10-Q

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 3, 2010

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 organization)	(I.R.S. Employer Identification No.)

2135 West Maple Road, Troy, Michigan	48084-7186
(Address of principal executive offices)	(Zip Code)

(248) 435-1000

(Registrant’s telephone number, including area code)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer Accelerated filer X Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes No X

  74,231,503 shares of Common Stock, $1.00 par value, of ArvinMeritor, Inc. were outstanding on January 3, 2010.

INDEX

PART I.	FINANCIAL INFORMATION:
	Item 1.	Financial Statements:	Page
			No.
		Consolidated Statement of Operations - - Three Months
		Ended December 31, 2009 and 2008	3
		Condensed Consolidated Balance Sheet - -
		December 31, 2009 and September 30, 2009	4
		Condensed Consolidated Statement of Cash Flows - -
		Three Months Ended December 31, 2009 and 2008	5
		Condensed Consolidated Statement of Equity (Deficit) and Comprehensive Income (Loss) - -
		Three Months Ended December 31, 2009 and 2008	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis	35
		of Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures About
		Market Risk	49
	Item 4.	Controls and Procedures	50
PART II.	OTHER INFORMATION:
	Item 1.	Legal Proceedings	51
	Item 1A.	Risk Factors	51
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	52
	Item 5.	Other Information	53
	Item 6.	Exhibits	54
Signatures			55

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,
	2009			2008
	(Unaudited)
Sales	$	1,146		$	1,220
Cost of sales		(1,031	)		(1,145	)
GROSS MARGIN		115			75
Selling, general and administrative		(85	)		(97	)
Restructuring costs		(2	)		(24	)
Asset impairment charges		—			(153	)
Goodwill impairment charge		—			(70	)
OPERATING INCOME (LOSS)		28			(269	)
Equity in earnings of affiliates		10			4
Interest expense, net		(23	)		(23	)
INCOME (LOSS) BEFORE INCOME TAXES		15			(288	)
Provision for income taxes		(14	)		(630	)
INCOME (LOSS) FROM CONTINUING OPERATIONS		1			(918	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (net of tax benefit of $1 and $18 million, respectively)		2			(53	)
Net income (loss)		3			(971	)
Less: Net income (loss) attributable to noncontrolling interests		(3	)		10
NET INCOME (LOSS) ATTRIBUTABLE TO ARVINMERITOR, INC.	$	—		$	(961	)
NET INCOME (LOSS) ATTRIBUTABLE TO ARVINMERITOR, INC.
Loss from continuing operations	$	(2	)	$	(920	)
Income (loss) from discontinued operations		2			(41	)
Net income (loss)	$	—		$	(961	)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO ARVINMERITOR, INC.
Continuing operations	$	(0.03	)	$	(12.72	)
Discontinued operations		0.03			(0.57	)
Basic and diluted earnings (loss) per share	$	—		$	(13.29	)
Basic and diluted average common shares outstanding		72.7			72.3
Cash dividends paid per common share	$	—		$	0.10

See notes to consolidated financial statements. Amounts for prior periods have been recast for discontinued operations.

3

ARVINMERITOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in millions)

	December 31,			September 30,
	2009			2009
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	105		$	95
Receivables, trade and other, net		681			694
Inventories		394			374
Other current assets		110			97
Assets of discontinued operations		4			56
TOTAL CURRENT ASSETS		1,294			1,316
NET PROPERTY		441			445
GOODWILL		437			438
OTHER ASSETS		327			306
TOTAL ASSETS	$	2,499		$	2,505
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term debt	$	89		$	97
Accounts payable		683			674
Other current liabilities		421			411
Liabilities of discontinued operations		3			107
TOTAL CURRENT LIABILITIES		1,196			1,289
LONG-TERM DEBT		1,001			995
RETIREMENT BENEFITS		1,082			1,077
OTHER LIABILITIES		332			310
EQUITY (DEFICIT):
Common stock (December 31, 2009 and September 30, 2009, 74.0 shares issued and outstanding, respectively)		72			72
Additional paid-in capital		701			699
Accumulated deficit		(1,232	)		(1,232	)
Accumulated other comprehensive loss		(684	)		(734	)
Total equity (deficit) attributable to ArvinMeritor, Inc.		(1,143	)		(1,195	)
Noncontrolling interest		31			29
TOTAL EQUITY (DEFICIT)		(1,112	)		(1,166	)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	2,499		$	2,505

See notes to consolidated financial statements.

4

ARVINMERITOR, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

	Three Months Ended December 31,
	2009				2008
	(Unaudited)
OPERATING ACTIVITIES
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (See Note 9)	$	27		$		(338	)
INVESTING ACTIVITIES
Capital expenditures		(22	)			(38	)
Other investing activities		1				2
Net investing cash flows used for continuing operations		(21	)			(36	)
Net investing cash flows provided by (used for) discontinued operations		5				(10	)
CASH USED FOR INVESTING ACTIVITIES		(16	)			(46	)
FINANCING ACTIVITIES
Borrowings on revolving credit facility, net		7				103
Borrowings (payments) on accounts receivable securitization program		2				(18	)
Borrowings (payments) on lines of credit and other, net		(11	)			3
Net change in debt		(2	)			88
Cash dividends		—				(8	)
Net financing cash flows provided by (used for) continuing operations		(2	)			80
Net financing cash flows used for discontinued operations		—				(9	)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES		(2	)			71
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE
RATES ON CASH AND CASH EQUIVALENTS		1				(26	)
CHANGE IN CASH AND CASH EQUIVALENTS		10				(339	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		95				497
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	105		$		158

See notes to consolidated financial statements. Amounts for prior periods 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,
	2009				2008
ArvinMeritor, Inc. Shareowners:	(Unaudited)
COMMON STOCK
Beginning and ending balance	$	72		$		72
ADDITIONAL PAID-IN CAPITAL
Beginning balance		699				692
Issuance of restricted stock		—				(3	)
Equity based compensation expense		2				3
Ending balance	$	701		$		692
ACCUMULATED DEFICIT
Beginning balance	$	(1,232	)	$		(16	)
Net income (loss) attributable to ArvinMeritor, Inc.		—				(961	)
Cash dividends (per share $0.10: 2009)		—				(8	)
Adjustment upon adoption of retirement benefits guidance		—				(20	)
Ending balance	$	(1,232	)	$		(1,005	)
TREASURY STOCK
Beginning balance	$	—		$		(3	)
Issuance of restricted stock		—				3
Ending balance	$	—		$		—
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning balance	$	(734	)	$		(225	)
Foreign currency translation adjustments		17				(157	)
Impact of sale of business on foreign currency translation adjustment		(4	)			—
Impact of sale of business on employee benefit related adjustments		35				—
Adjustments upon adoption of retirement benefits guidance		—				9
Unrealized gains (losses)		2				(25	)
Ending balance	$	(684	)	$		(398	)
Total EQUITY (deficit) attributable to ArvinMeritor, Inc.	$	(1,143	)	$		(639	)
Noncontrolling Interests:
Beginning balance	$	29		$		75
Net income (loss) attributable to noncontrolling interests		3				(10	)
Dividends declared or paid		(1	)			(7	)
Foreign currency translation adjustments		—				(2	)
Ending balance	$	31		$		56
TOTAL EQUITY (DEFICIT)	$	(1,112	)	$		(583	)
COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$	3		$		(971	)
Foreign currency translation adjustments		13				(159	)
Impact of sale of business on employee benefit related adjustments		35				—
Adjustments upon adoption of retirement benefits guidance		—				9
Unrealized gains (losses)		2				(25	)
Total comprehensive income (loss)		53				(1,146	)
Less: Comprehensive income (loss) attributable to noncontrolling interests		3				(12	)
Comprehensive income (loss) attributable to ArvinMeritor, Inc.	$	50		$		(1,134	)

See notes to consolidated financial statements.

6

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED 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, as amended, for the fiscal year ended September 30, 2009. The results of operations for the three months ended December 31, 2009, 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 2010 and 2009 ended on January 3, 2010 and December 28, 2008, 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 February 5, 2010, the date that the consolidated financial statements were issued.

2. 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 are 72.7 million and 72.3 million at December 31, 2009 and 2008, 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, 2009 and 2008 because their inclusion in a net loss period would reduce the net loss per share. Therefore, at December 31, 2009 and 2008, options to purchase 1.5 million and 2.0 million shares of common stock, respectively, were excluded from the computation of diluted earnings per share. In addition, 1.0 million and 1.4 million shares of restricted stock were excluded from the computation of diluted earnings per share at December 31, 2009 and 2008, respectively. The company’s convertible senior unsecured notes are excluded from the computation of diluted earnings per share, as the company’s average stock price during the quarter is less than the conversion price.

3. New Accounting Standards

New accounting standards to be implemented:

In December 2008, the Financial Accounting Standards Board (FASB) issued guidance on defined benefit plans that requires new disclosures on investment policies and strategies, categories of plan assets, fair value measurements of plan assets, and significant concentrations of risk, and is effective for fiscal years ending after December 15, 2009, with earlier application permitted. The impact of this guidance will be reflected in the company’s consolidated financial statements upon adoption.

7

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

In June 2009, the FASB issued guidance on accounting for transfer of financial assets, which guidance 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. This guidance is effective for the first annual reporting period that begins after November 15, 2009 and for interim periods beginning in the first annual reporting period and periods thereafter. The company is currently evaluating the impact, if any, of the new requirements on its 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 variable interest entity. This guidance is effective for the first annual reporting period beginning after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The company is currently assessing what impact, if any, that this guidance will have on its financial position, results of operations and cash flows.

In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. The guidance in ASU 2010-06 amends Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures related to transfers between levels in the hierarchy of fair value measurement. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009. ASU 2010-06 does not change how fair values are measured. The company is currently assessing what impact, if any, that this guidance will have on its financial statements.

Accounting standards implemented in fiscal year 2010:

In December 2007, the FASB issued consolidation guidance that establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The guidance also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. The statement also requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. If a parent retains a noncontrolling equity investment in the former subsidiary, that investment is measured at its fair value. This guidance is effective for the company for its fiscal year beginning October 1, 2009 and, as required, has been applied prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively for all periods presented. The company has modified the presentation and disclosure of noncontrolling interests in accordance with the requirement of the guidance, which resulted in changes in the presentation of the company’s consolidated statement of operations and condensed consolidated balance sheet and cash flows; and required it to incorporate a condensed consolidated statement of shareowners’ equity (deficit) and comprehensive income (loss). The adoption of this consolidation guidance did not have any other significant effect on the company’s financial statements.

In May 2008, the FASB issued guidance contained in ASC Topic 470-20, “Debt with Conversion and Other Options” which applies to all convertible debt instruments that have a “net settlement feature,” which means that such convertible debt instruments, by their terms, may be settled either wholly or partially in cash upon conversion. This topic requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. Topic 470-20 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Early adoption is not permitted and retroactive application to all periods presented is required.

8

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

This guidance impacts the company’s accounting for its outstanding $300 million convertible notes issued in 2006 (the 2006 convertible notes) and $200 million convertible notes issued in 2007 (the 2007 convertible notes) (see Note 16). On October 1, 2009, the company adopted this guidance and applied its impact retrospectively to all periods presented. Upon adoption, the company recognized the estimated equity component of the convertible notes of $108 million ($69 million after tax) in additional paid-in capital. In addition, the company allocated $4 million of unamortized debt issuance costs to the equity component and recognized this amount as a reduction to additional paid-in capital. The company also recognized a discount on convertible notes of $108 million, which is being amortized as non-cash interest expense over periods of ten and twelve years for the 2006 convertible notes and 2007 convertible notes, respectively. The periods of ten and twelve years represent the expected life of the convertible notes based on the earliest period holders of the notes may redeem them. Non-cash interest expense for the amortization of the discount was $8 million, $7 million and $6 million for fiscal years 2009, 2008 and 2007, respectively. At December 31, 2009, the remaining amortization periods for the 2006 convertible notes and 2007 convertible notes were six years and nine years, respectively. Effective interest rates on the 2006 convertible notes and 2007 convertible notes were 7.0 percent and 7.7 percent, respectively.

Upon recognition of the equity component of the convertible notes, the company also recognized a deferred tax liability of $39 million as the tax effect of the basis difference between carrying and notional values of the convertible notes. The carrying value of this deferred tax liability was offset with certain net deferred tax assets in the first quarter of fiscal year 2009 for determining valuation allowances against those deferred tax assets (see Note 7 for additional information on valuation allowances).

At December 31 and September 30, 2009, the carrying amount of the equity component recognized upon adoption was $67 million. The following table summarizes other information related to the convertible notes.

	December 31,		September 30,
	2009		2009
Components of the liability balance (in millions):
Principal amount of convertible notes	$	500	$	500
Unamortized discount on convertible notes		(83)		(85)
Net carrying value	$	417	$	415
	Three Months Ended December 31,
		2009		2008
Interest costs recognized (in millions):
Contractual interest coupon	$	5	$	5
Amortization of debt discount		2		2
Total	$	7	$	7

9

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

4. Discontinued Operations

Results of discontinued operations are summarized as follows (in millions):

	Three Months Ended December 31,
	2009			2008
Sales	$	14		$	151
Net gain on sale of business	$	16		$	—
Long-lived asset impairment charges		—			(56	)
Other		(15	)		(1	)
Operating income (loss), net		—			(14	)
Income (loss) before income taxes		1			(71	)
Benefit for income taxes		1			18
Net income (loss)	$	2		$	(53	)
Net loss attributable to noncontrolling interests		—			12
Income (loss) from discontinued operations attributable to ArvinMeritor, Inc.	$	2		$	(41)

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. As of December 31, 2009, the company has completed the following divestiture-related activities, associated with its LVS segment, all of which are included in results of discontinued operations.

Meritor Suspension Systems Company (MSSC) – In October 2009, the company completed the sale of its 57 percent interest in MSSC, a joint venture that manufactures and sells 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) for a purchase price of $13 million, which included a cash dividend of $12 million received by the company in fiscal year 2009. In connection with the sale of the company’s interest in MSSC, 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 $15 million and is included in other liabilities in the condensed consolidated balance sheet at December 31, 2009. In the first quarter of fiscal year 2010, the company recognized a pretax gain on sale of $16 million ($16 million after tax), net of estimated indemnity obligations.

In the first quarter of fiscal year 2009, the company recognized a $31 million pre-tax non-cash impairment charge associated with the long-lived assets of MSSC (see Note 12).

Assets and liabilities of MSSC are included in assets and liabilities of discontinued operations in the consolidated balance sheet at September 30, 2009. Assets of MSSC primarily consisted of current assets of $34 million, fixed assets of $13 million and other long term assets. Liabilities of MSSC primarily consisted of short-term debt, accounts payable, restructuring reserves and approximately $69 million of accrued pension and post retirement benefits. Short-term debt related to a $6 million, 6.5-percent loan with the minority partner. Upon completion of the sale, the company’s interest in all assets and liabilities of MSSC were transferred to the buyer.

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 de Venezuela – In June 2009, the company sold its 51 percent interest in Gabriel de Venezuela to its joint venture partner. Gabriel de Venezuela supplied shock absorbers, struts, exhaust systems and suspension modules to light vehicle industry customers, primarily in Venezuela and Colombia.

10

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

Gabriel Ride Control Products North America (Gabriel Ride Control) – In fiscal year 2009, the company sold Gabriel Ride Control to Ride Control, LLC, a wholly owned subsidiary of OpenGate Capital, a private equity firm. Gabriel Ride Control 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. The terms of the sale agreement requires a purchase price adjustment based upon closing working capital. Settlement of the working capital purchase price adjustment is subject to negotiations and is expected to occur in fiscal year 2010. The agreement also contains arrangements for royalties and other items which are not expected to materially impact the company in the future.

In the first quarter of fiscal year 2009, the company recognized a $19 million pre-tax non-cash impairment charge associated with the long-lived assets of this business (see Note 12).

Other: In the first quarter of fiscal year 2010 the company recognized $15 million of charges for changes in estimates for certain purchase price adjustments and indemnity obligations for previously sold businesses.

5. Goodwill

     In accordance with FASB ASC Topic 350-20, “Intangibles – Goodwill and Other”, goodwill is reviewed for impairment annually during the fourth quarter of the fiscal year or more frequently if certain indicators arise. If business conditions or other factors cause the operating results and cash flows of the reporting unit to decline, the company may be required to record impairment charges for goodwill at that time. The goodwill impairment review is a two-step process. Step one consists of a comparison of the fair value of a reporting unit with its carrying amount. An impairment loss may be recognized if the review indicates that the carrying value of a reporting unit exceeds its fair value. Estimates of fair value are primarily determined by using discounted cash flows and market multiples on earnings. If the carrying amount of a reporting unit exceeds its fair value, step two requires the fair value of the reporting unit to be allocated to the underlying assets and liabilities of that reporting unit, resulting in an implied fair value of goodwill. If the carrying amount of the goodwill of the reporting unit exceeds the implied fair value, an impairment charge is recorded equal to the excess.

The impairment review is highly judgmental and involves the use of significant estimates and assumptions. These estimates and assumptions have a significant impact on the amount of any impairment charge recorded. Discounted cash flow methods are dependent upon assumptions of future sales trends, market conditions and cash flows of each reporting unit over several years. Actual cash flows in the future may differ significantly from those previously forecasted. Other significant assumptions include growth rates and the discount rate applicable to future cash flows.

During the first quarter of fiscal year 2009, both light and commercial vehicle industries experienced significant declines in overall economic conditions including tightening credit markets, stock market declines and significant reductions in current and forecasted production volumes for light and commercial vehicles. This, along with other factors, led to a significant decline in the company’s market capitalization subsequent to September 30, 2008. As a result, the company completed an impairment review of goodwill balances during the first quarter of fiscal year 2009 for each of its reporting units, which were Commercial Vehicle Systems (CVS) and LVS, at that time.

Step one of the company’s first quarter goodwill impairment review indicated that the carrying value of the LVS reporting unit significantly exceeded its estimated fair value. As a result of the step two goodwill impairment analysis, the company recorded a $70 million non-cash impairment charge in the first quarter of fiscal year 2009 to write-off the entire goodwill balance of its LVS reporting unit. The fair value of this reporting unit was estimated using earnings multiples and other available information, including indicated values from recent attempts to divest certain businesses. The company’s step one impairment review of goodwill associated with its CVS reporting unit did not indicate that an impairment existed as of December 31, 2008.

A summary of the changes in the carrying value of goodwill are presented below (in millions):

	Commercial Truck		Industrial		Aftermarket & Trailer			Total
Balance at September 30, 2009	$	154	$	109	$	175		$	438
Foreign currency translation		—		—		(1	)		(1	)
Balance at December 31, 2009	$	154	$	109	$	174		$	437

11

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

6. Restructuring Costs

At December 31, 2009 and September 30, 2009, $24 million and $28 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, 2009 and 2008 are as follows (in millions):

	Employee Termination Benefits				Asset Impairment			Plant Shutdown & Other				Total
Balance at September 30, 2009		$	28			$	—		$	—		$	28
Activity during the period:
Charges to continuing operations, net of reversals			2				—			—			2
Cash payments - continuing operations			(5	)			—			—			(5	)
Other			(1	)			—			—			(1	)
Balance at December 31, 2009		$	24			$	—		$	—		$	24
Balance at September 30, 2008		$	30			$	—		$	—		$	30
Activity during the period:
Charges to continuing operations, net of reversals			23				—			1			24
Charges to discontinued operations, net of reversals(1)			2				—			—			2
Cash payments - continuing operations			(10	)						(1	)		(11	)
Other (2)			(3	)			—			—			(3	)
Balance at December 31, 2008		$	42			$	—		$	—		$	42

⁽¹⁾      Charges to discontinued operations are included in discontinued operations in the consolidated statement of operations.

⁽²⁾      Includes $1 million of payments in the three months ended December 31, 2008, associated with discontinued operations.

Restructuring costs included in our business segment results during the three months ended December 31, 2009 and 2008 are as follows (in millions):

	Commercial Truck		Industrial		Aftermarket & Trailer		LVS		Total (1)
Three months ended December 31, 2009:
Performance Plus actions	$	—	$	—	$	—	$	2	$	2
Total restructuring costs	$	—	$	—	$	—	$	2	$	2
Three months ended December 31, 2008:
Performance Plus actions	$	—	$	—	$	—	$	1	$	1
Fiscal year 2009 actions (reduction in workforce)		7		1		—		12		20
Total restructuring costs	$	7	$	1	$	—	$	13	$	21

⁽¹⁾ Total segment restructuring costs do not include those recorded in unallocated corporate costs. There were no corporate restructuring costs in the three months ended December 31, 2009. In the three months ended December 31, 2008 there were $3 million of restructuring costs, primarily related to employee termination benefits.

12

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

Fiscal Year 2009 Actions: During the first quarter of fiscal year 2009, the company approved certain restructuring actions in response to a significant decline in global market conditions. These actions primarily related to the reduction of approximately 1,500 salaried, hourly and temporary positions worldwide. The company recorded restructuring costs of $23 million associated with these actions in the first quarter of fiscal year 2009.

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. Cumulative restructuring costs recorded for this program, including amounts reported in discontinued operations, are $142 million as of December 31, 2009 and primarily relate to employee termination costs of $82 million. Remaining costs of this restructuring program are estimated to be approximately $60 million and will be incurred over the next several years as anticipated actions are implemented.

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 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 first allocated to the other sources of income, with a related benefit recorded in continuing operations.

 In first quarter of fiscal year 2009, the company recorded a charge of $633 million, to establish valuation allowances against its U.S. net deferred tax assets and the net deferred tax assets of its 100% owned subsidiaries in France, Germany, Italy, and Sweden. In accordance with FASB’s income tax guidance, the company evaluates the deferred income taxes quarterly to determine if valuation allowances are required. The guidance requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence using a “more-likely-than-not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. If, in the future, the company overcomes negative evidence in tax jurisdictions that have established valuation allowances, the need for valuation allowances in these tax jurisdictions would change, resulting in the reversal of some or all of such valuation allowances. If taxable income is generated in tax jurisdictions prior to overcoming negative evidence, a portion of the valuation allowance relating to the corresponding realized tax benefit would reverse for that period, without changing the company’s conclusions on the need for a valuation allowance against the remaining net deferred tax assets.

13

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

The company believed that these valuation allowances were required due to events and developments that occurred during the first quarter of fiscal year 2009. In conducting the first quarter 2009 analysis, the company utilized a consistent approach which considers its three-year historical cumulative income (loss) including an assessment of the degree to which any losses were driven by items that are unusual in nature and incurred in order to achieve profitability in the future. In addition, the company reviewed changes in near-term market conditions and any other factors arising during the period which may impact future operating results. Both positive and negative evidence were considered in the analysis. Significant negative evidence existed due to the ongoing deterioration of the global markets. The analysis for the first quarter of fiscal year 2009 showed a three-year historical cumulative loss in the U.S., France, Germany, Italy, and Sweden. The losses continue to exist even after adjusting the results to remove unusual items and charges, which is considered a significant factor in the analysis as it is objectively verifiable and therefore, significant negative evidence. In addition, the global market deterioration in fiscal year 2009 reduced the expected impact of tax planning strategies that were included in our analysis. Accordingly, based on a three year historical cumulative loss, combined with significant and inherent uncertainty as to the timing of when the company would be able to generate the necessary level of earnings to recover its deferred tax assets in the U.S., France, Germany, Italy, and Sweden, the company concluded that valuation allowances were required.

In the first quarter of fiscal year 2010, the company had approximately $37 million of net pre-tax losses in tax jurisdictions that have established valuation allowances. Tax benefits arising from these jurisdictions resulted in increasing the valuation allowances, rather than reducing income tax expense.

8. Accounts Receivable Securitization and Factoring

Off-balance sheet arrangements

The company participates in an arrangement to sell trade receivables through certain of its European subsidiaries. Under the arrangement, the company can sell, at any point in time, up to €90 million of eligible trade receivables. The receivables under this program are sold at face value and are excluded from the company’s consolidated balance sheet. The company continues to perform collection and administrative functions related to these receivables. Costs associated with this securitization arrangement were immaterial in the three months ended December 31, 2009. These costs were $2 million in the three months ended December 31, 2008, and are included in operating income (loss) in the consolidated statement of operations. The gross amount of proceeds received from the sale of receivables under this arrangement was $73 million and $127 million for the three months ended December 31, 2009 and 2008, respectively. The company’s retained interest in receivables sold was $14 million and $6 million at December 31 and September 30, 2009, respectively. The company had utilized, net of retained interests, €62 million ($87 million) and €38 million ($56 million) of this accounts receivable securitization facility as of December 31 and September 30, 2009, respectively.

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 $60 million and $37 million at December 31 and September 30, 2009, respectively. Costs associated with these factoring arrangements were $1 million and $2 million in the three months ended December 31, 2009 and 2008, respectively, and are included in operating income (loss) 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, in anticipation of the expiration of the existing facility, 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 and expires in September 2011. Under this program, the company sells substantially all of the trade receivables of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly-owned, special purpose subsidiary. The maximum borrowing capacity under this program is $125 million. ARC funds these purchases with borrowings under a loan agreement with participating lenders. Amounts 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 and September 30, 2009, $85 million and $83 million was outstanding under this program, respectively. Borrowings under this arrangement are collateralized by approximately $134 million of receivables held at ARC at December 31, 2009. This program does not have specific financial covenants, however, it does have a cross-default provision to the company’s revolving credit facility agreement.

14

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

9. Operating Cash Flow

The reconciliation of net income (loss) to cash flows provided by (used for) operating activities is as follows (in millions):

	Three Months Ended
	December 31,
		2009			2008
OPERATING ACTIVITIES
Net income (loss)		$	3		$	(971	)
Less: income (loss) from discontinued operations, net of tax			2			(53	)
Income (loss) from continuing operations			1			(918	)
Adjustments to income (loss) from continuing operations to arrive at cash provided by (used for) operating activities:
Depreciation and amortization			18			26
Asset impairment charges			—			223
Restructuring costs, net of payments			(3	)		13
Deferred income tax expense			4			622
Equity in earnings of affiliates, net of dividends			(9	)		(4	)
Other adjustments to income (loss) from continuing operations			2			3
Pension and retiree medical expense			25			19
Pension and retiree medical contributions and settlements			(21	)		(46	)
Changes in off-balance sheet receivable securitization and factoring			54			(4	)
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, foreign currency adjustments and discontinued operations:			(47	)		(255	)
Operating cash flows provided by (used for) continuing operations			24			(321	)
Operating cash flows provided by (used for) discontinued operations			3			(17	)
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES		$	27		$	(338	)

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,
	2009		2009
Finished goods	$	157	$	149
Work in process		52		54
Raw materials, parts and supplies		185		171
Total	$	394	$	374

15

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

11. Other Current Assets

Other current assets are summarized as follows (in millions):

	December 31,		September 30,
	2009		2009
Customer reimbursable tooling and engineering	$	29	$	30
Current deferred income tax assets, net		27		19
Prepaid income taxes		21		20
Asbestos-related recoveries (see Note 19)		8		8
Deposits and collateral		9		7
Prepaid and other		16		13
Other current assets	$	110	$	97

12. Net Property and Impairments of Long-lived Assets

In accordance with the FASB guidance on property, plant and equipment, the company reviews the carrying value of long-lived assets, excluding goodwill, to be held and used, for impairment whenever events or changes in circumstances indicate a possible impairment. An impairment loss is recognized when a long-lived asset’s carrying value is not recoverable and exceeds estimated fair value.

In the prior year first quarter, management determined certain impairment reviews were required due to declines in overall economic conditions including tightening credit markets, stock market declines and significant reductions in current and forecasted production volumes for light and commercial vehicles. As a result, the company recognized pre-tax, non-cash impairment charges of $209 million in the first quarter of fiscal year 2009, primarily related to the LVS segment. A portion of this non-cash charge related to businesses presented in discontinued operations and accordingly, $56 million is included in loss from discontinued operations in the consolidated statement of operations (see Note 4). The estimated fair value of long-lived assets was calculated based on probability weighted cash flows taking into account current expectations for asset utilization and life expectancy. In addition, liquidation values were considered where appropriate, as well as indicated values from divestiture activities.

The following table describes the significant components of long-lived asset impairments recorded in continuing operations during the first quarter of fiscal year 2009.

		Commercial Truck		Industrial		Aftermarket & Trailer		LVS		Total
Land and buildings	$	5	$	—	$	—	$	34	$	39
Other (primarily machinery and equipment)		3		—		—		105		108
Total assets impaired (1)	$	8	$	—	$	—	$	139	$	147

⁽¹⁾ The company also recognized $6 million of non-cash impairment charges associated with certain corporate long-lived assets.

Net property at December 31 and September 30, 2009 is summarized as follows (in millions):

	December 31, 2009			September 30, 2009
Property at cost:
Land and land improvements	$	44		$	46
Buildings		248			254
Machinery and equipment		911			913
Company-owned tooling		163			163
Construction in progress		51			38
Total		1,417			1,414
Less accumulated depreciation		(976	)		(969	)
Net Property	$	441		$	445

16

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

13. Other Assets

Other assets are summarized as follows (in millions):

	December 31,		September 30,
	2009		2009
Investments in non-consolidated joint ventures	$	138	$	125
Asbestos-related recoveries (see Note 19)		47		47
Non-current deferred income tax assets, net		27		27
Unamortized debt issuance costs		22		24
Capitalized software costs, net		20		21
Note receivable due from EMCON, net of discount		16		16
Assets for uncertain tax positions		10		11
Prepaid pension costs		13		9
Other		34		26
Other assets	$	327	$	306

The note receivable due from EMCON bears interest at a rate of 4 percent per annum and is payable in June 2012 or earlier upon a change in control. EMCON may prepay the note at any time. The company recorded the note, net of a $6 million discount at December 31 and September 30, 2009, respectively, to reflect the difference between the stated rate per the agreement of 4 percent and the effective interest rate of approximately 9 percent. This discount is being amortized over the term of the note as interest income.

14. Other Current Liabilities

Other current liabilities are summarized as follows (in millions):

	December 31,		September 30,
	2009		2009
Compensation and benefits	$	143	$	144
Product warranties		53		58
Taxes other than income taxes		39		44
Restructuring (see Note 6)		24		28
Income taxes		24		18
Asbestos-related liabilities (see Note 19)		16		16
Interest		22		6
Indemnity obligations – current portion		14		9
Other		86		88
Other current liabilities	$	421	$	411

17

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

The company’s Core Business (see Note 20) records 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 probable 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.

The company’s LVS segment records product warranty liabilities based on individual customer or warranty-sharing agreements. Product warranties are recorded for known warranty issues when amounts can be reasonably estimated.

A summary of the changes in product warranties is as follows (in millions):

	Three Months Ended
	December 31,
	2009				2008
Total product warranties – beginning of period	$	109		$		102
Accruals for product warranties		8				9
Payments		(11	)			(9	)
Change in estimates and other		(3	)			(5	)
Total product warranties – end of period		103				97
Less: Non-current product warranties (see Note 15)		(50	)			(43	)
Product warranties – current	$	53		$		54

15. Other Liabilities

Other liabilities are summarized as follows (in millions):

	December 31,		September 30,
	2009		2009
Asbestos-related liabilities (see Note 19)	$	61	$	61
Non-current deferred income tax liabilities		84		73
Liabilities for uncertain tax positions		61		64
Product warranties (see Note 14)		50		51
Environmental (see Note 19)		9		10
Indemnity obligations		34		19
Other		33		32
Other liabilities	$	332	$	310

18

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

16. Long-Term Debt

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

	December 31,			September 30,
	2009			2009
8-3/4 percent notes due 2012	$	276		$	276
8-1/8 percent notes due 2015		251			251
4.625 percent convertible notes due 2026(1)		300			300
4.0 percent convertible notes due 2027(1)		200			200
Revolving credit facility		35			28
Accounts receivable securitization (see Note 8)		85			83
Lines of credit and other		5			16
Unamortized gain on swap unwind		21			23
Unamortized discount on convertible notes (see Note 3)		(83	)		(85	)
Subtotal		1,090			1,092
Less: current maturities		(89	)		(97	)
Long-term debt	$	1,001		$	995

⁽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 (see Convertible Securities below) (see Note 3).

Revolving Credit Facility

The company has a $700 million revolving credit facility, which matures in June 2011. Due to the bankruptcy of Lehman Brothers in 2008, $34 million of these commitments are currently unavailable. The remaining amount of availability under this facility is dependent upon various factors, including principally performance against certain financial covenants. These financial covenants are based on (i) the ratio of the company’s senior secured indebtedness to EBITDA and (ii) the amount of annual capital expenditures. The company is required to maintain a total senior secured-debt-to-EBITDA ratio, as defined in the agreement, no greater than 2.00 to 1 on the last day of any fiscal quarter. At December 31, 2009, the company was in compliance with all covenants with a ratio of approximately 0.41x for the senior secured debt to EBITDA covenant.

The revolving credit facility includes a $150 million limit on the issuance of letters of credit. At December 31, 2009, and September 30, 2009, approximately $26 million and $27 million of letters of credit were issued, respectively. The company had an additional $5 million outstanding at December 31 and September 30, 2009, on letters of credit available through other facilities.

Borrowings under the revolving credit facility are collateralized by approximately $506 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, 2009, the margin over the LIBOR rate was 275 basis points, and the commitment fee was 50 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).

19

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

Convertible Securities

In February 2007, the company issued $200 million of 4.00 percent convertible senior unsecured notes due 2027 (the 2007 convertible notes).  In March 2006, the company issued $300 million of 4.625 percent convertible senior unsecured notes due 2026 (the 2006 convertible notes). The 2007 convertible notes bear cash interest at a rate of 4.00 percent per annum from the date of issuance through February 15, 2019, payable semi-annually in arrears on February 15 and August 15 of each year. After February 15, 2019, the principal amount of the notes will be subject to accretion at a rate that provides holders with an aggregate annual yield to maturity of 4.00 percent. The 2006 convertible notes bear cash interest at a rate of 4.625 percent per annum from the date of issuance through March 1, 2016, payable semi-annually in arrears on March 1 and September 1 of each year. After March 1, 2016, the principal amount of the notes will be subject to accretion at a rate that provides holders with an aggregate annual yield to maturity of 4.625 percent.

On October 1, 2009, the company adopted, as required, the guidance for accounting for convertible debt instruments that, upon conversion, may be settled in cash. This guidance was applied retrospectively to all periods presented. See Note 3 for additional information on the adoption and its impact on the company’s financial statements.

Conversion Features – convertible securities

The 2007 convertible notes are convertible into shares of the company’s common stock at an initial conversion rate, subject to adjustment, equivalent to 37.4111 shares of common stock per $1,000 initial principal amount of notes, which represents an initial conversion price of approximately $26.73 per share. If converted, the accreted principal amount will be settled in cash and the remainder of the company’s conversion obligation, if any, in excess of such accreted principal amount will be settled in cash, shares of common stock, or a combination thereof, at the company’s election. Holders may convert their notes at any time on or after February 15, 2025. The maximum number of shares of common stock the 2007 convertible notes are convertible into is approximately 7 million.

The 2006 convertible notes are convertible into shares of the company’s common stock at an initial conversion rate, subject to adjustment, equivalent to 47.6667 shares of common stock per $1,000 initial principal amount of notes, which represents an initial conversion price of approximately $20.98 per share. If converted, the accreted principal amount will be settled in cash and the remainder of the company’s conversion obligation, if any, in excess of such accreted principal amount will be settled in cash, shares of common stock, or a combination thereof, at the company’s election. Holders may convert their notes at any time on or after March 1, 2024. The maximum number of shares of common stock the 2006 convertible notes are convertible into is approximately 14 million.

Prior to February 15, 2025 (2007 convertible notes) and March 1, 2024 (2006 convertible notes), holders may convert their notes only under the following circumstances:

  ·      during any calendar quarter, if the closing price of the company’s common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120 percent of the applicable conversion price;

·      during the five business day period after any five consecutive trading day period in which the average trading price per $1,000 initial principal amount of notes is equal to or less than 97 percent of the average conversion value of the notes during such five consecutive trading day period;

·      upon the occurrence of specified corporate transactions; or

·      if the notes are called by the company for redemption.

20

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

Redemption Features – convertible securities

On or after February 15, 2019, the company may redeem the 2007 convertible notes, in whole or in part, for cash at a redemption price equal to 100 percent of the accreted principal amount plus any accrued and unpaid interest. On each of February 15, 2019 and 2022, or upon certain fundamental changes, holders may require the company to purchase all or a portion of their 2007 convertible notes at a purchase price in cash equal to 100 percent of the accreted principal amount plus any accrued and unpaid interest.

On or after March 1, 2016, the company may redeem the 2006 convertible notes, in whole or in part, for cash at a redemption price equal to 100 percent of the accreted principal amount plus any accrued and unpaid interest. On each of March 1, 2016, 2018, 2020, 2022 and 2024, or upon certain fundamental changes, holders may require the company to purchase all or a portion of their 2006 convertible notes at a purchase price in cash equal to 100 percent of the accreted principal amount plus any accrued and unpaid interest.

The 2007 and 2006 convertible notes are fully and unconditionally guaranteed by certain subsidiaries of the company that currently guarantee the company’s obligations under its senior secured credit facility and other publicly-held notes (see Revolving Credit Facility above).

Accounts Receivable Securitization

Since 2005 the company participated in a U.S. accounts receivable securitization program to enhance financial flexibility and lower interest costs (see Note 8). In September 2009, in anticipation of the expiration of the existing facility, 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 and expires in September 2011. The weighted average interest rate on borrowings under this arrangement was approximately 7.50% percent at December 31, 2009. Amounts outstanding under this agreement are reported as short-term debt in the consolidated balance sheet and are collateralized by $134 million of eligible receivables purchased and held by ARC at December 31, 2009. This program does not have specific financial covenants, however, it does have a cross-default provision to the company’s revolving credit facility agreement.

Leases

The company has various operating leasing arrangements. Future minimum lease payments under these operating leases are $24 million in 2010, $20 million in 2011, $16 million in 2012, $14 million in 2013, $12 million in 2014 and $25 million thereafter.

21

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

17. 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 foreign exchange rate exposures.

Foreign Exchange Contracts

The company’s operations are exposed to global market risks, including the effect of changes in foreign currency exchange rates. The company has a foreign currency cash flow hedging program to reduce the company’s exposure to changes in exchange rates. 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 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 impacts earnings. The fair values of derivative instruments are presented on a gross basis as the company does not have any derivative contracts which are subject to master netting arrangements. The company did not have any hedges that required the posting of collateral as of September 30, 2009.

The company’s foreign exchange contracts generally mature within twelve months. At December 31 and September 30, 2009, the company had outstanding contracts with notional amounts of $66 million and $89 million, respectively. These notional values consist primarily of contracts for the European euro and Swedish krona, and are stated in U.S. dollar equivalents at spot exchange rates at the respective dates.

At December 31, 2009 and September 30, 2009, there was a loss of $2 million recorded in AOCL. The company expects to reclassify this amount from AOCL to operating income during the next nine months as the forecasted hedged transactions are recognized in earnings.

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.

Fair Value

Fair values of financial instruments are summarized as follows (in millions):

	December 31,				September 30,
	2009				2009
		Carrying		Fair		Carrying		Fair
		Value		Value		Value		Value
Cash and cash equivalents	$	105	$	105	$	95	$	95
Foreign exchange contracts - liability		3		3		3		3
Short-term debt		89		89		97		97
Long-term debt		1,001		987		995		885

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 two years 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.

Short-term debt and 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.

22

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

18. Retirement Benefit Liabilities

Retirement benefit liabilities consisted of the following (in millions):

	December 31,			September 30,
	2009			2009
Retiree medical liability	$	594		$	590
Pension liability		509			506
Other		37			39
Subtotal		1,140			1,135
Less: current portion (included in compensation and benefits)		(58	)		(58	)
Retirement benefit liabilities	$	1,082		$	1,077

The components of net periodic pension and retiree medical expense from continuing operations for the three months ended December 31 are as follows:

	2009							2008
	Pension			Retiree Medical			Pension				Retiree Medical
Service cost	$	4		$	—		$		4		$	—
Interest cost		24			8				26			8
Assumed return on plan assets		(28	)		—				(29	)		—
Amortization of prior service costs		—			(2	)			—			(2	)
Recognized actuarial loss		10			9				5			7
Total expense	$	10		$	15		$		6		$	13

On November 12, 2008, the company settled a lawsuit with the United Steel Workers with respect to certain retiree medical plan amendments for approximately $28 million. This settlement was paid in November 2008 and increased the accumulated postretirement benefit obligation (APBO) by approximately $23 million. The increase in APBO has been reflected in the company’s September 30, 2009 actuarial valuation as an increase in actuarial losses and is being amortized into periodic retiree medical expense over an average expected remaining service life of approximately ten years.

19. 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, 2009 to be approximately $21 million, of which $2 million is recorded as a liability.

23

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

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, 2009 to be approximately $34 million, of which $14 million is recorded as a liability.

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 five-percent and is approximately $7 million at December 31, 2009. The undiscounted estimate of these costs is approximately $11 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, 2009		$	2		$	15		$	17
Payments			—			(1	)		(1	)
Balance at December 31, 2009		$	2		$	14		$	16

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 the 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 and September 30, 2009, respectively. 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. Plaintiffs’ 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, 2009		September 30, 2009
Asbestos-related reserves for pending and future claims	$	61	$	61
Asbestos-related insurance recoveries		43		43

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, 13, 14 and 15).

24

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

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.

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 assumptions 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 $58 million to $65 million. After consultation with Bates White, Maremont determined that as of September 30, 2009, the most likely and probable liability for pending and future claims over the next ten years is $58 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 2019. 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 $43 million as of December 31 and September 30, 2009. The difference between the estimated liability and insurance receivable is primarily related to proceeds received from settled insurance policies. Certain insurance policies have been settled 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 various insurance companies. If the assumptions with respect to the nature

25

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

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.

Rockwell Automation, Inc. (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 claimants, 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. Accordingly, the company has recorded a $16 million liability for defense and indemnity costs associated with these claims at both December 31 and September 30, 2009. The accrual estimates are based on historical data and certain assumptions with respect 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. 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. 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. Accordingly, the company has recorded an insurance receivable related to Rockwell legacy asbestos-related liabilities of $12 million at December 31 and September 30, 2009. 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

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 LVA 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. Accordingly, the company recorded a $28 million liability in fiscal year 2009, of which approximately $6 million relates to claims not reimbursed by the third party prior to its filing for bankruptcy protection, and $22 million of which relates to the company’s best estimate of its future obligation under the guarantee.

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 cannot be reasonably estimated. The company is not aware of any claims or other information that would give rise to material payments under such indemnifications. The company provided additional indemnifications in connection with the sale of its 57 percent interest in MSSC (see Note 4).

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

26

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

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. 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. 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. The Antitrust Division of the U.S. Department of Justice (DOJ) was also investigating the allegations raised in these suits. The DOJ issued subpoenas to certain employees of the defendants, which include the company. On January 21, 2010, the DOJ informed defendants that were involved in the DOJ’s investigation that it had closed its investigation without action as to all of them.

Various other lawsuits, claims and proceedings 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.

20. 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.

As a result of the divestitures described in Note 4, LVS now consists primarily of Body Systems’ business, composed of roofs and doors products. In order to better reflect the importance of the company’s remaining core commercial vehicle businesses and a much smaller LVS business and to reflect the manner in which management reviews information regarding the business, the company revised its reporting segments in the fourth quarter of fiscal year 2009 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 businesses in Asia Pacific, including all on- and off-highway activities ;

• 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; and

• The LVS segment includes the Body Systems business, which supplies roof and door systems for passenger cars to OEMs, and the company’s remaining Chassis businesses.

The company refers to its three segments other than LVS as, collectively, its “Core Business”. All prior period amounts have been recast to reflect the revised reporting segments.

The company measures segment operating performance based on earnings before interest, taxes, depreciation and amortization, and loss on sale of receivables (EBITDA). The company uses segment EBITDA as the primary basis for the CODM to evaluate the performance of each of the company’s reportable segments.

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 GAAP. 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. In anticipation of the planned separation of the light vehicles business from the company, LVS started building its own corporate functions during the second half of fiscal year 2008 and, therefore, only a nominal amount of corporate costs has been allocated to LVS in fiscal year 2009 and no amounts have been allocated to LVS in fiscal year 2010.

27

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED STATEMENTS

(unaudited)

Segment information is summarized as follows (in millions):

		Commercial Truck		Industrial		Aftermarket & Trailer		LVS		Eliminations			Total
Three months ended December 31, 2009:
External Sales	$	373	$	207	$	220	$	346	$	—		$	1,146
Intersegment Sales		60		19		2		—		(81	)		—
Total Sales	$	433	$	226	$	222	$	346	$	(81	)	$	1,146
Three months ended December 31, 2008:
External Sales	$	531	$	174	$	252	$	263	$	—		$	1,220
Intersegment Sales		64		36		2		—		(102	)		—
Total Sales	$	595	$	210	$	254	$	263	$	(102	)	$	1,220

	Three Months Ended December 31,
		2009		2008
Segment EBITDA:
Commercial Truck	$	12	$	(6	)
Industrial		22		20
Aftermarket & Trailer		17		17
Light Vehicle Systems		6		(252	)
Segment EBITDA		57		(221	)
Unallocated legacy and corporate costs (1)		(3)		(16	)
Depreciation and amortization		(18)		(26	)
Loss on sale of receivables		(1)		(4	)
Interest expense, net		(23)		(23	)
Provision for income taxes		(14)		(630	)
Loss from continuing operations attributable to ArvinMeritor, Inc.	$	(2)	$	(920	)

⁽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 recently sold businesses and other legacy costs for environmental and product liability. Unallocated legacy and corporate costs for the three months ended December 31, 2008 include $6 million of costs associated with the previously planned spin-off of the LVS business and a $6 million non-cash impairment charge associated with certain corporate long-lived assets.

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 16).

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.

28

ARVINMERITOR, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions) 

	Three Months Ended December 31, 2009
	Parent			Guarantors			Non- Guarantors			Elims		Consolidated
Sales
External	$	—		$	380		$	766		$	—	$	1,146
Subsidiaries		—			27			18			(45)		—
Total sales		—			407			784			(45)		1,146
Cost of sales		(14	)		(353	)		(709	)		45		(1,031	)
GROSS MARGIN		(14	)		54			75			—		115
Selling, general and administrative		(28	)		(30	)		(27	)		—		(85	)
Restructuring costs		—			—			(2	)		—		(2	)
Gain/(loss) on sale of business		—			—			—			—		—
OPERATING INCOME (LOSS)		(42	)		24			46			—		28
Equity in earnings of affiliates		—			4			6			—		10
Other income (expense), net		—			(1	)		1			—		—
Interest income (expense), net		(32	)		15			(6	)		—		(23	)
INCOME (LOSS) BEFORE INCOME TAXES		(74	)		42			47			—		15
Provision for income taxes		—			(4	)		(10	)		—		(14	)
Equity income from continuing operations of subsidiaries		72			37			—			(109)		—
INCOME (LOSS) FROM CONTINUING OPERATIONS		(2	)		75			37			(109)		1
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax		2		$	6		$	14		$	(20)	$	2
Net income (loss)		—			81			51			(129)		3
Less: Net income attributable to noncontrolling interests		—			—			(3	)		—		(3	)
NET INCOME (LOSS) ATTRIBUTABLE TO ARVINMERITOR, INC.	$	—		$	81		$	48		$	(129)	$	—

29

ARVINMERITOR, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
 

	Three Months Ended December 31, 2008
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Sales
External	$	—		$	488		$	732		$	—		$	1,220
Subsidiaries		—			28			25			(53	)		—
Total sales		—			516			757			(53	)		1,220
Cost of sales		(10	)		(458	)		(730	)		53			(1,145	)
GROSS MARGIN		(10	)		58			27			—			75
Selling, general and administrative		(29	)		(37	)		(31	)		—			(97	)
Restructuring costs		(3	)		(11	)		(10	)		—			(24	)
Asset impairment charges		(6	)		(111	)		(106	)		—			(223	)
OPERATING LOSS		(48	)		(101	)		(120	)		—			(269	)
Equity in earnings (losses) of affiliates		—			(1	)		5			—			4
Other income (expense), net		—			(5	)		5			—			—
Interest income (expense), net		(27	)		12			(8	)		—			(23	)
LOSS BEFORE INCOME TAXES		(75	)		(95	)		(118	)		—			(288	)
Provision for income taxes		(439	)		(119	)		(72	)		—			(630	)
Equity income (loss) from continuing operations of subsidiaries		(406	)		57			—			349			—
LOSS FROM CONTINUING OPERATIONS		(920	)		(157	)		(190	)		349			(918	)
LOSS FROM DISCONTINUED OPERATIONS, net of tax		(41	)	$	(53	)	$	(50	)	$	91		$	(53	)
Net loss		(961	)		(210	)		(240	)		440			(971	)
Less: Net loss attributable to noncontrolling interests		—			—			10			—			10
NET INCOME (LOSS) ATTRIBUTABLE TO ARVINMERITOR, INC.	$	(961)		$	(210)		$	(230)		$	440		$	(961)

30

ARVINMERITOR, INC.

CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)

	December 31, 2009
	Parent			Guarantors			Non- Guarantors		Elims		Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	2		$	16		$	87	$	—	$	105
Receivables, net		2			35			644		—		681
Inventories		—			145			249		—		394
Other current assets		3			13			98		—		114
TOTAL CURRENT ASSETS		7			209			1,078		—		1,294
NET PROPERTY		9			130			302		—		441
GOODWILL		—			275			162		—		437
OTHER ASSETS		28			153			146		—		327
INVESTMENTS IN SUBSIDIARIES		855			193			—		(1,048)		—
TOTAL ASSETS	$	899		$	960		$	1,688	$	(1,048)	$	2,499
CURRENT LIABILITIES
Short-term debt	$	1		$	—		$	88	$	—	$	89
Accounts payable		13			182			488		—		683
Other current liabilities		112			84			228		—		424
TOTAL CURRENT LIABILITIES		126			266			804		—		1,196
LONG-TERM DEBT		1,000			—			1		—		1,001
RETIREMENT BENEFITS		859			—			223		—		1,082
INTERCOMPANY PAYABLE (RECEIVABLE)		(4	)		(260	)		264		—		—
OTHER LIABILITIES		61			138			133		—		332
EQUITY (DEFICIT) ATTRIBUTABLE TO ARVINMERITOR, INC.		(1,143	)		816			232		(1,048)		(1,143	)
NONCONTROLLING INTERESTS		—			—			31		—		31
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	899		$	960		$	1,688	$	(1,048)	$	2,499

31

ARVINMERITOR, INC.

CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)

	September 30, 2009
	Parent			Guarantors			Non- Guarantors		Elims		Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	7		$	6		$	82	$	—	$	95
Receivables, net		11			37			646		—		694
Inventories		—			133			241		—		374
Other current assets		2			13			82		—		97
Assets of discontinued operations		—			—			56		—		56
TOTAL CURRENT ASSETS		20			189			1,107		—		1,316
NET PROPERTY		9			131			305		—		445
GOODWILL		—			275			163		—		438
OTHER ASSETS		43			149			114		—		306
INVESTMENTS IN SUBSIDIARIES		724			133			—		(857)		—
TOTAL ASSETS	$	796		$	877		$	1,689	$	(857)	$	2,505
CURRENT LIABILITIES
Short-term debt	$	2		$	—		$	95	$	—	$	97
Accounts payable		44			174			456		—		674
Other current liabilities		111			35			265		—		411
Liabilities of discontinued operations		—			—			107		—		107
TOTAL CURRENT LIABILITIES		157			209			923		—		1,289
LONG-TERM DEBT		993			—			2		—		995
RETIREMENT BENEFITS		853			—			224		—		1,077
INTERCOMPANY PAYABLE (RECEIVABLE)		(101	)		(242	)		343		—		—
OTHER LIABILITIES		89			186			35		—		310
EQUITY (DEFICIT) ATTRIBUTABLE TO ARVINMERITOR, INC.		(1,195	)		724			133		(857)		(1,195	)
NONCONTROLLING INTERESTS		—			—			29		—		29
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	796		$	877		$	1,689	$	(857)	$	2,505

32

ARVINMERITOR, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
  

	Three Months Ended December 31, 2009
	Parent			Guarantors			Non- Guarantors			Elims		Consolidated
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES	$	(42	)	$	16		$	53		$	—	$	27
INVESTING ACTIVITIES
Capital expenditures		—			(6	)		(16	)		—		(22	)
Other investing activities		—			—			1			—		1
Net cash flows provided by discontinued operations		—			—			5					5
CASH USED FOR INVESTING ACTIVITIES		—			(6	)		(10	)		—		(16	)
FINANCING ACTIVITIES
Borrowings on revolving credit facility, net		7			—			—			—		7
Borrowings on account receivable securitization program		—			—			2			—		2
Payments on lines of credit and other, net		—			—			(11	)		—		(11	)
Intercompany advances		31			—			(31	)		—		—
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

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ARVINMERITOR, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
 
 

	Three Months Ended December 31, 2008
	Parent			Guarantors			Non- Guarantors			Elims		Consolidated
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES	$	(99	)	$	6		$	(245	)	$	—	$	(338	)
INVESTING ACTIVITIES
Capital expenditures		(1	)		(11	)		(26	)		—		(38	)
Other investing activities		—			—			2			—		2
Net cash flows used by discontinued operations								(10	)		—		(10	)
CASH USED FOR INVESTING ACTIVITIES		(1	)		(11	)		(34	)		—		(46	)
FINANCING ACTIVITIES
Borrowings on revolving credit facility, net		103			—			—			—		103
Payments on account receivable securitization program		—			—			(18	)		—		(18	)
Borrowings on lines of credit and other, net		—			—			3			—		3
Intercompany advances		(160	)		—			160			—		—
Cash dividends		(8	)		—			—			—		(8	)
Net financing cash flows used by discontinued operations		—			—			(9	)		—		(9	)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES		(65	)		—			136			—		71
EFFECT OF FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		—			—			(26	)		—		(26	)
CHANGE IN CASH AND CASH EQUIVALENTS		(165	)		(5	)		(169	)		—		(339	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		174			24			299			—		497
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	9		$	19		$	130		$	—	$	158

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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, and light vehicle original equipment manufacturers. ArvinMeritor common stock is traded on the New York Stock Exchange under the ticker symbol ARM.

Fiscal year 2009 was extremely difficult for us and the industries in which we participate. We believe that the substantial uncertainty and significant deterioration in the worldwide credit markets and the global economic downturn in 2009 impacted the demand for the products of our customers as highlighted in the production volumes summarized below. Many of our customers experienced sharp declines in production and sales volumes, which started in November 2008 and continued throughout fiscal year 2009. Although we are now seeing steady improvement from fiscal year 2009 low points, we expect production volumes to continue at reduced levels in the near term with recovery varying by region. 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. We continued to implement and execute our long-term profit improvement and cost reduction initiative called “Performance Plus”, which was launched in fiscal year 2007, 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. These initiatives were crucial to our success in fiscal year 2009 in weathering the global recession and preparing for future economic recovery. We expect the lower cost base that we have established through our disciplined approach to cost reductions to serve us well not only through the current difficult environment but also during future periods of economic recovery.

Despite lower sales as compared to our first quarter of fiscal year 2009, primarily due to the lower production volumes, our financial results for the quarter ended December 31, 2009 were significantly improved. Segment EBITDA for the three months ended December 31, 2010 was $57 million compared to negative $221 million in the prior year first quarter. The significantly improved EBITDA performance is primarily due to the cost reductions previously discussed. In addition, we recognized approximately $223 of non-cash impairment charges in the prior year, primarily for long-lived assets in our Light Vehicle Systems (LVS) business segment.

While we have been unable to fully offset recent market declines, we are focused on actions to improve our market share and diversification strategies to help offset the decline. We continue to remain focused on ensuring access to adequate liquidity throughout this challenging business climate to maintain our operations and fund future growth. These strategies are also expected to position us well as markets recover.

The following table reflects estimated automotive and commercial vehicle production volumes for selected original equipment (OE) markets for the first quarter ended December 31, 2009 and 2008 based on available sources and management’s estimates.

	Three Months Ended December 31,				Unit		Percent
	2009		2008		Change		Change
Commercial Vehicles (in thousands)
North America, Heavy-Duty Trucks		31.0		45.6	(14.6	)	(32)	%
North America, Trailers		20.8		33.5	(12.7	)	(38)	%
Europe, Heavy- and Medium-Duty Trucks		49.9		121.4	(71.5	)	(59)	%
Europe, Trailers		16.0		19.4	(3.4	)	(17)	%
South America, Heavy- and Medium-Duty Trucks		37.8		38.0	(0.2	)	(1)	%
Light Vehicles (in millions)
North America		2.7		2.7	—		—	%
Europe		4.5		4.0	0.5		12	%
South America		1.0		0.7	0.3		43	%

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ARVINMERITOR, INC.

In addition, our business continues to address a number of challenging industry-wide issues including the following:

• Weakened financial condition of original equipment manufacturers and suppliers;

• Disruptions in the financial markets and its impact on the availability and cost of credit;

• Excess capacity;

• Consolidation and globalization of OEMs and their suppliers;

• Fluctuating costs and availability of steel and other raw materials;

• Higher energy and transportation costs;

• OE pricing pressures;

• Pension and retiree medical health care costs; and

• Currency exchange rate volatility.

Other significant factors that could affect our results and liquidity in fiscal year 2010 include:

• Volatility in financial markets around the world;

  • Timing and extent of recovery of the production and sales volumes in commercial and light vehicle markets around the world;

• A significant further deterioration or slowdown in economic activity in the key markets we operate;

• Further lower volume of orders from key customers;

• The financial strength of our suppliers and customers, including potential bankruptcies;

• Higher than planned price reductions to our customers;

• Volatility in price and availability of steel and other commodities;

• Any unplanned extended shutdowns or production interruptions by us, our customers or our suppliers;

  • Our ability to successfully complete the separation of our light vehicle businesses from our commercial vehicle business, with respect to our Body Systems business;

• The impact of our recent divestitures;

• 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;

• The impact of currency fluctuations on sales and operating income; and

• The impact of any new accounting rules.

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ARVINMERITOR, INC.

LVS Divestiture Strategy

In conjunction with our long-term strategic objective to focus on supplying the commercial vehicle on- and off-highway markets for original equipment manufacturers, aftermarket and industrial customers, we previously announced our intent to divest the LVS business groups. In October 2009, we completed the sale of our 57 percent interest in Meritor Suspension Systems Company (MSSC) to the joint venture partner, a subsidiary of Mitsubishi Steel Mfg. Co., LTD (MSM). The results of operations and cash flows of this business are presented in discontinued operations in the consolidated statements of operations and consolidated statement of cash flows and prior periods have been recast to reflect this presentation. As a result of this sale, as well as the sale of many of our other LVS businesses in fiscal year 2009, the LVS business segment consists primarily of our Body Systems’ business.

We are continuing to strategically evaluate all options with respect to divesting our LVS Body Systems business, including a sale of the entire business, multiple sales of portions of the business, shut downs of portions of the business or a combination of partial sales and shut downs. We expect that the divestiture process will extend until the end of 2010 or beyond. There are significant risks, uncertainties and costs inherent in any options we may pursue, including the terms upon which any sale agreement with respect to any portion of the business may be entered into (including potential substantial costs) and the amount of any exit costs.

NON-GAAP MEASURES

In addition to the results reported in accordance with accounting principles generally accepted in the United States (GAAP), we have provided information regarding “segment EBITDA”. Segment EBITDA is defined as income (loss) from continuing operations before interest, income taxes, depreciation and amortization and loss on sale of receivables. We use segment EBITDA as the primary basis to evaluate the performance of each of our reportable segments. For a reconciliation of segment EBITDA to loss from continuing operations see “Results of Operations” below.

Management believes segment EBITDA is a meaningful measure of performance as it is commonly utilized by management and investors to analyze operating performance and entity valuation. Management, the investment community and banking institutions routinely use segment EBITDA, together with other measures, to measure operating performance in our industry. Further, management uses segment EBITDA for planning and forecasting future periods.

Segment 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. Segment EBITDA, as determined and presented by the company, may not be comparable to related or similarly titled measures reported by other companies.

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ARVINMERITOR, INC.

Results of Operations

The following is a summary of our financial results (in millions, except per share amounts):

	Three Months Ended December 31,
	2009			2008
Sales:
Commercial Truck	$	433		$	595
Industrial		226			210
Aftermarket & Trailer		222			254
Light Vehicle Systems		346			263
Intersegment Sales		(81	)		(102	)
SALES	$	1,146		$	1,220
SEGMENT EBITDA:
Commercial Truck	$	12		$	(6	)
Industrial		22			20
Aftermarket & Trailer		17			17
Light Vehicle Systems		6			(252	)
SEGMENT EBITDA (1)		57			(221	)
Unallocated legacy and corporate costs (2)		(3	)		(16	)
Loss on sale of receivables		(1	)		(4	)
Depreciation and amortization		(18	)		(26	)
Interest expense, net		(23	)		(23	)
Provision for income taxes		(14	)		(630	)
LOSS FROM CONTINUING OPERATIONS, attributable to ArvinMeritor, Inc.		(2	)		(920	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax, attributable to ArvinMeritor, Inc.		2			(41	)
NET INCOME (LOSS), attributable to ArvinMeritor, Inc.	$	—		$	(961	)
DILUTED EARNINGS (LOSS) PER SHARE, attributable to ArvinMeritor, Inc.
Continuing operations	$	(0.03	)	$	(12.72	)
Discontinued operations		0.03			(0.57	)
Diluted earnings (loss) per share	$	—		$	(13.29	)
DILUTED AVERAGE COMMON SHARES OUTSTANDING		72.7			72.3

⁽¹⁾ Segment EBITDA results reflect $217 million of non-cash impairment charges recognized in the first quarter of fiscal year 2009, primarily impacting the LVS segment.

⁽²⁾ 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 recently sold businesses and other legacy costs for environmental and product liability. Unallocated legacy and corporate costs for the three months ended December 31, 2008 include $6 million of costs associated with the previously planned spin-off of the LVS business and $6 million non-cash impairment charges associated with certain corporate long-lived assets.

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ARVINMERITOR, INC.

Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008

Sales

The following table reflects total company business segment sales for the three months ended December 31, 2009 and 2008. 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).

												Dollar Change Due To
	December 31,						Dollar			%					Volume
	2009			2008			Change			Change		Currency			/ Other
Sales:
Commercial Truck	$	433		$	595		$	(162	)	(27)	%	$	30		$	(192	)
Industrial		226			210			16		8	%		6			10
Aftermarket & Trailer		222			254			(32	)	(13)	%		10			(42	)
Light Vehicle Systems		346			263			83		32	%		19			64
Intersegment Sales		(81	)		(102	)		21		(21)	%		(7	)		28
TOTAL SALES	$	1,146		$	1,220		$	(74	)	(6)	%	$	58		$	(132	)

Commercial Truck sales were $433 million in the first three months of fiscal year 2010, down 27 percent from the first three months of fiscal year 2009. The effect of foreign currency translation increased sales by $30 million. Excluding the effects of foreign currency, sales decreased by $192 million or 32 percent, primarily due to significantly lower OE production volumes in Europe and North America. European heavy- and medium-duty truck production volumes decreased 59 percent compared to the prior year. Production volumes in the North American Class 8 commercial vehicle truck markets were lower by 32 percent compared to the prior year. Many of our customers experienced sharp declines in production and sales volumes in the prior year, which started in November 2008 and continued throughout our fiscal year 2009. Although we are now seeing steady improvement from 2009 low points, we expect production volumes to continue at reduced levels in the near term with recovery varying by region.

Industrial sales were $226 million in the first quarter of 2010, up 8 percent from the first quarter of 2009. The increase in sales was primarily due to higher sales in the Asia-Pacific region, which increased approximately 63 percent from the prior year, primarily in India. These increases were partially offset by lower sales in the first quarter of fiscal year 2010 as compared to the same period last year of our military products primarily associated with the Mine Resistant Ambush Protection program.

Aftermarket & Trailer sales were $222 million in the first three months of fiscal year 2010, down 13 percent from the first three months of fiscal year 2009. The decrease in sales is primarily due to lower sales of products for trailer applications, which decreased approximately 18 percent from the prior year. In addition, sales of our aftermarket products were down approximately 11 percent primarily due to lower sales of military service parts. The effect of foreign currency translation partially offset these declines.

Light Vehicle Systems sales were $346 million in the first quarter of 2010, up from $263 million in the first quarter of 2009. The effect of foreign currency translation increased sales by $19 million. Excluding the impact of foreign currency translation, sales increased by $64 million or 24 percent compared to the prior year. The increase in sales is primarily due to higher light vehicle production volumes in Europe compared to the prior year’s first fiscal quarter. However, light vehicle production continues to be at historically low levels and is expected to remain at these low levels in the near term.

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, 2009 was $1,031 million compared to $1,145 million in the prior year, representing a decrease of 10 percent. The decrease in costs of sales is primarily due to the reduced sales volumes discussed above.

Total cost of sales were approximately 90 percent of sales for the three months ended December 31, 2009 compared to approximately 94 percent for the first three months of the prior year. The decrease on a percentage basis is primarily due to significant reduction in variable and fixed costs compared to the first quarter of fiscal year 2009. As previously mentioned, we aggressively lowered our ‘break-even’ point throughout fiscal year 2009 through comprehensive restructuring and structural cost-reduction initiatives.

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ARVINMERITOR, INC.

The following table summarizes significant factors contributing to the changes in costs of sales during the three months ended December 31, 2009 compared to the same period in the prior year (in millions):

	Cost of Sales
Three months ended December 31, 2008	$	1,145
Volumes and mix		(95	)
Foreign exchange		45
Depreciation expense		(8	)
Other cost reductions, net		(56	)
Three months ended December 31, 2009	$	1,031

Changes in the components of cost of sales year over year are summarized as follows:

Lower material costs	$	(70	)
Lower labor and overhead costs		(18	)
Other		(26	)
Total decrease in costs of sales	$	(114	)

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, 2009 decreased by approximately $70 million compared to the same period last year, primarily as a result of lower sales volumes. Material costs for much of fiscal year 2009 were negatively impacted by higher average steel prices, partially offset by improvements in material performance compared to the prior year. Steel indexes saw a rapid increase beginning in the second quarter of fiscal year 2008 and remained at relatively higher levels through the first three quarters of fiscal year 2009. More recently, steel indexes have declined to normalized levels. Recovery practices with customers are generally consistent with index movements in steel prices.

Labor and overhead costs decreased by $18 million compared to the same period in the prior year. The decrease was primarily due to the lower 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 well as government assistance in certain European jurisdictions. Depreciation expense was lower by $8 million compared to the same period in the prior year primarily due to the non-cash asset impairment charges recorded in our LVS segment in the first quarter of fiscal year 2009.

As a result of the above, gross profit for the three months ended December 31, 2009 was $115 million compared to $75 million in the same period last year. Gross margins increased to 10 percent for the three months ended December 31, 2009 compared to 6 percent in the same period last year.

Other Income Statement Items

Selling, general and administrative expenses for the three months ended December 31, 2009 and 2008 are summarized as follows (in millions):

	2009					2008					Increase (Decrease)
SG&A	Amount			% of sales		Amount			% of sales
LVS separation costs	$	—		—	%	$	(6	)	0.5	%	$	(6	)	(0.5)	pts
Loss on sale of receivables		(1	)	—	%		(4	)	0.3	%		(3	)	(0.3)	pts
Short- and long-term variable compensation		(10	)	0.9	%		—		—	%		10		0.9	pts
All other SG&A		(74	)	6.5	%		(87	)	7.2	%		(13	)	(0.7)	pts
Total SG&A	$	(85	)	7.4	%	$	(97	)	8.0	%	$	(12	)	(0.6)	pts

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ARVINMERITOR, INC.

LVS separation costs are third-party transaction costs incurred in connection with the previously planned spin-off of the LVS business. Loss on sale of receivables decreased as the amount of receivables we sold under off-balance sheet factoring programs during the first three months of the current fiscal year were significantly lower than the same period in the prior year due to a decrease in our sales. In the prior year’s first fiscal quarter, we eliminated substantially all variable incentive compensation pay for the 2009 fiscal year. All other SG&A represents normal selling, general and administrative expenses. The decrease in all other SG&A compared to the prior year is a result of savings associated with various restructuring and other cost reduction initiatives, including reduced discretionary spending, and headcount reductions.

Long-lived asset and goodwill impairment charges for first quarter of fiscal year 2009 were $153 million and $70 million, respectively. These non-cash impairment charges primarily related to our LVS segment. In the prior year first fiscal quarter, management determined that certain asset impairment charges were required due to declines in overall economic conditions, including significant reductions in current and forecasted production volumes for light and commercial vehicles.

Operating income for the first quarter of fiscal year 2010 was $28 million, compared to an operating loss of $269 million in the first quarter of fiscal year 2009. The improved operating results were as a result of the items explained above.

Equity in earnings of affiliates was $10 million in the first quarter of fiscal year 2010, compared to $4 million in the same period in the prior year. The increase is primarily due to higher earnings from our CVS affiliates in Brazil, the United States and India.

Provision for income taxes in the first three months of fiscal year 2010 was $14 million compared to $630 million in the same period in the prior year. Income tax expense in the first quarter of fiscal year 2010 was unfavorably impacted by losses in certain tax jurisdictions where tax benefits are no longer being recognized. Included in the prior year tax provision is a $633 million non-cash charge related to recording valuation allowances against net deferred tax assets in certain jurisdictions, primarily the United States and France. Based on our assessment of historical tax losses, combined with significant uncertainty as to the timing of recovery in the global markets, we concluded that valuation allowances were required against the deferred tax assets in certain jurisdictions. Income tax expense in the first quarter of fiscal year 2009 was also unfavorably impacted by current period losses in certain tax jurisdictions where tax benefits are no longer being recognized.

Income from continuing operations for the first quarter of fiscal year 2010 was $1 million, compared to a loss of $918 million, for the first quarter of fiscal year 2009. The reasons for the decrease in loss are discussed above.

Income from discontinued operations was $2 million in the first quarter of fiscal year 2010, compared to a loss of $53 million in the same period in the prior year. Significant items included in results from discontinued operations in the first quarter of fiscal year 2010 and 2009 include the following:

	Three Months Ended December 31,
	2009			2008
Gain on sale of business, net	$	16		$	—
Asset impairment charges		—			(56	)
Other		(15	)		(1	)
Operating income (loss), net		—			(14	)
Income (loss) before income taxes		1			(71	)
Benefit for income taxes		1			18
Net income (loss)		2			(53	)
Net income (loss) attributable to noncontrolling interests		—			12
Income (loss) from discontinued operations attributable to ArvinMeritor, Inc.	$	2		$	(41	)

Gain on sale of business, net: We recognized a pre-tax gain of $16 million ($16 million after-tax), net of indemnity obligations, on the sale of our 57 percent interest in MSSC in October 2009.

Asset impairment charges: We recognized non-cash impairment charges in the prior year first fiscal quarter, as management determined that certain asset impairment charges were required due to declines in overall economic conditions, including significant reductions in current and forecasted production volumes for light vehicles and the impact on expected sale value upon eventual disposition.

Other: Other primarily relates to charges for changes in estimates for purchase price adjustments and indemnity obligations for previously sold businesses.

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ARVINMERITOR, INC.

Net income attributable to noncontrolling interests for the first quarter of fiscal year 2010 was $3 million compared to net loss attributable to noncontrolling interests of $10 million for the first quarter of fiscal year 2009. Noncontrolling interests represent our minority partners’ share of income or loss associated with our less than 100 percent owned consolidated joint ventures.

Net income (loss) attributable to ArvinMeritor, Inc. was breakeven for the three months ended December 31, 2009 compared to a loss of $961 million for the three months ended December 31, 2008. The decrease in loss is attributable to reasons described above.

Segment EBITDA and EBITDA Margins

As a result of the divestitures of many of our LVS businesses, LVS now consists primarily of Body Systems’ business, composed of roofs and doors products. In order to better reflect the importance of our remaining core commercial vehicle businesses and a much smaller LVS business and to reflect the manner in which management reviews information regarding our business, we revised our reporting segments in the fourth quarter of fiscal year 2009. We refer to our three commercial vehicle segments (Commercial Truck, Industrial and Aftermarket & Trailer) collectively, as our “Core Business”. All prior period amounts have been recast to reflect the revised reporting segments.

The following table reflects segment EBITDA and EBITDA margins for the three months ended December 31, 2009 and 2008 (dollars in millions).

	Segment EBITDA							Segment EBITDA Margins
	December 31,							December 31,
	2009		2008			$ Change		2009			2008			Change
Commercial Truck	$	12	$	(6	)	$	18		2.8	%		(1.0)	%		3.8	pts
Industrial		22		20			2		9.7	%		9.5	%		0.2	pts
Aftermarket & Trailer		17		17			—		7.7	%		6.7	%		1.0	pts
LVS		6		(252	)		258		1.7	%		(95.8)	%		97.5	pts
Segment EBITDA	$	57	$	(221	)	$	278		5.0	%		(18.1)	%		23.1	pts

Significant items impacting year over year segment EBITDA include the following:

	Commercial Truck			Industrial			Aftermarket & Trailer			LVS			TOTAL
Segment EBITDA– Quarter ended December 31, 2008	$	(6	)	$	20		$	17		$	(252	)	$	(221	)
Prior year asset impairment charges		8			—			—			209			217
Lower restructuring costs		7			1			—			11			19
Higher earnings from unconsolidated affiliates		4			1			—			1			6
Reinstatement of temporary cost reductions		(6	)		(2	)		(3	)		(1	)		(12	)
Higher pension and retiree medical costs		(2	)		(1	)		(1	)		—			(4	)
Volume, performance and other, net of cost reductions		7			3			4			38			52
Segment EBITDA – Quarter ended December 31, 2009	$	12		$	22		$	17		$	6		$	57

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ARVINMERITOR, INC.

Restructuring costs included in our business segment results during the three months ended December 31, 2009 and 2008 are as follows (in millions):

	Commercial Truck				Industrial				Aftermarket & Trailer				LVS				Total
	2009		2008		2009		2008		2009		2008		2009		2008		2009		2008
Performance Plus actions	$	—	$	—	$	—	$	—	$	—	$	—	$	2	$	1	$	2	$	1
Fiscal year 2009 actions (reduction in workforce)		—		7		—		1		—		—		—		12		—		20
Total restructuring costs (1)	$	—	$	7	$	—	$	1	$	—	$	—	$	2	$	13	$	2	$	21

⁽¹⁾ Total segment restructuring costs do not include those recorded in unallocated corporate costs. There were no unallocated corporate restructuring costs in the first quarter of fiscal year 2010 and $3 million in the first quarter of fiscal year 2009, primarily related to employee termination benefits.

Commercial Truck EBITDA was $12 million in the first three months of fiscal year 2010, up $18 million compared to the same period in the prior year. The impact of lower commercial truck production volumes in Europe and North America adversely impacted EBITDA in the first quarter of fiscal year 2010. However, the unfavorable impact of lower sales was more than offset by savings associated with prior restructuring and cost reduction initiatives, higher earnings from our unconsolidated joint ventures and lower restructuring costs and asset impairment charges. Included in EBITDA for the first quarter of fiscal year 2009 were restructuring costs of $7 million primarily related to reductions in force implemented globally in fiscal year 2009 and $8 million of asset impairment charges associated with obsolete production equipment resulting from reduced production of our Carrollton, Kentucky facility.

Industrial EBITDA was $22 million in the first quarter of fiscal year 2010, up $2 million compared to the prior year.

Aftermarket & Trailer EBITDA was $17 million in the first quarter of fiscal year 2010, no change compared to the same period in the prior year. EBITDA margin increased to 7.7 percent from 6.7 percent.

LVS EBITDA was $6 million in the first three months of fiscal year 2010, compared to EBITDA of negative $252 million in the same period in the prior year. Included in EBITDA in the prior year are non-cash impairment charges of $209 million, of which $139 million relates to certain fixed assets and $70 million relates to goodwill. In the first quarter of fiscal year 2009, management determined an impairment review of goodwill and certain long-lived assets was required due to recent declines in overall economic conditions including tightening credit markets and significant reductions in current and forecasted production volumes for light vehicles. These events contributed to a significant decline in the fair value of our LVS business and related long-lived assets.

In the prior year, the impact of lower light vehicle production volumes in all regions along with higher material costs, primarily steel, significantly impacted LVS EBITDA. LVS EBITDA for the three months ended December 31, 2009 was favorably impacted by higher production volumes in Europe compared to the same period last year as well as significant cost reductions implemented in fiscal year 2009. Also included in EBITDA for the first three months of fiscal year 2010 are restructuring costs of $2 million, compared to $13 million in the first three months of fiscal year 2009. Restructuring costs primarily relate to reductions in force actions implemented globally, including the elimination of the LVS corporate divisional structure.

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Financial Condition

Cash Flows (in millions)

	Three Months Ended December 31,
	2009			2008
OPERATING CASH FLOWS
Income (loss) from continuing operations	$	1		$	(918	)
Depreciation and amortization		18			26
Asset impairment charges		—			223
Deferred income tax expense		4			622
Pension and retiree medical expense		25			19
Pension and retiree medical contributions		(21	)		(46	)
Restructuring costs, net of payments		(3	)		13
Decrease in working capital		(46	)		(266	)
Changes in sale of receivables		54			(4	)
Other, net		(8	)		10
Cash flows provided by (used for) continuing operations		24			(321	)
Cash flows provided by (used for) discontinued operations		3			(17	)
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES	$	27		$	(338	)

Cash provided by operating activities for the first quarter of fiscal year 2010 was $27 million, compared to cash used of $338 million in the first three months of fiscal year 2009. The increase in cash flow is primarily attributable to improved earnings, lower uses of cash for working capital and lower pension and retiree medical contributions. Pension and retiree medical contributions in the prior year include a $28 million payment related to a settlement of a retiree medical lawsuit. Also unfavorably impacting prior year cash flow is a $25 million payment associated with a settlement of a commercial matter with a customer.

	Three Months Ended December 31,
	2009			2008
INVESTING CASH FLOWS
Capital expenditures	$	(22	)	$	(38	)
Other investing activities		1			2
Net investing cash flows provided by (used for) discontinued operations		5			(10	)
CASH USED FOR INVESTING ACTIVITIES	$	(16	)	$	(46	)

Cash used for investing activities was $16 and $46 million in the first three months of fiscal year 2010 and 2009, respectively. Capital expenditures decreased to $22 million in the first quarter of fiscal year 2010 from $38 million in the first quarter of the prior year.

	Three Months Ended December 31,
	2009			2008
FINANCING CASH FLOWS
Borrowings on revolving credit facility, net	$	7		$	103
Borrowings (payments) on accounts receivable securitization program		2			(18	)
Borrowings (payments) on lines of credit and other		(11	)		3
Net change in debt		(2	)		88
Cash dividends		—			(8	)
Net financing cash flows used for discontinued operations		—			(9	)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES	$	(2	)	$	71

Cash used for financing activities was $2 million in the first three months of fiscal year 2010 compared to cash provided by financing activities of $71 million in the first three months of fiscal year 2009. The decrease primarily relates to lower borrowings on our revolving credit facility. The higher borrowings in the prior year reflect higher uses of cash for operating activities in the prior year (see “Operating Cash Flows” above). We also paid cash dividends of $8 million in the quarter ended December 31, 2008. In February 2009, we announced that the Board of Directors determined to suspend the company’s quarterly dividend until further notice.

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Liquidity

Our outstanding debt, net of discounts where applicable, is summarized as follows (in millions).

	December 31,			September 30,
	2009			2009
Fixed-rate debt securities	$	527		$	527
Fixed-rate convertible notes		500			500
Revolving credit facility		35			28
Borrowings under U.S. accounts receivable securitization program		85			83
Unamortized discount on convertible notes		(83	)		(85	)
Unamortized gain on swap unwind		21			23
Lines of credit and other		5			16
Total debt	$	1,090		$	1,092

Overview – Our principal operating and capital requirements are for working capital needs, capital expenditure requirements, debt service requirements and funding of restructuring, business and product development programs. We expect fiscal year 2010 capital expenditures for our business segments, including LVS, to be in the range of $90 million to $110 million. In addition, we expect restructuring cash costs to be approximately $25 million in fiscal year 2010.

We generally fund our operating and capital needs primarily with cash on hand, 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 under our revolving credit facility. Upon expiration of our current revolving facility in June 2011, we will require a new or renegotiated facility (which is expected to be smaller and may have less favorable terms than our current facility) or other financing arrangements. 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. In fiscal year 2009, our credit rating decreased and we saw a significant decline in our stock price. 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 arrangements if conditions warrant.

Sources of liquidity as of December 31, 2009, in addition to cash on hand, are as follows:

	Total Facility Size		Unused as of 12/31/09		Current Expiration
On-balance sheet arrangements:
Revolving credit facility	$	666	$	605		June 2011
Committed U.S. securitization		125		40		September 2011
Total on-balance sheet arrangements		791		645
Off-balance sheet arrangements:
Committed receivable factoring programs		308		186		October 2010
Other uncommitted factoring facilities		158		133		Various
Total off-balance sheet arrangements		466		319
Total available sources	$	1,257	$	964

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. In addition, although our long term strategy is to become primarily a commercial vehicle and industrial company, the financial and economic environment has made this difficult to accomplish in the short term and has left us with servicing the cash outflows of certain of our light vehicle businesses, which were substantial in the first six months of fiscal year 2009. The divestiture in fiscal year 2009 of several of our light vehicle Chassis businesses, in addition to restructuring actions and other cost reductions taken during the fiscal year, have limited the cash outflow of our remaining LVS businesses. However, the cash needs of the remaining LVS businesses could be significant while we continue to operate these businesses. In addition, potential cash costs to sell or shut down all or portions of our Body Systems business may be substantial dependent on the timing and specific actions to complete this process.

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Our availability under the revolving credit facility is subject to a senior secured debt to EBITDA ratio covenant, as defined in the agreement, which will likely 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. We were in compliance with this covenant as of December 31, 2009.

Future Covenant Compliance – 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 and automotive industries continue, management expects to have sufficient liquidity to fund our operating requirements through the term of our existing revolving credit facility in June 2011.

Although we believe we will have sufficient liquidity, if amendments or waivers are needed due to unforeseen negative trends or developments, we would negotiate with the lenders under these facilities and believe we will receive such an amendment or waiver if required. However, there can be no assurances as to whether any such amendment or waiver may be obtained or, if obtained, whether the terms and restrictions of such amendment or waiver will be as favorable as current arrangements. Any amendment or waiver will contain commercial terms consistent with the current market which would likely include higher interest rates and an upfront amendment fee. If such amendments or waivers are needed and are not obtained, the lenders under these facilities could accelerate our obligations, which, through cross defaults, could allow acceleration of obligations under certain of our other debt arrangements, including our outstanding convertible notes and our U.S. accounts receivable securitization program.

Revolving Credit Facility – We have a $700 million revolving secured credit facility that matures in June 2011. Due to the bankruptcy of Lehman Brothers in fiscal year 2008, $34 million of these commitments are currently unavailable. The remaining amount of availability under this facility is dependent upon various factors, including principally performance against certain financial covenants. At December 31 and September 30, 2009, there were $35 million and $28 million of borrowings outstanding, respectively. The $700 million revolving credit facility includes $150 million of availability for the issuance of letters of credit. At December 31, 2009 and September 30, 2009, approximately $26 million and $27 million letters of credit were issued, respectively.

Our availability under the revolving credit facility is subject to certain financial covenants based on (i) the ratio of the company’s senior secured indebtedness (consisting principally of amounts outstanding under the revolving credit facility) to EBITDA and (ii) the amount of annual capital expenditures. The company is required to maintain a total senior secured-debt-to-EBITDA ratio, as defined in the agreement, no greater than 2.00 to 1 on the last day of any fiscal quarter. At December 31, 2009, we were in compliance with the above noted covenants with a ratio of approximately 0.41x for the senior secured-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, 2009, the margin over the LIBOR rate was 275 basis points, and the commitment fee was 50 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.

Accounts Receivable Securitization and Factoring – As of December 31, 2009, we participate in accounts receivable factoring and securitization programs with total amounts utilized of approximately $232 million of which $207 million were attributable to committed facilities by established banks. At December 31, 2009, of the total $232 million utilized, $147 million relates to off-balance sheet securitization and factoring arrangements (see “Off-Balance Sheet Arrangements”). In addition, $85 million was attributable to our U.S. securitization facility, which is provided on a committed basis by a syndicate of financial institutions led by GMAC Commercial Finance LLC and expires in September 2011.

U.S. Securitization Program: Since 2005 we participated in a U.S. accounts receivable securitization program to enhance financial flexibility and lower interest costs. In September 2009, in anticipation of the expiration of the existing facility, 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 sell substantially all of the trade receivables of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly-owned, special purpose subsidiary. The maximum borrowing capacity under this program is $125 million subject to adequate eligible accounts receivable. ARC funds these purchases with borrowings under a loan agreement with participating lenders. Amounts 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, 2009, $85 million was outstanding under this program. Borrowings under this arrangement are collateralized by approximately $134 million of receivables held at ARC at December 31, 2009. This program does not have specific financial covenants; however it does have a cross-default provision to our revolving credit facility agreement.

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Credit Ratings – Standard & Poor’s corporate credit rating and senior secured credit rating for our company is CCC+ and B-, respectively. Moody’s Investors Service corporate credit rating and senior secured credit rating for our company is Caa1 and B1, respectively. Any further 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.

Off-Balance Sheet Arrangements

Accounts Receivable Securitization and Factoring Arrangements – We participate in accounts receivable factoring programs with total amounts utilized at December 31, 2009, of approximately $147 million, of which $87 million and $35 million were attributable to a Swedish securitization facility and a French factoring facility, respectively, both of which involve the securitization or sale of Volvo AB 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, we can sell up to, at any point in time, €125 million of eligible trade receivables. Effective October 2009, the facility size was reduced to €90 million. The receivables under this program are sold at face value and excluded from the consolidated balance sheet. We had utilized, net of retained interests, €62 million ($87 million) and €38 million ($56 million) of this accounts receivable securitization facility as of December 31, 2009 and September 30, 2009, respectively.

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 €25 million ($35 million) and €10 million ($16 million) of this accounts receivable securitization facility as of December 31, 2009 and September 30, 2009, respectively.

Both of the above facilities are backed by 364-day liquidity commitments from Nordea Bank which were renewed through October 2010. 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).

In addition, several of our subsidiaries, primarily in Europe, factor eligible accounts receivables with financial institutions. The amount of factored receivables was $25 million and $21 million at December 31, 2009 and September 30, 2009, respectively.

Contingencies

      Contingencies related to environmental, asbestos and other matters are discussed in Note 19 of the Notes to Consolidated Financial Statements.

New Accounting Pronouncements

New accounting standards to be implemented:

In December 2008, the Financial Accounting Standards Board (FASB) issued guidance on defined benefit plans that requires new disclosures on investment policies and strategies, categories of plan assets, fair value measurements of plan assets, and significant concentrations of risk, and is effective for fiscal years ending after December 15, 2009, with earlier application permitted. The impact of this guidance will be reflected in the company’s consolidated financial statements upon adoption.

In June 2009, the FASB issued guidance on accounting for transfer of financial assets, which guidance 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. This guidance is effective for the first annual reporting period that begins after November 15, 2009 and for interim periods beginning in the first annual reporting period and periods thereafter. The company is currently evaluating the impact, if any, of the new requirements on its consolidated financial statements.

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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 variable interest entity. This guidance is effective for the first annual reporting periods beginning after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The company is currently assessing what impact, if any, that this guidance will have on its financial position, results of operations and cash flows.

In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. The guidance in ASU 2010-06 amends Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, to require additional disclosures related to transfers between levels in the hierarchy of fair value measurement. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009. ASU 2010-06 does not change how fair values are measured. The company is currently assessing what impact, if any, that this guidance will have on its financial statements.

Accounting standards implemented in fiscal year 2010:

In December 2007, the FASB issued consolidation guidance that establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The guidance also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. The statement also requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. If a parent retains a noncontrolling equity investment in the former subsidiary, that investment is measured at its fair value. This guidance is effective for the company for its fiscal year beginning October 1, 2009 and, as required, has been applied prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively for all periods presented. The company has modified the presentation and disclosure of noncontrolling interests in accordance with the requirement of the guidance, which resulted in changes in the presentation of the company’s consolidated statement of operations and condensed consolidated balance sheet and cash flows; and required it to incorporate a condensed consolidated statement of shareowners’ equity (deficit) and comprehensive income (loss). The adoption of this consolidation guidance did not have any other significant effect on the company’s financial statements.

In May 2008, the FASB issued guidance contained in ASC Topic 470-20, “Debt with Conversion and Other Options” which applies to all convertible debt instruments that have a “net settlement feature”, which means that such convertible debt instruments, by their terms, may be settled either wholly or partially in cash upon conversion. This topic requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. Topic 470-20 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Early adoption is not permitted and retroactive application to all periods presented is required.

This guidance impacts the company’s accounting for its outstanding $300 million convertible notes issued in 2006 (the 2006 convertible notes) and $200 million convertible notes issued in 2007 (the 2007 convertible notes) (see Notes 3 and 16). On October 1, 2009, the company adopted this guidance and applied its impact retrospectively to all periods presented. Upon adoption, the company recognized the estimated equity component of the convertible notes of $108 million ($69 million after tax) in additional paid-in capital. In addition, the company allocated $4 million of unamortized debt issuance costs to the equity component and recognized this amount as a reduction to additional paid-in capital. The company also recognized a discount on convertible notes of $108 million, which is being amortized as non-cash interest expense over periods of ten and twelve years for the 2006 convertible notes and 2007 convertible notes, respectively. The periods of ten and twelve years represent the expected life of the convertible notes based on the earliest period holders of the notes may redeem them. Non-cash interest expense for the amortization of the discount was $8 million, $7 million and $6 million for fiscal years 2009, 2008 and 2007, respectively. At December 31, 2009, the remaining amortization periods for the 2006 convertible notes and 2007 convertible notes were six years and nine years, respectively. Effective interest rates on the 2006 convertible notes and 2007 convertible notes were 7.0 percent and 7.7 percent, respectively.

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Upon recognition of the equity component of the convertible notes, the company also recognized a deferred tax liability of $39 million as the tax effect of the basis difference between carrying and notional values of the convertible notes. The carrying value of this deferred tax liability was offset with certain net deferred tax assets in the first quarter of fiscal year 2009 for determining valuation allowances against those deferred tax assets (see Note 7 for additional information on valuation allowances).

At December 31 and September 31, 2009, the carrying amount of the equity component recognized upon adoption was $67 million. The following table summarizes other information related to the convertible notes.

	December 31,			September 30,
	2009			2009
Components of the liability balance (in millions):
Principal amount of convertible notes	$	500		$	500
Unamortized discount on convertible notes		(83	)		(85	)
Net carrying value	$	417		$	415
	Three Months Ended December 31,
		2009			2008
Interest costs recognized (in millions):
Contractual interest coupon	$	5		$	5
Amortization of debt discount		2			2
Total	$	7		$	7

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.

Foreign currency exchange risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Accordingly, we use foreign currency forward contracts to minimize the earnings 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 cash flow hedging program, we have designated 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 12-21 months.

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. We had no outstanding interest rate swaps at December 31, 2009. It is our policy not to enter into derivative instruments for speculative purposes, and, therefore, we hold no derivative instruments for trading purposes.

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Included below is a sensitivity analysis 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 10% Increase in Rates			Assuming a 10% Decrease in Rates		Favorable / (Unfavorable) Impact on
Foreign Currency Sensitivity:
Forward contracts in USD(1)	$	—		$	—		Fair Value
Foreign currency denominated debt		0.5			(0.5	)	Fair Value
Forward contracts in EUR(1)		(6.6	)		6.6		Fair Value
Interest Rate Sensitivity:		Assuming a 50 BPS Increase in Rates			Assuming a 50 BPS Decrease in Rates		Favorable / (Unfavorable) Impact on
Debt - fixed rate	$	(29.8	)	$	31.6		Fair Value
Debt - variable rate(2)		(0.6	)		0.6		Cash Flow

   ⁽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.

⁽²⁾     Includes domestic and foreign debt.

At December 31, 2009, a 10% decrease in quoted currency exchange rates would result in no change in forward contracts in USD, a potential gain of approximately $6.6 million in forward contracts in EUR, and a potential loss of approximately $0.5 million in foreign currency denominated debt.

At December 31, 2009, the fair value of debt outstanding was approximately $1,076 million. A 50 basis points decrease in quoted interest rates would result in favorable impacts of $31.6 million and $0.6 million in fixed rate debt and variable rate debt, respectively.

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, 2009. Based upon that evaluation, the chief executive officer and the chief financial officer have concluded that, as of December 31, 2009, 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 us 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, 2009 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.

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PART II. OTHER INFORMATION
 

Item 1. Legal Proceedings

Except as set forth below in this Quarterly Report and under Note 19 “Contingencies,” 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, as amended, for the fiscal year ended September 27, 2009.

On October 5, 2006, ZF Meritor LLC, a joint venture between an ArvinMeritor subsidiary and ZF Friedrichshafen AG, filed a lawsuit against Eaton Corporation in the United States District Court for the District of Delaware, alleging that Eaton had engaged in exclusionary, anticompetitive conduct in the markets for heavy-duty truck transmissions, in violation of the U.S. antitrust laws. The plaintiffs seek an injunction prohibiting Eaton from engaging in such anticompetitive conduct and monetary damages. On October 8, 2009, the jury found that Eaton engaged in exclusionary and anticompetitive conduct in the sale and marketing of heavy-duty truck transmissions. This ruling completed the initial phase of the trial in which the jury was asked to determine whether or not Eaton was liable for the alleged violations. Given the jury’s finding that Eaton did engage in anticompetitive conduct, the parties are expected to now proceed to the damages phase of the legal process through a separate trial. On December 10, 2009, Eaton filed a request for oral argument on its motion for judgment as a matter of law or new trial.

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. 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. 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. The Antitrust Division of the U.S. Department of Justice (DOJ) was also investigating the allegations raised in these suits. The DOJ issued subpoenas to certain employees of the defendants, which include the company. On January 21, 2010, the DOJ informed defendants that were involved in the DOJ’s investigation that it had closed its investigation without action as to all of them.

Item 1A. Risk Factors

Except as set forth below, 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, as amended, for the fiscal year ended September 27, 2009.

Until recent quarters, our light vehicle Body Systems business incurred significant operating losses and negative cash flows, driven primarily by the 2008-2009 global financial crisis. The beginnings of recovery in global markets are beginning to be reflected in better operating performance and reduced cash outflows in this business. There can be no assurances that there will not be future operating losses or negative cash flows. In addition, this business has from time-to-time incurred significant warranty charges and there can be no certainty that additional warranty charges in the future will not be significant.

It is our intent to divest our Body Systems business in the most economically advantageous way possible. We have commenced a strategic evaluation of available options to divest this business, which include a sale of the entire business, multiple sales of portions of the business, shutdowns of portions of the business or a combination of partial sales and shutdowns. We expect that the divestiture process could extend until the end of 2010 or beyond. There are significant risks and uncertainties inherent in any options we may pursue. Risks involved in any sale process include the timing and certainty of completion of any transaction and the terms upon which any sale agreement with respect to all or any portion of the business may be entered into. Risks involved in any shutdown include the substantial severance and other payments we will be required to make in connection therewith. Shutdowns will also likely result in our operating the business for a lengthier period. Potential cash costs to sell or shutdown all or portions of the business may be substantial and could be in excess of $100 million. In addition, there is the potential to lose new or replacement customer awards due to the uncertainty as to the future of the business.

Until the closing of any sale or the completion of any shutdown, we will be responsible for the operation of this business. Therefore, it is possible that an extended process could result in operating losses and cash requirements for which we would be responsible, especially if global economic conditions do not continue to improve or begin to worsen. We will continue to evaluate and weigh the costs (which may include significant restructuring costs) to carry the business against any substantial costs to dispose or shutdown various pieces of the business and intend to make the most economically advantageous decisions with respect to this business. Accordingly, because we are still evaluating and will be weighing our possible options, we are unable to estimate with further specificity the costs associated with divesting or shutting down this business.

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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 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 through stock withholding. There were 5,543 shares so withheld in the first quarter of 2010.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares Purchased ___________	(b) Average Price Paid Per Share ___________	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs _______________	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs _______________
10/01/09 – 10/31/09	0	0	N/A	N/A
11/01/09 – 11/30/09	0	0	N/A	N/A
12/01/09 – 12/31/09	5,543	$8.375	N/A	N/A
Total:	5,543	$8.375
(1)     Shares of restricted stock were withheld by ArvinMeritor, upon vesting of restricted stock, to satisfy tax withholding requirements.

52

ARVINMERITOR, INC.

Item 5. Other Information

Cautionary Statement

This Quarterly Report on Form 10-Q contains statements relating to future results of the company (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “estimate,” “should,” “are likely to be,” “will” and similar expressions. There are risks and uncertainties as well as potential substantial costs relating to the company’s announced plans to divest the Body Systems business of LVS and any of the strategic options under which to pursue such divestiture. In the case of any sale of all or a portion of the business, these risks and uncertainties include the timing and certainty of completion of any sale, the terms upon which any purchase and sale agreement may be entered into (including potential substantial costs) and whether closing conditions (some of which may not be within our control) will be met. In the case of any shutdown of portions of the business, these risks and uncertainties include the amount of substantial severance and other payments as well as the length of time we will continue to have to operate the business, which is likely to be longer than in a sale scenario. There is also a risk of loss of customers of this business due to the uncertainty as to the future of this business. In addition, 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, specialty and light 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; labor relations of the company, its suppliers and customers, including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial condition of the company’s suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our suppliers; potential difficulties competing with companies that have avoided their existing contracts in bankruptcy and reorganization proceedings; successful integration of acquired or merged businesses; the ability to achieve the expected annual savings and synergies from past and future business combinations and the ability to achieve the expected benefits of restructuring actions; success and timing of potential divestitures; potential impairment of long-lived assets, including goodwill; potential adjustment of the value of deferred tax assets; competitive product and pricing pressures; the amount of the company’s debt; the ability of the company to continue to comply with covenants in its financing agreements; the ability of the company to access capital markets; credit ratings of the company’s debt; the outcome of existing and any future legal proceedings, including any litigation with respect to environmental or asbestos-related matters; 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 September 27, 2009: Item 1. Business, “Customers; Sales and Marketing”; “Competition”; “Raw Materials and Supplies”; “Strategic Initiatives”; “Employees”; “Environmental 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.

53

ARVINMERITOR, INC.

Item 6. Exhibits

10.1	Letter Agreement, dated January 15, 2010, with former executive officer
10.2	Form of Restricted Stock Unit Agreement for Employees under 2010 Long-Term Incentive Plan
10.3	Form of Restricted Stock Unit Agreement for Directors under 2010 Long-Term Incentive Plan
10.4	Form of Restricted Stock Agreement for Directors under 2010 Long-term Incentive Plan
10.5	2010 Long-Term Incentive Plan
10.6	Incentive Compensation Plan
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

54

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 5, 2010		By:	/s/ V. G. Baker, II
			V. G. Baker, II
			Senior Vice President and General Counsel
			(For the registrant)
Date: February 5, 2010		By:	/s/ J.A. Craig
			J.A. Craig
			Senior Vice President and Chief Financial Officer

55

EX-10

ArvinMeritor, Inc.
2135 W. Maple Rd.
Troy, MI 48084

January 15, 2010
  
 
James D. Donlon, III
[Address Redacted]

Dear Jim:
 
Subject: Mutually Agreed Upon Separation
 
This letter confirms your acceptance of a separation package from ArvinMeritor, Inc (“ArvinMeritor” or the “Company”). The decision was reached after consideration of a number of factors, including your service with ArvinMeritor. Both parties expressly agree that your acceptance of this agreement is completely voluntary. You and the Company have agreed to enter into this agreement pursuant to the following terms and conditions:

1.      Your last day of work with the Company is January 15, 2010.

2.      Beginning January 16, 2010, you will receive separation pay equal to twenty-four (24) months (or 104 weeks) of your annual salary (at a compensation rate of $703,800.00 annually). Payments will be made semi-monthly through January 13, 2012.

3.      Given that your last day of active employment will be January 15, 2010, you will be eligible to receive an incentive compensation plan (ICP) payment for active time worked in fiscal year 2010. Such payment will be subject to the applicable formula, in accordance with the Plan metrics. Final award determination, if any, is subject to approval by the Compensation & Management Development Committee of the Board of Directors. If an award is approved, payment will be paid 50% in December 2010 and 50% in January 2011.

4.      You will be eligible to receive Long-Term Incentive (LTIP) Performance Plan awards in accordance with your letter dated September 15, 2009 as follows:

-      FY2008-FY2010 LTIP award will be paid 50% in December 2010 and 50% in January 2011, pending Board of Directors approval, based upon applicable formulae and final results.

-      FY2009-FY2011 LTIP award will be paid 50% in December 2011 and 50% in January 2012, pending Board of Directors approval, based upon applicable formulae and final results.

5.      You have received annual grant(s) of restricted stock. In accordance with your letter dated September 15, 2009, you are eligible for full and immediate vesting of your shares granted on January 2, 2008 and September 14, 2009. Shares will vest on January 18, 2010 – the next available trading date post active employment - in accordance with the terms of the agreements signed at the time of the grants.

6.      Your financial planning and car allowances will continue through your separation (January 13, 2012).

7.      You will receive Company sponsored outplacement assistance in the form of a twelve (12) month program not to exceed $10,000.

8.      Short and long term disability coverage will cease as of January 16, 2010.

9.      Savings plan participation will cease as of January 16, 2010. You are 100% vested in your savings plan deferrals and related company matching contributions and partially vested in the pension contribution in your savings plan accounts You will be able to request a plan distribution before the end of your separation. Please contact T. Rowe Price for information about your ArvinMeritor Savings Plan account at 1-800-922-9945.

10.      If you are currently enrolled in medical, dental and/or vision coverage and the payroll deductions associated therewith, coverage will remain in force through January 31, 2012. After January 31, 2012, you will be entitled to continue your group medical, dental and vision coverage at your own expense for a period of up to 18 months through COBRA. Information as to the cost of such coverage will be supplied to you approximately two weeks following the expiration of your separation period. Life and accidental death and personal loss insurance coverage will remain in force through January 31, 2012 and the life insurance coverage only may be converted to an individual policy within 31 days after termination of coverage by contacting MetLife at (888)622-6616. Payroll deductions for any supplemental life insurance and/or supplemental accidental death and dismemberment insurance coverage that you may have elected will continue through January 31, 2012. MetLife will contact you through the mail following that date with regard to your ability to convert the supplemental coverage to an individual policy. If you become subsequently employed and covered by a health insurance plan of a new employer, your coverage under the Company’s health plans will cease as of the date you become covered under such other employer’s health plan.

11.      Based on your age, you have met the vesting rights under the ArvinMeritor Retirement Plan. You are currently eligible to retire and you can commence your retirement benefit prior to the end of your separation. Please call the ArvinMeritor Retirement Center at 888-869-3772 for information about your pension benefit. You must apply for your pension benefits at least 60 days but not more than 90 days prior to your retirement date. However, if you elect to retire prior to the end of your separation period, your active employee medical, dental and/or vision coverages will terminate and you will become eligible for the then available retiree medical coverage, if any.

12.      Your compensation checks will be mailed to your home or direct deposited unless you specify otherwise. Please let us know in writing if you change your address.

13.      You will not disparage, portray in a negative light, or take any action which would be harmful to, or lead to unfavorable publicity for, the Company or its subsidiaries or divisions, or any of its or their current or former officers, directors, employees, agents, consultants, contractors, owners, divisions, parents or successors, whether public or private, including without limitation, in any and all interviews, oral statements, written materials, electronically displayed materials and materials or information displayed on Internet- or intranet-related sites. In the event of a breach or threatened breach of this paragraph, you agree that the Company will be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach and you acknowledge that damages would be inadequate and insufficient.

14.      The Company will not disparage, portray in a negative light, or take any action which would be harmful to, or lead to unfavorable publicity for, you, including without limitation, in any and all interviews, oral statements, written materials, electronically displayed materials and materials or information displayed on Internet- or intranet-related sites. In the event of a breach or threatened breach of this paragraph, the Company agrees that you will be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach and the Company acknowledges that damages would be inadequate and insufficient.

15.      You will deliver promptly to the Company (and not keep in your possession or deliver to any other person or entity) any and all property belonging to the Company in your possession or under your control, including without limitation, computer hardware/software, credit cards, PDA’s, pagers, other electronic equipment, records, data, notes, reports, correspondence, financial information, customer files and information and other documents or information (including any and all copies of such Company property).

16.      You agree, on behalf of yourself, your heirs, executors, administrators and assigns, to release, acquit and forever discharge the Company and its subsidiaries and divisions and its and their respective current and former officers, directors, employees, agents, owners, affiliates, successors and assigns (the "Company Released Parties") of and from any and all manner of actions and causes of action, suits, debts, damages, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, rights and demands whatsoever, whether known or unknown ("Losses"), which you, your heirs, executors, administrators and assigns ever had, now have or may hereafter have, against the Company Released Parties or any of them arising out of or by reason of any cause, matter or thing whatsoever from the beginning of the world to the date hereof, including without limitation, any and all matters relating to your employment by the Company and its predecessors and the cessation thereof, any and all matters relating to your compensation and benefits by or from the Company and its predecessors and any and all matters arising under any federal, state or local statute, rule, regulation or principle of contract law or common law.

You understand that as a result of this, you will not have the right to assert that the Company unlawfully terminated your employment or violated any of your rights in connection with your employment.

You affirm that you have not filed, and agree not to initiate or cause to be initiated on your behalf, any complaint, charge, claim or proceeding against the Company Released Parties before any federal, state or local agency, court or other body relating to your employment, the cessation thereof or any other matters covered by the terms described above, and agree not to voluntarily participate in such a proceeding.

17.      The Company agrees on behalf of its subsidiaries and divisions and its and their respective current and former officers, directors, employees, agents, owners, affiliates, successors and assigns (the "Company") to release, acquit and forever discharge you, your heirs, executors, administrators and assigns, of and from any and all manner of actions and causes of action, suits, debts, damages, dues, accounts, bonds, covenants, contracts, agreements, judgments, charges, claims, rights and demands whatsoever, whether known or unknown ("Losses"), which the Company, its subsidiaries and divisions and its and their respective current and former officers, directors, employees, agents, owners, affiliates, successors and assigns, ever had, now have or may hereafter have, against you or any of them arising out of or by reason of any cause, matter or thing whatsoever, excepting any act found to be criminal, by a court of competent jurisdiction, from the beginning of the world to the date hereof, including without limitation, any and all matters relating to your employment by the Company and its predecessors and the cessation thereof, any and all matters relating to your compensation and benefits by or from the Company and its predecessors and any and all matters arising under any federal, state or local statute, rule, regulation or principle of contract law or common law.

The Company understands that as a result described above, the Company will not have the right to assert that you unlawfully terminated your employment or violated any of the Company’s rights in connection with your employment.

The Company affirms that it has not filed, and agrees not to initiate or cause to be initiated on its behalf, any complaint, charge, claim or proceeding against you before any federal, state or local agency, court or other body relating to your employment, the cessation thereof or any other matters covered by the terms of described above, and agrees not to voluntarily participate in such a proceeding.

18.      The Company and you agree that the terms and conditions of this Letter Agreement are confidential and that neither party will disclose the terms of this Letter Agreement to any third parties, other than (i) disclosure by you to your spouse, (ii) disclosure by the Company or you to its or your respective attorneys, auditors, financial advisors and accountants, (iii) as may be required by law (including securities laws) or (iv) as may be necessary to enforce this Letter Agreement. Without limiting the generality of the foregoing, you acknowledge that the Company may, to the extent required by applicable law, describe or incorporate the terms of this Letter Agreement in, and/or file or incorporate this Letter Agreement as an exhibit to, one or more filings with the Securities and Exchange Commission.

19.      ArvinMeritor shall have the right to terminate this agreement at any time if you materially breach any of the obligations stated herein under this agreement.

20.      You acknowledge that you have been advised to consult with an attorney prior to signing this agreement. You also acknowledge, understand and agree that this agreement is voluntarily entered into by you in consideration of the undertakings by ArvinMeritor as set forth herein and is consistent in all respects with the discussions by ArvinMeritor personnel with you relating to your separation.

21.      You agree that for a period of twenty-four (24) months following the date of your departure January 15, 2010 from the Company, you will not solicit for employment any ArvinMeritor related employee, unless permission to do so is granted to you in writing by ArvinMeritor’s CEO or his designee. You also agree that you will not disclose, nor will you use any ArvinMeritor proprietary information.

22.      This agreement is a complete and final agreement between ArvinMeritor and its successors and James D. Donlon, III, and supersedes all other offers, agreements, and negotiations. Notwithstanding the foregoing, the Invention Assignment and Arbitration Agreements remain in full force and effect.

23.      You will have until February 5, 2010, in which to consider this agreement, and you may revoke this agreement within seven days of signing. This agreement will not become effective until the revocation period has expired. For the avoidance of doubt, until such time as the revocation period has expired, the separation pay described herein shall be limited to two weeks of your current salary. In the event that you take the full time provided hereunder to review this agreement and you sign on February 5, 2010 and you do not exercise your right to revoke, you will receive in a lump sum an amount equal to the number of weeks due and owning since the payments ceased.

24.      If you decide not to sign this agreement you will be paid 2 weeks salary and the dates and eligibility for the various incentives and benefits indicated in this agreement would be modified to your final day of separation.

Sincerely,
 
 
 
/s/ Vernon G. Baker, II     
Vernon G. Baker, II
Senior Vice President & General Counsel
 

cc:      C. McClure
           D. Riddell

     Accepted and Agreed by:
 
 /s/James D. Donlon, III          

 James D. Donlon, III
 
 January 15, 2010                  

 Date

EX-10

Employee

ARVINMERITOR, INC.
2010 LONG-TERM INCENTIVE PLAN

RESTRICTED SHARE UNIT AGREEMENT

In accordance with Section 11 of the 2010 Long-Term Incentive Plan, as amended (the “Plan”) of ArvinMeritor, Inc. (the “Company”), the number of restricted share units specified in the attached letter have been granted to you effective December 1, 2009 (“Grant Date”) as restricted share units (“Restricted Share Units”). By accepting such award (the “Award”), you agree to the terms and conditions of this restricted share unit agreement (the “Agreement”). Each Restricted Share Unit represents a right to receive one share of common stock, par value $1.00 per share, of the Company (the "Common Stock") in the future. All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Plan.

1.      Vesting of Restricted Share Units

(a) The Restricted Share Units shall vest and be paid or settled if you continue as an employee of the Company for the period from the Grant Date until December 1, 2012 (the “RSU Period”).

(b) A Termination of Employment due to your Disability or death shall result in vesting of a prorated portion of the Restricted Share Units, 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 your Termination of Employment due to Disability or death occurs over the total number of months in such period.

(c) Provided that your Retirement occurs at least one (1) year after the Grant Date, the Award, if not yet fully vested, will remain outstanding for the lesser of five (5) years or the remainder of the RSU Period and will continue to vest in accordance with the terms of this Award Agreement as though you 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.

(d) Any other Termination of Employment (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 Restricted Share Units, 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.

2.      Payment of Restricted Share Units; Issuance of Common Stock

As promptly as practicable after you shall have been deemed to have earned the Restricted Share Units in accordance with paragraph 1, the Company shall deliver to you (or in the event of your death, to your estate or any person who acquires your interest in the Restricted Share Units by bequest or inheritance) upon satisfaction of any required tax withholding obligations one share of Common Stock in respect of each Restricted Share Unit. No shares of Common Stock shall be issued to you at the time the Award is made, and you will not have any rights as a shareowner with respect to the Restricted Share Units until the shares of Common Stock have been delivered to you.

3.      Forfeiture of Unearned Restricted Share Units

Notwithstanding any other provision of this agreement, if at any time it shall become impossible for you to earn any of the Restricted Share Units in accordance with this agreement, all the Restricted Share Units shall be forfeited, and you shall have no further rights of any kind or nature with respect thereto.

4.      Transferability

     This grant is not transferable by you otherwise than by will or by the laws of descent and distribution, and the Restricted Share Units shall be deliverable, during your lifetime, only to you.
 

5.      Interpretations and Determinations.

All interpretations, determinations and other actions by the Committee not revoked or modified by the Board of Directors shall be final, conclusive and binding upon all parties.

6.      Withholding

You are liable and responsible for all taxes owed in connection with the Restricted Share Units, regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Restricted Share Units, whether due to national, federal, state or local taxes, including any employment tax obligation (the “Tax Withholding Obligation”), Your acceptance of this Agreement constitutes your instruction and authorization to the Company to withhold on your behalf the number of Shares from those Shares issuable to you under this Award as the Company determines to be sufficient to satisfy the Tax Withholding Obligation as and when any such Tax Withholding Obligation becomes due. In the case of any amounts withheld for taxes pursuant to this provision in the form of Shares, the amount withheld shall not exceed the minimum required by applicable law and regulations.

7.      No Acquired Rights.

You acknowledge, agree and consent that: (a) the Plan is discretionary and the Company may amend, cancel or terminate the Plan at any time; (b) the grant of the Restricted Share Units is a one-time benefit offered to you and does not create any contractual or other right for you to receive any grant of restricted share units or benefits under the Plan in the future; (c) future grants, if any, shall be at the sole discretion of the Company, including, but not limited to, the timing of any grant, the number of shares and forfeiture provisions; and (d) your participation in the Plan is voluntary.

The value of your Restricted Share Units is an extraordinary item of compensation outside the scope of your employment contract, if any. As such, your Restricted Share Units are not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

8.      Applicable Law

This Agreement and the Company’s obligation to deliver shares of Common Stock upon payment or settlement of Restricted Share Units hereunder shall be governed by and construed and enforced in accordance with the laws of Indiana and the federal laws of the United States.

9.      Entire Agreement

This agreement and the Plan embody the entire agreement and understanding between the Company and you with respect to the Restricted Share Units, and there are no representations, promises, covenants, agreements or understandings with respect to the Restricted Share Units other than those expressly set forth in this agreement and the Plan. In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall govern.

EX-10

Director

ARVINMERITOR, INC.
2010 LONG-TERM INCENTIVE PLAN

RESTRICTED SHARE UNIT AGREEMENT

In accordance with the 2010 Long-Term Incentive Plan, as amended (the “Plan”) of ArvinMeritor, Inc. (the “Company”) and your election pursuant thereto, the number of restricted share units specified in the attached letter have been granted to you on January 28, 2010 following shareholder approval of the Plan as restricted share units (“Restricted Share Units”). By accepting such award (the “Award”), you agree to the terms and conditions of this restricted share unit agreement (the “Agreement”). Each Restricted Share Unit represents a right to receive one share of common stock, par value $1.00 per share, of the Company (the "Common Stock") in the future. All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Plan.

1.      Vesting of Restricted Share Units

(a) The Restricted Share Units shall vest and be paid or settled if you continue to serve as a member of the Board until January 28, 2013 (the “RSU Period”).

(b) If your membership on the Board terminates prior to January 28, 2013 due to death or Disability, the Restricted Share Units shall immediately vest and be paid or settled.

(c) If you resign from the Board or cease to be a director by reason of the antitrust laws, compliance with the Company's conflict of interest policies, or other circumstances that the Board determines not to be adverse to the best interests of the Company prior to January 28, 2013, the Board of Directors may, upon resolution, determine that the Restricted Share Units shall vest and be paid or settled.

2.      Payment of Restricted Share Units; Issuance of Common Stock

As promptly as practicable after you shall have been deemed to have earned the Restricted Share Units in accordance with paragraph 1, the Company shall deliver to you (or in the event of your death, to your estate or any person who acquires your interest in the Restricted Share Units by bequest or inheritance) upon satisfaction of any required tax withholding obligations one share of Common Stock in respect of each Restricted Share Unit. No shares of Common Stock shall be issued to you at the time the Award is made, and you will not have any rights as a shareowner with respect to the Restricted Share Units until the shares of Common Stock have been delivered to you.

3.      Forfeiture of Unearned Restricted Share Units

Notwithstanding any other provision of this agreement, if at any time it shall become impossible for you to earn any of the Restricted Share Units in accordance with this agreement, all the Restricted Share Units shall be forfeited, and you shall have no further rights of any kind or nature with respect thereto.

4.      Transferability

  
     This grant is not transferable by you otherwise than by will or by the laws of descent and distribution, and the Restricted Share Units shall be deliverable, during your lifetime, only to you.
 

5.      Interpretations and Determinations.

All interpretations, determinations and other actions by the Committee not revoked or modified by the Board of Directors shall be final, conclusive and binding upon all parties.

6.      Withholding

The Company shall have the right, , in connection with the delivery of shares of Common Stock in respect of the Restricted Share Units subject to this agreement, to sell such number of shares of Common Stock as may be necessary so that the net proceeds of such sale shall be an amount sufficient to provide for any such taxes so required to be withheld.

7.      No Acquired Rights.

You acknowledge, agree and consent that: (a) the Plan is discretionary and the Company may amend, cancel or terminate the Plan at any time; (b) the grant of the Restricted Share Units is a one-time benefit offered to you and does not create any contractual or other right for you to receive any grant of restricted share units or benefits under the Plan in the future; (c) future grants, if any, shall be at the sole discretion of the Company, including, but not limited to, the timing of any grant, the number of shares and forfeiture provisions; and (d) your participation in the Plan is voluntary.

The value of your Restricted Share Units is an extraordinary item of compensation outside the scope of your employment contract, if any. As such, your Restricted Share Units are not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

8.      Applicable Law

This Agreement and the Company’s obligation to deliver shares of Common Stock upon payment or settlement of Restricted Share Units hereunder shall be governed by and construed and enforced in accordance with the laws of Indiana and the federal laws of the United States.

9.      Entire Agreement

This agreement and the Plan embody the entire agreement and understanding between the Company and you with respect to the Restricted Share Units, and there are no representations, promises, covenants, agreements or understandings with respect to the Restricted Share Units other than those expressly set forth in this agreement and the Plan. In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall govern.

EX-10

Director

ARVINMERITOR, INC.
RESTRICTED STOCK AGREEMENT
 

TO:     [ ]

     In accordance with the 2010 Long-term Incentive Plan of ArvinMeritor, Inc. (the “Company”), and your election pursuant thereto, [ ] shares of Common Stock of the Company have been granted to you on January 28, 2010 following shareholder approval of the Plan as restricted shares of the Company’s common stock in respect of your service on the Board of Directors (the “Board”) of the Company (such shares granted being herein called “Restricted Shares”). All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Plan.

The Restricted Shares have been granted to you upon the following terms and conditions:

1.     Earning of Restricted Shares

(a) On the earliest of (i) January 28, 2013, or (ii) your death or Disability, you shall be deemed to have fully earned all the Restricted Shares subject to this agreement.

(b) If you resign from the Board or cease to be a director by reason of the antitrust laws, compliance with the Company's conflict of interest policies, or other circumstances that the Board determines not to be adverse to the best interests of the Company prior to January 28, 2013, the Board of Directors may, upon resolution, determine that the Restricted Share shall be deemed to have been fully earned.

2.     Retention of Certificates for Restricted Shares
 
     Certificates for the Restricted Shares and any dividends or distributions thereon or in respect thereof that may be paid in additional shares of Common Stock, other securities of the Company or securities of another entity (“Stock Dividends”), shall be delivered to and held by the Company, or such Restricted Shares or Stock Dividends shall be registered in book entry form, subject to the Company’s instructions, until you shall have earned the Restricted Shares in accordance with the provisions of paragraph 1. To facilitate implementation of the provisions of this agreement, you undertake to sign and deposit with the Company’s Office of the Secretary a Stock Transfer Power in the form of Attachment 1 hereto with respect to the Restricted Shares and any Stock Dividends thereon.
 
 
3.     Dividends and Voting Rights
 
     Notwithstanding the retention by the Company of certificates (or the right to give instructions with respect to shares held in book entry form) for the Restricted Shares and any Stock Dividends, you shall be entitled to receive any dividends that may be paid in cash on, and to vote, the Restricted Shares and any Stock Dividends held by the Company (or subject to its instructions) in accordance with paragraph 2, unless and until such shares have been forfeited in accordance with paragraph 5.
 
 
4.     Delivery of Earned Restricted Shares
 
     As promptly as practicable after you shall have been deemed to have earned the Restricted Shares in accordance with paragraph 1, the Company shall deliver to you (or in the event of your death, to your estate or any person who acquires your interest in the Restricted Shares by bequest or inheritance) the Restricted Shares, together with any Stock Dividends then held by the Company (or subject to its instructions).
 
 
5.     Forfeiture of Unearned Restricted Shares
 
     Notwithstanding any other provision of this agreement, if at any time it shall become impossible for you to earn any of the Restricted Shares in accordance with this agreement, all the Restricted Shares, together with any Stock Dividends, then being held by the Company (or subject to its instructions) in accordance with paragraph 2 shall be forfeited, and you shall have no further rights of any kind or nature with respect thereto. Upon any such forfeiture, the Restricted Shares, together with any Stock Dividends, shall be transferred to the Company.
 
 
6.     Transferability
 
     This grant is not transferable by you otherwise than by will or by the laws of descent and distribution, and the Restricted Shares and any Stock Dividends shall be deliverable, during your lifetime, only to you.
 
 
7.     Withholding
 

The Company shall have the right, in connection with the delivery of the Restricted Shares and any Stock Dividends subject to this agreement, (i) to deduct from any payment otherwise due by the Company to you or any other person receiving delivery of the Restricted Shares and any Stock Dividends an amount equal to any taxes required to be withheld by law with respect to such delivery, (ii) to require you or any other person receiving such delivery to pay to it an amount sufficient to provide for any such taxes so required to be withheld or (iii) to sell such number of the Restricted Shares and any Stock Dividends as may be necessary so that the net proceeds of such sale shall be an amount sufficient to provide for any such taxes so required to be withheld.

8.     Applicable Law
 
     This agreement and the Company’s obligation to deliver Restricted Shares and any Stock Dividends hereunder shall be governed by and construed and enforced in accordance with the laws of Indiana and the Federal law of the United States.
 

This agreement is effective as of the date of the Board of Director’s grant of the Restricted Shares, which is January 28, 2010, and is executed as of the respective dates set forth below.

                              ARVINMERITOR, INC.
 
 
 
                          By:______________________________
                              Vernon G. Baker, II                                                   

                              Senior Vice President and General Counsel
 
 
 
Attachment 1 - Stock Transfer Power
 
 
Executed as of February __, 2010
 
Agreed to this __ day of __________, 2010
 
 
 
________________________________
     [Name of Director]
 
 
Address:

Social Security Number:     
 

Attachment 1
 

STOCK TRANSFER POWER SEPARATE FROM CERTIFICATE

     FOR VALUE RECEIVED, I, ________, hereby sell, assign and transfer unto ArvinMeritor, Inc. (the “Company”) (i) the ______ shares of the Common Stock of the Company standing in my name on the books of the Company evidenced by certificates or by book entry, granted to me on January 28, 2010 as Restricted Shares pursuant to the Company’s 2010 Long-term Incentive Plan; and (ii) any additional shares of the Company’s Common Stock, other securities issued by the Company or securities of another entity (“Stock Dividends”) distributed, paid or payable on or in respect of the Shares and Stock Dividends during the period the Shares are held by the Company pursuant to a certain Restricted Stock Agreement effective as of January 28, 2010 and executed as of the dates set forth thereon with respect to the Shares; and I do hereby irrevocably constitute and appoint _______________________________________ attorney with full power of substitution in the premises to transfer the Shares on the books of the Company.

 

Dated:                    
 
 
 

____________________________

                                         (Signature)
 
 
WITNESS:_____________________

EX-10

ARVINMERITOR, INC.
2010 LONG-TERM INCENTIVE PLAN
 

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:

 (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”), u nless, 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 Securities 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 Common 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.

(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 determined 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.

(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 Termination 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.

(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 1,200,000 (one million two hundred thousand) Shares. 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.

(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-to-day 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;

(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 provided 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

(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, consultants 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 shall become effective upon its approval by shareholders of the Company. It shall continue in effect for a term of ten (10) years from the date the Plan is approved by the shareholders of the Company 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.

(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.

(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 forfeiture 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 exercisable 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 Grant 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.

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 vesting 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 shall 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 Termination 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.

(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 circumstances 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 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 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.

(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) shall 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-based 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.

(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 forfeiture 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 such 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 (subject to the right of the Administrator to exercise discretion to reduce payment amounts following the conclusion of the performance period).

(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 lower 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 recapitali zation 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 adjustments 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 Appreciation 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).

(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 trans feree) that is vested following such Termination of Employment shall remain exercisable until the earlier of the third (3^rd) 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 Termination 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 gov ern (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 409A 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.

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.

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.

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 intended 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.

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 Company 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.

EX-10

ARVINMERITOR, INC.

INCENTIVE COMPENSATION PLAN

(Amended and Restated as of November 5, 2009)

1.      PURPOSES.

The purposes of the Incentive Compensation Plan (the "Plan") are to provide a reward and an incentive to employees in managerial, staff or technical capacities who have contributed in the then-current fiscal year and, in the future, are likely to contribute to the success of the Corporation and to enhance the Corporation's ability to attract and retain outstanding employees to serve in such capacities.

2.      DEFINITIONS.

For the purpose of the Plan, the following terms shall have the meanings shown:

(a)      ArvinMeritor. ArvinMeritor, Inc., an Indiana corporation.

(b)      Board of Directors. The Board of Directors of ArvinMeritor.

(c)      Committee. The Compensation and Management Development Committee, designated by the Board of Directors, consisting of three or more members of the Board of Directors who are not eligible to participate in the Plan.

(d)      Corporation. ArvinMeritor and such of its subsidiaries and affiliates as may be designated by the Board of Directors.

(e)      Employees. Persons in the salaried employ of the Corporation (including those on authorized leave of absence) during some part of the fiscal year for which an award is made. Unless also an employee of the Corporation, no member of the Board of Directors shall be eligible to participate in the Plan.

(f)      Grant Committee. The Committee excluding those members of the Committee who are not, at the time any award is made under paragraph 4, both "outside directors" as defined for purposes of Section 162(m) and the regulations thereunder and "Non-Employee Directors" as defined in rule 16b-3(b)(3)(i) under the Securities Exchange Act of 1934, as amended, for purposes of Section 16 of that Act and the rules thereunder.

(g)      Section 409A. Section 409A of the Internal Revenue Code of 1986, as amended, or any successor provision, and any regulations or other guidance issued thereunder.

(h)      Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as amended, or any successor provision, and any regulation or other guidance issued thereunder.

3.      AWARDS  NOT INTENDED TO QUALIFY UNDER SECTION 162(M).

(a)     The Chief Executive Officer of ArvinMeritorshall submit to the Committee, within 35 days after the end of each fiscal year, recommendations concerning awards under this paragraph 3 for that fiscal year.

(b)      The Committee, in its discretion, shall annually following the close of the immediately preceding fiscal year, determine (i) the extent to which awards, if any, shall be madeunder this paragraph 3; (ii) the employees to whom any such awards shall be made; (iii) the amount of any such award; and (iv) subject to Section 409A, the form, terms and conditions ofsuch awards. Subject to paragraph 7(a) of this Plan, the Committee may determine, among other things, whether and to what extent awards shall be paid in installments.

(c)      The Corporation shall promptly notify each person to whom an award has been made and pay the award in accordance with the determinations of the Committee.

(d)      A cash award may be made with respect to an employee who has died. Any such award shall be paid to the legal representative or representatives of the estate of such employee.

4.      AWARDS INTENDED TO QUALIFY UNDER SECTION 162(M).

(a)      In addition to awards that may be made by the Committee under paragraph 3, the Grant Committee may make awards to employees from time to time on terms consistent with the provisions of the Plan as "performance compensation" awards in order that such awards constitute qualified performance-based compensation under Section 162(m). The Grant Committee shall exercise all other responsibilities, powers and authority not reserved to the Board of Directors relating to awards made under this paragraph 4. With respect to each such performance compensation award, the Grant Committee shall, on or before the 90th day of the applicable fiscal year, establish, in writing, applicable performance goals and the performance objectives to be used in determining whether and to what extent awards shall be deemed to be earned in respect of such fiscal year. The performance goals shall be based on one or more of the following objective performance criteria or components thereof selected by the Grant Committee to measure the performance of ArvinMeritor, a division or business component (which may but need not be a subsidiary) of ArvinMeritor or both for a fiscal year: (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. Such performance goals and performance objectives also may be based solely on ArvinMeritor's performance or the performance of an affiliate, division or business component of ArvinMeritor, or based on the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. Each such performance criterion shall be determined in accordance with generally accepted accounting principles, if applicable, as consistently applied by the Corporation and, if so determined by the Grant Committee at the time the award is made, and to the extent permitted under Section 162(m), adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business segment, unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles. Performance goals and performance objectives may vary from fiscal year to fiscal year and from employee to employee and may be established on a stand-alone basis, in tandem or in the alternative. Once established for a fiscal year, such goals and objectives shall not be amended or otherwise modified if and to the extent such amendment or modification would cause the compensation payable pursuant to the award to fail to constitute qualified performance-based compensation under Section 162(m).

(b)      A participant shall be eligible to receive payment in respect of a performance compensation award only to the extent that the performance goals for that award are achieved. As soon as practicable after the close of each fiscal year, the Grant Committee shall review and determine whether, and to what extent, the performance goals for the fiscal year have been achieved and, if so, determine the amount of the performance compensation award that may be earned by the employee for such fiscal year. The Grant Committee shall then determine the actual amount of the performance compensation award that may be paid to the employee and, in so doing, may in its sole discretion decrease, but not increase, the amount of the award otherwise payable to the employee based upon such performance.

(c)      No performance compensation award having an aggregate maximum dollar value in excess of $5,000,000 shall be paid to any individual employee in any one fiscal year of ArvinMeritor.

5.      FINALITY OF DETERMINATIONS.

The Committee or Grant Committee, as applicable, shall have the power to administer and interpret the Plan. All determinations, interpretations and actions of the Committeeor Grant Committee, as applicable, and all actions of the Board of Directors under or in connection with the Plan shall be final, conclusive and binding upon all concerned.

6.      AMENDMENT OF THE PLAN.

The Board of Directors shall have the power, in its sole discretion, to amend, suspend or terminate the Plan at any time, except that no such action shall adversely affect rights under an award already made, without the consent of the person affected; and

7.      SECTION 409A

(a)      Notwithstanding any other provision of this Plan to the contrary, each award will be paid no later than March 15th of the calendar year following the year in which such award vests.

(b)      This Plan is intended to be exempt from Section 409A. Notwithstanding any other provision of this Plan to the contrary, the Corporation makes no representation that this Plan or any amount payable under this Plan will be exempt from or comply with Section 409A and makes no undertaking to preclude Section 409A from applying to this Plan.

(c)      Employees who are eligible to participate in the Corporation’s Deferred Compensation Plan may elect to defer receipt of awards under the Plan in accordance with and subject to the terms and conditions of the Corporation’s Deferred Compensation Plan.

8.      MISCELLANEOUS.

(a)      A majority of the members of the Committee shall constitute a quorum. The Committee may act by the vote of a majority of a quorum at a meeting, or by a writing or writings signed by a majority of the members of the Committee.

(b)      Notwithstanding any other provision of the Plan, if a Change of Control (as defined in Article 8, Section 8.10(a) of ArvinMeritor’s By-Laws) shall occur, then, unless prior to the occurrence thereof the Board of Directors shall determine otherwise by vote of at least two-thirds of its members, all unpaid installments of any awards made under the Plan prior to such Change of Control shall forthwith become due and payable.

(c)      The Corporation shall bear all expenses and costs in connection with the operation of the Plan.

EX-12

ArvinMeritor, Inc.
Computation of Earnings to Fixed Charges
Three Months Ended December 31, 2009
	Earnings Available for Fixed Charges (A):
	Pre-tax income from continuing operations	$             15.0
	Less:
	Equity in earnings of affiliates, net of dividends	(10.0)
		5.0
	Add fixed charges included in earnings:
	Interest expense	23.0
	Interest element of rentals	3.0
	Total	26.0
	Total earnings available for fixed charges:	31.0
	Fixed Charges (B):
	Fixed charges included in earnings	$            26.0
	Capitalized interest	-
	Total fixed charges	$            26.0
	Ratio of Earnings to Fixed Charges	1.19
(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

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 19 of the Notes to Consolidated Financial Statements in the Quarterly Report on Form 10-Q of ArvinMeritor, Inc. (“ArvinMeritor”) for the Quarterly Period ended December 31, 2009, and to the incorporation by reference of such reference into the following Registration Statements of ArvinMeritor:

FormRegistration No.Purpose

S-8           333-164333     2010 Long-Term Incentive Plan

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 29, 2010

EX-31

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 3, 2010;

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, 2010

/s/ Charles G. McClure, Jr.

Charles G. McClure, Jr., Chairman of the Board,

Chief Executive Officer and President

EX-31

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 3, 2010;

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, 2010

/s/ Jeffrey A. Craig

Jeffrey A. Craig

Senior Vice President and Chief Financial Officer

EX-32

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 3, 2010 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, 2010

EX-32

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 3, 2010 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, 2010