ArvinMeritor, Inc. (NYSE: ARM – news) today reported quarterly results for predecessor companies Arvin Industries, Inc. and Meritor Automotive, Inc., which merged into the new company on July 7, 2000. ArvinMeritor reported pro forma combined sales for the third quarter of fiscal 2000 of $2.1 billion, approximately the same as last year’s sales. Pro forma combined net income before special items was $84 million, or $1.18 per share, up three percent from last year’s third-quarter pro forma earnings per share of $1.15.

Excluding special items, Arvin had earnings per share of $1.30 this quarter, compared with $1.32 last year, while Meritor’s earnings per share increased to $0.87 this year from $0.81 last year.

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“Arvin and Meritor both had good results for the quarter, despite market softness and the weaker euro currency,” said Larry Yost, ArvinMeritor’s Chairman and Chief Executive Officer. “Throughout our merger integration process, we will be implementing a number of programs that will enhance every process within ArvinMeritor, lower the fixed-cost base of the company, and achieve steady improvement in profits. At the same time, we will continue to deliver quality products and services to our customers.”

Arvin Industries, Inc.

The former Arvin Industries, Inc. had record sales for the quarter ended July 7, 2000, increasing eight percent to $916 million. Net income before special items was $31 million, resulting in earnings per share of $1.30. Special items included costs of $60 million ($52 million after-tax, or $2.15 per share) involving the merger of Arvin and Meritor, and a pre-tax charge of $5 million relating to legal costs associated with operations previously owned by the company’s Maremont subsidiary.

“Arvin’s second-quarter sales growth exceeded that of the automotive industry’s original equipment segment, due to both increased content per vehicle and our participation in new OE programs,” said Bill Hunt, ArvinMeritor’s Vice Chairman and President. “OE operating income increased 40 percent, and margins improved 120 basis points from 5.8 percent in the second quarter last year to 7.0 percent this year.

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“However, replacement sales decreased four percent, from $280 million to $268 million, and replacement operating margins dropped to 5.6 percent from 9.3 percent in the second quarter a year ago. The margin decline reflected competitive pricing pressures, lower volumes under certain key customer contracts and new-business expenses. The weakness in the replacement market, which began in the second half of 1999, showed no signs of abating through the most recent quarter. Warehouse distributor customers have experienced similar downturns and, for the first time, major retailers are reporting flat or declining sales as well.

“While the replacement markets have softened, we are positioning the company so it will hold or gain market share. We have several new programs that support our efforts to expand our business. General Motors Service Parts Operations recently awarded us the global sourcing contract for AC Delco- branded shock absorbers and struts. This program, which encompasses all regions of the world, leverages our global presence with the strong AC Delco brand name. We expect to launch the program during the last quarter of this calendar year.”

Meritor Automotive, Inc.

The former Meritor Automotive, Inc. had sales of $1.1 billion in its third fiscal quarter, a decrease of six percent from the same period last year. Net income before special items was $54 million, or $0.87 per share, an increase of seven percent over last year’s third-quarter earnings per share of $0.81. Average shares outstanding for the third quarter were down 10 percent — the result of Meritor’s previous share-repurchase programs.

As announced last month, Meritor recorded a third-quarter charge of $26 million ($16 million after-tax, or $0.26 per share) for restructuring actions that it expects will significantly reduce costs and improve operational efficiencies. Meritor also had a one-time gain of $6 million ($3 million after-tax, or $0.05 per share) from the sale of land and non-recurring costs of $2 million ($1 million after-tax, or $0.02 per share) associated with its merger with Arvin. Net income in the third quarter this year, after special items, was $40 million, or $0.64 per share.

“Meritor had a strong third quarter in spite of the weaker euro and softening in the North American heavy-truck market,” Yost said. “We continue to benefit globally from market penetration gains and higher vehicle production levels in our Light Vehicle Systems business, as well as from strong demand in Heavy Vehicle Systems markets outside of North America.”

Operating margins before special items improved 40 basis points to 9.2 percent in the third quarter, up from 8.8 percent in the same period last year. The positive impact of restructuring actions, and the company’s continued focus on cost-reduction and process-improvement programs, more than offset higher expenditures for new-product development and enterprise resource planning systems.

What ArvinMeritor now calls Commercial Vehicle Systems, the former Meritor had called Heavy Vehicle Systems (HVS). HVS sales were $735 million in the third quarter of fiscal 2000, a decrease of nine percent from the third quarter last year. Contributing to this sales decline were the negative impact of European currency exchange rates and the weaker demand in the North American heavy-duty truck market. Additionally, transmission and clutch sales are now reported as part of the equity-basis results of the ZF Meritor joint venture, formed last September. Excluding $49 million of those sales in last year’s third quarter, HVS sales in North America were down eight percent, while total HVS sales declined three percent. Strong truck-build volumes drove a 15-percent increase in European HVS sales, before taking into account the negative impact of currency exchange of $14 million this year. South American sales were up 44 percent, while sales in other world regions were up 16 percent.

HVS operating margin for the third quarter was 9.1 percent, up 80 basis points from last year’s third quarter. This margin improvement was due primarily to cost-reduction and other performance-improvement programs, and reduced premium costs resulting from lower North American truck volumes.

Light Vehicle Systems (LVS) sales decreased one percent in the third quarter to $406 million, as compared to the same quarter last year. Strong worldwide new-vehicle volumes and market penetration gains, principally in door systems, were offset by the impact of Meritor’s divestiture of its North American seat adjusting systems business in the first quarter of fiscal 2000, and the negative impact of currency translation. Ongoing LVS sales in North America increased 17 percent before the $36-million sales decline resulting from the divestiture. Excluding an unfavorable currency exchange impact of $28 million, LVS sales in Europe rose 18 percent, reflecting the region’s strong vehicle build volumes and higher content per vehicle. Sales in the rest of the world were up six percent.

LVS operating margin in the third quarter was 9.4 percent this year vs. 9.8 percent last year — the result of higher engineering expenditures for roof-module and other new-product development programs.

Merger Integration Process

“We are making excellent progress with our merger integration process,” Yost said. “To ensure a smooth transition from two separate companies into one, we have established nineteen integration teams, involving a total of 250 employees worldwide. Each team reports to the Office of the Chairman and is led by a corporate officer. These teams are responsible for identifying cost and revenue synergies that add value, and then developing action plans to achieve those synergies. The company expects to exceed its previously announced goals of $450 million in revenue synergies by fiscal 2004, and $50 million in cost synergies in fiscal 2001, growing to $100 million in fiscal 2003.”

The Office of the Chairman holds weekly meetings to set direction, solve issues that cut across teams and monitor group progress. In addition, ArvinMeritor is using Web-based software as an information repository. The software serves both as a communication tool, and as a means to track the achievement and completion of action plans.

“We are well on our way, but have a lot of hard work ahead of us,” Yost said. “We are confident that we can quickly establish our company as an industry-leading, Tier One automotive supplier.”

Outlook

“We expect the North American commercial truck and trailer markets will continue to soften for the remainder of this fiscal year and into the next,” Yost said. “We also believe the light vehicle replacement market will remain weak over the same timeframe. But on a positive note, our overall fiscal 2000 outlook is for slightly higher volumes in both the North American and European light vehicle markets, as well as in the European and South American truck markets.

“We will continue to drive improved financial performance through ongoing cost-reduction efforts, restructuring actions and synergy programs. Additionally, we’ll use other initiatives, such as our recently announced $100 million stock buyback, to enhance earnings per share growth and build shareowner value.

“We expect to achieve or exceed the current First Call consensus estimate for ArvinMeritor pro forma earnings of $3.75 per share for fiscal 2000, which equates to $0.63 per share for the fourth quarter,” Yost concluded.

ArvinMeritor, Inc. is a premier $7.5-billion global transportation industry supplier of a broad range of integrated systems, modules and components, serving light vehicle, commercial truck, trailer and specialty original equipment manufacturers and related aftermarkets. In addition, the company is the leader in coil coating applications, including those for the transportation, appliance, construction and furniture industries. Headquartered in Troy, Mich., ArvinMeritor employs 36,500 people at more than 120 facilities in 25 countries. Its common stock is traded on the New York Stock Exchange under the ticker symbol ARM. For more information, visit the company’s Web site at: www.arvinmeritorinc.com> .

All earnings per share amounts are on a fully diluted basis. Comparative financial data for Arvin Industries, Inc. and Meritor Automotive, Inc. are attached to this release, as are pro forma combined data for ArvinMeritor, Inc. The pro forma combined data is based on historical information and management’s current estimates, which may differ from the final allocation due to appraisals of fixed assets, other fair value adjustments, and the finalization of any potential plans of restructuring. A history of pro forma income information for ArvinMeritor is available on the company’s Web site, and is downloadable. In addition, the company expects to release pro forma segment information within two weeks.

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