derived from currently known facts. All such estimates of liabilities and recoveries for asbestos-related claims are subject to considerable uncertainty because such liabilities and recoveries are influenced by variables that are difficult to predict. The future litigation environment for Maremont could change significantly from its past experience, due, for example, to changes in the mix of claims filed against Maremont in terms of plaintiffs’ law firm, jurisdiction and disease; legislative or regulatory developments; Maremont’s approach to defending claims; or payments to plaintiffs from other defendants. Estimated recoveries are influenced by coverage issues among insurers and the continuing solvency of va rious insurance companies. If the assumptions with respect to the nature of pending and future claims, the cost to resolve claims and the amount of available insurance prove to be incorrect, the actual amount of liability for Maremont’s asbestos-related claims, and the effect on the company, could differ materially from current estimates and, therefore, could have a material impact on the company’s financial condition and results of operations. 
 
19
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
     Rockwell International (Rockwell) — ArvinMeritor, along with many other companies, has also been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos used in certain components of Rockwell products many years ago. Liability for these claims was transferred to the company at the time of the spin-off of the automotive business to Meritor from Rockwell in 1997. Currently there are thousands of claimants in lawsuits that name the company, together with many other companies, as defendants. However, the company does not consider the number of claims filed or the damages alleged to be a meaningful factor in determining asbestos-related liabilities. A significant portion of the claims do not identify any of Rockwell’s products or specify which of the clai mants, if any, were exposed to asbestos attributable to Rockwell’s products, and past experience has shown that the vast majority of the claimants will likely never identify any of Rockwell’s products. For those claimants who do show that they worked with Rockwell’s products, management nevertheless believes it has meritorious defenses, in substantial part due to the integrity of the products involved and the lack of any impairing medical condition on the part of many claimants. The company defends these cases vigorously. Historically, ArvinMeritor has been dismissed from the vast majority of similar claims filed in the past with no payment to claimants.
 
     The company engages Bates White to assist with determining whether it would be possible to estimate the cost of resolving pending and future Rockwell legacy asbestos-related claims that have been, and could reasonably be expected to be, filed against the company. Although it is not possible to estimate the full range of costs because of various uncertainties, Bates White advised the company that it would be able to determine an estimate of probable defense and indemnity costs which could be incurred to resolve pending and future Rockwell legacy asbestos-related claims. After consultation with Bates White, the company determined that as of December 31, 2010 and September 30, 2010 the probable liability for pending and future claims over the next four years is $17 million. The accrual estimates are based on historical data and certain assumptions with resp ect to events that may occur in the future. The uncertainties of asbestos claim litigation and resolution of the litigation with the insurance companies make it difficult to predict accurately the ultimate resolution of asbestos claims beyond four years. That uncertainty is increased by the possibility of adverse rulings or new legislation affecting asbestos claim litigation or the settlement process.
 
     Rockwell maintained insurance coverage that management believes covers indemnity and defense costs, over and above self-insurance retentions, for most of these claims. The company has initiated claims against these carriers to enforce the insurance policies, which are currently being disputed. The company expects to recover some portion of defense and indemnity costs it has incurred to date, over and above self-insured retentions, and some portion of the costs for defending asbestos claims going forward. Based on consultation with advisors and underlying analysis performed by management, the company has recorded an insurance receivable related to Rockwell legacy asbestos-related liabilities of $9 million at December 31, 2010 and September 30, 2010. If the assumptions with respect to the nature of pending claims, the cost to resolve claims and the amount of available insurance prove to be incorrect, the actual amount of liability for Rockwell asbestos-related claims, and the effect on the company, could differ materially from current estimates and, therefore, could have a material impact on the company’s financial condition and results of operations.
 
   Indemnifications
 
     The company has provided indemnifications in conjunction with certain transactions, primarily divestitures. These indemnities address a variety of matters, which may include environmental, tax, asbestos and employment-related matters, and the periods of indemnification vary in duration. The company’s maximum obligations under these indemnifications, other than those discussed in Note 4 and below, cannot be reasonably estimated. Except for the indemnifications discussed in Note 4 and below, the company is not aware of any claims or other information that would give rise to material payments under such indemnifications.
 
     In December 2005, the company guaranteed a third party’s obligation to reimburse another party for payment of health and prescription drug benefits to a group of retired employees. The retirees were former employees of a wholly-owned subsidiary of the company prior to it being acquired by the company. The wholly-owned subsidiary, which was part of the company’s light vehicle aftermarket business, was sold by the company in fiscal year 2006. Prior to May 2009, except as set forth hereinafter, the third party met its obligations to reimburse the other party. In May 2009, the third party filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code requiring the company to recognize its obligations under the guarantee. The company recorded a $28 million liability in the third quarter of fiscal year 2009, of which approximately $6 million were related to claims not reimbursed by the third party prior to its filing for bankruptcy protection, and the remaining $22 million were related to the company’s best estimate of its future obligation under the guarantee. At December 31 and September 30, 2010, the remaining estimated liability for this matter was approximately $21 million.
 
20
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
   Other
 
     On March 31, 2008, S&E Quick Lube, a filter distributor, filed suit in U.S. District Court for the District of Connecticut alleging that twelve filter manufacturers, including a prior subsidiary of the company, engaged in a conspiracy to fix prices, rig bids and allocate U.S. customers for aftermarket automotive filters. This suit is a purported class action on behalf of direct purchasers of filters from the defendants. Several parallel purported class actions, including on behalf of indirect purchasers of filters, have been filed by other plaintiffs in a variety of jurisdictions in the United States and Canada. The cases have been consolidated into a multi-district litigation proceeding in Federal court for the Northern District of Illinois. On April 16, 2009, the Attorney General of the State of Florida filed a complaint with the U.S. District Court for the Northern District of Illinois based on these same allegations. On May 25, 2010, the Office of the Attorney General for the State of Washington informed the company that it also was investigating the allegations raised in these suits. On August 9, 2010, the County of Suffolk, New York, filed a complaint in the Eastern District of New York based on the same allegations. The case has been transferred to the multi-district litigation proceeding in Illinois. The company intends to vigorously defend the claims raised in all of these actions. The company is unable to estimate a range of exposure, if any, at this time.
 
     In addition, various lawsuits, claims and proceedings, other than those specifically disclosed in the consolidated financial statements, have been or may be instituted or asserted against the company, relating to the conduct of the company’s business, including those pertaining to product liability, warranty or recall claims, intellectual property, safety and health, contract and employment matters. Although the outcome of other 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 will not have a material adverse effect on the company’s business, financial condition or results of operations.
 
19. Business Segment Information
 
     The company defines its operating segments as components of its business where separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The company’s chief operating decision maker (CODM) is the Chief Executive Officer.
 
     In the fourth quarter of fiscal year 2010, as a result of the divestiture activity described in Note 4, the company included its former LVS reporting segment in discontinued operations. All prior period amounts have been recast to reflect the classification of the company’s former LVS reporting segment as discontinued operations. The company has three reportable segments at December 31, 2010, as follows:
  • The Commercial Truck segment supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, primarily for medium- and heavy-duty trucks in North America, South America and Europe;
     
  • The Industrial segment supplies drivetrain systems including axles, brakes, drivelines and suspensions for off-highway, military, construction, bus and coach, fire and emergency and other industrial applications. This segment also includes the company’s OE businesses in Asia Pacific, including all on- and off-highway activities; and
     
  • The Aftermarket & Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement and remanufactured parts, including transmissions, to commercial vehicle aftermarket customers. This segment also supplies a wide variety of undercarriage products and systems for trailer applications.
     Segment EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring costs and asset impairment charges. The company uses Segment EBITDA as the primary basis for the CODM to evaluate the performance of each of its reportable segments. In fiscal year 2010, the company modified the definition of Segment EBITDA to include the entire EBITDA from the company’s consolidated joint ventures before making adjustment for non-controlling interests, and to exclude restructuring costs and asset impairment charges. Including the entire EBITDA of our consolidated joint ventures, consistent with the related revenues, better reflects the performance of our Industrial segment and is consistent wit h how the CODM currently measures segment performance. All prior period amounts have been recast to reflect these changes.
 
     The accounting policies of the segments are the same as those applied in the Consolidated Financial Statements, except for the use of Segment EBITDA. The company may allocate certain common costs, primarily corporate functions, between the segments differently than the company would for stand alone financial information prepared in accordance with the U.S. generally accepted accounting principles. These allocated costs include expenses for shared services such as information technology, finance, communications, legal and human resources. The company does not allocate interest expense and certain legacy and other corporate costs not directly associated with the Segments’ EBITDA.
 
21
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
     Segment information is summarized as follows (in millions):
 
  Commercial               Aftermarket                    
  Truck   Industrial   & Trailer   Eliminations   Total
Three months ended December 31, 2010:                            
       External Sales $     531   $     217   $     223   $     —   $     971
       Intersegment Sales   44     13     2     (59 )   —
              Total Sales $ 575   $ 230   $ 225   $ (59 ) $ 971
                             
Three months ended December 31, 2009:                            
       External Sales $ 373   $ 207   $ 220   $ —   $ 800
       Intersegment Sales   60     19     2     (81 )   —
              Total Sales $ 433   $ 226   $ 222   $ (81 ) $ 800
                             

  Three Months Ended  
  December 31,  
  2010       2009  
Segment EBITDA:            
       Commercial Truck $     33   $     13  
       Industrial   17     24  
       Aftermarket & Trailer   13     17  
              Segment EBITDA   63     54  
Unallocated legacy and corporate costs (1)   (1 )   (3 )
Loss on sale of receivables   (1 )   (1 )
Depreciation and amortization   (16 )   (18 )
Noncontrolling interests   (4 )   (3 )
Interest expense, net   (27 )   (23 )
Restructuring costs   (3 )   —  
Provision for income taxes   (20 )   (10 )
       Loss from continuing operations attributable            
              to ArvinMeritor, Inc. $ (9 ) $ (4 )
             

(1)      Unallocated legacy and corporate costs represent items that are not directly related to the business segments. These costs primarily include pension and retiree medical costs associated with recently sold businesses and other legacy costs for environmental and product liability.
 
20. Subsequent Events
 
     On January 3, 2011, the company completed the sale of its Body Systems business to Inteva Products Holding Coöperatieve U.A., an assignee of 81 Acquisition LLC and an affiliate of Inteva Products, LLC. Pursuant to the Agreement (as defined below) signed in August 2010, total consideration was approximately $35 million, subject to certain potential adjustments for items such as working capital fluctuations. The actual purchase price at the closing was $27 million (excluding estimated closing expenses for outside advisory fees of $12 million), consisting of $12 million in cash at closing (adjusted for estimated balances in working capital and other items at the time of the closing) and a five year, 8 percent promissory note for $15 million. In addition to the purchase price, the company will receive the cash held at the time of the sale by the Body Systems entities operating in China and Brazil of approximate ly $32 million, net of applicable taxes and other withholding, at such time as it becomes available for distribution, as provided in the Agreement.
 
22
 
 

ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
     The sale of the Body Systems business was consummated pursuant to a Purchase and Sale Agreement dated as of August 3, 2010 between ArvinMeritor, Meritor France and 81 Acquisition LLC, as amended by the First Amendment to Purchase and Sale Agreement dated as of December 6, 2010 and the Second Amendment to Purchase and Sale Agreement dated as of January 3, 2011 (as so amended, the “Agreement”). The Agreement contains customary representations, warranties and covenants of the seller and the purchaser as further set forth in the Agreement. The Agreement also includes provisions governing the retention by the seller and assumption by the purchaser of responsibilities with regard to pension, environmental, warranty and other liabilities; transition of employees and responsibility for employee compensation and benefits; tax matters and post-closing taxes; use of trademarks and logos; a nd post-closing indemnities between the seller and the purchaser for losses arising from specified events.
 
21. Supplemental Guarantor Condensed Consolidating Financial Statements
 
     Certain of the company’s wholly-owned subsidiaries, as defined in the credit agreement (the Guarantors) irrevocably and unconditionally guarantee amounts outstanding under the senior secured revolving credit facility. Similar subsidiary guarantees were provided for the benefit of the holders of the publicly-held notes outstanding under the company’s indentures (see Note 15).
 
     In lieu of providing separate financial statements for the Guarantors, the company has included the accompanying condensed consolidating financial statements. These condensed consolidating financial statements are presented on the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the parent’s share of the subsidiary’s cumulative results of operations, capital contributions and distributions and other equity changes. The Guarantor subsidiaries are combined in the condensed consolidating financial statements.
 
23
 
 

ARVINMERITOR, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
 
    Three Months Ended December 31, 2010  
                Non-              
       Parent      Guarantors      Guarantors      Elims      Consolidated  
Sales                                
       External   $  —   $ 303   $ 668   $ —   $ 971  
       Subsidiaries     —     31     17     (48 )   —  
Total sales     —     334     685     (48 )   971  
Cost of sales          (14 )        (308 )   (593 )   48     (867 )
GROSS MARGIN     (14 )   26     92     —     104  
       Selling, general and administrative     (29 )   (23 )   (20 )   —     (72 )
       Restructuring costs     —     —     (3 )         (3 )
OPERATING INCOME (LOSS)     (43 )   3     69     —     29  
       Equity in earnings of affiliates     —     7     6     —     13  
       Other income (expense), net     (1 )   —     1     —     —  
       Interest income (expense), net     (30 )   9     (6 )   —     (27 )
INCOME (LOSS) BEFORE INCOME TAXES     (74 )   19     70     —     15  
       Provision for income taxes     —     (5 )   (15 )   —     (20 )
       Equity income from continuing operations of subsidiaries     65     49     —          (114 )   —  
INCOME (LOSS) FROM CONTINUING OPERATIONS     (9 )   63     55     (114 )   (5 )
INCOME FROM DISCONTINUED OPERATIONS, net of tax     7   $ 17   $ 13   $ (30 ) $ 7  
Net income (loss)     (2 )   80     68     (144 )   2  
Less: Net income attributable to noncontrolling interests     —     —     (4 )   —     (4 )
NET INCOME (LOSS) ATTRIBUTABLE TO                                
       ARVINMERITOR, INC.   $ (2 ) $ 80   $ 64   $ (144 ) $ (2 )
 

24
 
 

ARVINMERITOR, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
 
    Three Months Ended December 31, 2009  
                Non-              
       Parent      Guarantors      Guarantors      Elims      Consolidated  
Sales                                
       External   $  —   $ 333   $ 467   $  —   $ 800  
       Subsidiaries     —     26     15     (41 )   —  
Total sales     —     359     482     (41 )   800  
Cost of sales          (14 )   (303 )   (435 )   41     (711 )
GROSS MARGIN     (14 )   56     47     —     89  
       Selling, general and administrative     (28 )   (23 )   (15 )   —     (66 )
OPERATING INCOME (LOSS)     (42 )   33     32     —     23  
       Equity in earnings of affiliates     —     4     5     —     9  
       Other income (expense), net     —     (1 )   1     —     —  
       Interest income (expense), net     (32 )   15     (6 )   —     (23 )
INCOME (LOSS) BEFORE INCOME TAXES     (74 )   51     32     —     9  
       Provision for income taxes     —     (3 )   (7 )   —     (10 )
       Equity income from continuing operations of subsidiaries     70     26     —     (96 )   —  
INCOME (LOSS) FROM CONTINUING OPERATIONS     (4 )   74     25     (96 )   (1 )
INCOME FROM DISCONTINUED OPERATIONS, net of tax     4     7     26     (33 )   4  
Net income     —     81     51     (129 )   3  
Less: Net income attributable to noncontrolling interests     —     —     (3 )   —     (3 )
 
NET INCOME ATTRIBUTABLE TO ARVINMERITOR, INC.   $ —   $ 81   $ 48   $      (129 ) $  —  
 

25
 
 

ARVINMERITOR, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)
 
    December 31, 2010  
                Non-              
       Parent      Guarantors      Guarantors      Elims      Consolidated  
CURRENT ASSETS                                
       Cash and cash equivalents   $ 98   $ 3   $ 175   $  —   $ 276  
       Receivables, net     —     20     508     —     528  
       Inventories     —     164     264     —     428  
       Other current assets     10     18     47     —     75  
       Assets of discontinued operations     —     15     339     —     354  
              TOTAL CURRENT ASSETS     108     220     1333     —     1,661  
NET PROPERTY     10     120     254     —     384  
GOODWILL     —     275     154     —     429  
OTHER ASSETS     45     162     133     —     340  
INVESTMENTS IN SUBSIDIARIES     1,119     243     —     (1,362 )   —  
              TOTAL ASSETS   $ 1,282   $      1,020   $      1,874   $      (1,362 ) $ 2,814  
 
CURRENT LIABILITIES                                
       Accounts payable   $ 31   $ 169   $ 446   $ —   $ 646  
       Other current liabilities     115     87     125     —     327  
       Liabilities of discontinued operations     —     9     322     —     331  
              TOTAL CURRENT LIABILITIES     146     265     893     —     1,304  
LONG-TERM DEBT     1,022     —     9     —     1,031  
RETIREMENT BENEFITS     982     —     182     —     1,164  
INTERCOMPANY PAYABLE (RECEIVABLE)     73     (514 )   441     —     —  
OTHER LIABILITIES     84     126     95     —     305  
EQUITY (DEFICIT) ATTRIBUTABLE TO                                
       ARVINMERITOR, INC.          (1,025 )   1,143     219     (1,362 )   (1,025 )
NONCONTROLLING INTERESTS     —     —     35     —     35  
              TOTAL LIABILITIES AND EQUITY (DEFICIT)   $ 1,282   $ 1,020   $ 1,874   $ (1,362 ) $ 2,814  
 

26
 
 

ARVINMERITOR, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)
 
    September 30, 2010  
                Non-              
       Parent      Guarantors      Guarantors      Elims      Consolidated  
CURRENT ASSETS                                
       Cash and cash equivalents   $ 47   $ 6   $ 290   $ —   $ 343  
       Receivables, net     4     14     561     —     579  
       Inventories     —     148     234     —     382  
       Other current assets     17     20     39     —     76  
       Assets of discontinued operations     —     12     329     —     341  
              TOTAL CURRENT ASSETS     68     200     1,453     —     1,721  
NET PROPERTY     10     122     257     —     389  
GOODWILL     —     275     157     —     432  
OTHER ASSETS     49     158     130     —     337  
INVESTMENTS IN SUBSIDIARIES     1,011     154     —     (1,165 )   —  
              TOTAL ASSETS   $      1,138   $ 909   $      1,997   $      (1,165 ) $ 2,879  
 
CURRENT LIABILITIES                                
       Accounts payable   $ 36   $ 186   $ 448   $ —   $ 670  
       Other current liabilities     109     106     143     —     358  
       Liabilities of discontinued operations     —     9     353     —     362  
              TOTAL CURRENT LIABILITIES     145     301     944     —     1,390  
LONG-TERM DEBT     1,021     —     8     —     1,029  
RETIREMENT BENEFITS     974     —     188     —     1,162  
INTERCOMPANY PAYABLE (RECEIVABLE)     (41 )   (473 )   514     —     —  
OTHER LIABILITIES     92     130     99     —     321  
EQUITY (DEFICIT) ATTRIBUTABLE TO                                
       ARVINMERITOR, INC.     (1,053 )   951     213     (1,165 )        (1,054 )
NONCONTROLLING INTERESTS     —     —     31     —     31  
              TOTAL LIABILITIES AND EQUITY (DEFICIT)   $ 1,138   $ 909   $ 1,997   $ (1,165 ) $ 2,879  
 

27
 
 

ARVINMERITOR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
 
    Three Months Ended December 31, 2010  
                Non-              
       Parent      Guarantors      Guarantors      Elims      Consolidated  
CASH FLOWS PROVIDED BY (USED FOR)                                
       OPERATING ACTIVITIES   $ 196   $ 3   $ (248 ) $      —   $ (49 )
 
INVESTING ACTIVITIES                                
Capital expenditures     (1 )   (8 )   (10 )   —     (19 )
Other investing activities     —     2     1     —     3  
Net cash flows used for discontinued operations     —     —     (6 )   —     (6 )
CASH USED FOR INVESTING ACTIVITIES     (1 )   (6 )   (15 )   —     (22 )
 
FINANCING ACTIVITIES                                
Intercompany advances          (146 )   —     146     —     —  
Other financing activities     2     —     —     —     2  
CASH PROVIDED BY (USED FOR) FINANCING                                
       ACTIVITIES     (144 )   —     146     —     2  
 
EFFECT OF FOREIGN CURRENCY EXCHANGE                                
       RATES ON CASH AND CASH EQUIVALENTS     —     —     2     —     2  
 
CHANGE IN CASH AND CASH EQUIVALENTS     51     (3 )   (115 )   —     (67 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING                                
       OF PERIOD     47     6     290     —     343  
CASH AND CASH EQUIVALENTS AT END OF                                
       PERIOD   $ 98   $ 3   $ 175   $ —   $ 276  
 

28
 
 

ARVINMERITOR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
 
    Three Months Ended December 31, 2009  
                Non-              
       Parent      Guarantors      Guarantors      Elims      Consolidated  
CASH FLOWS PROVIDED BY (USED FOR)                                
       OPERATING ACTIVITIES   $      (42 ) $ 16   $ 53   $      —   $ 27  
 
INVESTING ACTIVITIES                                
Capital expenditures     —     (6 )   (7 )   —     (13 )
Other investing activities     —     —     1     —     1  
Net cash flows used by discontinued operations     —     —     (4 )   —     (4 )
 
CASH USED FOR INVESTING ACTIVITIES     —     (6 )   (10 )   —     (16 )
 
FINANCING ACTIVITIES                                
Net change in debt     7     —     1     —     8  
Intercompany advances     31     —     (31 )   —     —  
 
Net financing cash flows used for discontinued operations     —     —     (10 )   —     (10 )
CASH PROVIDED BY (USED FOR) FINANCING                                
       ACTIVITIES     38     —     (40 )   —     (2 )
 
EFFECT OF FOREIGN CURRENCY EXCHANGE                                
       RATES ON CASH AND CASH EQUIVALENTS     —     —     1     —     1  
 
CHANGE IN CASH AND CASH EQUIVALENTS     (4 )   10     4     —     10  
 
CASH AND CASH EQUIVALENTS AT BEGINNING                                
       OF PERIOD     7     6     82     —     95  
CASH AND CASH EQUIVALENTS AT END OF                                
       PERIOD   $ 3   $ 16   $ 86   $ —   $ 105  
 

29
 
 

ARVINMERITOR, INC.
 
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
 
OVERVIEW
 
     ArvinMeritor, Inc., headquartered in Troy, Michigan, is a premier global supplier of a broad range of integrated systems, modules and components to original equipment manufacturers (“OEMs”) and the aftermarket for the commercial vehicle, transportation and industrial sectors. The company serves commercial truck, trailer, off-highway, military, bus and coach and other industrial OEMs and certain aftermarkets. ArvinMeritor common stock is traded on the New York Stock Exchange under the ticker symbol ARM. On January 20, 2011, our shareowners approved a company name change from ArvinMeritor, Inc. to “Meritor, Inc.” At the time we officially change the name, which is expected in March 2011, we expect our ticker symbol on the New York Stock Exchange will change.
 
     In the first quarter of fiscal year 2011, we saw stronger commercial truck demand in all regions. We expect production volumes in North America and Europe, our largest markets, to continue to strengthen and recover to historical norms. The pace of this recovery may be more rapid than previously expected. Production volumes in South America and Asia-Pacific markets have generally returned to historically strong levels. We responded to the weakness in global business conditions in fiscal year 2009 by aggressively lowering our ‘break-even’ point through comprehensive restructuring and cost-reduction initiatives and focused on improving cash flow by maintaining tight controls on global inventory, pursuing working capital improvements, reducing capital spending and significantly reducing discretionary spending. We believe the lower cost base that we have established through our disciplined approach to cost reductions should improve our ability to convert incremental sales to profitable returns as the markets we supply continue to recover.
 
   LVS Divestiture Update
 
     We have been in the process during the last two years of divesting our LVS businesses and transforming our company to focus solely on commercial vehicle and industrial markets. We believe this will allow us to focus on targeted investments with potentially higher margins. We have substantially completed the transformation of our company through the sale of the majority of our LVS businesses, including the sale of our Body Systems business which was completed in January 2011. The remaining LVS business consists of two relatively small chassis businesses. The results of operations and cash flows of all of our LVS businesses are presented in discontinued operations in the condensed consolidated statements of operations and condensed consolidated statement of cash flows, and prior period information has been recast to reflect this presentation. The assets an d liabilities of the Body Systems business and our two remaining LVS chassis operations are included in the assets and liabilities of discontinued operations in the consolidated balance sheet at December 31 and September 30, 2010.
 
     On January 3, 2011, we completed the sale of our Body Systems business to an affiliate of Inteva Products, LLC. Pursuant to the Agreement signed in August 2010, total consideration was approximately $35 million, subject to certain potential adjustments for items such as working capital fluctuations. The actual purchase price at the closing was $27 million (excluding estimated closing expenses for outside advisory fees of $12 million), consisting of $12 million in cash at closing (adjusted for estimated balances in working capital and other items at the time of the closing) and a five year, 8 percent promissory note for $15 million. In addition to the purchase price, we will receive the cash held at the time of the sale by the Body Systems entities operating in China and Brazil of approximately $32 million, net of applicable taxes and other withholding, a t such time as it becomes available for distribution, as provided in the Purchase and Sale Agreement.
 
     Our remaining LVS chassis operations include two facilities in Europe, which had combined sales of $5 million in the first three months of fiscal year 2011. Our facility in Bonneval, France makes ride control parts (shock absorbers) for sales in Europe, and our facility in Leicester, England makes and distributes gas springs for industrial applications. We continue to pursue strategic alternatives for these businesses. Potential cash costs associated with such alternatives could be in the range of $10 million to $15 million.
 
   1st Quarter Fiscal year 2011 Results
 
     Higher sales in the first quarter of fiscal year 2011 resulted in improved operating results compared to the prior year’s first fiscal quarter. The increase in sales is primarily due to stronger commercial truck demand in all regions. However the regional mix of earnings produced a higher effective tax rate, resulting in a net loss for the quarter ended December 31, 2010 of $2 million compared to breakeven in the same period in fiscal year 2010. Our effective tax rate in the first quarter of fiscal year 2011 was approximately 133 percent driven by strong earnings in many markets in which we are profitable and continue to be a taxpayer, such as Brazil, China and India. However, we are unable to realize tax benefits on losses in the United States and many Western European jurisdictions where we are subject to valuation allowances. Adjusted EBITDA for the three months ended December 31, 2010 was $62 million compared to $51 million in the three months ended December 31, 2009. Loss from continuing operations in the first quarter of fiscal year 2010 was $9 million, or $0.10 per diluted share, compared to a loss of $4 million, or $0.06 per diluted share, in the prior year’s first fiscal quarter.
 
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     Cash flow from operating activities was an outflow of $49 million in the quarter ended December 31, 2010 compared to an inflow of $27 million in the prior fiscal year’s first quarter. The decrease in cash flows in the first quarter of fiscal year 2011 was primarily due to variable compensation payments relating to our prior year performance, as well as working capital investments in both our continuing and discontinued operations.
 
Trends and Uncertainties
 
     Production Volumes
 
     The following table reflects estimated commercial vehicle production volumes for selected original equipment (OE) markets for the first quarters ended December 31, 2010 and 2009 based on available sources and management’s estimates.
 
    Three Months Ended December 31,   Unit   Percent  
       2010      2009      Change      Change  
Commercial Vehicles (in thousands)                  
North America, Heavy-Duty Trucks                      45                      35   10   29 %
North America, Medium-Duty Trucks   18   19   (1 ) (5 )%
United States and Canada, Trailers   33   24   9   38 %
Western Europe, Heavy- and Medium-Duty Trucks   93   53   40   75 %
South America, Heavy- and Medium- Duty Trucks   43   38   5   13 %

     Although the production volumes have increased in the first quarter of fiscal year 2011 compared to the prior year, in certain markets, mainly North America and Europe, they are still below historically normal levels.
 
     Segment Profitability
 
     Revenues in our Industrial segment in the second half of fiscal year 2010 were negatively impacted by reduced production for certain military programs. These reductions had a negative impact on our Industrial segment profitability. We expect this trend to continue in the near term due to the production changeover of certain ongoing military programs and while certain new programs are being launched. If government defense spending decreases on selected programs or we are unable to secure new military contracts, it could have a longer term negative impact on our Industrial segment, and to a lesser extent on our Aftermarket and Trailer segment due to relatively lower sales of military service parts. In addition, if sales on our military programs do return to record levels, the level of profitability on these sales may be lower than what we have recognized i n recent periods. Although OE sales in the Asia-Pacific region, which are included in our Industrial segment, have increased, they have not fully offset the impact on Adjusted EBITDA of lower military sales, and there can be no assurances that they will do so going forward.
 
     Industry-Wide Issues
 
     Our business continues to address a number of other challenging industry-wide issues including the following:
  • Disruptions in the financial markets and their impact on the availability and cost of credit;
  • Excess capacity;
  • Consolidation and globalization of OEMs and their suppliers;
  • Higher energy and transportation costs;
  • Volatility in price and availability of steel and other commodities;
  • Pension and retiree medical health care costs; and
  • Currency exchange rate volatility.
     Other
 
     Other significant factors that could affect our results and liquidity in fiscal year 2011 include:
  • Timing and extent of recovery of the production and sales volumes in commercial vehicle markets around the world;
  • A significant further deterioration or slowdown in economic activity in the key markets we operate;
  • The financial strength of our suppliers and customers, including potential bankruptcies;
  • Higher than planned price reductions to our customers;
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  • Any unplanned extended shutdowns or production interruptions by us, our customers or our suppliers;
  • Additional restructuring actions and the timing and recognition of restructuring charges;
  • Higher than planned warranty expenses, including the outcome of known or potential recall campaigns;
  • Our ability to implement planned productivity and cost reduction initiatives;
  • Significant contract awards or losses of existing contracts.
NON-GAAP FINANCIAL MEASURES
 
     In addition to the results reported in accordance with accounting principles generally accepted in the United States (GAAP), we have provided information regarding non-GAAP financial measures. These non-GAAP financial measures include Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share from continuing operations, Adjusted EBITDA, Free cash flow and Free cash flow before restructuring payments and changes in off-balance sheet accounts receivable factoring and securitization.
 
     Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share from continuing operations are defined as reported income or loss from continuing operations and reported diluted earnings or loss per share from continuing operations before restructuring expenses, asset impairment charges and other special items as determined by management. Adjusted EBITDA is defined as income (loss) from continuing operations before interest, income taxes, depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring expenses, asset impairment charges and other special items as determined by management. Free cash flow is defined as cash flows provided by (used for) operating activities less capital expenditures.
 
     Management believes Adjusted EBITDA and Adjusted income (loss) from continuing operations are meaningful measures of performance as they are commonly utilized by management and investors to analyze ongoing operating performance and entity valuation. Management, the investment community and banking institutions routinely use Adjusted EBITDA, together with other measures, to measure operating performance in our industry. Further, management uses Adjusted EBITDA for planning and forecasting future periods. In addition, we use Segment EBITDA as the primary basis to evaluate the performance of each of our reportable segments. Management believes that Free cash flow and Free cash flow before restructuring payments and changes in off-balance sheet accounts receivable factoring and securitization are useful in analyzing our ability to service and repay debt.
 
     Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share from continuing operations and Adjusted EBITDA should not be considered a substitute for the reported results prepared in accordance with GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. Free cash flow and Free cash flow before restructuring payments and changes in off-balance sheet accounts receivables factoring and securitization should not be considered a substitute for cash provided by (used for) operating activities, or other cash flow statement data prepared in accordance with GAAP, or as a measure of financial position or liquidity. In addition, these non-GAAP cash flow measures do not reflect cash used to service debt or cash received from the div estitures of businesses or sales of other assets and thus do not reflect funds available for investment or other discretionary uses. 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 below are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.
 
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     Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share are reconciled to income (loss) from continuing operations and diluted earnings (loss) per share below (in millions, except per share amounts).
 
    Three Months Ended  
    December 31,  
       2010      2009  
Adjusted loss from continuing operations   $ (6 ) $ (4 )
       Restructuring costs     (3 )   —  
              Loss from continuing operations attributable              
                     to ArvinMeritor, Inc.   $ (9 ) $ (4 )
 
Adjusted basic and diluted loss per share from              
       continuing operations   $ (0.07 ) $ (0.06 )
       Impact of adjustments on basic and diluted              
              loss per share     (0.03 )   —  
Basic and diluted loss per share from continuing              
       operations   $      (0.10 ) $      (0.06 )
 

     Free cash flow and Free cash flow before restructuring payments and changes in off-balance sheet accounts receivables factoring and securitization are reconciled to cash flows provided by (used for) operating activities below.
 
    Three Months Ended  
    December 31,  
       2010      2009  
Free cash flow before restructuring payments and              
       changes in off-balance sheet accounts receivable              
       factoring and securitization   $      (190 ) $      (47 )
       Restructuring payments – continuing operations     (4 )   (3 )
       Restructuring payments – discontinued operations     (3 )   (2 )
       Changes in off-balance sheet accounts receivable              
              factoring and securitization     123     54  
Free cash flow     (74 )   2  
       Capital expenditures – continuing operations     19     13  
       Capital expenditures – discontinued operations     6     12  
Cash flows provided by (used for) operating              
       activities   $ (49 ) $ 27  
 

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ARVINMERITOR, INC.
 
     Adjusted EBITDA is reconciled to net income (loss) attributable to ArvinMeritor, Inc. in “Results of Operations” below.
 
Results of Operations
 
     The following is a summary of our financial results (in millions, except per share amounts):
 
    Three Months Ended  
    December 31,  
       2010      2009  
SALES:              
       Commercial Truck   $ 575   $ 433  
       Industrial     230     226  
       Aftermarket & Trailer     225     222  
       Intersegment Sales     (59 )   (81 )
SALES   $ 971   $ 800  
SEGMENT EBITDA:              
       Commercial Truck   $ 33   $ 13  
       Industrial     17     24  
       Aftermarket & Trailer     13     17  
SEGMENT EBITDA     63     54  
       Unallocated legacy and corporate costs (1)     (1 )   (3 )
ADJUSTED EBITDA     62     51  
       Loss on sale of receivables     (1 )   (1 )
       Depreciation and amortization     (16 )   (18 )
       Noncontrolling interests     (4 )   (3 )
       Restructuring costs     (3 )   —  
       Interest expense, net     (27 )   (23 )
       Provision for income taxes     (20 )   (10 )
LOSS FROM CONTINUING OPERATIONS,              
       attributable to ArvinMeritor, Inc.   $ (9 ) $ (4 )
INCOME FROM DISCONTINUED              
       OPERATIONS, net of tax, attributable to              
       ArvinMeritor, Inc.     7     4  
NET INCOME (LOSS), attributable to              
ArvinMeritor, Inc.   $ (2 ) $ —  
BASIC AND DILUTED EARNINGS (LOSS) PER              
SHARE              
Attributable to ArvinMeritor, Inc.              
       Continuing operations   $ (0.10 ) $      (0.06 )
       Discontinued operations     0.07     0.06  
       Diluted earnings (loss) per share   $      (0.03 ) $ —  
BASIC AND DILUTED AVERAGE COMMON              
       SHARES OUTSTANDING     93.3     72.7  
 

     (1)     
Unallocated legacy and corporate costs represent items that are not directly related to our business segments. These costs primarily include pension and retiree medical costs associated with sold businesses and other legacy costs for environmental and product liability matters.
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ARVINMERITOR, INC.
 
Three Months Ended December 31, 2010 Compared to Three Months Ended December 31, 2009
 
   Sales
 
     The following table reflects total company and business segment sales for the three months ended December 31, 2010 and 2009. The reconciliation is intended to reflect the trend in business segment sales and to illustrate the impact that changes in foreign currency exchange rates, volumes and other factors had on sales (in millions). Business segment sales include intersegment sales.
 
                            Dollar Change Due To  
    December 31,   Dollar   %         Volume /  
       2010      2009      Change      Change      Currency      Other  
Sales:                                    
       Commercial Truck   $ 575   $ 433   $ 142   33 % $        (11 ) $         153  
       Industrial     230     226     4   2 %   6     (2 )
       Aftermarket & Trailer     225     222     3   1 %   (2 )   5  
       Intersegment Sales     (59 )   (81 )   22   27 %   4     18  
TOTAL SALES   $      971   $      800   $      171   21 % $ (3 ) $ 174  
 

     Commercial Truck sales were $575 million in the first quarter of fiscal year 2011, up 33 percent from the first quarter of fiscal year 2010, reflecting higher OE production volumes in North America, Europe and South America. Western European heavy- and medium-duty truck production volumes increased 75 percent compared to the prior year. Production volumes in the North American Heavy- and Medium-Duty commercial vehicle truck markets were higher by 17 percent compared to the prior year and South American commercial truck volumes increased approximately 13 percent. We expect recovery of production volumes in North America and Europe, our largest markets, to continue towards historical norms, although the pace of this recovery may be more rapid than previously expected. Production volumes in South America have fully recovered and reached record levels.
 
     Industrial sales were $230 million in the first quarter of fiscal year 2011 and were relatively flat compared to the first quarter of fiscal year 2010. The impact of lower sales for production and service orders for military applications as production of the Family of Medium Tactical Vehicles (FMTV) shifts to a new prime contractor was offset by increased sales volumes in our operations in the Asia-Pacific region. The increase in sales in the Asia-Pacific region was primarily due to higher sales in our China off-highway operations and India commercial vehicle operations. Overall, sales in our Asia-Pacific operations increased approximately 26 percent from the prior year.
 
     Aftermarket & Trailer sales were $225 million in the first quarter of fiscal year 2011 and were relatively flat compared to the first quarter of fiscal year 2010. Higher sales in our core aftermarket replacement parts and products for trailer applications were offset by a decrease in defense aftermarket sales, primarily in Mine Resistant Ambush Protection (MRAP) service parts.
 
   Cost of Sales and Gross Profit
 
     Cost of sales primarily represents materials, labor and overhead production costs associated with the company’s products and production facilities. Cost of sales for the three months ended December 31, 2010 was $867 million compared to $711 million in the prior year, representing an increase of 22 percent. The increase in costs of sales is primarily due to the increased sales volumes discussed above. Total cost of sales were approximately 89 percent of sales for the three months periods ended December 31, 2010 and 2009.
 
     Changes in the components of cost of sales year over year are summarized as follows:
 
Higher material costs $ 141  
Higher labor and overhead costs   22  
Other costs   (7 )
       Total increase in costs of sales $      156  
 

     Material costs represent the majority of our cost of sales and include raw materials, composed primarily of steel and purchased components. Material costs for the three months ended December 31, 2010 increased by approximately $141 million compared to the same period last year, primarily as a result of higher sales volumes. Material costs for much of fiscal year 2010 were relatively stable; however, in the second half of fiscal year 2010 we began to see an increase in prices with higher demand due to improvement in economic conditions.
 
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ARVINMERITOR, INC.
 
     Labor and overhead costs increased by $22 million compared to the same period in the prior year. The increase was primarily due to the higher sales volumes. Other factors favorably impacting labor and overhead costs are savings associated with the company’s restructuring actions, continuous improvement and rationalization of operations.
 
     As a result of the above, gross profit for the three months ended December 31, 2010 was $104 million compared to $89 million in the same period last year. Gross margins remained constant at 11 percent for the three month periods ended December 31, 2010 and 2009.
 
   Other Income Statement Items
 
     Selling, general and administrative expenses for the three months ended December 31, 2010 and 2009 are summarized as follows (in millions):
 
  Three Months Ended   Three Months Ended          
  December 31, 2010   December 31, 2009   Increase (Decrease)
SG&A Amount       % of sales         Amount       % of sales                    
       Loss on sale of receivables $     (1 ) (0.1 )%   $     (1 ) (0.1 )%   $     —   —pts
       Short- and long-term variable                                
              compensation   (6 ) (0.6 )%     (10 ) (1.3 )%     (4 ) (0.7)pts
       All other SG&A   (65 ) (6.7 )%     (55 ) (6.9 )%     10   (0.2)pts
Total SG&A $ (72 ) (7.4 )%   $ (66 ) (8.3 )%   $ 6   (0.9)pts
                                 
     All other SG&A represents normal selling, general and administrative expenses. All other SG&A expense decreased as a percentage of sales compared to the prior year despite the discontinuance of certain temporary salary and benefit reductions implemented during fiscal year 2009. This decrease in normal selling, general and administrative expenses as a percentage of sales is a result of savings associated with various restructuring and other cost reduction initiatives, including reduced discretionary spending, and headcount reductions implemented in fiscal year 2009.
 
     Restructuring costs of $3 million were recorded in our Commercial Truck segment during the first quarter of fiscal year 2011. No other restructuring charges were recognized in any segments during the first quarter of fiscal 2011 and 2010.
 
     Operating income for the first quarter of fiscal year 2011 was $29 million, compared to $23 million in the prior year. The improved operating income was the result of items previously discussed.
 
     Equity in earnings of affiliates was $13 million in the first quarter of fiscal year 2011, compared to $9 million in the same period in the prior year. The increase is due to higher earnings from our affiliates in the United States, Mexico and South America.
 
     Interest expense, net for the first quarter of fiscal year 2011 was $27 million, compared to $23 million in the prior year. The increase in interest expense, net is primarily due to additional interest cost associated with our debt securities issued in fiscal year 2010.
 
     Provision for income taxes in the first three months of fiscal year 2011 was $20 million compared to $10 million in the same period in the prior year. In the first quarter of fiscal year 2011, our effective tax rate was 133 percent compared to 111 percent in the prior year. Generally, we expect our effective tax rate to remain at inflated levels in the near term until we can generate sufficient income in certain jurisdictions, primarily in the United States and Europe. We are recognizing valuation allowances against our deferred tax assets in these jurisdictions and are not able to recognize tax benefits related to current opera ting losses.
 
     Loss from continuing operations (before noncontrolling interests) for the first quarter of fiscal year 2011 was $5 million, compared to $1 million, in the prior year.
 
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     Income from discontinued operations was $7 million in the first quarter of fiscal year 2011, compared to $4 million in the same period in the prior year. Significant items included in results from discontinued operations in the first quarter of fiscal year 2011 and 2010 include the following:
 
  Three Months Ended  
  December 31,  
  2010       2009  
Operating income $     17   $     9  
Gain on sale of businesses, net   —     8  
Restructuring costs   (1 )   (2 )
Other   (3 )   (8 )
       Income (loss) before income taxes   13     7  
Provision for income taxes   (6 )   (3 )
       Net income from discontinued operations attributable to            
              ArvinMeritor, Inc. $ 7   $ 4  
             
     Operating income from discontinued operations represents income from normal operating activities of the businesses included in discontinued operations.
 
     Gain (loss) on sale of businesses, net: In connection with the sale of our interest in MSSC, we recognized a pre-tax gain of $16 million ($16 million after-tax), net of indemnity obligations, during the first quarter of fiscal year 2010. We provided certain indemnifications to the buyer for our share of potential obligations related to taxes, pension funding shortfall, environmental and other contingencies, and valuation of certain accounts receivable and inventories. Also included in net gain on sale of businesses in the prior year were $8 million of charges associated with the Gabriel North America Ride Control business working capital adjustments recognized in the first quarter of fiscal year 2010.
 
     Restructuring costs recognized during the first quarter of fiscal year 2011 primarily relate to employee termination benefits, including those associated with the wind down or divestiture of certain LVS chassis businesses. The restructuring costs recognized during the prior year fiscal year were associated with our Body Systems business.
 
     Other: Other primarily relates to charges for changes in estimates and adjustments related to certain assets and liabilities retained from previously sold businesses and indemnities provided at the time of sale. Also included in the other charges are LVS divestiture costs related to actions in connection with the separation of the LVS businesses from the company.
 
     Net loss attributable to ArvinMeritor, Inc. was $2 million for the three months ended December 31, 2010 compared to breakeven for the three months ended December 31, 2009. The increase in net loss is attributable to reasons previously discussed.
 
   Segment EBITDA and EBITDA Margins
 
     Segment EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization, noncontrolling interests in consolidated joint ventures, loss on sale of receivables, restructuring costs and asset impairment charges. We use Segment EBITDA as the primary basis for the Chief Operating Decision Maker (CODM) to evaluate the performance of each of our reportable segments. In fiscal year 2010, we modified the definition of Segment EBITDA to include the entire EBITDA from our consolidated joint ventures before making adjustment for noncontrolling interests, and to exclude restructuring costs and asset impairment charges. Including the entire EBITDA of our consolidated joint ventures, consistent with the related revenues, better reflects the performance of our Industrial segment and is consistent with ho w the CODM currently measures segment performance. All prior period amounts have been recast to reflect these changes.
 
     The following table reflects Segment EBITDA and EBITDA margins for the three months ended December 31, 2010 and 2009 (dollars in millions).
 
  Segment EBITDA         Segment EBITDA Margins
  December 31,           December 31,    
  2010       2009       $ Change     2010       2009       Change
Commercial Truck $     33   $     13   $     20          5.7 % 3.0 % 2.7pts
Industrial   17     24     (7 )   7.4 %      10.6 %      (3.2)pts
Aftermarket & Trailer   13     17     (4 )   5.8 % 7.7 % (1.9)pts
       Segment EBITDA $ 63   $ 54   $ 9     6.5 % 6.8 % (0.3)pts
                               
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ARVINMERITOR, INC.
 
     Significant items impacting year over year Segment EBITDA include the following:
 
  Commercial         Aftermarket        
  Truck       Industrial       & Trailer       TOTAL  
Segment EBITDA – Quarter ended December 31, 2009 $     13   $     24   $     17   $     54  
       Higher earnings from unconsolidated affiliates   4     —     —     4  
       Lower variable compensation costs   4     1     1     6  
       Lower pension and retiree medical costs   1     2     1     4  
       Volume, performance and other, net of cost reductions   11     (10 )   (6 )   (5 )
Segment EBITDA – Quarter ended December 31, 2010 $ 33   $ 17   $ 13   $ 63  
                         
     Commercial Truck Segment EBITDA was $33 million in the first quarter of fiscal year 2011, up $20 million compared to the same period in the prior year. Segment EBITDA margin increased to 5.7 percent compared to 3.0 percent in the prior year. The impact of higher OE production volumes in all regions, savings associated with prior restructuring and cost reduction initiatives, and higher earnings from our unconsolidated joint ventures favorably impacted Segment EBITDA and Segment EBITDA margin in the first quarter of fiscal year 2011.
 
     Industrial Segment EBITDA was $17 million in the first quarter of fiscal year 2011, down $7 million compared to the prior year. The favorable impact of higher sales in our Asia-Pacific region was more than offset by lower sales of our military products, primarily associated with the FMTV program. This change in sales mix significantly impacted our Segment EBITDA margins, which decreased to 7.4 percent in the first quarter of fiscal year 2011 compared to 10.6 percent in the prior year.
 
     Aftermarket & Trailer Segment EBITDA was $13 million in the first quarter of fiscal year 2011, down $4 million compared to the same period in the prior year. Segment EBITDA margin decreased to 5.8 percent from 7.7 in the prior year. The decrease in Segment EBITDA and Segment EBITDA margin is primarily due to lower sales of our military service parts, primarily associated with MRAP and FMTV programs, which more than offset the favorable impact of higher s ales in our core aftermarket replacement products and trailer applications.
 
Financial Condition
 
     Cash Flows (in millions)
 
  Three Months Ended December 31,  
  2010       2009  
OPERATING CASH FLOWS            
       Loss from continuing operations $     (5 ) $     (1 )
       Depreciation and amortization   16     18  
       Restructuring costs, net of payments   (1 )   (3 )
       Pension and retiree medical expense   18     23  
       Pension and retiree medical contributions   (17 )   (19 )
       Increase in working capital   (141 )   (69 )
       Changes in sale of receivables   127     55  
       Other, net   (19 )   5  
Cash flows provided by (used for) continuing operations   (22 )   9  
Cash flows provided by (used for) discontinued operations   (27 )   18  
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES $ (49 ) $ 27  
             
     Cash used for operating activities for the first three months of fiscal year 2011 was $49 million, compared to cash provided of $27 million in the same period of fiscal year 2010. The cash outflow in continuing operations was primarily due to variable compensation payments made in the first quarter of fiscal year 2011 relating to our prior year performance and working capital investments in both our continuing and discontinued operations. The higher working capital is primarily due to increased inventory as global commercial vehicle and industrial markets continue to strengthen.
 
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ARVINMERITOR, INC.
  Three Months Ended December 31,  
  2010       2009  
INVESTING CASH FLOWS            
       Capital expenditures $     (19 ) $     (13 )
       Other investing activities   3     1  
       Net investing cash flows used for discontinued operations   (6 )   (4 )
CASH USED FOR INVESTING ACTIVITIES $ (22 ) $ (16 )
             
     Cash used for investing activities was $22 million and $16 million in the first three months of fiscal year 2011 and 2010, respectively. Capital expenditures increased to $19 million in the first three months of fiscal year 2011 from $13 million in the same period of the prior year. Cash used in discontinued operations was primarily related to capital expenditures in our Body Systems business.
 
  Three Months Ended December 31,  
  2010       2009  
FINANCING CASH FLOWS            
       Net change in debt $     —   $     8  
       Proceeds from stock option exercises   2     —  
       Net financing cash flows used for discontinued operations   —     (10 )
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES $ 2   $ (2 )
             
     Cash provided by financing activities was $2 million in the first three months of fiscal year 2011 compared to cash used of $2 million in the first three months of fiscal year 2010. Cash used by discontinued operations in the prior year was related to net payments made on lines of credit and other debt.
 
Liquidity
 
     Our outstanding debt, net of discounts where applicable, is summarized as follows (in millions).
 
  December 31,       September 30,  
  2010   2010  
Fixed-rate debt securities $     579   $     579  
Fixed-rate convertible notes   500     500  
Unamortized discount on convertible notes   (74 )   (77 )
Unamortized gain on interest rate swap termination   17     18  
Lines of credit and other   9     9  
       Total debt $ 1,031   $ 1,029  
             
     Overview – Our principal operating and capital requirements are for working capital needs, capital expenditure requirements, debt service requirements and funding of restructuring and product development programs. We expect fiscal year 2011 capital expenditures for our business segments to be in the range of $75 million to $90 million. In addition, we currently expect restructuring cash costs to be approximately $10 million to $20 million in fiscal year 2011, although we will continue to evaluate the performance of our global operations and may enact further restructuring if conditions warrant such actions.
 
     We generally fund our operating and capital needs primarily with cash on hand, cash flow from operations, our various accounts receivable securitization and factoring arrangements and availability under our revolving credit facility. Cash in excess of local operating needs is generally used to reduce amounts outstanding, if any, under our revolving credit facility. Our ability to access additional capital in the long-term will depend on availability of capital markets and pricing on commercially reasonable terms as well as our credit profile at the time we are seeking funds. We continuously evaluate our capital structure to ensure the most appropriate and optimal structure and may, from time to time, retire, exchange or redeem outstanding indebtedness, issue new equity or enter into new lending arra ngements if conditions warrant.
 
     In the second quarter of fiscal year 2010, we completed various financing transactions (as described below), which significantly changed our capital structure and improved our overall liquidity. We believe our current financing arrangements provide us with the financial flexibility required to maintain our operations and fund future growth, including actions required to improve our market share and further diversify our global operations through the term of our revolving credit facility in 2014. The improved liquidity provided by these transactions is also expected to position us well as markets recover.
 
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ARVINMERITOR, INC.
 
     Sources of liquidity as of December 31, 2010, in addition to cash on hand, are as follows:
 
  Total   Unused as of    
  Facility Size       12/31/10       Current Expiration
On-balance sheet arrangements:              
       Revolving credit facility(1) $     539   $     526   Various
       Committed U.S. accounts receivable securitization(2)   125     125   October 2013
              Total on-balance sheet arrangements   664     651    
 
Off-balance sheet arrangements:              
       Committed accounts receivable factoring programs(2)   375     122   Various
       Other uncommitted factoring facilities(2)   29     18   Various
              Total off-balance sheet arrangements   404     140    
                     Total available sources $ 1,068   $ 791    
               
      (1)      The availability under the revolving credit facility is subject to a collateral test as discussed under “Revolving Credit Facility” below.
   
  (2)   Availability subject to adequate eligible accounts receivable as described below.
 
     Cash and Liquidity Needs – Our cash and liquidity needs have been impacted by the level, variability and timing of our customers’ worldwide vehicle production and other factors outside of our control. At December 31, 2010, we had $276 million in cash and cash equivalents.
 
     Our availability under the revolving credit facility is subject to a collateral test and a priority debt to EBITDA ratio covenant, as defined in the agreement, which may limit our borrowings under the agreement as of each quarter end. As long as we are in compliance with this covenant as of the quarter end, we have full availability under the revolving credit facility every other day during the quarter. Our future liquidity is subject to a number of factors, including access to adequate funding under our revolving credit facility, vehicle production schedules and customer demand and access to other borrowing arrangements such as factoring or securitization facilities. Even taking into account these and other factors, and with the assumption that the current trends in the commercial vehicle industry continue, management expects to have sufficient liquidit y to fund our operating requirements through the extended term of our revolving credit facility.
 
     Debt Securities – In March 2010, we completed a public offering of debt securities consisting of the issuance of $250 million 8-year fixed rate 10-5/8 percent notes due March 15, 2018. The offering was made pursuant to a shelf registration statement filed with the Securities and Exchange Commission registering $750 million aggregate debt and / or equity securities that may be offered in one or more series on terms determined at time of sale (the Shelf Registration Statement). The notes were issued at a discounted price of 98.024 percent of their principal amount. The proceeds from the sale of the notes, net of discount, were $245 million and were primarily used to repurchase $175 million of our previously $276 million outstanding 8-3/4 percent notes due in 2012. On March 23, 2010, we completed the debt tender offer for our 8-3/4 percent notes due March 1, 2012. The notes were repurchased at 109.75 percent of their principal amount.
 
     Repurchase Program – Our Board of Directors has approved a repurchase program for up to the remaining principal amount of the corporation’s 8-3/4 percent Notes due 2012 and up to $20 million of our 8-1/8 percent notes due in 2015 (subject to any necessary approvals). Repurchases, if any, may be made from time to time through maturity through open market purchases or privately negotiated transactions or otherwise, at the discretion of management as market conditions warrant. In June 2010, we purchased in the open market $17 million of our outstanding 8-3/4 percent notes due in 2012. The notes were repurchased at 104.875 percent of their principal amount. Also in June 2010, we purchased $1 million of our 8-1/8 percent notes due in 2015. The notes were repurchased at 94.000 percent of their principal amount.
 
     Equity Securities – In March 2010, we completed an equity offering of 19,952,500 shares, par value of $1 per share, at a price of $10.50 per share. The offering was made pursuant to the Shelf Registration Statement. The proceeds from the offering, net of underwriting discounts and commissions, of $200 million were primarily used to repay outstanding indebtedness under the revolving credit facility and U.S. Accounts Receivable Securitization Program.
 
     Convertible Securities – In February 2007, we issued $200 million of 4.00 percent convertible senior unsecured notes due 2027. In March 2006, we issued $300 million of 4.625 percent convertible senior unsecured notes due 2026. For a description of the conversion features of these notes, see our audited consolidated financial statements and note 16 thereto included in the Annual Report on Form 10-K, for the fiscal year ended September 30, 2010.
 
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ARVINMERITOR, INC.
 
     Revolving Credit Facility – On February 5, 2010 we signed an agreement to amend and extend the revolving credit facility, which became effective on February 26, 2010. Pursuant to the revolving credit facility as amended, we have a $539 million revolving credit facility (excluding $28 million, which is unavailable due to the bankruptcy of Lehman Brothers in 2008), $143 million of which matures in June 2011 for non-extending banks and with the remaining $396 million maturing in January 2014 for extending banks. The availability under this facility is dependent upon various factors, in cluding principally performance against certain financial covenants. At September 30 and December 31, 2010, there were no borrowings outstanding under the revolving credit facility. The $539 million revolving credit facility includes $100 million of availability for the issuance of letters of credit. At December 31 and September 30, 2010, letters of credit totaling approximately $13 million and $26 million, respectively, were issued. At certain times during any given month, we may draw on our revolving credit facility or U.S. accounts receivable securitization facility to fund intra-month working capital needs. In such months, we would then typically utilize the cash we receive from our customers throughout the month to repay the facilities. Accordingly, during any given month, we may draw down on these facilities in amounts exceeding the amounts shown as outstanding at fiscal quarter ends.
 
     Availability under the revolving credit facility is subject to a collateral test, pursuant to which borrowings on the revolving credit facility cannot exceed 1.0x the collateral test value. The collateral test is performed on a quarterly basis and under the most recent collateral test, the full amount of the revolving credit facility was available for borrowing at December 31, 2010. Our availability under the revolving credit facility is also subject to certain financial covenants based on (i) the ratio of the company’s priority debt (consisting principally of amounts outstanding under the revolving credit facility, U.S. accounts receivable securitization program, and third-party non-working capital foreign debt) to EBITDA and (ii) the amount of annual capital expenditures. We are required to maintain a total priority-debt-to-EBITDA ratio, as defin ed in the agreement, of (i) 2.50 to 1 as of the last day of each fiscal quarter commencing with the fiscal quarter ended September 30, 2010 through and including the fiscal quarter ended June 30, 2011; (ii) 2.25 to 1 as of the last day of each fiscal quarter commencing with the fiscal quarter ended September 30, 2011 through and including the fiscal quarter ended June 30, 2012 and (iii) 2.00 to 1 as of the last day of each fiscal quarter thereafter through maturity. At December 31, 2010, we were in compliance with the above noted covenants with a ratio of approximately 0.13x for the priority-debt-to-EBITDA covenant. Certain of the company’s subsidiaries, as defined in the credit agreement, irrevocably and unconditionally guarantee amounts outstanding under the revolving credit facility.
 
     Borrowings under the revolving credit facility are subject to interest based on quoted LIBOR rates plus a margin, and a commitment fee on undrawn amounts, both of which are based upon the company’s current credit rating for the senior secured facilities. At December 31, 2010, the margin over the LIBOR rate was 275 basis points for the $143 million available from non-extending banks, and the commitment fee was 50 basis points. At December 31, 2010, the margin over LIBOR rate was 500 basis points for the $396 million available from extending banks, and the commitment fee was 75 basis points. Although a majority of our revolving credit loans are LIBOR based, overnight revolving credit loans are at the prime rate plus a margin of 175 basis points for the $143 million from non-extending banks and prime rate plus a margin of 400 basis points for the $396 million from the extending banks.
 
     Accounts Receivable Securitization and Factoring – As of December 31, 2010, we participate in accounts receivable factoring and securitization programs with total amounts utilized of approximately $264 million of which $253 million were attributable to committed facilities by established banks. At December 31, 2010, the total $264 million relates to off-balance sheet securitization and factoring arrangements (see “Off-Balance Sheet Arrangements”).
 
     U.S. Securitization Program: Since 2005 we have participated in a U.S. accounts receivable securitization program to enhance financial flexibility and lower interest costs. In September 2009, we entered into a new, two year $125 million U.S. receivables financing arrangement with a syndicate of financial institutions led by GMAC Commercial Finance LLC. Under this program, we have the ability to sell substantially all of the trade receivables of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly-owned, special purpose subsidiary. In October 2010, the company extended the expiration of the program to October 2013. ARC funds these purchases with borrowings under a loan agreement with participating lenders. Amount s outstanding under this agreement are collateralized by eligible receivables purchased by ARC and are reported as short-term debt in the consolidated balance sheet. At December 31, 2010, no balance was outstanding under this program. This program does not have specific financial covenants; however it does have a cross-default provision to our revolving credit facility agreement.
 
     Credit Ratings – At December 31, 2010, Standard & Poor’s corporate credit rating and senior secured credit rating for our company is B- and B, respectively. Moody’s Investors Service corporate credit rating and senior secured credit rating for our company is B1 and Ba3, respectively. Any lowering of our credit ratings could increase our cost of future borrowings and could reduce our access to capital markets and result in lower trading prices for our securities.
 
     On January 28, 2011, Standard & Poor’s Rating Services raised our corporate credit rating from B- to B. In addition, our senior secured and senior unsecured ratings were raised from B to B+ and CCC to CCC+, respectively.
 
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ARVINMERITOR, INC.
 
Off-Balance Sheet Arrangements
 
     Accounts Receivable Securitization and Factoring Arrangements – We participate in accounts receivable factoring programs with total amounts utilized at December 31, 2010, of approximately $264 million, of which $153 million and $78 million were attributable to a Swedish securitization facility and a French factoring facility, respectively, both of which involve the securitization or sale of AB Volvo accounts receivables. These programs are described in more detail below.
 
     Swedish Securitization Facility: In March 2006, we entered into a European arrangement to sell trade receivables through one of our European subsidiaries. Under this arrangement, which expires in March 2011, we can sell up to, at any point in time, €125 million of eligible trade receivables. The receivables under this program are sold at face value and excluded from the consolidated balance sheet. We had utilized €115 million ($153 million) and €62 million ($84 million) of this accounts receivable securitization facility as of December 31, 2010 and September 30, 2009, respectively. We had notes receivable from the purchaser of the receivables of $4 million and $3 mill ion under this program at December 31, 2010 and September 30, 2010, respectively. We are currently in process of renewing this facility and expect this facility to be successfully amended and / or renewed prior to the expiration date.
 
     French Factoring Facility: In November 2007, we entered into an arrangement to sell trade receivables through one of our French subsidiaries. Under this arrangement, we can sell up to, at any point in time, €125 million of eligible trade receivables. The receivables under this program are sold at face value and excluded from the consolidated balance sheet. We had utilized €59 million ($78 million) and €36 million ($49 million) of this accounts receivable securitization facility as of December 31, 2010 and September 30, 2010, respectively.
 
     Both of the above facilities are backed by 364-day liquidity commitments from Nordea Bank which were renewed through June 2011 for the French facility and July 2011 for the Swedish facility. The commitments are subject to standard terms and conditions for these types of arrangements (including, in the case of the French commitment, a sole discretion clause whereby the bank retains the right to not purchase receivables, which to our knowledge has never been invoked).
 
     U.S. Factoring Facility: In October 2010, we entered into a two-year arrangement to sell trade receivables from AB Volvo and its subsidiaries. Under this arrangement, we can sell up to, at any point in time, €32 million ($43 million) of eligible trade receivables. The receivables under this program are sold at face value and are excluded from the consolidated balance sheet. The company had utilized $22 million of this accounts receivable securitization facility as of December 31, 2010.
 
     In addition, several of our subsidiaries, primarily in Europe, factor eligible accounts receivables with financial institutions. The amount of factored receivables was approximately $11 million and $5 million at December 31, 2010 and September 30, 2010, respectively.
 
Contingencies
 
     Contingencies related to environmental, asbestos and other matters are discussed in Note 18 of the Notes to Condensed Consolidated Financial Statements.
 
New Accounting Pronouncements
 
     New accounting standards implemented in fiscal year 2011:
 
     In June 2009, the FASB issued guidance on accounting for transfer of financial assets, which changes the requirements for recognizing the transfer of financial assets and requires additional disclosures about a transferor’s continuing involvement in transferred financial assets. The guidance also eliminates the concept of a qualifying special purpose entity when assessing transfers of financial instruments. As required, we adopted this guidance effective October 1, 2010. The adoption of this guidance did not have any impact on our consolidated financial statements.
 
     In June 2009, the FASB issued guidance for the consolidation of variable interest entities to address the elimination of the concept of a qualifying special purpose entity. This guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of the variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, the new guidance requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information ab out an enterprise’s involvement in a variable interest entity. As required, we adopted this guidance effective October 1, 2010. The adoption of this guidance did not have any impact on our consolidated financial statements.
 
     We hold a variable interest in a joint venture accounted for under the equity method of accounting. We are not the primary beneficiary of the joint venture and therefore are not required to consolidate this entity. See Note 3 to the condensed consolidated financial statements for additional information.
 
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ARVINMERITOR, INC.
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
     We are exposed to certain global market risks, including foreign currency exchange risk and interest rate risk associated with our debt.
 
     As a result of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies. In addition, we translate sales and financial results denominated in foreign currencies into U.S. dollars for purposes of our consolidated financial statements. As a result, appreciation of the U.S. dollar against these foreign currencies generally will have a negative impact on our reported revenues and operating income while depreciation of the U.S. dollar against these foreign currencies will generally have a positive effect on reported revenues and operating income.
 
     We use foreign currency forward contracts to minimize the earnings exposures arising from foreign currency exchange risk on foreign currency purchases and sales. Gains and losses on the underlying foreign currency exposures are partially offset with gains and losses on the foreign currency forward contracts. Under this cash flow hedging program, we designate the foreign currency contracts (the contracts) as cash flow hedges of underlying foreign currency forecasted purchases and sales. The effective portion of changes in the fair value of the contracts is recorded in Accumulated Other Comprehensive Loss (AOCL) in the statement of shareowners’ equity and is recognized in operating income when the underlying forecasted transaction impacts earnings. The contracts generally mature within twelve months.
 
     We generally have not hedged against our foreign currency exposure related to translations to U.S. dollars of our financial results denominated in foreign currencies. In the fourth quarter of fiscal year 2010, due to the volatility of the Brazilian real as compared to the U.S. dollar, we entered into foreign currency option contracts to reduce volatility in the translation of Brazilian real earnings to U.S. dollars. Gains and losses on these option contracts are recorded in other income (expense), net, in the consolidated statement of operations, generally reducing the exposure to translation volatility during a full-year period. The impact of these option contracts was not significant to our results of operations or financial position at December 31, 2010.
 
     Interest rate risk relates to the gain/increase or loss/decrease we could incur in our debt balances and interest expense. To manage this risk, we enter into interest rate swaps from time to time to economically convert portions of our fixed-rate debt into floating rate exposure, ensuring that the sensitivity of the economic value of debt falls within our corporate risk tolerances. It is our policy not to enter into derivative instruments for speculative purposes, and therefore, we hold no derivative instruments for trading purposes.
 
     Included below is a sensitivity analyses to measure the potential gain (loss) in the fair value of financial instruments with exposure to market risk. The model assumes a 10% hypothetical change (increase or decrease) in exchange rates and instantaneous, parallel shifts of 50 basis points in interest rates.
 
Market Risk Assuming a   Assuming a   Favorable /
  10% Increase   10% Decrease   (Unfavorable)
  in Rates       in Rates       Impact on
Foreign Currency Sensitivity:              
Forward contracts in USD(1) $ (2.1 ) $ 2.1   Fair Value
Forward contracts in Euro(1)   (4.4 )   4.4   Fair Value
Foreign currency denominated debt   0.9     (0.9 ) Fair Value
 
  Assuming a 50   Assuming a 50   Favorable /
  BPS Increase in   BPS Decrease in   (Unfavorable)
Interest Rate Sensitivity: Rates   Rates   Impact on
Debt - fixed rate $ (46.4 ) $ 49.2   Fair Value

     (1)      Includes only the risk related to the derivative instruments and does not include the risk related to the underlying exposure. The analysis assumes overall derivative instruments and debt levels remain unchanged for each hypothetical scenario
 
     At December 31, 2010 a 10% decrease in quoted currency exchange rates would result in a potential loss of approximately $1 million in foreign currency denominated debt.
 
     At December 31, 2010 the fair value of debt outstanding was approximately $1,237 million. A 50 basis points decrease in quoted interest rates would result in favorable impact of $49 million on fixed rate debt.
 
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ARVINMERITOR, INC.
 
Item 4. Controls and Procedures
 
     As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), management, with the participation of the chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2010. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of December 31, 2010, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by u s in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
     There have been no changes in the company’s internal control over financial reporting that occurred during the quarter ended December 31, 2010 that materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
 
     In connection with the rule, the company continues to review and document its disclosure controls and procedures, including the company’s internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and ensuring that the company’s systems evolve with the business.
 
PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
 
     Except as set forth in this Quarterly Report under Note 18 “Contingencies” and as set forth below, there have been no material developments in legal proceedings involving the company or its subsidiaries since those reported in the company’s Annual Report on Form 10-K, for the fiscal year ended September 30, 2010.
 
Item 1A. Risk Factors
 
     There have been no material changes in risk factors involving the company or its subsidiaries from those previously disclosed in the company’s Annual Report on Form 10-K, for the fiscal year ended September 30, 2010.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
     Issuer repurchases
 
     The independent trustee of our 401(k) plans purchases shares in the open market to fund investments by employees in our common stock, one of the investment options available under such plans, and any matching contributions in company stock we provide under certain of such plans. In addition, our stock incentive plans permit payment of an option exercise price by means of cashless exercise through a broker and permit the satisfaction of the minimum statutory tax obligations upon exercise of options and the vesting of restricted stock units through stock withholding. However, the company does not believe such purchases or transactions are issuer repurchases for the purposes of this Item 2 of Part II of this Report on Form 10-Q. In addition, our stock incentive plans also permit the satisfaction of tax obligations upon the vesting of restricted stock throug h stock withholding. There were no shares withheld in the first quarter of 2011.
 
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ARVINMERITOR, INC.
 
Item 5. Other Information
 
     Cautionary S tatement
 
     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,” “will” and similar expressions. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to global economic and market cycles and conditions, including the recent global economic crisis; the demand for commercial and specialty vehicles for which we supply products; availability and sharply rising costs of raw materials, including steel; 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); whether the liquidity of the company will be affected by declining vehicle productions in the future; OEM program delays; demand for and market acceptance of new and existing products; successful development of new products; reliance on major OEM customers; l abor 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; the outcome of actual and potential product liability, warranty and recall claims; rising costs of pension and other postretirement benefits; and possible changes in accounting rules; as well as other substantial costs, risks and uncertainties, including but not limited to those detailed herein and from time to time in other filings of the company with the SEC. See also the following portions of our Annual Report on Form 10-K, as amended, for the year ending October 3, 2010: Item 1. Business, “Customers; Sales and Marketing”; “Competition”; “Raw Materials and Suppliers”; “Divestitures and Restructuring”; “Employees”; “Environmenta l Matters”; “International Operations”; and “Seasonality; Cyclicality”; Item 1A. Risk Factors; Item 3. Legal Proceedings; and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and see also “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk”; “Legal Proceedings” and “Risk Factors” 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, except as otherwise required by law.
 
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ARVINMERITOR, INC.
 
Item 6. Exhibits
   
  3-a   Restated Articles of Incorporation of ArvinMeritor, filed as Exhibit 4.01 to ArvinMeritor’s Registration Statement on Form S-4, as amended (Registration Statement No. 333-36448) ("Form S-4"), is incorporated by reference.
       
  3-b   By-laws of ArvinMeritor, filed as Exhibit 3 to ArvinMeritor's Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2003 (File No. 1-15983), is incorporated by reference.
       
  10-a   Receivables Purchase Agreement dated as of October 29, 2010, by and among ArvinMeritor Mascot, LLC, Meritor Heavy Vehicle Braking Systems (USA), Inc., Meritor Heavy Vehicle Systems, LLC, Viking Asset Purchaser No 7 IC, an incorporated cell of Viking Global Finance ICC, an incorporated cell company incorporated under the laws of Jersey, as purchaser, and Citicorp Trustee Company Limited, as programme trustee, filed as Exhibit 10-c to ArvinMeritor’s Current report on Form 8-K dated October 29, 2010 and filed November 2, 2010, is incorporated herein by reference.
   
  10-b   First Amendment dated as of December 6, 2010 to Purchase and Sale Agreement dated as of August 3, 2010 among Meritor France (as Seller), ArvinMeritor, Inc. (as Seller Guarantor) and 81 Acquisition LLC (as Buyer), filed as Exhibit 10 to ArvinMeritor’s Form 8-K dated December 6, 2010 and filed December 8, 2010, is incorporated herein by reference.
   
  10-c   Second Amendment dated as of January 3, 2011 to Purchase and Sale Agreement dated as of August 3, 2010 among Meritor France (as Seller), ArvinMeritor, Inc. (as Seller Guarantor) and Inteva Products Holding Coöperatieve U.A., as assignee of 81 Acquisition LLC (as Buyer), as amended, filed as Exhibit 10 to ArvinMeritor’s Form 8-K dated and filed on January 3, 2011, is incorporated herein by reference.
   
  10-d   2010 Long-term Incentive Plan, as Amended and Restated as of January 20, 2011*
       
  12   Computation of ratio of earnings to fixed charges*
       
      23       Consent of Bates White LLC*
       
  31-a   Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended (Exchange Act)*
       
  31-b   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act*
       
  32-a   Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350*
       
  32-b   Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350*
       
  99-a   Credit Agreement dated as of November 18, 2010 among ArvinMeritor, Inc., Citicorp USA, Inc., as administrative agent and issuing bank, the other lenders party thereto and the Bank of New York Mellon, as paying agent, filed as Exhibit 1.1 to ArvinMeritor’s Form 8-K dated and filed on November 18, 2010, is incorporated herein by reference.
   
  99-b   Continuing Agreement for Standby Letters of Credit dated as of November 18, 2010 between ArvinMeritor, Inc. and Citibank, N.A. filed as Exhibit 1.2 to ArvinMeritor’s Form 8-K dated and filed on November 18, 2010, is incorporated herein by reference.
   
  99-c   First Amendment dated as of December 1, 2010 to Credit Agreement dated as of November 18, 2010 among ArvinMeritor, Inc., Citicorp USA, Inc., as administrative agent and issuing bank, the other lenders party thereto and the Bank of New York Mellon, as paying agent filed as exhibit 1.1 to ArvinMeritor’s Form 8-K dated and filed on December 1, 2010, is incorporated herein by reference.
   
  99-d   Second Amendment dated as of December 2, 2010 to Credit Agreement dated as of November 18, 2010 among ArvinMeritor, Inc., Citicorp USA, Inc., as administrative agent and issuing bank, the other lenders party thereto and the Bank of New York Mellon, as paying agent, filed as Exhibit 1.1 to ArvinMeritor’s Report on Form 8-K dated and filed on December 2, 2010, is incorporated herein by reference.

* Filed herewith.
 
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ARVINMERITOR, INC.
 
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.
 
     Date: February 3, 2011 By:        /s/ V. G. Baker, II
        V. G. Baker, II
        Senior Vice President and General Counsel
        (For the registrant)
 
 
     Date: February 3, 2011 By:   /s/ J.A. Craig
        J.A. Craig
        Senior Vice President and Chief Financial Officer

47
 
 EX-10.D 2 exhibit10-d.htm 2010 LONG-TERM INCENTIVE PLAN (AMENDED AND RESTATED AS OF JANUARY 20, 2011) exhibit10-d.htm
Exhibit 10-d
 
ARVINMERITOR, INC.
2010 LONG-TERM INCENTIVE PLAN
(Amended and Restated as of January 20, 2011)
 
     1. Purpose of the Plan.
 
     The purpose of this Plan is to enhance shareholder value by linking the compensation of officers, directors, and key employees of the Company to increases in the price of ArvinMeritor stock and the achievement of other performance objectives, and to encourage ownership in the Company by key personnel whose long-term employment is considered essential to the Company’s continued progress and success. The Plan is also intended to assist the Company in the recruitment of new employees and to motivate, retain and encourage such employees and directors to act in the shareholders’ interest and share in the Company’s success.
 
     2. Definitions.
 
     As used herein, the following definitions shall apply:
 
     (a) “Administrator” means the Board, any Committee or such delegates as shall be administering the Plan in accordance with Section 4 of the Plan.
 
     (b) “Affiliate” means any Subsidiary or other entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant ownership interest as determined by the Administrator. The Administrator shall, in its sole discretion, determine which entities are classified as Affiliates and designated as eligible to participate in this Plan.
 
     (c) “Applicable Law” means the requirements relating to the administration of stock option plans under U.S. federal and state laws, any stock exchange or quotation system on which the Company has listed or submitted for quotation the Common Shares to the extent provided under the terms of the Company’s agreement with such exchange or quotation system and, with respect to Awards subject to the laws of any foreign jurisdiction where Awards are, or will be, granted under the Plan, the laws of such jurisdiction.
 
     (d) “Award” means a Cash Award, Stock Award, Option, Stock Appreciation Right or Other Stock-Based Award granted in accordance with the terms of the Plan.
 
     (e) “Awardee” means an Employee or Director who has been granted an Award under the Plan.
 
     (f) “Award Agreement” means a Cash Award Agreement, Stock Award Agreement, Option Agreement, Stock Appreciation Right Agreement and/or Other Stock-Based Award Agreement, which may be in written or electronic format, in such form and with such terms as may be specified by the Administrator, evidencing the terms and conditions of an individual Award. Each Award Agreement is subject to the terms and conditions of the Plan.
 
     (g) “Board” means the Board of Directors of the Company.
 
     (h) “Cash Award” means a bonus opportunity awarded under Section 13 of the Plan pursuant to which a Participant may become entitled to receive an amount based on the satisfaction of such performance criteria as are specified in the agreement or, if no agreement is entered into with respect to the Cash Award, other documents evidencing the Award (the “Cash Award Agreement”).
 
     (i) “Change of Control” means one of the following shall have taken place after the date of this Plan:
 
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     (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent (35%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of Directors (the “Outstanding Company Voting Securities”) or of such other amount that, together with Common Shares already held by such Person, constitutes more than fifty percent (50%) of either (x) the Outstanding Company Voting Securities, or (y) the then outstanding Common Shares of the Company (the “Outstanding Company Common Shares”). However, for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: ( A) any acquisition directly from the Company or any corporation controlled by the Company; (B) any acquisition by the Company or any corporation controlled by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any corporation that is a Non-Control Acquisition (as defined in subsection (iii) of this Section 2(i)); or
 
     (ii) Individuals who, as of the effective date of this Plan, constitute the Board of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of the Company within a twelve (12) month period; provided, however, that any individual becoming a Director subsequent to the effective date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or
 
     (iii) Consummation of a reorganization, merger, consolidation, or sale or other disposition of all or a substantial portion of the assets of the Company, or the acquisition by the Company of assets or shares of another corporation (a “Business Combination”), unless, such Business Combination is a Non-Control Acquisition. For the purpose of this provision, “substantial portion of the assets of the Company” is defined as assets having a gross fair market value, determined without regard to any liabilities associated with such assets, of forty percent (40%) or more of the total assets of the Company. A “Non-Control Acquisition” shall mean a Business Combination where: (x) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securitie s immediately prior to such Business Combination beneficially own, directly or indirectly, at least fifty percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation l resulting from such Business Combination (including, without limitation, a corporation which, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Shares and Outstanding Company Voting Securities, as the case may be; or (y) a transfer of a substantial portion of the assets of the Company is made to a Person beneficially owning, directly or indirectly, fifty percent (50%) or more of, respectively, the Outstanding Company C ommon Shares or Outstanding Company Voting Securities (“Control Person”), as the case may be, or to another entity in which either such Control Person or the Company beneficially owns fifty percent (50%) or more of the total value or voting power of such entity’s outstanding voting securities; or
 
     (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
 
Notwithstanding the foregoing, if any payment or distribution event applicable to an Award is subject to the requirements of Section 409A(a)(2)(A) of the Code, the determination of the occurrence of a Change of Control shall be governed by applicable provisions of Section 409A(a)(2)(A) of the Code and regulations and rulings issued thereunder for purposes of determining whether such payment or distribution may then occur.
 
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     (j) “Code” means the United States Internal Revenue Code of 1986, as amended.
 
     (k) “Committee” means one or more committees of Directors appointed by the Board in accordance with Section 4 of the Plan or, in the absence of any such special appointment, the Compensation and Management Development Committee of the Board.
 
     (l) “Common Shares” means the common shares, par value $1 per share, of the Company.
 
     (m) “Company” means ArvinMeritor, Inc., an Indiana corporation, or, except as utilized in the definition of Change of Control, its successor.
 
     (n) “Conversion Award” has the meaning set forth in Section 4(b)(xii) of the Plan.
 
     (o) “Director” means a member of the Board.
 
     (p) “Disability,” has the meaning specified in the Company’s long-term disability plan applicable to the Participant at the time of the disability. If the Participant is not covered by a long-term disability plan, then the definition applicable under the plan covering salaried U.S. Employees shall apply.
 
     (q) “Disaffiliation” means a Subsidiary’s or Affiliate’s ceasing to be a Subsidiary or Affiliate for any reason (including, without limitation, as a result of a public offering, or a spin-off or sale by the Company, of the stock of the Subsidiary or Affiliate) or a sale of a division of the Company and its Affiliates.
 
     (r) “Employee” means a regular, active employee of the Company or any Affiliate, including an Officer and/or Director who is also a regular, active employee of the Company or any Affiliate. The Administrator shall determine whether the Chairman of the Board qualifies as an “Employee.” For any and all purposes under the Plan, the term “Employee” shall not include a person hired as an independent contractor, leased employee, consultant or a person otherwise designated by the Administrator, the Company or an Affiliate at the time of hire as not eligible to participate in or receive benefits under the Plan or not on the payroll, even if such ineligible person is subsequently determin ed to be a common law employee of the Company or an Affiliate or otherwise an employee by any governmental or judicial authority. Unless otherwise determined by the Administrator in its sole discretion, for purposes of the Plan, an Employee shall be considered to have terminated employment and to have ceased to be an Employee if his or her employer ceases to be an Affiliate, even if he or she continues to be employed by such employer.
 
     (s) “Exchange Act” means the United States Securities Exchange Act of 1934, as amended.
 
     (t) “Grant Date” means, with respect to each Award, the date upon which the Award is granted to an Awardee pursuant to this Plan, which may be a designated future date as of which such Award will be effective.
 
     (u) “Incentive Stock Option” means an Option that is identified in the Option Agreement as intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder, and that actually does so qualify.
 
     (v) “Fair Market Value” means the closing price for the Common Shares reported on a consolidated basis on the New York Stock Exchange on the relevant date or, if there were no sales on such date, the closing price on the nearest preceding date on which sales occurred.
 
     (w) “Nonqualified Stock Option” means an Option that is not an Incentive Stock Option.
 
     (x) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
 
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     (y) “Option” means a right granted under Section 8 of the Plan to purchase a number of Shares or Stock Units at such exercise price, at such times, and on such other terms and conditions as are specified in the agreement or other documents evidencing the Award (the “Option Agreement”). Both Incentive Stock Options and Nonqualified Stock Options may be granted under the Plan.
 
     (z) “Other Stock-Based Award” means an Award granted pursuant to Section 12 of the Plan on such terms and conditions as are specified in the agreement or other documents evidencing the Award (the “Other Stock-Based Award Agreement”).
 
     (aa) “Participant” means the Awardee or any person (including any estate) to whom an Award has been assigned or transferred as permitted hereunder.
 
     (bb) “Plan” means this 2010 Long-Term Incentive Plan.
 
     (cc) “Qualifying Performance Criteria” shall have the meaning set forth in Section 14(b) of the Plan.
 
     (dd) “Retirement” means, unless the Administrator determines otherwise, voluntary Termination of Employment by a Participant from the Company and its Affiliates after attaining age fifty-five (55) and having at least five (5) years of service with the Company and its Affiliates, excluding service with an Affiliate of the Company prior to the time that such Affiliate became an Affiliate of the Company.
 
     (ee) “Securities Act” means the United States Securities Act of 1933, as amended.
 
     (ff) “Share” means a Common Share, as adjusted in accordance with Section 16 of the Plan.
 
     (gg) “Stock Appreciation Right” means a right granted under Section 10 of the Plan on such terms and conditions as are specified in the agreement or other documents evidencing the Award (the “Stock Appreciation Right Agreement”).
 
     (hh) “Stock Award” means an award or issuance of Shares or Stock Units made under Section 11 of the Plan, the grant, issuance, retention, vesting and/or transferability of which is subject during specified periods of time to such conditions (including, without limitation, continued employment or performance conditions) and terms as are expressed in the agreement or other documents evidencing the Award (the “Stock Award Agreement”).
 
     (ii) “Stock Unit” means a bookkeeping entry representing an amount equivalent to the Fair Market Value of one Share, payable in cash, property or Shares. Stock Units represent an unfunded and unsecured obligation of the Company, except as otherwise provided for by the Administrator.
 
     (jj) “Subsidiary” means any company (other than the Company) in an unbroken chain of companies beginning with the Company, provided each company in the unbroken chain (other than the Company) owns, at the time of determination, stock possessing more than 50% of the total combined voting power of all classes of stock in one of the other companies in such chain.
 
     (kk) “Termination for Cause” means, unless otherwise provided in an Award Agreement, Termination of Employment on account of any act of fraud or intentional misrepresentation or embezzlement, misappropriation or conversion of assets of the Company or any Affiliate, or the intentional and repeated violation of the written policies or procedures of the Company, provided that, for an Employee who is party to an individual severance or employment agreement defining Cause, “Cause” shall have the meaning set forth in such agreement except as may be otherwise provided in such agreement. For purposes of this Plan, a Participant’s Termi nation of Employment shall be deemed to be a Termination for Cause if, after the Participant’s employment has terminated, facts and circumstances are discovered that would have justified, in the opinion of the Committee, a Termination for Cause.
 
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     (ll) “Termination of Employment” means for purposes of this Plan, unless otherwise determined by the Administrator, ceasing to be an Employee (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company or one of its Subsidiaries. In addition, Termination of Employment shall mean a “separation from service” as defined in regulations issued under Code Section 409A whenever necessary to ensure compliance therewith for any payment or settlement of a benefit conferred under this Plan that is subject to such Code section, and, for such purposes, shall be determined based upon a reduction in the bona fide level of services performed to a level equal to twenty percent (20%) or less of the average level of services performed by the Employee during the immediately preceding 36-month period.
 
     3. Stock Subject to the Plan.
 
     (a) Aggregate Limit. Subject to the provisions of Section 16(a) of the Plan, the maximum aggregate number of Shares which may be subject to or delivered under Awards granted under the Plan is 4.9 million Shares, including Shares previously issued under the Plan and including an increase of 3.7 million Shares effective as of January 20, 2011. Shares subject to or delivered under Conversion Awards shall not reduce the aggregate number of Shares which may be subject to or delivered under Awards granted under this Plan. The Shares issued under the Plan may be either Shares reacquired by the Company, including Shares purchased in the open market, or authorized but unissued Shares.
 
     (b) Code Section 162(m) and 422 Limits; Other Share Limitations. Subject to the provisions of Section 16(a) of the Plan, the aggregate number of Shares subject to Awards granted under this Plan during any fiscal year to any one Awardee shall not exceed 500,000. Subject to the provisions of Section 16(a) of the Plan, the aggregate number of Shares that may be subject to all Incentive Stock Options granted under the Plan is 500,000 Shares. Notwithstanding anything to the contrary in the Plan, the limitations set forth in this Section 3(b) shall be subject to adjustment under Section 16(a) of the Plan only to the extent that such adjustment will not affect the status of any Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code.
 
     (c) Share Counting Rules.
 
     (i) For purposes of this Section 3 of the Plan, Shares subject to Awards that have been canceled, expired, settled in cash, or not issued or forfeited for any reason shall not reduce the aggregate number of Shares which may be subject to or delivered under Awards granted under this Plan and shall be available for future Awards granted under this Plan. In addition, Shares subject to Awards that have been canceled, expired, settled in cash, or not issued or forfeited for any reason shall not reduce any other limitation on Shares to which such Shares were subject at the time of the Award, and shall be available for future Awards of the type subject to such limitations.
 
     (ii) The following Shares shall not become available for Awards under this Plan: (A) Shares issued upon exercise of an Option, but only to the extent of the net Shares issued upon exercise, not including Shares that have been retained by the Company in payment or satisfaction of the purchase price of an Award or the tax withholding obligation of an Awardee; or (B) Shares reserved for issuance upon a grant of Stock Appreciation Rights which are exercised and settled in Shares, but only to the extent the number of reserved Shares does not exceed the number of Shares actually issued upon the exercise of the Stock Appreciation Right.
 
     4. Administration of the Plan.
 
     (a) Procedure.
 
     (i) Multiple Administrative Bodies. The Plan shall be administered by the Board, a Committee designated by the Board to so administer this Plan and/or their respective delegates.
 
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     (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Code Section 162(m), Awards to “covered employees” (within the meaning of Code Section 162(m)) or to Employees that the Committee determines may be “covered employees” in the future shall be made by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code. References herein to the Administrator in connection with Awards intended to qualify as “performance-based compensation” shall mean a Committee meeting the “outside director” requirements of Code Section 162(m). Notwithstanding any other provision of the Plan, the Administrator shall not have any discretion or authority to make changes to any Award that is intended to qualify as “performance-based compensation” to the extent that the existence of such discretion or authority would cause such Award not to so qualify.
 
     (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3 promulgated under the Exchange Act (“Rule 16b-3”), Awards to Officers and Directors shall be made by the entire Board or a Committee of two or more “non-employee directors” within the meaning of Rule 16b-3.
 
     (iv) Other Administration. Except to the extent prohibited by Applicable Law, the Board or a Committee may delegate to a Committee of one or more Directors or to authorized officers of the Company the power to approve Awards to persons eligible to receive Awards under the Plan who are not (A) subject to Section 16 of the Exchange Act or (B) at the time of such approval, “covered employees” under Section 162(m) of the Code.
 
     (v) Awards to Directors. The Board shall have the power and authority to grant Awards to Directors who do not serve as employees of the Company (“Non-employee Directors”), including the authority to determine the number and type of Awards to be granted; determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award; and to take any other actions the Board considers appropriate in connection with the administration of the Plan.
 
     (vi) Delegation of Authority for the Day-to-Day Administration of the Plan. Except to the extent prohibited by Applicable Law, the Administrator may delegate to one or more individuals the day-today administration of the Plan and any of the functions assigned to it in this Plan. Such delegation may be revoked at any time.
 
     (b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee or delegates acting as the Administrator, subject to the specific duties delegated to such Committee or delegates, the Administrator shall have the authority, in its discretion:
 
     (i) to select the Non-employee Directors and Employees of the Company or its Affiliates to whom Awards are to be granted hereunder;
 
     (ii) to determine Cash Award targets and the number of Common Shares to be covered by each Award granted hereunder;
 
     (iii) to determine the type of Award to be granted to the selected Employees and Non-employee Directors;
 
     (iv) to approve forms of Award Agreements;
 
     (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise and/or purchase price, the time or times when an Award may be exercised (which may or may not be based on performance criteria), the vesting schedule, any vesting and/or exercisability provisions, terms regarding acceleration of Awards or waiver of forfeiture restrictions, the acceptable forms of consideration for payment for an Award, the term, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine and may be established at the time an Award is granted or thereafter;
 
     (vi) to correct administrative errors;
 
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     (vii) to construe and interpret the terms of the Plan (including sub-plans and Plan addenda) and Awards granted pursuant to the Plan;
 
     (viii) to adopt rules and procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Administrator is specifically authorized (A) to adopt rules and procedures regarding the conversion of local currency, the shift of tax liability from employer to employee (where legally permitted) and withholding procedures and handling of stock certificates which vary with local requirements, and (B) to adopt sub-plans and Plan addenda as the Administrator deems desirable, to accommodate foreign laws, regulations and practice;
 
     (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans and Plan addenda;
 
     (x) to modify or amend each Award, including, but not limited to, the acceleration of vesting and/or exercisability, provided, however, that any such modification or amendment (A) is subject to the minimum vesting provisions set forth in Sections 8(e), 11(a) and 12(a) of the Plan and the plan amendment provisions set forth in Section 17 of the Plan, and (B) may not impair any outstanding Award unless agreed to in writing by the Participant, except that such agreement shall not be required if the Administrator determines in its sole discretion that such modification or amendment either (Y) is required or advisable in order for the Company, the Plan or the Award to satisfy any Applicable Law or to meet the requirements of any accounting standard, or (Z) is not reasonably likely to significantly diminish the benefits provided under such Award, or that adequate compensation has been provid ed for any such diminishment, except following a Change of Control;
 
     (xi) to allow or require Participants to satisfy withholding tax amounts by electing to have the Company withhold from the Shares to be issued upon exercise of a Nonqualified Stock Option or vesting of a Stock Award that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined in such manner and on such date that the Administrator shall determine or, in the absence of provision otherwise, on the date that the amount of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may provide;
 
     (xii) to authorize conversion or substitution under the Plan of any or all stock options, stock appreciation rights or other stock awards held by awardees of an entity acquired by the Company (the “Conversion Awards”). Any conversion or substitution shall be effective as of the close of the merger or acquisition. The Conversion Awards may be Nonqualified Stock Options or Incentive Stock Options, as determined by the Administrator, with respect to options granted by the acquired entity;
 
     (xiii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
 
     (xiv) to impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resale by a Participant or of other subsequent transfers by the Participant of any Shares issued as a result of or under an Award or upon the exercise of an Award, including without limitation, (A) restrictions under an insider trading policy, (B) restrictions as to the use of a specified brokerage firm for such resale or other transfers, and (C) institution of “blackout” periods on exercises of Awards;
 
     (xv) to provide, either at the time an Award is granted or by subsequent action, that an Award shall contain as a term thereof, a right, either in tandem with the other rights under the Award or as an alternative thereto, of the Participant to receive, without payment to the Company, a number of Shares, cash or a combination thereof, the amount of which is determined by reference to the value of the Award; and
 
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     (xvi) to make all other determinations deemed necessary or advisable for administering the Plan and any Award granted hereunder.
 
     (c) Effect of Administrator’s Decision. All questions arising under the Plan or under any Award shall be decided by the Administrator in its total and absolute discretion. All decisions, determinations and interpretations by the Administrator regarding the Plan, any rules and regulations under the Plan and the terms and conditions of any Award granted hereunder, shall be final and binding on all Participants. The Administrator shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations, including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consulta nts and accountants as it may select.
 
     5. Eligibility.
 
     Awards may be granted only to Directors and Employees of the Company or any of its Affiliates.
 
     6. Term of Plan.
 
     The Plan became effective upon its approval by shareholders of the Company on January 28, 2010. It shall continue in effect for a term of ten (10) years from that date unless terminated earlier under Section 17 of the Plan.
 
     7. Term of Award.
 
     Subject to the provisions of the Plan, the term of each Award shall be determined by the Administrator and stated in the Award Agreement, and may extend beyond the termination of the Plan. In the case of an Option or a Stock Appreciation Right, the term shall be ten (10) years from the Grant Date or such shorter term as may be provided in the Award Agreement.
 
     8. Options.
 
     The Administrator may grant an Option or provide for the grant of an Option, either from time to time in the discretion of the Administrator or automatically upon the occurrence of specified events, including, without limitation, the achievement of performance goals or the satisfaction of an event or condition within the control of the Awardee or within the control of others.
 
     (a) Option Agreement. Each Option Agreement shall contain provisions regarding (i) the number of Shares that may be issued upon exercise of the Option, (ii) the type of Option, (iii) the exercise price of the Option and the means of payment of such exercise price, (iv) the term of the Option, (v) such terms and conditions regarding the vesting and/or exercisability of an Option as may be determined from time to time by the Administrator, (vi) restrictions on the transfer of the Option and forfeiture provisions, and (vii) such further terms and conditions, in each case not inconsistent with this Plan, as may be determined from time to time by the Administrator.
 
     (b) Exercise Price. The per share exercise price for the Shares to be issued upon exercise of an Option shall be determined by the Administrator, except that the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date.
 
     (c) No Option Repricings. Subject to Section 16(a) of the Plan, the exercise price of an Option may not be reduced without shareholder approval, nor may outstanding Options be cancelled in exchange for cash, other Awards or Options with an exercise price that is less than the exercise price of the original Option without shareholder approval.
 
     (d) No Reload Grants. Options shall not be granted under the Plan in consideration for and shall not be conditioned upon the delivery of Shares to the Company in payment of the exercise price and/or tax withholding obligation under any other employee stock option.
 
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     (e) Vesting Period and Exercise Dates. Options granted under this Plan shall vest and/or be exercisable at such time and in such installments during the period prior to the expiration of the Option’s term as determined by the Administrator, except that no Option granted to an Employee shall first become exercisable within one (1) year from its Grant Date, other than (i) upon a Change of Control as specified in Section 16(b) of the Plan, or (ii) upon the death or Disability of the Awardee, in each case as specified in the Option Agreement. The Administrator shall have the right to make the timing of the ability to exercise any Option granted under this Plan subject to continued active employment, the passage of time and/or such performance requirements as deemed appropriate by the Administrator. At any time after the grant of an Option, the Administrator may reduce or eliminate any restrictions surrounding any Participant’s right to exercise all or part of the Option, subject to the restrictions set forth above.
 
     (f) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment, either through the terms of the Option Agreement or at the time of exercise of an Option. Acceptable forms of consideration may include:
 
     (i) cash;
 
     (ii) check or wire transfer (denominated in U.S. Dollars);
 
     (iii) subject to any conditions or limitations established by the Administrator, other Shares which (A) in the case of Shares acquired from the Company (whether upon the exercise of an Option or otherwise), have been owned by the Participant for more than six (6) months on the date of surrender (unless this condition is waived by the Administrator), and (B) have a Fair Market Value on the date of surrender equal to or greater than the aggregate exercise price of the Shares as to which said Option shall be exercised (it being agreed that the excess of the Fair Market Value over the aggregate exercise price shall be refunded to the Awardee in cash);
 
     (iv) subject to any conditions or limitations established by the Administrator, the Company withholding shares otherwise issuable upon exercise of an Option;
 
     (v) consideration received by the Company under a broker-assisted sale and remittance program acceptable to the Administrator and in compliance with Applicable Law;
 
     (vi) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Law; or
 
     (vii) any combination of the foregoing methods of payment.
 
     (g) Procedure for Exercise; Rights as a Shareholder.
 
     (i) Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the applicable Option Agreement.
 
     (ii) An Option shall be deemed exercised when (A) the Company receives (1) written or electronic notice of exercise (in accordance with the Option Agreement or procedures established by the Administrator) from the person entitled to exercise the Option and (2) full payment for the Shares with respect to which the related Option is exercised, and (B) with respect to Nonqualified Stock Options, provisions acceptable to the Administrator have been made for payment of all applicable withholding taxes.
 
     (iii) Unless provided otherwise by the Administrator or pursuant to this Plan, until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or any other rights as a shareholder shall exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option.
 
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     (iv) The Company shall issue (or cause to be issued) such Shares as soon as administratively practicable after the Option is exercised. An Option may not be exercised for a fraction of a Share.
 
     (h) Termination of Employment or Board Membership. The Administrator shall determine as of the Grant Date (subject to modification subsequent to the Grant Date) the effect a termination from membership on the Board by a Director for any reason or a Termination of Employment due to (i) Disability, (ii) Retirement, (iii) death, or (iv) otherwise (including Termination for Cause) shall have on any Option. Unless otherwise provided in the Award Agreement, (w) upon termination from membership on the Board by a Director, any Option held by such Director that (1) has not vested and is not exercisable as of the effective date of such termination from membership on the Board shall be subject to immediate cancellation and f orfeiture or (2) is vested and exercisable as of the effective date of such termination shall remain exercisable for five (5) years thereafter, or the remaining term of the Option, if less; (x) a Termination of Employment due to Disability or death or the termination of a Director due to death shall result in immediate vesting of any Option, which shall remain exercisable for three (3) years thereafter, or the remaining term of the Option, if less; (y) provided that Retirement occurs at least one (1) year after the Grant Date, an Option held by an Awardee at Retirement will remain outstanding for the lesser of five (5) years or the remaining term of the option and will continue to vest in accordance with the terms of the Option Agreement as though the Awardee were still employed; and (z) any other Termination of Employment shall result in immediate cancellation and forfeiture of all outstanding Options that have not vested as of the effective date of such Termination of Employment, and any vested and exercis able Options held at the time of such Termination of Employment shall remain exercisable for ninety (90) days thereafter, or the remaining term of the Option, if less, provided, however, that an involuntary Termination of Employment other than a Termination for Cause shall be deemed effective as of the end of any period during which severance is payable.
 
     9. Incentive Stock Option Limitations/Terms.
 
     (a) Eligibility. Only employees (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder) of the Company or any of its Subsidiaries may be granted Incentive Stock Options. No Incentive Stock Option shall be granted to any such employee who as of the Grant Date owns stock possessing more than 10% of the total combined voting power of the Company.
 
     (b) $100,000 Limitation. Notwithstanding the designation “Incentive Stock Option” in an Option Agreement, if and to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Awardee during any calendar year (under all plans of the Company and any of its Subsidiaries) exceeds U.S. $100,000, such Options shall be treated as Nonqualified Stock Options. For purposes of this Section 9(b) of the Plan, Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the Gr ant Date.
 
     (c) Transferability. The Option Agreement must provide that an Incentive Stock Option is not transferable by the Awardee otherwise than by will or the laws of descent and distribution, and, during the lifetime of such Awardee, must not be exercisable by any other person. If the terms of an Incentive Stock Option are amended to permit transferability, the Option will be treated for tax purposes as a Nonqualified Stock Option.
 
     (d) Exercise Price. The per Share exercise price of an Incentive Stock Option shall in no event be inconsistent with the requirements for qualification of the Incentive Stock Option under Section 422 of the Code.
 
     (e) Other Terms. Option Agreements evidencing Incentive Stock Options shall contain such other terms and conditions as may be necessary to qualify, to the extent determined desirable by the Administrator, with the applicable provisions of Section 422 of the Code.
 
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     10. Stock Appreciation Rights.
 
     A “Stock Appreciation Right” is a right that entitles the Awardee to receive, in cash or Shares (as determined by the Administrator), value equal to or otherwise based on the excess of (i) the Fair Market Value of a specified number of Shares at the time of exercise over (ii) the aggregate exercise price of the right, as established by the Administrator on the Grant Date. Stock Appreciation Rights may be granted to Awardees either alone (“freestanding”) or in addition to or in tandem with other Awards granted under the Plan and may, but need not, relate to a specific Option granted under Section 8 of the Plan. Any Stock Appreciation Right granted in tandem with an Option may be granted at the same time such Option is granted or at any time thereafter before exercise or expiration of such Option. All Stock Appreciation Rights under the Plan shall be granted subject to the same terms and conditions applicable to Options as set forth in Section 8 of the Plan. Subject to the provisions of Section 8 of the Plan, the Administrator may impose such other conditions or restrictions on any Stock Appreciation Right as it shall deem appropriate. Stock Appreciation Rights may be settled in Shares or cash as determined by the Administrator.
 
     11. Stock Awards.
 
     (a) Stock Award Agreement. Each Stock Award Agreement shall contain provisions regarding (i) the number of Shares subject to such Stock Award or a formula for determining such number, (ii) the purchase price of the Shares, if any, and the means of payment for the Shares, (iii) the performance criteria, if any, and level of achievement versus these criteria that shall determine the number of Shares granted, issued, retainable and/or vested, (iv) such terms and conditions on the grant, issuance, vesting and/or forfeiture of the Shares as may be determined from time to time by the Administrator, (v) restrictions on the transferability of the Stock Award, and (vi) such further terms and conditions, in each case not inconsistent with this Plan, as may be determined from time to time by the Administrator. No condition that is based upon performance criteria and level of achievement versus such criteria shall be based on performance over a period of less than one year, and no condition that is based upon continued employment or the passage of time shall provide for vesting in full of a Stock Award in less than three (3) years from the date the Stock Award is made, other than (i) with respect to such Stock Awards that are issued upon the exercise or settlement of Options or Stock Appreciation Rights, (ii) upon a Change of Control as specified in Section 16(b) of the Plan, (iii) upon the death, Disability or Retirement of the Awardee, in each case as specified in the Stock Award Agreement, or (iv) for up to 10% of the total Shares authorized to be issued under the Plan in the aggregate subject to Stock Awards or Other Stock-Based Awards which shall have no minimum ves ting period. The Administrator shall be prohibited from waiving the minimum vesting conditions set forth above except under the circumstances in clauses (i) through (iv) of the immediately preceding sentence.
 
     (b) Restrictions and Performance Criteria. The grant, issuance, retention and/or vesting of Stock Awards issued to Employees may be subject to such performance criteria and level of achievement versus these criteria as the Administrator shall determine, which criteria may be based on financial performance, personal performance evaluations and/or completion of service by the Awardee. Notwithstanding anything to the contrary herein, the performance criteria for any Stock Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code shall be established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing not later than ninety (90) days after the commencement of the period of service (or, if earlier, the elapse of 25% of such period) to which the performance goals relate or otherwise within the time period required by the Code or the applicable Treasury Regulations, provided that the outcome is substantially uncertain at that time.
 
     (c) Termination of Employment or Board Membership. The Administrator shall determine as of the Grant Date (subject to modification subsequent to the Grant Date) the effect a termination from membership on the Board by a Director for any reason or a Termination of Employment due to (i) Disability, (ii) Retirement, (iii) death, or (iv) otherwise (including Termination for Cause) shall have on any Stock Award. Unless otherwise provided in the Award Agreement, (w) a termination from membership on the Board by a Director due to Disability or death shall result in immediate vesting of a Stock Award; (x) a Termination of Employment due to Disability or death shal l result in vesting of a prorated portion of any Stock Award, effective as of the end of the applicable performance or vesting period or other period of restriction, based upon the full months of the applicable performance period, vesting period or other period of restriction elapsed as of the end of the month in which the Termination of Employment due to Disability or death occurs over the total number of months in such period; (y) provided that Retirement occurs at least one (1) year after the Grant Date, an Award held by an Awardee at Retirement will remain outstanding for the lesser of five (5) years or the remaining term of the Award and will continue to vest in accordance with the terms of the Award Agreement as though the Awardee were still employed, subject to the requirement that the amount of any Award shall not be determined before the end of the applicable performance or vesting period or other period of restriction; and (z) any other Terminatio n of Employment or termination from membership on the Board by a Director (including, but not limited to, Retirement before the one (1) year anniversary of the Grant Date) shall result in immediate cancellation and forfeiture of all outstanding, unvested Stock Awards, provided, however, that, with respect to an Employee, an involuntary Termination of Employment other than a Termination for Cause shall be deemed effective as of the end of any period during which severance is payable.
 
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     (d) Rights as a Shareholder. Unless otherwise provided for by the Administrator, the Participant shall have the rights equivalent to those of a shareholder and shall be a shareholder only after Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) to the Participant.
 
     12. Other Stock-Based Awards.
 
     (a) Other Stock-Based Awards. An “Other Stock-Based Award” means any other type of equity-based or equity-related Award not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted Shares) in such amount and subject to such terms and conditions as the Administrator shall determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares. Each Other Stock-Based Award will be evidenced by an Award Agreement containing such terms and conditions as may be determined by the Administrator. No condition that is based upon performance criteria and level of achievement versus such criteria shall be based on performance over a period of less than one year and no condition that is based upon continued employment or the passage of time shall provide for vesting in full of an Other Stock-Based Award in less than three (3) years from the date the Other Stock-Based Award is made, other than (i) with respect to such Other Stock-Based Awards that are issued upon the exercise or settlement of Options or Stock Appreciation Rights, (ii) upon a Change of Control as specified in Section 16(b) of the Plan, (iii) upon the death, Disability or Retirement of the Awardee, in each case as specified in the Other Stock-Based Award Agreement, or (iv) for up to 10% of the total Shares authorized to be issued under the Plan in the aggregate subject to Stock Awards or Other Stock-Based Awards which shall have no minimum vesting period. The Administrator shall be prohibited from waiving the minimum vesting conditions set forth above except under the cir cumstances in clauses (i) through (iv) of the immediately preceding sentence.
 
     (b) Value of Other Stock-Based Awards. Each Other Stock-Based Award shall be expressed in terms of Shares or units based on Shares, as determined by the Administrator. The Administrator may establish performance goals in its discretion. If the Administrator exercises its discretion to establish performance goals, the number and/or value of Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the performance goals are met. Notwithstanding anything to the contrary herein, the performance criteria for any Other Stock-Based Award that is intended to satisfy the requirements for “performance-based compensati on” under Section 162(m) of the Code shall be established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing not later than ninety (90) days after the commencement of the period of service (or, if earlier, the elapse of 25% of such period) to which the performance goals relate and otherwise within the time period required by the Code and the applicable Treasury Regulations, provided that the outcome is substantially uncertain at that time.
 
     (c) Payment of Other Stock-Based Awards. Payment, if any, with respect to Other Stock-Based Awards shall be made in accordance with the terms of the Award, in cash or Shares as the Administrator determines.
 
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     (d) Termination of Employment or Board Membership. The Administrator shall determine as of the Grant Date (subject to modification subsequent to the Grant Date) the effect a termination from membership on the Board by a Director for any reason or a Termination of Employment due to (i) Disability, (ii) Retirement, (iii) death, or (iv) otherwise (including Termination for Cause) shall have on any Other Stock-Based Award. Unless otherwise provided in the Award Agreement, (w) the termination from membership on the Board of a Director for any reason shall result in immediate vesting; (x) a Termination of Employment due to Disability or death shall result in vesting of a prorated portion of any Other Stock-Based Award, effective as of the end of the applicable performance or vesting period or other period of restriction, based upon the full months of the applicable performance period, vesting period or other period of restriction elapsed as of the end of the month in which the Termination of Employment due to Disability or death occurs over the total number of months in such period; (y) provided that Retirement occurs at least one (1) year after the Grant Date, an Award held by an Awardee at Retirement will remain outstanding for the lesser of five (5) years or the remaining term of the Award and will continue to vest in accordance with the terms of the Award Agreement as though the Awardee were still employed, subject to the requirement that the amount of any Award shall not be determined before the end of the applicable performance or vesting period or other period of restriction; and (z) any other Termination of Employment (including but not limited to Retirement before the one (1) year anniversary of the Grant Date) sh all result in immediate cancellation and forfeiture of all outstanding, unvested Other Stock-Based Awards, provided, however, that an involuntary Termination of Employment other than a Termination for Cause shall be deemed effective as of the end of any period during which severance is payable.
 
     13. Cash Awards.
 
     Each Cash Award will confer upon the Participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period.
 
     (a) Cash Award. Each Cash Award may contain provisions regarding (i) the amounts potentially payable to the Participant as a Cash Award, (ii) the performance criteria and level of achievement versus these criteria which shall determine the amount of such payment, (iii) the period as to which performance shall be measured for establishing the amount of any payment, (iv) the timing of any payment earned by virtue of performance, (v) restrictions on the alienation or transfer of the Cash Award prior to actual payment, (vi) forfeiture provisions, and (vii) such further terms and conditions, in each case not inconsistent with the Plan, as may be determined from time to time by the Administrator. The maximum amount payable as a Cash Award that is settled for cash may be a multiple of the target amount payable, but the maximum amount payable pursuant to portions of Cash Awards earned with respect to any fiscal year to any Awardee shall not exceed U.S. $10,000,000.
 
     (b) Performance Criteria. The Administrator shall establish the performance criteria and level of achievement versus these criteria which shall determine the amounts payable under a Cash Award, which criteria may be based on financial performance and/or personal performance evaluations. The Administrator may specify the percentage of the target Cash Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code. Notwithstanding anything to the contrary herein, the performance criteria for any portion of a Cash Award that is intended to satisfy the requirements for “performance-base d compensation” under Section 162(m) of the Code shall be a measure established by the Administrator based on one or more Qualifying Performance Criteria selected by the Administrator and specified in writing not later than ninety (90) days after the commencement of the period of service (or, if earlier, the elapse of 25% of such period) to which the performance goals relate and otherwise within the time period required by the Code and the applicable Treasury Regulations, provided that the outcome is substantially uncertain at that time.
 
     (c) Timing and Form of Payment. The Administrator shall determine the time of payment of any Cash Award. The Administrator may provide for or, subject to such terms and conditions as the Administrator may specify, may permit an Awardee to elect for the payment of any Cash Award to be deferred to a specified date or event. The Administrator may specify the form of payment of Cash Awards, which may be cash or other property, including Shares, or may provide for an Awardee to have the option for his or her Cash Award, or such portion thereof as the Administrator may specify, to be paid in whole or in part in cash or other property, including Shares. To the extent that a Cash Award is in the form of cash, the Administrator may determine whether a payment is in U.S. dollars or foreign currency.
 
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     (d) Termination of Employment or Board Membership. The Administrator shall determine as of the Grant Date (subject to modification subsequent to the Grant Date) the effect a termination from membership on the Board by a Director for any reason or a Termination of Employment due to (i) Disability, (ii) Retirement, (iii) death, or (iv) otherwise (including Termination for Cause) shall have on any Cash Award. Unless otherwise provided in the Award Agreement, (w) termination from membership on the Board by a Director due to Disability or death shall result in immediate vesting of any Cash Award; (x) a Termination of Employment due to Disability or death shall result in vesting of a prorated portion of any Cash Award, effective as of the end of the applicable performance period, based upon the full months of the applicable performance period elapsed as of the end of the month in which the Termination of Employment due to Disability or death occurs over the total number of months in such period; (y) provided that Retirement occurs at least one (1) year after the first day of the performance period, an Award held by an Awardee at Retirement will remain outstanding for the lesser of five (5) years or the remaining term of the Award and will continue to vest in accordance with the terms of the Award Agreement as though the Awardee were still employed, subject to the requirement that the amount of any Award shall not be determined before the end of the applicable performance period; and (z) any other Termination of Employment or termination from Board membership (including but not limited to Retirement before the one (1) year anniversary of the first day of the performance period) shall result in immediate cancellation and for feiture of all outstanding, unvested Cash Awards, provided, however, that an Awardee who incurs an involuntary Termination of Employment other than a Termination for Cause at least one year after the beginning of an applicable performance cycle for a performance based Award shall receive a partial Award, subject to the requirement that the amount of such performance-based Award shall not be determined before the end of the applicable performance period, and shall be prorated based upon the full months of the applicable performance period elapsed as of the end of the month in which the Termination of Employment occurs over the total number of months in the performance period.
 
     14. Other Provisions Applicable to Awards.
 
     (a) Non-Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by beneficiary designation, will or by the laws of descent or distribution. The Administrator may make an Award transferable to an Awardee’s family member or any other person or entity. If the Administrator makes an Award transferable, either as of the Grant Date or thereafter, such Award shall contain such additional terms and conditions as the Administrator deems appropriate, and any transferee shall be deemed to be bound by such terms upon acceptance of s uch transfer.
 
     (b) Qualifying Performance Criteria. For purposes of this Plan, the term “Qualifying Performance Criteria” shall mean any one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit, Affiliate or business segment, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee in the Award: (i) sales or cash return on sales; (ii) cash flow or free cash flow or net cash from operating activity; (iii) earnings (including gross margin, earnings before or after interest and taxes, earnings before taxes, and net earnings); (iv) basic or diluted earnings per share; (v) growth in earnings or earnings per share; (vi) stock price; (vii) return on equity or average shareholders’ equity; (viii) total shareholder return; (ix) return on capital; (x) return on assets or net assets; (xi) return on investments; (xii) revenue or gross profits; (xiii) income before or after interest, taxes, depreciation and amortization, or net income; (xiv) pretax income before allocation of corporate overhead and bonus; (xv) operating income or net operating income; (xvi) operating profit or net operating profit (whether before or after taxes); (xvii) operating margin; (xviii) return on operating revenue; (xix) working capital or net working capital; (xx) market share; (xxi) asset velocity index; (xxii) contract awards or backlog; (xxiii) overhead or other expense or cost reduction; (xxiv) growth in shareholder value relative to the moving average of the S&P 500 Index or a peer group index; (xxv) credit rating; (xxvi) strategic plan development and implementation; (xxvii) improvement in workforce diversity; (xxviii) customer satisfaction; (xxix) employee satisfaction; (xxx) management succession plan development and implementation; and (xxxi) employee retention. With respect to any Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code, the performance criteria must be Qualifying Performance Criteria, and the Administrator will (within the first quarter of the performance period, but in no event more than ninety (90) days into that period) establish the specific performance targets (including thresholds and whether to exclude certain extraordinary, non-recurring, or similar items) and award amounts (su bject to the right of the Administrator to exercise discretion to reduce payment amounts following the conclusion of the performance period).
 
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     (c) Certification. Prior to the payment of any compensation under an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code, the Administrator shall certify in writing the extent to which any Qualifying Performance Criteria and any other material terms under such Award have been satisfied (other than in cases where such criteria relate solely to the increase in the value of the Common Shares).
 
     (d) Discretionary Adjustments Pursuant to Section 162(m). Notwithstanding satisfaction or completion of any Qualifying Performance Criteria, to the extent specified as of the Grant Date, the number of Shares, Options or other benefits granted, issued, retainable and/or vested under an Award on account of satisfaction of such Qualifying Performance Criteria may be reduced by the Administrator on the basis of such further considerations as the Administrator in its sole discretion shall determine.
 
     (e) Other Forfeiture Events. The Administrator may, in its discretion, also require repayment to the Company of all or any portion of an Award if the amount of the Award was calculated based upon the achievement of certain financial results that were subsequently the subject of a restatement of the Company’s financial statements within a period of one year after the payment or settlement of the Award, the Participant engaged in misconduct or other culpable conduct (as determined by the Committee in its sole discretion) that caused or contributed to the need for the restatement of the financial statements, and the amount of the Award would have been l ower than the amount actually awarded to the Participant had the financial results been properly reported. This provision shall not be the Company’s exclusive remedy with respect to such matters.
 
     15. Dividends and Dividend Equivalents.
 
     Awards (other than Options and Stock Appreciation Rights and performance-based awards) may provide the Awardee with the right to receive dividend payments or dividend equivalent payments on the Shares subject to the Award, whether or not such Award is vested. Such payments may be made in cash, Shares or Stock Units or may be credited as cash or Stock Units to an Awardee’s account and later settled in cash or Shares or a combination thereof, as determined by the Administrator. Such payments and credits may be subject to such conditions and contingencies as the Administrator may establish.
 
     16. Adjustments upon Changes in Capitalization, Organic Change or Change of Control.
 
     (a) Adjustment Clause. In the event of (i) a stock dividend, stock split, reverse stock split, share combination, or recapitalization or similar event affecting the capital structure of the Company (each, a “Share Change”), or (ii) a merger, consolidation, acquisition of property or shares, separation, spin-off, reorganization, stock rights offering, liquidation, Disaffiliation, or similar event affecting the Company or any of its Subsidiaries (each, an “Organic Change”), the Administrator or the Board shall make such substitutions or adjustments to outstanding Awards as it deems appropriate and equitable. In its discretion, such ad justments may include, without limitation, such proportionate adjustments that it deems appropriate to reflect such change with respect to (i) the Share limitations set forth in Sections 3, 11(a) and 12(a) of the Plan, (ii) the number and kind of Shares covered by each outstanding Award, and (iii) the price per Share subject to each such outstanding Award. In the case of Organic Changes, such adjustments may include, without limitation, (x) the cancellation of outstanding Awards in exchange for payments of cash, property or a combination thereof having an aggregate value equal to the value of such Awards, as determined by the Administrator or the Board in its sole discretion (it being understood that in the case of an Organic Change with respect to which shareholders receive consideration other than publicly traded equity securities of the ultimate surviving entity, any such determination by the Administrator that the value of an Option or Stock Appreciatio n Right shall for this purpose be deemed to equal the excess, if any, of the value of the consideration being paid for each Share pursuant to such Organic Change over the exercise price of such Option or Stock Appreciation Right shall conclusively be deemed valid); (y) the substitution of other property (including, without limitation, cash or other securities of the Company and securities of entities other than the Company) for the Shares subject to outstanding Awards; and (z) in connection with any Disaffiliation, arranging for the assumption of Awards, or replacement of Awards with new awards based on other property or other securities (including, without limitation, other securities of the Company and securities of entities other than the Company), by the affected Subsidiary, Affiliate, or division or by the entity that controls such Subsidiary, Affiliate, or division following such Disaffiliation (as well as any corresponding adjustments to Awards that remain based upon Company securities).
 
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     (b) Change of Control. In the event of a Change of Control, unless otherwise determined by the Administrator as of the Grant Date of a particular Award (or subsequent to the Grant Date), the following acceleration, exercisability and valuation provisions shall apply:
 
     (i) On the date that such Change of Control occurs, any or all Options and Stock Appreciation Rights awarded under this Plan not previously exercisable and vested shall become fully exercisable and vested.
 
     (ii) Except as may be provided in an individual severance or employment agreement (or severance plan) to which an Awardee is a party, in the event of an Awardee’s Termination of Employment within two (2) years after a Change of Control for any reason other than because of the Awardee’s death, Retirement, Disability or Termination for Cause, each Option and Stock Appreciation Right held by the Awardee (or a transferee) that is vested following such Termination of Employment shall remain exercisable until the earlier of the third (3rd) anniversary of such Termination of Employment (or any later date until which it would remain exercisable under such circumstances by its terms) or the expiration of its original term. In the event of an Awardee’s Termin ation of Employment more than two (2) years after a Change of Control, or within two (2) years after a Change of Control because of the Awardee’s death, Retirement, Disability or Termination for Cause, the provisions of Sections 8(h) and 10 of the Plan shall govern (as applicable).
 
     (iii) On the date that such Change of Control occurs, the restrictions and conditions applicable to any or all Stock Awards, Other Stock-Based Awards and Cash Awards shall lapse and such Awards shall be fully vested. Unless otherwise provided in an Award at the Grant Date, upon the occurrence of a Change of Control, any performance based Award shall be deemed fully earned at the target amount as of the date on which the Change of Control occurs. All Stock Awards, Other Stock-Based Awards and Cash Awards shall be settled or paid within thirty (30) days of vesting hereunder. Notwithstanding the foregoing, if the Change of Control would not qualify as a permissible date of distribution under Section 409A(a)(2)(A) of the Code, and the regulations thereunder, the Awardee shall be entitled to receive the Award from the Company on the date that would have applied absent this provision, with interest in the case of Cash Awards from the vesting date to the payment date at the applicable federal mid-term rate under Section 7872 of the Code in effect for the month in which the Change of Control occurred.
 
     (c) Section 409A. Notwithstanding the foregoing: (i) any adjustments made pursuant to Section 16(a) of the Plan to Awards that are considered “deferred compensation” within the meaning of Section 409A of the Code shall be made in compliance with the requirements of Section 409A of the Code; (ii) any adjustments made pursuant to Section 16(a) of the Plan to Awards that are not considered “deferred compensation” subject to Section 409A of the Code shall be made in such a manner as to ensure that after such adjustment, the Awards either continue not to be subject to Section 409A of the Code or comply with the requirements of Section 40 9A of the Code; (iii) the Administrator shall not have the authority to make any adjustments pursuant to Section 16(a) of the Plan to the extent that the existence of such authority would cause an Award that is not intended to be subject to Section 409A of the Code to be subject thereto; and (iv) if any Award is subject to Section 409A of the Code, Section 16(b) of the Plan shall be applicable only to the extent specifically provided in the Award Agreement and permitted pursuant to Section 25 of the Plan in order to ensure that such Award complies with Code Section 409A.
 
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     17. Amendment and Termination of the Plan.
 
     (a) Amendment and Termination. The Administrator may amend, alter or discontinue the Plan or any Award Agreement, but any such amendment shall be subject to approval of the shareholders of the Company in the manner and to the extent required by Applicable Law. In addition, without limiting the foregoing, unless approved by the shareholders of the Company and subject to Section 16(a), no such amendment shall be made that would:
 
     (i) increase the maximum aggregate number of Shares which may be subject to Awards granted under the Plan;
 
     (ii) reduce the minimum exercise price for Options or Stock Appreciation Rights granted under the Plan;
 
     (iii) reduce the exercise price of outstanding Options or Stock Appreciation Rights; or
 
     (iv) result in outstanding Options or Stock Appreciations Rights being cancelled in exchange for cash, other Awards, or Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Options or Stock Appreciation Rights.
 
     (b) Effect of Amendment or Termination. No amendment, suspension or termination of the Plan shall impair the rights of any Participant with respect to an outstanding Award, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company, except that no such agreement shall be required if the Administrator determines in its sole discretion that such amendment either (i) is required or advisable in order for the Company, the Plan or the Award to satisfy any Applicable Law or to meet the requirements of any accounting standard, or (ii) is not reasonably likely to significantly diminish the benefits provided under such Award, or that any such diminishment has been adequately compensated, except following a Change of Control. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
 
     (c) Effect of the Plan on Other Arrangements. Neither the adoption of the Plan by the Board or a Committee nor the submission of the Plan to the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board or any Committee to adopt such other incentive arrangements as it or they may deem desirable, including without limitation, the granting of restricted shares or restricted share units or stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
 
     18. Designation of Beneficiary.
 
     (a) An Awardee may file a written designation of a beneficiary who is to receive the Awardee’s rights pursuant to Awardee’s Award or the Awardee may include his or her Awards in an omnibus beneficiary designation for all benefits under the Plan. To the extent that Awardee has completed a designation of beneficiary while employed with the Company, such beneficiary designation shall remain in effect with respect to any Award hereunder until changed by the Awardee to the extent enforceable under Applicable Law.
 
     (b) Such designation of beneficiary may be changed by the Awardee at any time by written notice. In the event of the death of an Awardee and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Awardee’s death, the Company shall allow the legal representative of the Awardee’s estate to exercise the Award.
 
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     19. No Right to Awards or to Employment.
 
     No person shall have any claim or right to be granted an Award and the grant of any Award shall not be construed as giving an Awardee the right to continue in the employ of the Company or its Affiliates. Further, the Company and its Affiliates expressly reserve the right, at any time, to dismiss any Employee or Awardee at any time without liability or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder.
 
     20. Legal Compliance.
 
     Shares shall not be issued pursuant to an Option, Stock Appreciation Right, Stock Award or Other Stock-Based Award unless such Option, Stock Appreciation Right, Stock Award or Other Stock-Based Award and the issuance and delivery of such Shares shall comply with Applicable Law and shall be further subject to the approval of counsel for the Company with respect to such compliance. Unless the Awards and Shares covered by this Plan have been registered under the Securities Act or the Company has determined that such registration is unnecessary, each person receiving an Award and/or Shares pursuant to any Award may be required by the Company to give a representation in writing that such person is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof.
 
     21. Inability to Obtain Authority.
 
     To the extent the Company is unable to or the Administrator deems it unfeasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be advisable or necessary to the lawful issuance and sale of any Shares hereunder, the Company shall be relieved of any liability with respect to the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
 
     22. Reservation of Shares.
 
     The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
 
     23. Notice.
 
     Any written notice to the Company required by any provisions of this Plan shall be addressed to the Secretary of the Company and shall be effective when received.
 
     24. Governing Law; Interpretation of Plan and Awards.
 
     (a) This Plan and all determinations made and actions taken pursuant hereto shall be governed by the substantive laws, but not the choice of law rules, of the state of Indiana, except as to matters governed by U.S. federal law.
 
     (b) In the event that any provision of the Plan or any Award granted under the Plan is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of the terms of the Plan and/or Award shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.
 
     (c) The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not constitute a part of the Plan, nor shall they affect its meaning, construction or effect.
 
     (d) The terms of the Plan and any Award shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors and assigns.
 
A-18
 
 

     25. Section 409A.
 
     It is the intention of the Company that no Award shall be “deferred compensation” subject to Section 409A of the Code, unless and to the extent that the Administrator specifically determines otherwise, and the Plan and the terms and conditions of all Awards shall be interpreted accordingly. The terms and conditions governing any Awards that the Administrator determines will be subject to Section 409A of the Code, including any rules for elective or mandatory deferral of the delivery of cash or Shares pursuant thereto and any rules regarding treatment of such Awards in the event of a Change of Control, shall be set forth in the applicable Award Agreement, deferral election forms and procedures, and rules established by the Administrator, and shall comply in all respects with Section 409A of the Code. The following rules will apply to Awards in tended to be subject to Section 409A of the Code (“409A Awards”):
 
     (a) If a Participant is permitted to elect to defer an Award or any payment under an Award, such election will be permitted only at times in compliance with Code Section 409A, including applicable transition rules thereunder.
 
     (b) The Company shall have no authority to accelerate distributions relating to 409A Awards in excess of the authority permitted under Section 409A.
 
     (c) Any distribution of a 409A Award following a Termination of Employment that would be subject to Code Section 409A(a)(2)(A)(i) as a distribution following a separation from service of a “specified employee” as defined under Code Section 409A(a)(2)(B)(i), shall occur no earlier than the expiration of the six-month period following such Termination of Employment.
 
     (d) In the case of any distribution of a 409A Award, if the timing of such distribution is not otherwise specified in the Plan or an Award Agreement or other governing document, the distribution shall be made not later than the end of the calendar year during which the settlement of the 409A Award is specified to occur.
 
     (e) In the case of an Award providing for distribution or settlement upon vesting or the lapse of a risk of forfeiture, if the time of such distribution or settlement is not otherwise specified in the Plan or an Award Agreement or other governing document, the distribution or settlement shall be made not later than March 15 of the year following the year in which the Award vested or the risk of forfeiture lapsed.
 
     26. Limitation on Liability.
 
     The Company and any Affiliate which is in existence or hereafter comes into existence shall not be liable to a Participant, an Employee, an Awardee or any other persons as to:
 
     (a) The Non-Issuance of Shares. The non-issuance or sale of Shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder; and
 
     (b) Tax or Exchange Control Consequences. Any tax consequence expected, but not realized, or any exchange control obligation owed, by any Participant, Employee, Awardee or other person due to the receipt, exercise or settlement of any Option or other Award granted hereunder.
 
     27. Unfunded Plan.
 
     Insofar as it provides for Awards, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Awardees who are granted Stock Awards or Other Stock-Based Awards under this Plan, any such accounts will be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets which may at any time be represented by Awards, nor shall this Plan be construed as providing for such segregation. Neither the Company nor the Administrator shall be deemed to be a trustee of stock or cash to be awarded under the Plan. Any liability of the Company to any Participant with respect to an Award shall be based solely upon any contractual obligations which may be created by the Plan; no such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Administrator shall be required to give any security or bond for the performance of any obligation which may be created by this Plan.
 
A-19
 
 

     28. Foreign Employees.
 
     Awards may be granted hereunder to Employees who are foreign nationals, who are located outside the United States or who are not compensated from a payroll maintained in the United States, or who are otherwise subject to (or could cause the Company to be subject to) legal or regulatory provisions of countries or jurisdictions outside the United States, on such terms and conditions different from those specified in the Plan as may, in the judgment of the Administrator, be necessary or desirable to foster and promote achievement of the purposes of the Plan, and, in furtherance of such purposes, the Administrator may make such modifications, amendments, procedures, or subplans as may be necessary or advisable to comply with such legal or regulatory provisions.
 
     29. Tax Withholding.
 
     Each Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to any Award under the Plan no later than the date as of which any amount under such Award first becomes includible in the gross income of the Participant for any tax purposes with respect to which the Company has a tax withholding obligation. Unless otherwise determined by the Company, withholding obligations may be settled with Shares, including Shares that are part of the Award that gives rise to the withholding requirement; provided, however, that not more than the legally required minimum withholding may be settled with Shares. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Co mpany and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any vested Shares or any other payment due to the Participant at that time or at any future time. The Administrator may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Shares.
 
A-20
 
 EX-12 3 exhibit12.htm COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES exhibit12.htm
Exhibit 12
 
ArvinMeritor, Inc.
Computation of Ratio of Earnings to Fixed Charges
Three Months Ended December 31, 2010
 
Earnings Available for Fixed Charges (A):            
         
Pre-tax income from continuing operations   $ 15  
         
Less:        
Equity in earnings of affiliates, net of dividends     (9 )
      6  
Add: fixed charges included in earnings:        
Interest expense     27  
Interest element of rentals     1  
Total     28  
         
Total earnings available for fixed charges:   $ 34  
         
Fixed Charges (B):        
Fixed charges included in earnings   $ 28  
Capitalized interest     —  
Total fixed charges   $ 28  
         
Ratio of Earnings to Fixed Charges     1.21  

(A) “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.
 
(B) “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.
 
 EX-23 4 exhibit23.htm CONSENT OF EXPERT exhibit23.htm
Exhibit 23
 
CONSENT OF EXPERT
     We consent to the references to our firm and to our reports with respect to estimation of the liability for pending and reasonably estimable unasserted future asbestos-related claims, which are included in Note 18 of the Notes to Consolidated Financial Statements in the Quarterly Report on Form 10-Q of ArvinMeritor, Inc. (“ArvinMeritor”) for the fiscal quarter ended January 2, 2011 and to the incorporation by reference of such reference into the following Registration Statements of ArvinMeritor:
 
Form                      Registration No.                      Purpose  
S-8   333-171713       Amended 2010 Long-Term Incentive Plan
         
S-8   333-164333   2010 Long-Term Incentive Plan
         
S-3   333-163233   Registration of common stock, preferred stock, warrants and guarantees of debt securities
         
S-8   333-141186   2007 Long-Term Incentive Plan
         
S-3   333-143615   Registration of convertible notes, guarantees and common stock
         
S-3   333-134409   Registration of convertible notes, guarantees and common stock
         
S-8   333-107913   ArvinMeritor, Inc. Savings Plan
         
S-8   333-123103   ArvinMeritor, Inc. Hourly Employees Savings Plan
         
S-3   333-58760   Registration of debt securities
         
S-8   333-49610   1997 Long-Term Incentives Plan
         
S-3   333-43118   ArvinMeritor, Inc. 1988 Stock Benefit Plan
  
S-3   333-43116   ArvinMeritor, Inc. 1998 Stock Benefit Plan
  
S-3   333-43112   ArvinMeritor, Inc. Employee Stock Benefit Plan
         
S-8   333-42012   Employee Stock Benefit Plan, 1988 Stock Benefit Plan and 1998 Employee Stock Benefit Plan
         
        BATES WHITE LLC

  By:  /s/ Charles E. Bates  
  Charles E. Bates, Ph.D.
  President and CEO
Date: January 31, 2011  

EX-31.A 5 exhibit31-a.htm CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) exhibit31-a.htm
Exhibit 31-a
 
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(a) UNDER THE EXCHANGE ACT
 
     I, Charles G. McClure, Jr., certify that:
 
1.      I have reviewed this Quarterly Report on Form 10-Q of ArvinMeritor, Inc. for the quarterly period ended January 2, 2011;
       
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
       
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
       
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
           
         a.      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
           
      b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
           
      c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
           
      d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
      a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
      b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: February 3, 2011
 
  /s/ Charles G. McClure, Jr.
  Charles G. McClure, Jr., Chairman of the Board,
  Chief Executive Officer and President

EX-31.B 6 exhibit31-b.htm CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) exhibit31-b.htm
Exhibit 31-b
 
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(a) UNDER THE EXCHANGE ACT
 
     I, Jeffrey A. Craig, certify that:
 
1.      I have reviewed this Quarterly Report on Form 10-Q of ArvinMeritor, Inc. for the quarterly period ended January 2, 2011;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
         a.      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
      b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
      c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
      d.   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
      a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
      b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: February 3, 2011
 
  /s/ Jeffrey A. Craig
  Jeffrey A. Craig
  Senior Vice President and Chief Financial Officer

EX-32.A 7 exhibit32-a.htm CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(B) exhibit32-a.htm
Exhibit 32-a
 
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE EXCHANGE ACT AND 18 U.S.C. SECTION 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
 
     As required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, I, Charles G. McClure, Jr., hereby certify that:
 
          1.      The Quarterly Report of ArvinMeritor, Inc. on Form 10-Q for the quarterly period ended January 2, 2011 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and
   
  2.   The information contained in that report fairly presents, in all material respects, the financial condition and results of operations of ArvinMeritor, Inc.
 
/s/ Charles G. McClure, Jr.
Charles G. McClure, Jr.
Chairman of the Board, Chief
Executive Officer and President
 
Date: February 3, 2011
 

 EX-32.B 8 exhibit32-b.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(B) exhibit32-b.htm
Exhibit 32-b
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE EXCHANGE ACT AND 18 U.S.C. SECTION 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
 
     As required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, I, Jeffrey A. Craig, hereby certify that:
 
           1.       The Quarterly Report of ArvinMeritor, Inc. on Form 10-Q for the quarterly period ended January 2, 2011 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and
   
  2.   The information contained in that report fairly presents, in all material respects, the financial condition and results of operations of ArvinMeritor, Inc.
 
 
  /s/ Jeffrey A. Craig
  Jeffrey A. Craig
  Senior Vice President and Chief
  Financial Officer

Date: February 3, 2011
 

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