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<SEC-DOCUMENT>0000950123-02-011934.txt : 20021217
<SEC-HEADER>0000950123-02-011934.hdr.sgml : 20021217
<ACCEPTANCE-DATETIME>20021217162204
ACCESSION NUMBER: 0000950123-02-011934
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 12
CONFORMED PERIOD OF REPORT: 20020929
FILED AS OF DATE: 20021217
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ARVINMERITOR INC
CENTRAL INDEX KEY: 0001113256
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 383354643
STATE OF INCORPORATION: IN
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-15983
FILM NUMBER: 02860387
BUSINESS ADDRESS:
STREET 1: 2135 W MAPLE ROAD
CITY: TROY
STATE: MI
ZIP: 48084
BUSINESS PHONE: 2484351000
FORMER COMPANY:
FORMER CONFORMED NAME: MU SUB INC
DATE OF NAME CHANGE: 20000501
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>y66532e10vk.txt
<DESCRIPTION>ARVINMERITOR, INC.
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 2002
COMMISSION FILE NUMBER 1-15983
------------------------
ARVINMERITOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<Table>
<S> <C>
INDIANA 38-3354643
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2135 WEST MAPLE ROAD 48084-7186
TROY, MICHIGAN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 435-1000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, $1 Par Value New York Stock Exchange
(including the associated Preferred
Share Purchase Rights)
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant on March 28, 2002 (the last business day of the
most recently completed second fiscal quarter) was approximately $1.918 billion.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
67,942,966 shares of the registrant's Common Stock, par value $1 per share,
were outstanding on October 31, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Proxy Statement for the Annual Meeting of
Shareowners of the registrant to be held on February 19, 2003 is incorporated by
reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
ArvinMeritor, Inc. (the "company" or "ArvinMeritor"), headquartered in
Troy, Michigan, is a leading global supplier of a broad range of integrated
systems, modules and components serving light vehicle, commercial truck, trailer
and specialty original equipment manufacturers and certain aftermarkets. The
company also provides coil coating applications to the transportation,
appliance, construction and furniture industries.
ArvinMeritor was incorporated in Indiana in March 2000 in connection with
the merger ("Merger") of Meritor Automotive, Inc. ("Meritor") and Arvin
Industries, Inc. ("Arvin"). The Merger of Meritor and Arvin into ArvinMeritor
was effective on July 7, 2000. As used in this Annual Report on Form 10-K, the
terms "company," "ArvinMeritor," "we," "us" and "our" include ArvinMeritor, its
consolidated subsidiaries and its predecessors unless the context indicates
otherwise.
Whenever an item of this Annual Report on Form 10-K refers to information
in the Proxy Statement for the Annual Meeting of Shareowners of ArvinMeritor to
be held on February 19, 2003 (the "2003 Proxy Statement"), or under specific
captions in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations or Item 8. Financial Statements and Supplementary
Data, the information is incorporated in that item by reference.
ArvinMeritor serves a broad range of original equipment manufacturer
("OEM") customers worldwide, including truck OEMs, light vehicle OEMs,
semi-trailer producers and off-highway and specialty vehicle manufacturers, and
certain aftermarkets. Our total sales in fiscal year 2002 were $6.9 billion. Our
ten largest customers accounted for approximately 65% of fiscal year 2002 sales.
We operated 153 manufacturing facilities in 26 countries around the world in
fiscal year 2002, including facilities operated by joint ventures in which we
have interests. Sales outside the United States accounted for approximately 50%
of total sales in fiscal year 2002. We also participated in twelve joint
ventures that generated unconsolidated revenues of $1.6 billion in fiscal 2002.
We serve customers worldwide through three operating segments:
- Light Vehicle Systems ("LVS") supplies air and emissions systems,
aperture systems (roof and door systems and motion control products), and
undercarriage systems (suspension and ride control systems and wheel
products) for passenger cars, light trucks and sport utility vehicles to
OEMs.
- Commercial Vehicle Systems ("CVS") supplies drivetrain systems and
components, including axles and drivelines, braking systems, suspension
systems, and exhaust, ride control and filtration products for medium-
and heavy-duty trucks, trailers and off-highway equipment and specialty
vehicles to OEMs and to the commercial vehicle aftermarket.
- Light Vehicle Aftermarket ("LVA") supplies exhaust, ride control and
filter products to the passenger car, light truck and sport utility
aftermarket.
Our coil coating operation, which does not primarily focus on automotive
products, is classified as "Other."
Note 23 of the Notes to Consolidated Financial Statements under Item 8.
Financial Statements and Supplementary Data contains financial information by
segment for each of the three years ended September 30, 2002, including
information on sales and assets by geographic area for each segment. The heading
"Products" below includes information on LVS, CVS, LVA and Other sales by
product for each of the three years ended September 30, 2002.
References in this Annual Report on Form 10-K to our being a leading
supplier or the world's leading supplier, and other similar statements as to our
relative market position are based principally on calculations we have made.
These calculations are based on information we have collected, including company
and industry sales data obtained from internal and available external sources,
as well as our estimates. In addition
1
<PAGE>
to such quantitative data, our statements are based on other competitive factors
such as our technological capabilities, our research and development efforts and
innovations and the quality of our products and services, in each case relative
to that of our competitors in the markets we address.
ArvinMeritor began operations as a combined company on July 7, 2000 and,
accordingly, does not have an operating history as a combined company prior to
that date. Except where otherwise noted, the historic financial information
included in this Annual Report on Form 10-K for periods prior to July 7, 2000
reflects the results of Meritor and its consolidated subsidiaries. The
information for periods after July 7, 2000 represents the results of
ArvinMeritor and its consolidated subsidiaries. This information may not be
indicative of our future results of operations, financial position or cash
flows.
INDUSTRY DEVELOPMENTS AND OUTLOOK
The industry in which we operate is cyclical and has been characterized
historically by periodic fluctuations in demand for vehicles for which we supply
products. Industry cycles can have a positive or negative effect on our
financial results. Lower demand in several of our principal markets, including
commercial truck and light vehicle markets in North America and light vehicle
replacement markets, had a negative effect on our financial results for fiscal
years 2001 and 2002.
For fiscal year 2003, our most recent outlook shows continued weakness in
the North American commercial truck markets. We currently expect North American
and Western European light vehicle production in fiscal year 2003 to remain
relatively flat compared to fiscal year 2002 production. We also anticipate that
the light vehicle replacement market for our exhaust and ride control products
will remain soft. See "Seasonality; Cyclicality" and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview and Outlook and -- Results of Operations below.
We have sought to mitigate the effects of down cycles in our markets by
improving operational efficiencies and implementing restructuring programs and
cost-reduction initiatives, which include reducing our salaried workforce and
the number of our facilities. We undertook restructuring actions in fiscal years
2001 and 2002 to improve efficiency and realize cost savings. See "Strategic
Initiatives" below and Note 5 of the Notes to Consolidated Financial Statements
under Item 8. Financial Statements and Supplementary Data below.
BUSINESS STRATEGIES
We are a global supplier of a broad range of integrated systems, modules
and components for use in commercial, specialty and light vehicles worldwide and
we have developed market positions as a leader in most of our served markets. In
the short term, we seek to maintain these market positions in the face of the
industry downturns described above. In the longer term, we work to enhance our
leadership positions and capitalize on our existing customer, product and
geographic strengths, and to increase sales, earnings and profitability. We
employ various business strategies to achieve these goals.
Several significant factors and trends in the automotive industry present
opportunities and challenges to industry suppliers and influence our business
strategies. These factors and trends include the cyclicality of the industry,
consolidation and globalization of OEMs and their suppliers, increased
outsourcing by OEMs, increased demand for modules and systems by OEMs, and an
increasing emphasis on engineering and technology. Our business strategies,
which are influenced by these industry factors and trends, include the
following:
Minimize the Risks of Cyclicality Through Business Diversity. As noted
above, the automotive industry is cyclical in nature and subject to periodic
fluctuations in demand for vehicles. This in turn results in fluctuation in
demand for our products. We seek to diversify our business in order to mitigate
the effects of market downturns and better accommodate the changing needs of
OEMs. We strive to maintain diversity in three areas:
- Revenues. We manufacture and sell a wide range of products in various
segments of the automotive market. For fiscal year 2002, our annual sales
include $3.6 billion for LVS, $2.3 billion for CVS,
2
<PAGE>
$0.8 billion for LVA and $0.2 billion for Other. Our goal is to maintain
this sales diversity rather than to focus primarily on one segment, and
to be a leader in all three of our markets.
- Customers. A diverse customer base helps to mitigate market
fluctuations. We have a large customer base comprised of most major
vehicle producers. Our top ten customers comprised approximately 65% of
our sales in fiscal year 2002.
- Global Presence. Cycles in the major geographic markets of the
automotive industry are not necessarily concurrent or related. We seek to
maintain a strong global presence and to expand our global operations to
mitigate the effect of periodic fluctuations in demand in one or more
geographic areas. A strong global presence also helps to meet the global
sourcing needs of our customers.
Focus on Organic Growth While Reviewing Strategic Opportunities. We have
identified the most successful aspects of our business, and we are working to
grow those areas. We seek to take advantage of opportunities for operating
synergies and cross selling of products between our light vehicle and commercial
vehicle businesses. The Merger provided opportunities for cross-marketing of
products and services to customers of the two constituent companies, and we
continue to pursue these opportunities. For example, CVS has been awarded its
first contract to supply Caterpillar Inc. with exhaust products for commercial
vehicles in North America.
We also consider strategic opportunities that could enhance the company's
growth. Automotive suppliers continue to consolidate into larger, more efficient
and more capable companies and collaborate with each other in an effort to
better serve the global needs of their OEM customers. We regularly evaluate
various strategic and business development opportunities, including licensing
agreements, marketing arrangements, joint ventures, acquisitions and
dispositions. We remain committed to selectively pursuing alliances and
acquisitions that would allow us to gain access to new customers and
technologies, enter new product markets and implement our business strategies.
We also intend to continue to review the prospects of our existing businesses to
determine whether any of them should be modified, restructured, sold or
otherwise discontinued. See "Strategic Initiatives" and "Joint Ventures" for
information on initiatives in these areas.
Grow Content Per Vehicle Through Technologically Advanced Systems and
Modules. Increased outsourcing by OEMs has resulted in higher overall per
vehicle sales by independent suppliers and presents an opportunity for supplier
sales growth at a faster rate than the overall automotive industry growth trend.
OEMs are also demanding modules and integrated systems that require little
assembly by the OEM customer. In both light and commercial vehicle markets, we
believe that the trend is also away from sales of components to customers, and
toward integration of components into systems and eventual joint development of
integrated vehicles with development partners.
One of our significant growth strategies is to provide a higher level of
engineering and design expertise, to develop new products and improve existing
products that meet these customer needs. We will continue to invest in new
technologies and product development, and will work closely with our customers
to develop and implement design, engineering, manufacturing and quality
improvements. We will also continue to integrate our existing product lines by
using our design, engineering and manufacturing expertise and teaming with
technology partners to expand sales of higher-value modules and systems. For
example:
- LVS has developed the Air2Air(TM) system, an integrated airflow system
that expands our existing exhaust system products to incorporate air
induction components that are customarily produced internally by OEMs.
The first integrated system is scheduled for production on the 2003
Chevrolet SSR.
- LVS is a leading supplier of complete roof modules comprised of a roof
head liner bound to an outer shell using a patented process. These
modules can also incorporate LVS sunroof technology and such items as sun
visors, grab handles and interior lighting, as well as antennae and
speakers. Our roof
3
<PAGE>
module is featured in the DaimlerChrysler SMART car and has been accepted
by a second global OEM.
- LVS has been awarded a $300 million annual contract to provide a complete
front suspension module for a popular sport utility vehicle.
- CVS has a contract to provide advanced front and rear suspension systems
for the new Blue Bird Wanderlodge M380 luxury motor coach.
Management believes that the strategy of continuing to introduce new and
improved systems and technologies will be an important factor in our efforts to
achieve our growth objectives. We will draw upon the engineering resources of
our Technical Centers in Troy, Michigan, and Columbus, Indiana, and our
engineering centers of expertise in the United States, Brazil, Canada, France,
Germany and the United Kingdom. See "Research and Development" below.
Enhance Core Products to Address Safety and Environmental Issues. Another
industry trend is the increasing amount of vehicle content that responds to
changes in environmental and safety-related regulatory requirements. OEMs select
suppliers based not only on the cost and quality of products, but also on
responsiveness to these customer needs. In order to meet these demands, we focus
significant attention on our core products and seek to develop products that
address safety and environmental concerns.
To address safety, our LVS group designs its aperture systems with stronger
materials, creates designs that enhance the vehicle's crashworthiness and
develops undercarriage systems that offer improved ride and vehicle control
dynamics. Our CVS group, for example, is focusing on the integration of braking
and stability products and suspension products, as well as the development of
electronic control capabilities. CVS is also developing braking systems
technology that would assist customers in meeting proposed U.S. regulations to
improve braking performance and reduce stopping distances for commercial motor
vehicles.
With respect to environmental regulations, LVS is an industry leader in air
and emissions systems that improve fuel economy and reduce air pollutants, and
CVS is applying our expertise in light vehicle air and emissions to the
commercial vehicle market. Looking forward, we continue to develop technical
expertise that will permit us to assist customers in meeting new and more
stringent emissions requirements that will be phased in over the next ten years
in our primary markets in North America and Europe.
Drive a Continuous Improvement Culture Focused on Economic Profit and
Return on Capital. In 2001, we implemented the ArvinMeritor Performance System,
a continuous improvement initiative that guides our philosophy for achieving
operational excellence, eliminating waste, improving quality and earning
customer loyalty. Throughout the company, continuous improvement teams have
achieved significant cost savings, increased productivity and efficiency and
streamlined operations. They have focused on eliminating non-value-added tasks,
reducing lead and cycle times and improving customer service.
A continuous improvement culture is important to our business operations
and to maintaining and improving our earnings. Process improvement initiatives
should help us achieve our goals with respect to economic profit, which is net
operating profit after taxes less a cost of capital charge for net assets
employed. We believe that economic profit is a key performance measure, and that
our focus on economic profit in fiscal year 2002 helped us achieve strong cash
flow and debt reduction.
PRODUCTS
ArvinMeritor designs, develops, manufactures, markets, distributes, sells,
services and supports a broad range of products for use in commercial, specialty
and light vehicles. In addition to sales of original equipment systems and
components, we provide our products to OEMs, dealers, distributors, fleets and
other end-users in certain aftermarkets.
The following chart sets forth operating segment sales by product for each
of the three fiscal years ended September 30, 2002. Product sales by Arvin and
its subsidiaries are included only for periods after the date of
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<PAGE>
the Merger. A narrative description of the principal products of our three
operating segments and other operations follows the chart.
SALES BY PRODUCT
<Table>
<Caption>
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
LVS:
Air and Emissions Systems(1)........................... 26% 25% 7%
Aperture Systems(1).................................... 17 17 23
Undercarriage Systems(1)............................... 10 11 9
--- --- ---
Total LVS......................................... 53% 53% 39%
--- --- ---
CVS:
Drivetrain Systems..................................... 15% 14% 26%
Braking Systems........................................ 8 8 13
Specialty Systems...................................... 5 5 8
Suspension Systems and Trailer Products(1)............. 5 5 9
--- --- ---
Total CVS......................................... 33% 32% 56%
--- --- ---
LVA(1):
Filter Products........................................ 5% 4% 1%
Exhaust Products....................................... 4 5 2
Ride Control Products.................................. 3 4 1
--- --- ---
Total LVA......................................... 12% 13% 4%
--- --- ---
Other(1).................................................... 2% 2% 1%
--- --- ---
Total....................................................... 100% 100% 100%
=== === ===
</Table>
- ---------------
(1) Sales relating to motion control products (included in aperture systems),
ride control systems (included in undercarriage systems and suspension
systems and trailer products), air and emissions systems, LVA products and
Other are included only for periods after the date of the Merger, July 7,
2000.
Light Vehicle Systems
A key strategy of LVS is to enhance our market position in air and
emissions systems, aperture systems (including roof and door systems and motion
control products), and undercarriage components and systems (including
suspension and ride control systems and wheel products). The following products
comprise our LVS portfolio.
Air and Emissions Systems
We are a leading global supplier of a complete line of exhaust system
components, including mufflers, exhaust pipes, catalytic converters and exhaust
manifolds. We sell these products to OEMs primarily as original equipment, while
also supporting manufacturers' needs for replacement parts and dealers' needs
for service parts. We also produce our Air2Air(TM) system, which combines air
induction and exhaust systems into an integrated airflow system for OEM
customers and provides an overall improved airflow system for better system
performance with less development time.
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We participate in this business both directly and through joint ventures
and affiliates. These alliances include our 50% interest in Arvin Sango Inc., an
exhaust joint venture based in North America, and our 49% interest in Zeuna
Starker GmbH & Co., an exhaust systems supplier headquartered in Germany. See
"Joint Ventures" below.
Aperture Systems
Roof Systems. ArvinMeritor is one of the world's leading independent
suppliers of sunroofs and roof systems products for use in passenger cars, light
trucks and sport utility vehicles. We make one-piece, modular roof systems, some
of which incorporate sunroofs, that provide OEMs with cost savings by reducing
assembly time and parts. Our roof system manufacturing facilities are located in
North America, Europe and the Asia/ Pacific region.
Door Systems. We are a leading supplier of integrated door modules and
systems, including manual and power window regulators and latch systems. Our
wide range of power and manual door system products utilize numerous
technologies, including our own electric motors, which are designed for
individual applications and to maximize operating efficiency and reduce noise
levels. We manufacture window regulators at plants in North and South America,
Europe and the Asia/Pacific region for light vehicle and heavy-duty commercial
vehicle OEMs.
We also supply manual and power activated latch systems to light vehicle
and heavy-duty commercial vehicle manufacturers. Our access control products
include modular and integrated door latches, actuators, trunk and hood latches
and fuel flap locking devices with leadership market positions in Europe and a
market presence in North America and the Asia/Pacific region. We have access
control systems manufacturing and/or assembly facilities in North and South
America, Europe and the Asia/Pacific region.
Motion Control Products. We are a worldwide leader in the manufacture and
supply of motion control and counterbalancing products for the automotive
industry. Our products include gas lift supports and vacuum actuators. We have
motion control products manufacturing facilities in the United States and the
United Kingdom.
Undercarriage Systems
Suspension Systems. Through our 57%-owned joint venture with Mitsubishi
Steel Manufacturing Co., we are one of the leading independent suppliers of
products used in suspension systems for passenger cars, light trucks and sport
utility vehicles in North America. Our suspension system products, which are
manufactured at facilities in the United States and Canada, include coil
springs, stabilizer bars and torsion bars. In addition, we supply automotive
suspension components for the European light vehicle market from a manufacturing
facility in England.
Ride Control Systems. We provide ride control products, including shock
absorbers, struts, ministruts and corner modules. We participate in this
business both directly and through a joint venture. We manufacture ride control
products and are a leading supplier in the European OEM market through a joint
venture with Kayaba Industries, Inc. ("Kayaba"). See "Joint Ventures" below.
Wheel Products. We are a leading supplier of steel wheel products to the
light vehicle OEM market, principally in North and South America. We have wheel
manufacturing facilities in Brazil and Mexico. Our wheel products include
fabricated steel wheels, bead seat attached wheels, full-face designed wheels
and clad wheels with the appearance of a chrome finish. Our cladding process
offers enhanced styling options previously available only in aluminum wheels.
Commercial Vehicle Systems
Drivetrain Systems
Truck Axles. We are one of the world's leading independent suppliers of
axles for medium- and heavy-duty commercial vehicles, with axle manufacturing
facilities located in North America, South America,
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Europe and the Asia/Pacific region. Our extensive truck axle product line
includes a wide range of drive and non-drive front steer axles and single and
tandem rear drive axles, which can include driver-controlled differential lock
for extra traction, aluminum carriers to reduce weight and pressurized filtered
lubrication systems for longer life. Our front steer and rear drive axles can be
equipped with our cam, wedge or air disc brakes, automatic slack adjusters and
anti-lock braking systems.
Drivelines and Other Products. We also supply universal joints and
driveline components, including our Permalube(TM) universal joint, a permanently
lubricated universal joint used in the high mileage on-highway market.
Braking Systems
We are a leading independent supplier of air and hydraulic brakes to
medium- and heavy-duty commercial vehicle manufacturers in North America and
Europe. In Brazil, the third largest truck and trailer market in the world, our
49%-owned joint venture with Randon S. A. Veiculos e Implementos is a leading
supplier of brakes and brake-related products.
Through manufacturing facilities located in North America and Europe, we
manufacture a broad range of foundation air brakes, as well as automatic slack
adjusters for brake systems. Our foundation air brake products include cam drum
brakes, which offer improved lining life and tractor/trailer interchangeability;
air disc brakes, which provide fade resistant braking for demanding
applications; wedge drum brakes, which are lightweight and provide automatic
internal wear adjustment; hydraulic brakes; and wheel end components such as
hubs, drums and rotors.
Federal regulations require that new heavy- and medium-duty vehicles sold
in the United States be equipped with anti-lock braking systems ("ABS"). Our
50%-owned joint venture with WABCO Automotive Products ("WABCO"), a wholly-owned
subsidiary of American Standard, Inc., is the leading supplier of ABS and a
supplier of other electronic and pneumatic control systems for North American
heavy-duty commercial vehicles. The joint venture also supplies hydraulic ABS to
the North American medium-duty truck market.
Specialty Systems
Off-Highway Vehicle Products. We supply heavy-duty axles, brakes and
drivelines for use in numerous off-highway vehicle applications, including
construction, material handling, agriculture, mining and forestry, in North
America, South America, Europe and the Asia/Pacific region. These products are
designed to tolerate high tonnages and operate under extreme conditions. In
October 2002, we announced an agreement to sell our off-highway planetary axle
business. See "Strategic Initiatives" below.
Government Products. We supply axles, brakes and brake system components
including ABS, trailer products, transfer cases and drivelines for use in
medium-duty and heavy-duty military tactical wheeled vehicles, principally in
North America.
Specialty Vehicle Products. We supply axles, brakes and transfer cases for
use in buses, coaches and recreational, fire and other specialty vehicles in
North America and Europe, and we are the leading supplier of bus and coach axles
and brakes in North America.
Suspension Systems and Trailer Products
We believe we are the world's leading manufacturer of heavy-duty trailer
axles, with leadership positions in North America and in Europe. Our trailer
axles are available in over 40 models in capacities from 20,000 to 30,000 pounds
for virtually all heavy trailer applications and are available with our broad
range of brake products, including ABS. In addition, we supply trailer air
suspension systems and products for which we have strong market positions in
Europe and an increasing market presence in North America.
7
<PAGE>
In August 2002, we entered into a 50%-owned joint venture with Randon
Participacoes to develop, manufacture and sell truck suspensions, trailer axles
and suspensions and related wheel-end products in the South American market. See
"Joint Ventures" below.
Transmissions
Our 50%-owned joint venture with ZF Friedrichshafen AG ("ZF")produces
technologically advanced transmission components and systems for heavy vehicle
OEMs and the aftermarket in the United States, Canada and Mexico. This
transmission product line enables us to supply a complete drivetrain system to
heavy-duty commercial vehicle manufacturers in North America. The most recent
additions to the joint venture's range of transmission models include
FreedomLine(TM), a fully automated mechanical truck transmission without a
clutch pedal, and SureShift(TM), a shift-by-wire system that provides the
operating ease of an automatic transmission with full manual control by the
driver.
Light Vehicle Aftermarket
The principal LVA products include mufflers; exhaust and tail pipes;
catalytic converters; shock absorbers; struts; and automotive oil, air, and fuel
filters. These products are sold under the brand names Arvin(R)(mufflers);
Gabriel(R) (shock absorbers); and Purolator(R) (filters). LVA also markets
products under private label to customers such as Pep Boys and CARQUEST (ride
control) and Quaker State (filters).
Other
"Other" consists of business units that are not focused predominantly on
automotive products and includes our coil coating operation. Coated steel and
aluminum substrates are used in a variety of applications, which include
consumer appliances; roofing and siding; garage and entry doors; heating,
ventilation and air conditioning (HVAC); and transportation.
CUSTOMERS; SALES AND MARKETING
ArvinMeritor's operating segments have numerous customers worldwide and
have developed long-standing business relationships with many of these
customers. Our ten largest customers accounted for approximately 65% of our
total sales in fiscal year 2002.
Original Equipment. Both LVS and CVS market and sell products principally
to OEMs. In North America, CVS also markets truck and trailer products directly
to dealers, fleets and other end-users, which may designate the components and
systems of a particular supplier for installation in the vehicles they purchase
from OEMs.
Consistent with industry practice, LVS and CVS make most of their sales to
OEMs through open purchase orders, which do not require the purchase of a
minimum number of products. The customer typically may cancel these purchase
orders on reasonable notice. LVS and CVS also sell products to certain customers
under long-term arrangements that require us to provide annual cost reductions
(through price reductions or other cost benefits for the OEMs). If we were
unable to generate sufficient cost savings in the future to offset such price
reductions, our gross margins would be adversely affected.
Both LVS and CVS are dependent upon large OEM customers with substantial
bargaining power with respect to price and other commercial terms. Although we
believe that our businesses generally enjoy good relations with our OEM
customers, loss of all or a substantial portion of sales to any of our large
volume customers for whatever reason (including, but not limited to, loss of
contracts, reduced or delayed customer requirements, plant shutdowns, strikes or
other work stoppages affecting production by such customers) could have a
significant adverse effect on our financial results. During fiscal year 2002,
DaimlerChrysler AG (which owns Chrysler, Mercedes-Benz AG and Freightliner
Corporation) accounted for approximately $670 million of sales for LVS, $410
million of sales for CVS and $20 million of sales for LVA, or 16% of our total
sales. In addition, General Motors Corporation accounted for approximately $840
million of sales for LVS, $65 million of sales for CVS and $15 million of sales
for LVA, or 13% of our total sales, and Ford Motor Company
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accounted for approximately $605 million of sales for LVS, $30 million of sales
for CVS and $90 million of sales for LVA, or 11% of our total sales. No other
customer accounted for over 10% of our total sales in fiscal year 2002.
Except as noted above with respect to the North American market for
heavy-duty trucks and trailers, LVS and CVS generally compete for new business
from OEMs, both at the beginning of the development of new vehicle platforms and
upon the redesign of existing platforms. New platform development generally
begins two to four years prior to start-up of production. Once a supplier has
been designated to supply products to a new platform, an OEM will generally
continue to purchase those products from the supplier for the life of the
platform, which typically lasts three to six years.
Aftermarkets. CVS also provides truck and trailer products and off-highway
and specialty products to OEMs, dealers and distributors in the aftermarket. LVA
sells products primarily to wholesale distributors, retailers and installers.
The light vehicle aftermarket includes fewer and larger customers as the market
consolidates and as OEMs increase their presence in the market.
Coil Coating. Our coil coating customers include steel companies, service
centers and end manufacturers engaged in the transportation, appliance,
construction and furniture industries.
COMPETITION
Each of ArvinMeritor's businesses operates in a highly competitive
environment. LVS and CVS compete worldwide with a number of North American and
international providers of components and systems, some of which belong to, or
are associated with, some of our customers. Some of these competitors are larger
and some are smaller than the company in terms of resources and market shares.
The principal competitive factors are price, quality, service, product
performance, design and engineering capabilities, new product innovation and
timely delivery. LVS has numerous competitors across its various product lines
worldwide, including Tenneco, Faurecia and Eberspaecher (air and emissions
systems); Webasto and Inalfa (roof systems); Brose, Magna, Hi-Lex and Grupo
Antolin (door systems); Kiekert and Valeo (latch systems); Stabilus (motion
control products); Thyssen-Krupp and NHK Spring (suspension systems); Kayaba,
Tenneco and Sachs (ride control systems); and Hayes-Lemmerz and Michelin (wheel
products). The major competitors of CVS are Dana Corporation and Eaton
Corporation (truck axles and drivelines); Knorr/Bendix and Haldex Braking
Systems (braking systems); Hendrickson and Holland-Neway (suspension systems);
Hendrickson and Dana (trailer products); and Eaton Corporation (transmissions).
In addition, certain OEMs manufacture for their own use products of the types we
supply, and any future increase in this activity could displace our sales.
LVA competes with both OEMs and independent suppliers in North America and
Europe and serves the market through our own sales force, as well as through a
network of manufacturers' representatives. Major competitors include Tenneco,
Goerlicks, Bosal, Flowmaster, Sebring and Remus (exhaust products); Tenneco,
Kayaba and Sachs (ride control products); and Champion Laboratories, Honeywell,
Dana, Mann & Hummel, Sogefi Filtration and Mahle (filtration products).
Competitive factors include customer loyalty, competitive pricing, customized
service, quality, timely delivery, product development and manufacturing process
efficiency.
Our coil coating operation competes with other coil coaters and with
customers' internal painting systems.
RAW MATERIALS AND SUPPLIES
We believe we have adequate sources for the supply of raw materials and
components for our business segments' manufacturing needs with suppliers located
around the world. We do, however, concentrate our purchases of certain raw
materials and parts over a limited number of suppliers, some of which are
located in developing countries, and we are dependent upon the ability of our
suppliers to meet performance and quality specifications and delivery schedules.
Although we historically have not experienced any significant difficulties in
obtaining an adequate supply of raw materials and components necessary for our
manufacturing operations,
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<PAGE>
the loss of a significant supplier or the inability of a supplier to meet
performance and quality specifications or delivery schedules could have an
adverse effect on us.
On March 5, 2002, President Bush, acting under Section 201 of the Trade Act
of 1974, imposed tariffs of up to 30% on imports of most flat rolled carbon
steel products for a three-year period. Imports of finished steel have decreased
since imposition of the tariffs, and we began to experience rising steel prices
and spot shortages of certain steel products as a result of these tariffs in the
second half of fiscal year 2002. We cannot predict the effect of the tariffs on
availability of steel in fiscal year 2003. If supplies are inadequate for our
needs, or if prices increase significantly and we are unable to either pass
these price increases to our customer base or mitigate the cost increases by
alternative sourcing of material or components, our sales and operating income
could be adversely affected.
STRATEGIC INITIATIVES
We regularly consider various strategic and business opportunities,
including licensing agreements, marketing arrangements and acquisitions, and
review the prospects of our existing businesses to determine whether any of them
should be modified, restructured, sold or otherwise discontinued.
The industry in which we operate continues to experience significant
consolidation among suppliers. This trend is due in part to globalization and
increased outsourcing of product engineering and manufacturing by OEMs, and in
part to OEMs reducing the total number of their suppliers by more frequently
awarding long-term, sole-source or preferred supplier contracts to the most
capable global suppliers. Scale is an important competitive factor, with the
largest industry participants able to maximize key resources and contain costs.
Consistent with this trend, we completed the Merger of Arvin and Meritor in
fiscal year 2000 in order to enhance the financial strength, diversity of
operations and product lines of both companies and to better position ourselves
to take advantage of global opportunities. In addition, we believe that
efficiencies and cost savings resulting from the Merger enable us to improve
upon and increase our strategic options and lower our average cost of capital.
On October 31, 2002, we announced that we had entered into an agreement to
sell our off-highway planetary axle business to Axle Tech International, an
affiliate of Wynnchurch Capital, Ltd. The sale includes manufacturing sites at
Oshkosh, Wisconsin and St. Etienne, France and the planetary axle operations in
Osasco, Brazil, and Seoul, Korea and is contingent on the satisfaction of
certain conditions. We expect to complete the transaction in the first half of
fiscal year 2003.
In the first quarter of fiscal 2002, we recorded a restructuring charge of
$15 million to realign certain operations to reflect the weak demand in our
major markets. The charge related to employee severance benefits for
approximately 450 salaried employees. See Note 5 of the Notes to Consolidated
Financial Statements under Item 8. Financial Statements and Supplementary Data
below.
No assurance can be given as to whether or when any additional strategic
initiatives will be consummated in the future. We will continue to consider
acquisitions as a means of growing the company or adding needed technologies,
but cannot predict whether our participation or lack of participation in
industry consolidation will ultimately be beneficial to us. If an agreement with
respect to any additional acquisitions were to be reached, we could finance such
acquisitions by issuance of additional debt or equity securities or by using our
accounts receivable securitization facility. The additional debt from any such
acquisitions, if consummated, could increase our debt to capitalization ratio.
In addition, the ultimate benefit of any acquisition would depend on our ability
to successfully integrate the acquired entity or assets into our existing
business and to achieve any projected synergies.
JOINT VENTURES
As the automotive industry has become more globalized, joint ventures and
other cooperative arrangements have become an important element of our business
strategies. At September 30, 2002, we participated in 26 joint ventures with
interests in the United States, Brazil, Canada, China, Colombia, the Czech
Republic,
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Germany, Hungary, India, Italy, Japan, Mexico, South Africa, Spain, Turkey,
Venezuela and the United Kingdom.
In accordance with accounting principles generally accepted in the United
States, our consolidated financial statements include the operating results of
those majority-owned joint ventures in which we have control. Significant
consolidated joint ventures include our 57%-owned North American joint venture
with Mitsubishi Steel Manufacturing Co. (suspension products for passenger cars,
light trucks and sport utility vehicles); and our 75% interest in a joint
venture in Spain with Kayaba (ride control products). Significant unconsolidated
joint ventures include our 50%-owned North American joint venture with WABCO
(ABS systems for heavy-duty commercial vehicles); our 50%-owned joint venture in
the United States with ZF (transmissions); our 50% interest in Arvin Sango Inc.
in the United States and our 49% interest in Zeuna Starker GmbH & Co. in Germany
(air and emissions systems).
In August 2002, we formed a 50%-owned joint venture with Randon
Participacoes to develop, manufacture and sell truck suspensions, trailer axles
and suspensions and related wheel-end products in the South American market. The
joint venture will combine our product technology and customer contacts with
Randon's manufacturing and operations expertise and could enhance both our
market penetration in South America and our product portfolio outside of the
region.
In October 2002, Kayaba purchased our 40% interest in a Spanish joint
venture that manufactures steering pumps, and our participation in this joint
venture was terminated.
On December 17, 2002, we entered into agreements to purchase the remaining
51% interest in Zeuna Starker GmbH & Co. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity.
RESEARCH AND DEVELOPMENT
We have significant research, development, engineering and product design
capabilities. We spent $132 million in fiscal year 2002, $136 million in fiscal
year 2001, and $115 million in fiscal year 2000 on research, development and
engineering. At September 30, 2002, we employed approximately 1,700 professional
engineers and scientists.
PATENTS AND TRADEMARKS
We own or license many United States and foreign patents and patent
applications in our manufacturing operations and other activities. While in the
aggregate these patents and licenses are considered important to the operation
of our businesses, management does not consider them of such importance that the
loss or termination of any one of them would materially affect a business
segment or ArvinMeritor as a whole. (See Item 3. Legal Proceedings for
information regarding a patent infringement lawsuit filed against the company by
Eaton Corporation and adverse judgments in the case.)
Our registered trademarks ArvinMeritor(R), Arvin(R) and Meritor(R) are
important to our business. Other significant trademarks owned by us include
Gabriel(R) (shock absorbers and struts) and Purolator(R) (filters) with respect
to LVA, and ROR(TM) (trailer axles) with respect to CVS. In connection with the
1997 spin-off of Meritor's common stock to the shareowners of Rockwell
International Corporation (now Rockwell Automation, Inc., and referred to in
this Annual Report on Form 10-K as "Rockwell") and the transfer of Rockwell's
automotive businesses to Meritor, Meritor entered into an agreement that allows
us to continue to apply the "Rockwell" brand name to our products until
September 30, 2007.
EMPLOYEES
At September 30, 2002, we had approximately 32,000 full-time employees. At
that date, approximately 4,500 employees in the United States and Canada were
covered by collective bargaining agreements and most
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of our facilities outside of the United States and Canada were unionized. We
believe our relationship with unionized employees is satisfactory. No
significant work stoppages have occurred in the past five years.
ENVIRONMENTAL MATTERS
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 our manufacturing operations. We record liabilities for environmental issues
in the accounting period in which our responsibility is established and the cost
can be reasonably estimated. At environmental sites in which more than one
potentially responsible party has been identified, we record a liability for our
allocable share of costs related to our involvement with the site, as well as an
allocable share of costs related to insolvent parties or unidentified shares. At
environmental sites in which we are the only potentially responsible party, we
record a liability for the total estimated costs of remediation before
consideration of recovery from insurers or other third parties.
We have been designated as a potentially responsible party at eight
Superfund sites, excluding sites as to which our records disclose no involvement
or as to which our potential liability has been finally determined. Management
estimates the total reasonably possible costs we could incur for the remediation
of Superfund sites at September 30, 2002, to be approximately $34 million, of
which $13 million is recorded as a liability.
In addition to Superfund sites, various other lawsuits, claims and
proceedings have been asserted against us, 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 we could incur at September 30, 2002, to be approximately $50
million, of which $21 million is recorded as a liability.
The process of estimating environmental liabilities is complex and
dependent on physical and scientific data at the site, uncertainties as to
remedies and technologies to be used, and the outcome of discussions with
regulatory agencies. The actual amount of costs or damages for which we may be
held responsible could materially exceed the foregoing estimates because of
these uncertainties and others (including the financial condition of other
potentially responsible parties and the success of the remediation) that make it
difficult to accurately predict actual costs. However, based on management's
assessment, after consulting with Vernon G. Baker, II, Esq., General Counsel of
ArvinMeritor, and subject to the difficulties inherent in estimating these
future costs, we believe that our 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 our business,
financial condition or results of operations. In addition, in future periods,
new laws and regulations, advances in technology and additional information
about the ultimate clean-up remedy could significantly change our estimates.
Management cannot assess the possible effect of compliance with future
requirements.
INTERNATIONAL OPERATIONS
Approximately 40% of our total assets as of September 30, 2002 and 38% of
fiscal year 2002 sales were outside North America. See Note 23 of the Notes to
Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data below for financial information by geographic area for the
three fiscal years ended September 30, 2002.
Management believes that international operations have significantly
benefited our financial performance. However, our international operations are
subject to a number of risks inherent in operating abroad, including, but not
limited to:
- risks with respect to currency exchange rate fluctuations;
- local economic and political conditions;
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- disruptions of capital and trading markets;
- restrictive governmental actions (such as restrictions on transfer of
funds and trade protection measures, including export duties and quotas
and customs duties and tariffs);
- changes in legal or regulatory requirements;
- import or export licensing requirements;
- limitations on the repatriation of funds;
- difficulty in obtaining distribution and support;
- nationalization;
- the laws and policies of the United States affecting trade, foreign
investment and loans;
- tax laws; and
- labor disruptions.
There can be no assurance that these risks will not have a material adverse
impact on our ability to increase or maintain our foreign sales or on our
financial condition or results of operations.
The impact that the euro and other currencies will have on our sales and
operating income is difficult to predict in fiscal year 2003. We enter into
foreign currency contracts to help minimize the risk of loss from currency rate
fluctuations on foreign currency commitments entered into in the ordinary course
of business. It is our policy not to enter into derivative financial instruments
for speculative purposes and, therefore, we hold no derivative instruments for
trading purposes. We have not experienced any material adverse effect on our
business, financial condition or results of operations related to these foreign
currency contracts. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quantitative and Qualitative
Disclosures About Market Risk below.
SEASONALITY; CYCLICALITY
LVS and CVS may experience seasonal variations in the demand for products
to the extent automotive vehicle production fluctuates. Historically, for both
segments, such demand has been somewhat lower in the quarters ended September 30
and December 31, when OEM plants may close during model changeovers and vacation
and holiday periods.
In addition, the industry in which LVS and CVS operate has been
characterized historically by periodic fluctuations in overall demand for
trucks, passenger cars and other vehicles for which we supply products,
resulting in corresponding fluctuations in demand for our products. The cyclical
nature of the automotive industry is outside our control and cannot be predicted
with certainty. Cycles in the major automotive industry markets of North America
and Europe are not necessarily concurrent or related.
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The following table sets forth vehicle production in principal markets
served by LVS and CVS for the last five fiscal years:
<Table>
<Caption>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Light Vehicles (in millions):
North America............................................. 16.4 15.6 17.5 16.9 15.4
South America............................................. 1.9 2.2 2.0 1.5 2.0
Western Europe (including Czech Republic)................. 16.4 16.9 16.7 16.5 16.1
Asia/Pacific.............................................. 17.1 16.9 17.5 15.6 15.4
Commercial Vehicles (in thousands):
North America, Heavy-Duty Trucks.......................... 170 150 294 323 263
North America, Medium-Duty Trucks......................... 133 144 172 185 158
United States and Canada, Trailers........................ 145 208 367 366 327
Western Europe, Heavy- and Medium-Duty Trucks............. 354 386 400 376 362
Europe, Trailers.......................................... 101 110 119 124 130
</Table>
- ---------------
Source: Automotive industry publications and management estimates.
We believe that the stronger heavy-duty truck demand in North America in
fiscal year 2002 was partially due to the pre-buy before new U.S. emission
standards went into effect on October 1, 2002. As a result, we anticipate the
North American heavy-duty truck market to be slightly weaker in fiscal year
2003, with production at an estimated 161,000 units. In Western Europe, we
expect production of heavy- and medium-duty trucks to decrease approximately 5%
to 337,000 units. Our most recent outlook shows North American and Western
European light vehicle production to be 16.0 million and 16.5 million vehicles,
respectively, during fiscal year 2003. See "Industry Developments and Outlook"
above and Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview and Outlook and -- Results of Operations
below for information on downturns in certain markets and their effects on our
sales and earnings.
AVAILABLE INFORMATION
We make available free of charge through our web site
(www.arvinmeritor.com) our Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, all amendments to those reports, and other
filings with the Securities and Exchange Commission, as soon as reasonably
practicable after they are filed.
CAUTIONARY STATEMENT
This Annual Report on Form 10-K contains statements relating to future
results of the company (including certain projections and business trends) that
are "forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are typically identified by words
or phrases such as "believe," "expect," "anticipate," "estimate," "should," "are
likely to be" and similar expressions. Actual results may differ materially from
those projected as a result of certain risks and uncertainties, including but
not limited to global economic and market conditions; the demand for commercial,
specialty and light vehicles for which the company supplies products; risks
inherent in operating abroad, including foreign currency exchange rates; the
availability and cost of raw materials; OEM program delays; demand for and
market acceptance of new and existing products; successful development of new
products; reliance on major OEM customers; labor relations of the company, its
customers and suppliers; successful integration of acquired or merged
businesses; achievement of the expected annual savings and synergies from past
and future business combinations; competitive product and pricing pressures; the
amount of the company's debt; the ability of the company to access capital
markets; the credit ratings of the company's debt; the outcome of existing and
any future legal proceedings, including any litigation with respect to
environmental or asbestos-related matters; as well as other risks and
uncertainties, including but not limited to those
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detailed herein and from time to time in other filings of the company with the
Securities and Exchange Commission. See also the following portions of this
Annual Report on Form 10-K: Item 1. Business -- "Industry Developments and
Outlook"; "Customers; Sales and Marketing"; "Competition"; "Raw Materials and
Supplies"; "Strategic Initiatives"; "Environmental Matters"; "International
Operations"; and "Seasonality; Cyclicality"; Item 3. Legal Proceedings; and Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 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.
ITEM 2. PROPERTIES.
At September 30, 2002, our operating segments and joint ventures had the
following facilities in the United States, Europe, South America, Canada,
Mexico, Australia, South Africa and the Asia/Pacific region:
<Table>
<Caption>
MANUFACTURING ENGINEERING FACILITIES, SALES OFFICES, WAREHOUSES
FACILITIES AND SERVICE CENTERS
------------- -------------------------------------------------
<S> <C> <C>
LVS................................ 88 45
CVS................................ 41 51
LVA................................ 20 17
Other.............................. 4 3
</Table>
These facilities had an aggregate floor space of approximately 33.2 million
square feet, substantially all of which is in use. We owned approximately 74%
and leased approximately 26% of this floor space. There are no major
encumbrances (other than financing arrangements that in the aggregate are not
material) on any of our plants or equipment. In the opinion of management, our
properties have been well maintained, are in sound operating condition and
contain all equipment and facilities necessary to operate at present levels. A
summary of floor space of these facilities at September 30, 2002, is as follows:
<Table>
<Caption>
OWNED LEASED
FACILITIES FACILITIES
------------------------------- -----------------------------
LOCATION LVS CVS LVA OTHER LVS CVS LVA OTHER TOTAL
-------- ------ ------ ----- ----- ----- ----- ----- ----- ------
(IN THOUSANDS OF SQUARE FEET)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States............... 4,538 4,360 1,717 642 464 1,572 521 507 14,321
Canada...................... 449 413 -- -- 89 160 84 -- 1,195
Europe...................... 3,861 2,790 1,026 -- 2,639 150 644 -- 11,110
Asia/Pacific................ 448 471 -- -- 147 658 597 -- 2,321
Latin America............... 1,133 2,120 324 -- 89 42 186 -- 3,894
Africa...................... 304 -- -- -- -- 11 2 -- 317
------ ------ ----- --- ----- ----- ----- --- ------
Total............. 10,733 10,154 3,067 642 3,428 2,593 2,034 507 33,158
====== ====== ===== === ===== ===== ===== === ======
</Table>
In October 2002, we announced an agreement to sell our off-highway
planetary axle business. The sale includes two owned manufacturing facilities,
in Oshkosh, Wisconsin, USA and St. Etienne, France, with a total of 834,000
square feet of floor space.
ITEM 3. LEGAL PROCEEDINGS.
On July 17, 1997, Eaton Corporation filed suit against Rockwell in the U.S.
District Court in Wilmington, Delaware, asserting infringement of Eaton's U.S.
Patent No. 4850236, which covers certain aspects of heavy-duty truck
transmissions, by our Engine SynchroShift(TM) transmission for heavy-duty
trucks, and seeking damages and injunctive relief. Meritor was joined as a
defendant on June 11, 1998. The following judgments and orders have been issued
in this case:
- After trial, on July 1, 1998, a jury rendered a verdict in favor of
Eaton, finding that Meritor had infringed Eaton's patent and awarding
compensatory damages in an amount equal to 13% of total
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product sales. On October 11, 2001, the judge entered an order granting damages
to Eaton in the amount of $2.9 million, plus post-judgment interest.
- A separate phase of the trial was held in April 1999, without a jury,
with respect to Meritor's allegations that Eaton had engaged in
inequitable conduct in obtaining its patent and that the patent was
therefore unenforceable. On February 9, 2001, the judge ruled against us
on the second phase of the proceedings, finding that we had not provided
clear and convincing evidence of inequitable conduct by Eaton in
obtaining its patent.
- On September 19, 2001, the judge granted Eaton's request for a permanent
injunction against our manufacturing or selling the Engine
SynchroShift(TM) transmission and any "colorable variations."
- On October 11, 2001, the judge denied our motions for a new trial and for
judgment as a matter of law.
We have appealed these judgments and orders to the United States Court of
Appeals for the Federal Circuit and oral arguments were held in October 2002.
Based on advice of M. Lee Murrah, Esq., Chief Intellectual Property Counsel of
ArvinMeritor, management believes our truck transmissions do not infringe
Eaton's patent. We intend to continue to defend this suit vigorously.
Maremont Corporation ("Maremont," a subsidiary of ArvinMeritor) and many
other companies are defendants in suits brought by individuals claiming personal
injuries as a result of exposure to asbestos-containing products. Maremont
manufactured friction products containing asbestos from 1953 through 1977, when
it sold its friction product business. Arvin acquired Maremont in 1986. During
fiscal years 1997 through 2002, Maremont paid approximately $52 million to
address asbestos-related claims, substantially all of which was reimbursed by
insurance.
Maremont's potential liabilities for asbestos-related claims include the
following:
- Unbilled committed settlements entered into by the Center for Claims
Resolution: Maremont participated in the Center for Claims Resolution
("CCR") and agreed to share with other CCR members in the payments 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 1, 2001, when it was reorganized and discontinued
negotiating shared settlements.
- Pending claims: Since February 1, 2001, Maremont has hired its own
litigation counsel and is committed to examining the merits of each
asbestos-related claim. For purposes of establishing reserves for pending
asbestos-related claims, Maremont estimates its defense and indemnity
costs based on the history and nature of filed claims to date and
Maremont's experience since February 1, 2001. Maremont had approximately
37,500 and 27,500 pending asbestos-related claims at September 30, 2002
and 2001, 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.
- Shortfall: Several former members of the CCR have filed for bankruptcy
protection, and these members have failed, or may fail, to pay certain
financial obligations with respect to settlements that were reached while
they were CCR members. Maremont is subject to claims for payment of a
portion of these defaulted member shares. In an effort to resolve the
affected settlements, Maremont has entered into negotiations with
plaintiffs' attorneys, and an estimate of Maremont's obligation for the
shortfall is included in the total asbestos-related reserves (discussed
below). In addition, Maremont and its insurers are engaged in legal
proceedings to determine whether existing insurance coverage should
reimburse any potential liability related to this issue.
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 the insurance agreements in place. Based on
its assessment of the history and nature of filed claims to date, and of
Maremont's insurance carriers,
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<PAGE>
management believes that existing insurance coverage is adequate to cover
substantially all costs relating to pending and future asbestos-related claims.
At September 30, 2002, Maremont had established reserves of $66 million
relating to these potential asbestos-related liabilities and corresponding
asbestos-related recoveries of $59 million. 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 for asbestos-related claims are subject to considerable
uncertainty because such liabilities are influenced by variables that are
difficult to predict. 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 Maremont's liability for asbestos-related
claims, and the effect on ArvinMeritor, could differ materially from current
estimates. Maremont does not have sufficient information to make a reasonable
estimate of its potential liability for asbestos-related claims that may be
asserted against it in the future, and has not accrued reserves for these
unknown claims.
See Item 1. Business, "Environmental Matters" for information relating to
environmental proceedings.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against ArvinMeritor or our subsidiaries relating to the
conduct of our business, including those pertaining to product liability,
intellectual property, safety and health, and employment matters. Although the
outcome of litigation cannot be predicted with certainty and some lawsuits,
claims or proceedings may be disposed of unfavorably to ArvinMeritor, management
believes, after consulting with Vernon G. Baker, II, Esq., ArvinMeritor's
General Counsel, that the disposition of matters that are pending will not have
a material adverse effect on our business, financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 2002.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The name, age, positions and offices held with ArvinMeritor and principal
occupations and employment during the past five years of each of our executive
officers as of November 30, 2002, are as follows:
LARRY D. YOST, 64 -- Chairman of the Board and Chief Executive Officer
since July 2000. Chairman of the Board and Chief Executive Officer of Meritor
from May 1997 to July 2000; Acting President, Light Vehicle Systems of Meritor
from January 1998 to March 1999.
VERNON G. BAKER, II, 49 -- Senior Vice President and General Counsel since
July 2000. Secretary of ArvinMeritor from July 2000 to November 2001; Senior
Vice President, General Counsel and Secretary of Meritor from August 1999 to
July 2000; Vice President and General Counsel, Corporate Research and Technology
of Hoechst Celanese Corporation, a subsidiary of Hoechst AG (pharmaceuticals and
industrial chemicals), from 1989 to July 1999.
DIANE S. BULLOCK, 45 -- Vice President and Controller since August 2001.
Vice President, Corporate Development of ArvinMeritor from July 2000 to December
2000; Vice President and Controller of Meritor from September 1998 to July 2000;
Assistant Controller of Meritor from January 1998 to September 1998;
Controller -- Body Systems N.A. of ITT Automotive, Inc. (automotive component
supplier) from 1995 to 1997.
LINDA M. CUMMINS, 55 -- Senior Vice President, Communications since July
2000. Senior Vice President, Communications of Meritor from April 2000 to July
2000; Vice President, Communications of Meritor from August 1999 to April 2000;
Vice President of Advanced Marketing and Worldwide Communications of United
Technologies Automotive (automotive component supplier) from August 1997 to
August 1999.
WILLIAM K. DANIEL, 37 -- Senior Vice President and President, Light Vehicle
Aftermarket since July 2000. President of Arvin Replacement Products business
group from December 1999 to July 2000; Managing
17
<PAGE>
Director of Arvin Replacement Products in Europe from January 1998 to November
1999; Managing Director of Gabriel Europe from May 1996 to December 1997.
JUAN L. DE LA RIVA, 58 -- Senior Vice President, Corporate Development &
Strategy, Engineering and Procurement since October 2001. Senior Vice President,
Corporate Development and Strategy of ArvinMeritor from July 2000 to October
2001; Senior Vice President, Business Development of Meritor from February 2000
to July 2000; Senior Vice President, Business Development and Communications of
Meritor from February 1999 to February 2000; Vice President, Business
Development and Communications of Meritor from September 1998 to February 1999;
Managing Director -- Wheels, Light Vehicle Systems of Meritor from September
1997 to September 1998.
THOMAS A. GOSNELL, 52 -- Senior Vice President and President, Commercial
Vehicle Systems since November 2000. Senior Vice President and President, Heavy
Vehicle Systems Aftermarket Products of ArvinMeritor from July 2000 to November
2000; Senior Vice President and President, Worldwide Aftermarket of Meritor from
September 1999 to July 2000; Vice President and General Manager, Aftermarket, of
Meritor from February 1998 to September 1999; General Manager, Worldwide
Aftermarket Services, Heavy Vehicle Systems, of Meritor from September 1997 to
February 1998.
PERRY L. LIPE, 56 -- Senior Vice President and Chief Information Officer
since July 2000. Vice President, Information Technology of Arvin from September
1998 to July 2000; Vice President, Information Technology of Fisher Controls
International, Inc. (valves, regulators and instrumentation) from September 1992
to August 1998.
TERRENCE E. O'ROURKE, 55 -- President and Chief Operating Officer since
June 2002. Senior Vice President and President, Light Vehicle Systems of
ArvinMeritor from July 2000 to May 2002; Senior Vice President and President,
Light Vehicle Systems of Meritor from March 1999 to July 2000; Group Vice
President and President -- Ford Division of Lear Corporation (automotive
component supplier) from January 1996 to January 1999.
DEBRA L. SHUMAR, 46 -- Senior Vice President, Continuous Improvement and
Quality since July 2002. Vice President, Quality of ArvinMeritor from July 2000
to July 2002; Vice President, Quality of Meritor from 1999 to July 2000;
Director, Quality, Light Vehicle Systems of Meritor from 1998 to 1999; Director,
Quality, Structural Systems of ITT Automotive (automotive component supplier)
from 1994 to 1998.
S. CARL SODERSTROM, JR., 49 -- Senior Vice President and Chief Financial
Officer since July 2001. Senior Vice President, Engineering, Quality and
Procurement of ArvinMeritor from July 2000 to July 2001; Senior Vice President,
Engineering, Quality and Procurement of Meritor from February 1998 to July 2000;
Vice President, Engineering and Quality, Heavy Vehicle Systems of Meritor from
September 1997 to February 1998.
CRAIG M. STINSON, 41 -- Senior Vice President and President, Light Vehicle
Systems, since June 2002. Senior Vice President and President, Exhaust Systems,
of ArvinMeritor from September 2000 to May 2002; Executive Vice President,
Exhaust Systems of ArvinMeritor from July 2000 to September 2000; Executive Vice
President, Exhaust Systems of Arvin from January 2000 to July 2000; Vice
President -- General Motors Business Group, Exhaust Systems of Arvin from June
1998 to January 2000; Vice President -- DaimlerChrysler Business Group, Exhaust
Systems of Arvin from February 1995 to June 1998.
FRANK A. VOLTOLINA, 42 -- Vice President and Treasurer since October 2000.
Vice President and Treasurer of Mallinckrodt Inc. (medical products) from
October 1997 to October 2000; Staff Vice President -- Director of Corporate Tax
of Mallinckrodt from October 1995 to October 1997.
ERNEST T. WHITUS, 47 -- Senior Vice President, Human Resources, since April
2001. Vice President, Human Resources-Commercial Vehicle Systems of ArvinMeritor
from July 2000 to April 2001; Vice President, Human Resources-Heavy Vehicle
Systems of Meritor from October 1998 to July 2000; Director, Human
Resources-Heavy Vehicle Systems of Meritor from September 1997 to October 1998.
18
<PAGE>
BONNIE WILKINSON, 52 -- Vice President and Secretary since November 2001.
Assistant General Counsel of ArvinMeritor from July 2000 to November 2001;
Assistant General Counsel of Meritor from September 1997 to July 2000.
There are no family relationships, as defined in Item 401 of Regulation
S-K, between any of the above executive officers and any director, executive
officer or person nominated to become a director or executive officer. No
officer of ArvinMeritor was selected pursuant to any arrangement or
understanding between him or her and any person other than ArvinMeritor. All
executive officers are elected annually.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
ArvinMeritor's common stock, par value $1 per share ("Common Stock"), is
listed on the New York Stock Exchange and trades under the symbol "ARM." On
November 30, 2002, there were 34,091 shareowners of record of ArvinMeritor's
Common Stock.
The high and low sale prices per share of ArvinMeritor Common Stock for
each quarter of fiscal years 2002 and 2001 were as follows:
<Table>
<Caption>
2002 2001
--------------- ---------------
QUARTER ENDED HIGH LOW HIGH LOW
- ------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
December 31................................ $20.95 $13.35 $17.06 $ 8.88
March 31................................... 30.29 18.74 17.00 11.00
June 30.................................... 32.50 22.89 16.80 12.78
September 30............................... 25.00 17.67 21.87 12.10
</Table>
Quarterly cash dividends in the following amounts per share were declared
and paid in each quarter of the last two fiscal years.
<Table>
<Caption>
QUARTER ENDED 2002 2001
- ------------- ----- -----
<S> <C> <C>
December 31................................................. $0.10 $0.22
March 31.................................................... 0.10 0.22
June 30..................................................... 0.10 0.22
September 30................................................ 0.10 0.10
</Table>
On July 1, 2002, we issued 750 shares of Common Stock to two non-employee
directors of ArvinMeritor, in lieu of cash payment of the quarterly retainer fee
for board service. These shares were issued pursuant to the terms of our
Directors Stock Plan and the issuance was exempt from registration under the
Securities Act of 1933, as amended, as a transaction not involving a public
offering under Section 4(2).
See Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters for information on securities authorized for
issuance under equity compensation plans.
ITEM 6. SELECTED FINANCIAL DATA.
The following sets forth selected consolidated financial data. The data
should be read in conjunction with the information included under Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8. Financial Statements and Supplementary Data below.
19
<PAGE>
ARVINMERITOR, INC.
SELECTED FINANCIAL DATA
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
2002 2001 2000 1999 1998
SUMMARY OF OPERATIONS ------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales
Light Vehicle Systems........................... $3,632 $3,588 $2,031 $1,575 $1,475
Commercial Vehicle Systems...................... 2,249 2,199 2,872 2,875 2,361
Light Vehicle Aftermarket....................... 844 859 209 -- --
Other........................................... 157 159 41 -- --
------ ------ ------ ------ ------
Total................................... $6,882 $6,805 $5,153 $4,450 $3,836
====== ====== ====== ====== ======
Net income before cumulative effect of accounting
change.......................................... $ 149 $ 35 $ 218 $ 194 $ 147
Cumulative effect of accounting change............ (42) -- -- -- --
------ ------ ------ ------ ------
Net income(1)..................................... $ 107 $ 35 $ 218 $ 194 $ 147
====== ====== ====== ====== ======
Basic earnings per share before effect of
accounting change............................... $ 2.24 $ 0.53 $ 4.12 $ 3.75 $ 2.84
Cumulative effect of accounting change............ (0.63) -- -- -- --
------ ------ ------ ------ ------
Basic earnings per share(1)....................... $ 1.61 $ 0.53 $ 4.12 $ 3.75 $ 2.84
====== ====== ====== ====== ======
Diluted earnings per share before cumulative
effect of accounting change..................... $ 2.22 $ 0.53 $ 4.12 $ 3.75 $ 2.84
Cumulative effect of accounting change............ (0.63) -- -- -- --
------ ------ ------ ------ ------
Diluted earnings per share(1)..................... $ 1.59 $ 0.53 $ 4.12 $ 3.75 $ 2.84
====== ====== ====== ====== ======
Cash dividends per share.......................... $ 0.40 $ 0.76 $ 0.64 $ 0.56 $ 0.56
====== ====== ====== ====== ======
FINANCIAL POSITION AT SEPTEMBER 30
Total assets...................................... $4,651 $4,362 $4,720 $2,796 $2,086
Short-term debt................................... 15 94 183 44 34
Long-term debt.................................... 1,435 1,313 1,537 802 313
Preferred capital securities...................... 39 57 74 -- --
</Table>
- ---------------
(1) Fiscal year 2002 net income and basic and diluted earnings per share include
a restructuring charge of $15 million ($10 million after-tax, or $0.15 per
share) and a gain on sale of the exhaust accessories manufacturing
operations of $6 million ($4 million after-tax, or $0.06 per share). Net
income and basic and diluted earnings per share for fiscal year 2001
includes restructuring costs of $67 million ($45 million after-tax, or $0.68
per share), an employee separation charge of $12 million ($8 million
after-tax, or $0.12 per share), and an environmental charge of $5 million
($3 million after-tax, or $0.05 per share). Net income and basic and diluted
earnings per share for fiscal year 2000 includes a one-time gain of $83
million ($51 million after-tax, or $0.96 per share) for the sale of the seat
adjusting systems business, restructuring costs of $26 million ($16 million
after-tax, or $0.30 per share), and other one-time charges of $4 million ($3
million after-tax, or $0.06 per share). Net income and basic and diluted
earnings per share for fiscal year 1999 includes restructuring costs of $28
million ($17 million after-tax, or $0.33 per share) and a one-time gain of
$24 million ($18 million after-tax, or $0.34 per share) recorded to reflect
the formation of a transmission and clutch joint venture with ZF
Friedrichshafen AG. Net income and basic and diluted earnings per share for
fiscal year 1998 includes a one-time charge of $31 million ($19 million
after-tax, or $0.36 per share) relating to the settlement of interest rate
agreements.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW AND OUTLOOK
We operate in a cyclical industry that has been characterized historically
by periodic fluctuations in demand for light, commercial and specialty vehicles,
and related aftermarkets. Light vehicle production volumes peaked in North
America in fiscal 2000 at 17.5 million units and in Western Europe (including
Czech Republic) in fiscal 2001 at 16.9 million units. Vehicle build rates for
heavy-duty trucks in North America were 294,000 units in fiscal 2000 and fell
nearly 50 percent in fiscal 2001. Lower demand in most of our principal markets
in fiscal 2002 and 2001 had a negative effect on our financial results.
The following sets forth vehicle production in our principal markets for
the last three fiscal years:
<Table>
<Caption>
YEAR ENDED
SEPTEMBER 30,
------------------
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
Light Vehicles (in millions):
North America............................................. 16.4 15.6 17.5
South America............................................. 1.9 2.2 2.0
Western Europe (including Czech Republic)................. 16.4 16.9 16.7
Asia/Pacific.............................................. 17.1 16.9 17.5
Commercial Vehicles (in thousands):
North America, Heavy-Duty Trucks.......................... 170 150 294
North America, Medium-Duty Trucks......................... 133 144 172
United States and Canada, Trailers........................ 145 208 367
Western Europe, Heavy- and Medium-Duty Trucks............. 354 386 400
Europe, Trailers.......................................... 101 110 119
</Table>
- ---------------
Source: Automotive industry publications and management estimates.
Our fiscal 2003 outlook for light vehicle production is 16.0 million
vehicles in North America and 16.5 million vehicles in Western Europe. We expect
that North American heavy-duty (also referred to as Class 8) truck production
will decline about five percent in fiscal 2003 to 161,000 units. Despite
continued soft markets, we plan to grow our sales as a result of new business
awards and greater market penetration.
Over the past two years, we have focused on reducing our break-even levels
and driving a continuous improvement culture throughout the organization. We
will continue to identify aggressive cost-reduction actions in order to improve
our financial results in fiscal 2003.
Our industry is rapidly transforming to keep pace with the continued OEM
trends toward outsourcing, increased OEM demand for modules and systems and an
increasing emphasis on engineering and technology. The increased competitive
pressures and complexity of the industry are presenting suppliers with
challenges, as well as growth opportunities.
We believe that ArvinMeritor has all the ingredients and qualities in place
to be a leading Tier One supplier. Our broad customer, product and geographic
base, coupled with our technological capabilities, position us to be one of the
industry's strongest competitors and to take further advantage of industry
trends.
21
<PAGE>
RESULTS OF OPERATIONS
The following sets forth the sales, operating income and net income of the
company for the years ended September 30, 2002, 2001 and 2000, as well as pro
forma amounts for fiscal 2000.
<Table>
<Caption>
AS REPORTED PRO FORMA
------------------------ (UNAUDITED)(1)
YEAR ENDED SEPTEMBER 30, 2002 2001 2000 2000
- ------------------------ ------ ------ ------ --------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales
Light Vehicle Systems.............................. $3,632 $3,588 $2,031 $3,668
Commercial Vehicle Systems......................... 2,249 2,199 2,872 2,926
Light Vehicle Aftermarket.......................... 844 859 209 950
Other.............................................. 157 159 41 178
------ ------ ------ ------
SALES................................................ $6,882 $6,805 $5,153 $7,722
====== ====== ====== ======
Operating Income
Light Vehicle Systems.............................. $ 196 $ 213 $ 149 $ 232
Commercial Vehicle Systems......................... 94 32 221 231
Light Vehicle Aftermarket.......................... 58 44 6 43
Other.............................................. 4 (10) -- 9
------ ------ ------ ------
SEGMENT OPERATING INCOME............................. 352 279 376 515
Restructuring costs................................ (15) (67) (26) (30)
Gain on sale of business........................... 6 -- 83 83
Other (charges) credits, net....................... -- (17) (4) 6
------ ------ ------ ------
OPERATING INCOME..................................... 343 195 429 574
Equity in earnings (losses) of affiliates.......... (3) 4 29 40
Non-operating one-time items....................... -- -- -- (3)
Interest expense, net and other.................... (105) (136) (89) (142)
------ ------ ------ ------
INCOME BEFORE INCOME TAXES........................... 235 63 369 469
Provision for income taxes......................... (75) (21) (141) (177)
Minority interests................................. (11) (7) (10) (5)
------ ------ ------ ------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE............................................. 149 35 218 287
Cumulative effect of accounting change............. (42) -- -- --
------ ------ ------ ------
NET INCOME........................................... $ 107 $ 35 $ 218 $ 287
====== ====== ====== ======
DILUTED EARNINGS PER SHARE
Before cumulative effect of accounting change...... $ 2.22 $ 0.53 $ 4.12 $ 4.02
Cumulative effect of accounting change............. (0.63) -- -- --
------ ------ ------ ------
Diluted earnings per share......................... $ 1.59 $ 0.53 $ 4.12 $ 4.02
====== ====== ====== ======
DILUTED AVERAGE COMMON SHARES OUTSTANDING............ 67.2 66.1 52.9 71.4
====== ====== ====== ======
</Table>
- ---------------
(1) Pro forma financial information is presented as if the merger had occurred
at the beginning of fiscal 2000 and reflects (a) the amortization of
goodwill from the merger and the elimination of historical Arvin goodwill
amortization expense; (b) the adjustment to interest expense for borrowings
to fund the Arvin cash consideration and other financing costs; (c) the
income tax effects of (a) and (b) above; and (d) the adjustment of shares
outstanding representing the exchange of one share of Meritor common stock
for 0.75 share of ArvinMeritor common stock and one share of Arvin common
stock for one share of ArvinMeritor common stock, based on the average
shares outstanding for each year. See Note 4 of the Notes to Consolidated
Financial Statements for more information on the ArvinMeritor merger.
22
<PAGE>
TOTAL COMPANY
2002 COMPARED TO 2001
Sales for fiscal 2002 were $6,882 million, up $77 million, or one percent,
over last year. The sales increase was primarily attributable to higher
production volumes for North American heavy-duty trucks and the favorable impact
of a stronger euro.
To improve comparability of operating income on a year-over-year basis, the
following information is presented (in millions):
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------------
AS REPORTED PRO FORMA
------------------ ---------
2002 2001 2000 2000
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Operating income as reported......................... $343 $195 $429 $574
Restructuring costs................................ 15 67 26 30
Gain on sale of business........................... (6) -- (83) (83)
Other charges (credits), net....................... -- 17 4 (6)
---- ---- ---- ----
Segment operating income............................. 352 279 376 515
Add back goodwill amortization..................... -- 24 19 25
---- ---- ---- ----
Segment operating income adjusted for goodwill....... $352 $303 $395 $540
==== ==== ==== ====
</Table>
Operating income for fiscal 2002 was $343 million, up $148 million from
fiscal 2001. Fiscal 2002 operating margin improved to 5.0 percent, up from 2.9
percent last year. The company has been able to improve its operating margin
through savings generated by cost-reduction initiatives and restructuring
programs. In the first quarter of fiscal 2002, the company recorded a
restructuring charge of $15 million for severance and other employee costs
related to a net reduction of approximately 450 employees. The company also
recorded restructuring costs of $67 million in fiscal 2001. This charge included
severance and other employee costs of approximately $48 million related to a net
reduction of approximately 1,350 employees, with the balance primarily
associated with facility-related costs from the rationalization of operations.
For more information concerning the status of the company's restructuring
programs, see Note 5 of the Notes to Consolidated Financial Statements.
Fiscal 2002 results include a gain on sale of the company's exhaust
accessories manufacturing business of $6 million. Other charges in fiscal 2001
include $12 million related to an employee separation agreement and $5 million
related to environmental liability costs. In fiscal 2002 the company adopted
Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and
Other Intangible Assets", which eliminated goodwill amortization expense of $24
million. Excluding restructuring costs, gain on sale of business and other
charges, as well as adjusting for goodwill amortization in fiscal 2001, segment
operating income was $352 million in fiscal 2002, up $49 million from $303
million in fiscal 2001.
Equity in losses of affiliates was $3 million in fiscal 2002, as compared
to equity in earnings of affiliates of $4 million a year ago. The decline was
primarily related to the company's commercial vehicle affiliates. Interest
expense, net and other for fiscal 2002 was $105 million, down $31 million, or 23
percent, from fiscal 2001, principally as a result of lower average debt levels
and the favorable interest rate environment. The effective income tax rate in
fiscal 2002 was 32 percent, down from 33.5 percent in fiscal 2001 (31 percent,
after excluding goodwill amortization).
23
<PAGE>
Income before cumulative effect of accounting change was $149 million in
fiscal 2002, compared to $35 million in fiscal 2001. As required by SFAS 142,
the company reviewed the fair values of each of its reporting units, using
discounted cash flows and market multiples. As a result of this review, the
company recorded an impairment loss on goodwill as a cumulative effect of
accounting change for its coil coating operations (classified as "Other" for
segment reporting) of $42 million ($42 million after-tax, or $0.63 per diluted
share) in the first quarter of fiscal 2002. Increased competition, consolidation
in the coil coating applications industry and the struggling U.S. steel market
caused a decrease in the fair value of this business.
Net income for fiscal 2002 was $107 million, or $1.59 per diluted share, as
compared to fiscal 2001 net income of $35 million, or $0.53 per diluted share.
Net income in fiscal 2002 included restructuring costs ($10 million after-tax or
$0.15 per diluted share), a gain on sale of business ($4 million after-tax or
$0.06 per diluted share) and the cumulative effect of the goodwill accounting
change ($42 million after-tax or $0.63 per diluted share). Excluding the impact
of these items, diluted earnings per share was $2.31. Net income in fiscal 2001
included goodwill amortization expense ($20 million after-tax or $0.30 per
diluted share), restructuring costs ($45 million after-tax or $0.68 per diluted
share) and certain other charges ($11 million after-tax or $0.17 per diluted
share). Excluding the impact of these items, diluted earnings per share was
$1.68.
2001 COMPARED TO 2000
Sales for fiscal 2001 were $6,805 million, up $1,652 million, or 32
percent, over fiscal 2000 sales. Fiscal 2001 results include incremental sales
of $2,439 million, attributable to the merger with Arvin, for the first three
quarters of the year. Fiscal 2000 results include Arvin results for the fourth
quarter only. The increase in sales related to the merger was significantly
offset by a decline in the company's Commercial Vehicle Systems (CVS) segment
sales of $673 million. CVS sales were lower in fiscal 2001 due to the steep
decline in CVS heavy-duty truck and trailer markets in North America.
Fiscal 2001 operating income was $195 million, down $234 million from
fiscal 2000 operating income of $429 million. Operating margin was 2.9 percent
in fiscal 2001 compared to 8.3 percent in fiscal 2000. The decline in operating
income was driven by the impact of the significant decrease in CVS sales. The
merger with Arvin added operating income of $100 million on the incremental
sales of $2,439 million.
2001 COMPARED TO PRO FORMA 2000
Sales for fiscal 2001 were $6,805 million, down $917 million, or 12
percent, from pro forma fiscal 2000 sales. The decline in sales was driven by
the company's CVS segment, which experienced a steep decline in the heavy-duty
truck and trailer markets in North America. Also contributing to the decline
were lower volumes in the North American light vehicle market and a softening of
demand in the aftermarket.
Fiscal 2001 operating income as reported was $195 million, down $379
million from pro forma fiscal 2000. Operating margin was 2.9 percent in fiscal
2001, as compared to 7.4 percent in pro forma fiscal 2000. As previously
discussed, included in operating income in fiscal 2001, were restructuring costs
of $67 million and other charges of $17 million. In pro forma fiscal 2000, the
company also recorded $30 million in restructuring costs. This included
approximately $19 million related to a net reduction of approximately 500
employees, $4 million associated with a voluntary early retirement plan in the
U.S. and the balance primarily associated with facility-related costs from the
rationalization of operations. In addition, pro forma fiscal 2000 results
included $6 million of other credits and a one-time gain on the sale of business
of $83 million related to the company's sale of its Light Vehicle Systems (LVS)
seat adjusting systems business.
Excluding restructuring costs, gain on sale of business and other charges,
operating income for fiscal 2001 was $279 million, down $236 million from $515
million in pro forma fiscal 2000. Operating margin before the effect of these
items was 4.1 percent in fiscal 2001, as compared to 6.7 percent in pro forma
fiscal 2000. The substantial decrease in operating income was principally due to
lower CVS sales, resulting from weakness in CVS markets, particularly in North
America. Additionally, operating income from the Other segment (business units
not focused on automotive products) decreased $19 million.
24
<PAGE>
Equity in earnings of affiliates was $4 million in fiscal 2001, as compared
to $40 million in pro forma fiscal 2000. The decline was primarily due to lower
earnings from commercial vehicle affiliates. Interest expense, net and other for
fiscal 2001 was $136 million, down $6 million, or four percent, from pro forma
fiscal 2000 reflecting lower debt levels and interest rates.
Net income for fiscal 2001 was $35 million, or $0.53 per diluted share, as
compared to pro forma fiscal 2000 net income of $287 million, or $4.02 per
diluted share. Net income in fiscal 2001 included restructuring costs ($45
million after-tax or $0.68 per diluted share) and certain one-time charges ($11
million after-tax or $0.17 per diluted share). Excluding the impact of these
items, diluted earnings per share was $1.38. Net income in pro forma fiscal 2000
included restructuring costs ($19 million after-tax or $0.27 per diluted share),
other credits ($3 million after tax or $0.04 per diluted share) and gain on sale
of business ($51 million after tax or $0.69 per diluted share). Excluding the
impact of these items, diluted earnings per share on a pro forma basis was
$3.56.
BUSINESS SEGMENTS
LIGHT VEHICLE SYSTEMS -- To improve comparability on a year-over-year
basis, the following information is presented (in millions):
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
AS REPORTED PRO FORMA
----------------------------- ---------
2002 2001 2000 2000
------ ----------- ------ ---------
<S> <C> <C> <C> <C>
Sales......................................... $3,632 $3,588 $2,031 $3,668
====== ====== ====== ======
Segment operating income...................... $ 196 $ 213 $ 149 $ 232
Add back goodwill amortization................ -- 6 5 6
------ ------ ------ ------
Segment operating income adjusted for
goodwill.................................... $ 196 $ 219 $ 154 $ 238
====== ====== ====== ======
Restructuring Costs........................... $ (7) $ (27) $ (10) $ (14)
====== ====== ====== ======
</Table>
2002 COMPARED TO 2001
LVS sales increased to $3,632 million in fiscal 2002, up $44 million from
$3,588 million a year ago. Acquisition activity added approximately $80 million
to sales in fiscal 2002 and included additional investments in two previously
unconsolidated joint ventures in Germany and China. LVS also sold its seat
motors business in August 2001 and divested its investment in a majority-owned
joint venture in North America effective September 30, 2001. These businesses
contributed sales of approximately $120 million in fiscal 2001. In addition,
sales were up in fiscal 2002 principally due to new business awards.
LVS operating income was $196 million in fiscal 2002, down $17 million, or
eight percent, from fiscal 2001. Operating margin declined to 5.4 percent from
5.9 percent in fiscal 2001 (6.1 percent, after excluding goodwill amortization).
Pricing pressure from the vehicle manufacturers continued to negatively impact
operating margin. Also contributing to the operating margin decline were higher
engineering costs, start-up costs associated with a new Detroit manufacturing
facility and increases in steel costs. Restructuring costs related to the LVS
segment totaled $7 million and $27 million in fiscal 2002 and 2001,
respectively. LVS continues to identify and implement cost-reduction initiatives
to mitigate the pricing pressures from the vehicle manufacturers.
2001 COMPARED TO PRO FORMA 2000
On a reported basis, sales in fiscal 2001 were up $1,557 million and
operating income was up $64 million. Incremental sales and operating income of
$1,633 million and $74 million, respectively, related to the merger with Arvin.
25
<PAGE>
LVS sales were $3,588 million in fiscal 2001, a decrease of $80 million,
compared to pro forma fiscal 2000. Unfavorable foreign currency translation and
divestiture activity lowered sales in fiscal 2001 by approximately $130 million
and $30 million, respectively. Excluding these items, sales were up two percent,
despite lower vehicle build rates in North America. This increase was
principally related to higher sales in air and emission systems.
LVS operating income was $213 million in fiscal 2001, down $19 million from
pro forma 2000 operating income of $232 million. Operating margin was 5.9
percent in fiscal 2001, compared to 6.3 percent in pro forma fiscal 2000.
Pricing pressure from the vehicle manufacturers contributed to the operating
margin decline. Furthermore, the higher sales of air and emission systems
included sales of catalytic converters, which typically carry low operating
margins. In fiscal 2001 and pro forma 2000, LVS implemented restructuring and
other programs aimed at lowering fixed costs. Restructuring costs related to
these programs were $27 million and $14 million in fiscal 2001 and pro forma
2000, respectively.
COMMERCIAL VEHICLE SYSTEMS -- To improve comparability on a year-over-year
basis, the following information is presented (in millions):
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
AS REPORTED PRO FORMA
----------------------------- ---------
2002 2001 2000 2000
------ ----------- ------ ---------
<S> <C> <C> <C> <C>
Sales......................................... $2,249 $2,199 $2,872 $2,926
====== ====== ====== ======
Segment operating income...................... $ 94 $ 32 $ 221 $ 231
Goodwill amortization impact.................. -- 12 12 12
------ ------ ------ ------
Segment operating income adjusted for
goodwill.................................... $ 94 $ 44 $ 233 $ 243
====== ====== ====== ======
Restructuring Costs........................... $ (6) $ (40) $ (16) $ (16)
====== ====== ====== ======
</Table>
2002 COMPARED TO 2001
CVS sales were $2,249 million, up $50 million, or two percent, compared to
fiscal 2001. Vehicle build rates in CVS markets were mixed in fiscal 2002. A
13-percent increase in North American Class 8 truck volumes drove higher
drivetrain and braking systems sales of approximately $70 million. However,
declines in worldwide trailer markets contributed to lower suspension systems
and trailer product sales of approximately $35 million.
CVS operating income was $94 million, an increase of $62 million from
fiscal 2001. Operating margin improved to 4.2 percent, up from 1.5 percent in
fiscal 2001 (2.0 percent, after excluding goodwill amortization). Restructuring
charges attributable to the CVS segment were $6 million and $40 million,
respectively, in fiscal 2002 and 2001. The cost savings resulting from these
restructuring programs and other cost-reduction actions have allowed CVS to
lower its fixed cost structure and contributed to the operating margin
improvement.
2001 COMPARED TO PRO FORMA 2000
On a reported basis, sales in fiscal 2001 were down $673 million and
operating income was down $189 million. Incremental sales and operating income
of $41 million and $6 million, respectively, related to the merger with Arvin.
CVS sales were $2,199 million in fiscal 2001, down $727 million from pro
forma fiscal 2000. Sales in North America were down approximately $600 million,
principally due to the 49-percent decline in the North American Class 8 truck
market and the 43-percent decline in the trailer market in U.S. and Canada. The
impact of foreign currency translation contributed approximately $80 million to
the sales decline in fiscal 2001.
CVS operating income was $32 million, a decrease of $199 million from pro
forma fiscal 2000. Operating margin declined to 1.5 percent in fiscal 2001, from
7.9 percent in pro forma fiscal 2000. Lower production
26
<PAGE>
volumes in North America for heavy- and medium-duty trucks and trailers drove
the margin decline. In response to the significant decline in its markets, CVS
initiated restructuring programs with a total cost of $56 million in fiscal 2001
and pro forma 2000.
LIGHT VEHICLE AFTERMARKET -- To improve comparability on a year-over-year
basis, the following information is presented (in millions):
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------------
AS REPORTED PRO FORMA
------------------ ---------
2002 2001 2000 2000
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Sales........................................ $844 $859 $209 $950
==== ==== ==== ====
Segment operating income..................... $ 58 $ 44 $ 6 $ 43
Add back goodwill amortization............... -- 4 1 4
---- ---- ---- ----
Segment operating income adjusted for
goodwill................................... $ 58 $ 48 $ 7 $ 47
==== ==== ==== ====
Restructuring costs.......................... $ (1) $ -- $ -- $ --
==== ==== ==== ====
</Table>
2002 COMPARED TO 2001
LVA sales were $844 million in fiscal 2002, a two percent decrease from
$859 million in the prior year. LVA continued to experience lower demand in
exhaust and ride control products during fiscal 2002. The quality of original
equipment parts continues to weaken demand for these products.
LVA operating income was $58 million in fiscal 2002, with an operating
margin of 6.9 percent, compared to operating income of $44 million and an
operating margin of 5.1 percent in fiscal 2001 (5.6 percent, after excluding
goodwill amortization). Despite lower sales for aftermarket parts, LVA was able
to increase its operating margin, as the result of improved pricing and
cost-reduction activities.
2001 COMPARED TO PRO FORMA 2000
On a reported basis, sales were up $650 million and operating income was up
$38 million. The increase in sales and operating income was due to the merger
with Arvin. The full year of merger activity in fiscal 2001 added $648 million
to sales and $28 million to operating income.
LVA sales were $859 million in fiscal 2001, a decline of $91 million, or 10
percent, compared to pro forma fiscal 2000. Softening customer demand resulted
in depressed volumes in this segment.
LVA operating income was $44 million in fiscal 2001, up slightly from $43
million in pro forma fiscal 2000. Operating margin was 5.1 percent compared to
pro forma fiscal 2000 operating margin of 4.5 percent. The operating margin
increase is the result of improved pricing, the favorable impact of
cost-reduction actions and lower changeover spending.
AFFILIATES
At September 30, 2002, the company had investments in 12 joint ventures
which were accounted for under the equity method of accounting, as they were not
majority-owned or controlled. These strategic alliances provide for sales,
product design, development and manufacturing in certain product and geographic
areas. Aggregate sales of these affiliates were $1,565 million, $1,641 million
and $924 million in fiscal 2002, 2001 and 2000, respectively.
The company's equity in earnings (losses) of affiliates was $(3) million in
fiscal 2002, $4 million in fiscal 2001, and $29 million in fiscal 2000. Cash
dividends to ArvinMeritor were $19 million, $24 million and $32 million in
fiscal 2002, 2001 and 2000, respectively. The decrease in earnings of affiliates
over the three-year period is primarily a result of lower earnings from
commercial vehicle affiliates.
27
<PAGE>
FINANCIAL CONDITION
The company remains committed to strong cash flow generation and investment
grade capital structure. During fiscal 2002, the company strengthened its
capital structure by replacing its bank revolver borrowings with long-term
notes, the earliest of which mature in 2007. In addition, the company replaced
its $750 million one-year bank revolving facility with a new $400 million
three-year bank revolver. The company's primary source of liquidity continues to
be cash generated from operations, supplemented by its accounts receivables
securitization program and, as required, borrowings on the revolving credit
facilities. The company's total debt to capitalization ratio was 65 percent at
September 30, 2002 compared to 67 percent at September 30, 2001.
CASH FLOWS
See Statement of Consolidated Cash Flows for additional detail on the
company's cash flows.
OPERATING CASH FLOW -- Cash flow from operations was $184 million in fiscal
2002, down $421 million from $605 million in fiscal 2001. The decrease is
largely attributable to the accounts receivable securitization program. During
fiscal 2001, the company commenced an accounts receivable securitization program
and had $211 million outstanding at the end of the fiscal year. As a result of
strong cash flow, the company reduced its balance outstanding under the accounts
receivable securitization program by $106 million in fiscal 2002. Also
contributing to the decrease in operating cash flow were higher pension and
retiree medical contributions of $39 million and higher working capital levels,
offset partially by higher income. Working capital as a percentage of sales at
September 30, 2002, 2001 and 2000 was 4.3 percent, 4.2 percent and 6.9 percent,
respectively. In computing this ratio, the company included the receivables sold
under the securitization program and excluded short-term debt and cash and cash
equivalents. Cash flow from operations was $228 million in fiscal 2000.
INVESTING CASH FLOW -- Cash used for investing activities was $198 million
in fiscal 2002, $210 million in fiscal 2001 and $200 million in fiscal 2000,
primarily as a result of capital expenditures. Capital expenditures were $184
million in fiscal 2002, down from $206 million in fiscal 2001 and $225 million
in fiscal 2000. Capital expenditures, as a percentage of sales, were 2.7 percent
in fiscal 2002 and 3.0 percent in fiscal 2001, down significantly from 4.4
percent in fiscal 2000. Management, at all levels, follows a rigorous process to
review capital expenditures. The company's focus on economic profit, which
applies a capital charge on assets employed, also helps assure that each capital
project generates positive economic profit. In fiscal 2000, proceeds of $148
million were received from dispositions of property and businesses, primarily
relating to the sale of the seat adjusting systems business. These proceeds were
substantially offset by cash payments of $74 million for acquisitions of
businesses and investments and $49 million relating to the merger between Arvin
and Meritor.
FINANCING CASH FLOW -- Cash used for financing activities was $32 million
in fiscal 2002, compared to $402 million in fiscal 2001. Cash provided by
financing activities was $38 million in fiscal 2000. During fiscal 2002, the
company completed two public note offerings. Proceeds from the note offerings of
$591 million were used to pay outstanding indebtedness under the company's
revolving credit facilities and for general corporate purposes. The company
reduced total debt, including preferred capital securities, by $27 million and
$320 million in fiscal 2002 and 2001, respectively. Total debt increased by $245
million in fiscal 2000. The company paid dividends of $27 million, $51 million
and $35 million in fiscal 2002, 2001 and 2000, respectively. In fiscal 2001 and
2000, the company made payments of $31 million and $172 million, respectively,
for the repurchase of its stock.
28
<PAGE>
LIQUIDITY
The company is contractually obligated to make payments as follows (in
millions):
<Table>
<Caption>
PAYMENTS DUE BY FISCAL PERIOD
--------------------------------------
2004- 2007- THERE-
TOTAL 2003 2006 2008 AFTER
------ ---- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Total debt(1).......................... $1,402 $15 $ 39 $299 $1,049
Operating leases....................... 153 26 63 34 30
Preferred capital securities........... 39 -- -- -- 39
------ --- ---- ---- ------
Total contractual obligations.......... $1,594 $41 $102 $333 $1,118
====== === ==== ==== ======
</Table>
- ---------------
(1) Excludes fair value adjustment of notes of $48 million
Excluded from the contractual obligation table are open purchase orders at
September 30, 2002 for raw materials and supplies used in the normal course of
business, supply contracts with customers, distribution agreements, joint
venture agreements and other contracts without express funding requirements.
In 1998, the company acquired a 49-percent interest in a German joint
venture, Zeuna Starker GmbH & Co. KG, an air and emissions systems company.
Under the terms of the shareholders' agreement, the owners of the majority
interest in the joint venture have the right to exercise a put option to require
the company to purchase the remaining 51 percent. On December 17, 2002, the
majority shareholders exercised the put option, and the company entered into
agreements to purchase the remaining 51 percent interest for a purchase price of
approximately $75 million. The company expects to complete the transaction in
the second quarter of fiscal 2003.
REVOLVING AND OTHER DEBT -- The company has two unsecured credit
facilities, which mature on June 27, 2005: a three-year, $400-million revolving
credit facility and a five-year, $750-million revolving credit facility. The
company also has a $50-million uncommitted line of credit.
The credit facilities require the company to maintain a total net debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio
of 3.25x and a minimum fixed charge coverage ratio (EBITDA less capital
expenditures to interest expense) of 1.50x. At September 30, 2002, the company
was in compliance with all covenants.
The company has $150 million remaining under a shelf registration filed
with the SEC in April 2001 (see Note 15 of the Notes to Consolidated Financial
Statements).
LEASES -- Certain operating leases require the company to maintain
financial ratios that are similar to those required by the company's revolving
credit agreements. At September 30, 2002, the company was in compliance with all
covenants (see Note 15 of the Notes to Consolidated Financial Statements).
ACCOUNTS RECEIVABLE SECURITIZATION FACILITY -- As discussed in Note 8 of
the Notes to Consolidated Financial Statements, the company participates in an
accounts receivable securitization facility to improve financial flexibility and
lower interest costs. ArvinMeritor Receivables Corporation (ARC), a wholly owned
subsidiary of the company, has entered into an agreement to sell an undivided
interest in up to $250 million of trade receivables to a group of banks. As of
September 30, 2002 and 2001, the company had utilized $105 million and $211
million, respectively, of the accounts receivable securitization facility. The
accounts receivable securitization program matures in September 2003 and the
company expects to renew the facility at that time.
If the company's credit ratings are reduced to certain levels, or if
certain receivables performance-based covenants are not met, it would constitute
a termination event, which, at the option of the banks, could result in
termination of the facility. At September 30, 2002, the company was in
compliance with all covenants.
29
<PAGE>
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that are most important to the
portrayal of the company's financial condition and results of operations. These
policies require management's most difficult, subjective or complex judgments in
the preparation of the financial statements and accompanying notes. Management
makes estimates and assumptions about the effect of matters that are inherently
uncertain, relating to the reporting of assets, liabilities, revenues, expenses
and the disclosure of contingent assets and liabilities. The company's most
critical accounting policies are discussed below.
PENSIONS -- The company's pension obligations are measured as of June 30.
The U.S. plans include a qualified and non-qualified pension plan. Non-U.S.
includes plans primarily in the United Kingdom, Canada and Germany. The
following are the assumptions used in the measurement of the projected benefit
obligation (PBO) and net periodic pension expense:
<Table>
<Caption>
2002 2001
------------------- -------------------
U.S. NON-U.S. U.S. NON-U.S.
---- ------------ ---- ------------
<S> <C> <C> <C> <C>
Assumptions as of June 30
Discount rate..................... 7.25% 6.00 - 6.75% 7.50% 6.00 - 6.75%
Assumed return on plan assets..... 8.50% 8.00 - 8.50% 9.50% 9.00%
Rate of compensation increase..... 4.25% 2.50 - 3.50% 4.25% 2.50 - 4.00%
</Table>
The discount rate is the rate that the PBO is discounted. The rate is
determined based on high-quality fixed income investments that match the
duration of expected benefit payments. The company has typically used the
corporate AA/Aa bond rate for this assumption. The assumed return on plan assets
noted above represents a forward projection of the average rate of earnings
expected on the pension assets. This rate is used in the calculation of assumed
rate of return on plan assets, a component of net periodic pension expense. As
of June 30, 2002, the company has lowered the assumed rates of return on plan
assets in the United States to 8.50 percent, in the United Kingdom to 8.00
percent and in Canada to 8.50 percent. These revised assumed rates of return
will be used for fiscal 2003 net periodic pension expense. The rate of
compensation increase represents the long-term assumption for expected increases
to salaries for pay-related plans.
Management expects to fund at least the minimum pension plan contributions
required by government regulations for the various plans and anticipates that
pension plan funding will be between $90 million and $100 million in fiscal
2003.
RETIREE MEDICAL -- The company has retirement medical plans that cover the
majority of its U.S. and certain non-U.S. employees and provide for medical
payments to eligible employees and dependents upon retirement. The company's
retiree medical obligations are measured as of June 30. The following are the
assumptions used in the measurement of the accumulated projected benefit
obligation (APBO):
<Table>
<Caption>
2002 2001
---- -----
<S> <C> <C>
Assumptions as of June 30
Discount rate.......................................... 7.25% 7.50%
Health care cost trend rate (weighted average)......... 9.00% 11.00%
Ultimate health care trend rate........................ 5.00% 5.00%
Years to ultimate rate (2011).......................... 8 9
</Table>
The discount rate is the rate that the accumulated projected benefit
obligation is discounted and is determined similarly to the discount rate used
for pensions. The health care cost trend rate represents the company's expected
annual rates of change in the cost of health care benefits. The trend rate noted
above represents a forward projection of health care costs as of the measurement
date. The company's projection for fiscal 2003 is an increase in health care
costs of 9.0 percent from fiscal 2002. For measurement purposes, the annual
increase in health care costs was assumed to decrease gradually to 5.0 percent
for fiscal 2011 and remain at that level thereafter. Retirement medical plan
benefit payments are expected to be approximately $65 million in fiscal 2003, up
from $60 million in fiscal 2002.
30
<PAGE>
A one-percentage point change in the assumed health care cost trend rate
for all years to, and including, the ultimate rate would have the following
effects (in millions):
<Table>
<Caption>
2002 2001
---- ----
<S> <C> <C>
Effect on total of service and interest cost
1% Increase............................................ $ 4 $ 4
1% Decrease............................................ (4) (4)
Effect on APBO
1% Increase............................................ 50 42
1% Decrease............................................ (46) (38)
</Table>
WARRANTY -- Accruals for product warranty costs are recorded at the time of
shipment of products to customers. Accruals for product recall campaigns are
recorded at the time the company's obligation is known and can be reasonably
estimated. Warranty reserves are based on several factors, including past claims
experience, sales history, product manufacturing and engineering changes,
industry developments and various other considerations.
ASBESTOS -- There are three categories of reserves related to asbestos:
unbilled committed settlements, pending claims, and shortfall and other. For
purposes of establishing reserves for pending asbestos-related claims, Maremont
(a subsidiary of the company) estimates its defense and indemnity costs based on
the history and nature of filed claims to date and Maremont's experience since
February 1, 2001. See Note 22 of the Notes to Consolidated Financial Statements
for additional information concerning asbestos-related reserves and recoveries.
All such estimates of liabilities for asbestos-related claims are subject
to considerable uncertainty because such liabilities are influenced by variables
that are difficult to predict. 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 asbestos-related
claims, and the effect on the company, could differ materially from current
estimates. Maremont records receivables from insurance companies for a
substantial portion of the costs incurred defending against asbestos-related
claims and any indemnity paid on those claims. Management believes that existing
insurance coverage is adequate to cover substantially all costs relating to
pending and future asbestos-related claims.
ENVIRONMENTAL -- The company records liabilities for environmental issues
in the accounting period in which its responsibility is established 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 the company is the only
potentially responsible party, a liability is recorded for the total estimated
costs of remediation before consideration of recovery from insurers or other
third parties. The process of estimating environmental liabilities is complex
and dependent on physical and scientific data at the site, uncertainties as to
remedies and technologies to be used and the outcome of discussions with
regulatory agencies.
NEW ACCOUNTING PRONOUNCEMENTS
Effective October 1, 2001, the company adopted SFAS 142, "Goodwill and
Other Intangible Assets". Upon adoption, the company recorded an impairment loss
on goodwill as a cumulative effect of accounting change of $42 million in the
first quarter of fiscal 2002 (see Note 3 of the Notes to Consolidated Financial
Statements). There were no other new accounting pronouncements adopted in fiscal
2002 that had a material impact on the company's business, financial condition
or results of operations.
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for
the Impairment or Disposal of Long-Lived Assets". The new standard requires one
model of accounting for long-lived assets to be disposed of, and
31
<PAGE>
broadens the definition of discontinued operations to include a component of a
segment. The company adopted this standard effective October 1, 2002. The
company does not expect the adoption of SFAS 144 to have a significant impact on
its financial position or results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities",
which nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in Restructuring)". The new standard
requires a liability for a cost associated with an exit or disposal activity to
be recognized and measured initially at its fair value in the period in which
the liability is incurred, rather than at the time of commitment to an exit
plan. The standard is effective for exit or disposal activities initiated after
December 31, 2002.
INTERNATIONAL OPERATIONS
Approximately 40 percent of the company's total assets as of September 30,
2002, and 38 percent of fiscal 2002 sales were outside North America. Management
believes that international operations have significantly benefited the
financial performance of the company. However, the company's international
operations are subject to a number of risks inherent in operating abroad. There
can be no assurance that these risks will not have a material adverse impact on
the company's ability to increase or maintain its foreign sales or on its
financial condition or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is exposed to foreign currency exchange rate risk related to
its transactions denominated in currencies other than the U.S. dollar and
interest rate risk associated with the company's debt.
The impact the euro and other currencies will have on the company's sales
and operating income is difficult to predict in the upcoming year. The company
uses foreign exchange contracts to offset the effect of exchange rate
fluctuations on foreign currency denominated payables and receivables to help
minimize the risk of loss from changes in exchange rates (see Note 16 of the
Notes to Consolidated Financial Statements). The company also uses interest rate
swaps to offset the effects on interest rate fluctuations on the fair value of
its debt portfolio (see Note 15 of the Notes to Consolidated Financial
Statements). It is the policy of the company not to enter into derivative
instruments for speculative purposes, and therefore the company holds no
derivative instruments for trading purposes.
The company has performed a sensitivity analysis assuming a hypothetical
10-percent adverse movement in foreign currency exchange rates and interest
rates applied to the underlying exposures described above. As of September 30,
2002, the analysis indicated that such market movements would not have a
material effect on the company's business, financial condition or results of
operations. Actual gains or losses in the future may differ significantly from
that analysis, however, based on changes in the timing and amount of interest
rate and foreign currency exchange rate movements and the company's actual
exposures.
32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of ArvinMeritor, Inc.
Troy, Michigan
We have audited the accompanying consolidated balance sheets of
ArvinMeritor, Inc. and subsidiaries (the "Company") as of September 30, 2002 and
2001, and the related consolidated statements of income, shareowners' equity,
and cash flows for each of the three years in the fiscal year ended September
30, 2002. Our audits also included the financial statement schedule listed in
the Index at Item 15(a)(2). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ArvinMeritor, Inc. and
subsidiaries at September 30, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the fiscal year ended
September 30, 2002 in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for goodwill in fiscal 2002.
DELOITTE & TOUCHE LLP
November 6, 2002
(December 17, 2002 as to paragraph 2 of Note 26)
Detroit, Michigan
33
<PAGE>
ARVINMERITOR, INC.
STATEMENT OF CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
---------------------------
2002 2001 2000
------- ------- -------
<S> <C> <C> <C>
Sales....................................................... $ 6,882 $ 6,805 $ 5,153
Cost of sales............................................... (6,142) (6,106) (4,423)
------- ------- -------
GROSS MARGIN................................................ 740 699 730
Selling, general and administrative....................... (388) (396) (335)
Goodwill amortization..................................... -- (24) (19)
Restructuring costs....................................... (15) (67) (26)
Gain on sale of business.................................. 6 -- 83
Other charges, net........................................ -- (17) (4)
------- ------- -------
OPERATING INCOME............................................ 343 195 429
Equity in earnings (losses) of affiliates................. (3) 4 29
Interest expense, net and other........................... (105) (136) (89)
------- ------- -------
INCOME BEFORE INCOME TAXES.................................. 235 63 369
Provision for income taxes................................ (75) (21) (141)
Minority interests........................................ (11) (7) (10)
------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE........ 149 35 218
Cumulative effect of accounting change.................... (42) -- --
------- ------- -------
NET INCOME.................................................. $ 107 $ 35 $ 218
======= ======= =======
BASIC EARNINGS PER SHARE
Before cumulative effect of accounting change............. $ 2.24 $ 0.53 $ 4.12
Cumulative effect of accounting change.................... (0.63) -- --
------- ------- -------
Basic earnings per share.................................. $ 1.61 $ 0.53 $ 4.12
======= ======= =======
DILUTED EARNINGS PER SHARE
Before cumulative effect of accounting change............. $ 2.22 $ 0.53 $ 4.12
Cumulative effect of accounting change.................... (0.63) -- --
------- ------- -------
Diluted earnings per share................................ $ 1.59 $ 0.53 $ 4.12
======= ======= =======
Basic Average Common Shares Outstanding..................... 66.4 66.1 52.9
======= ======= =======
Diluted Average Common Shares Outstanding................... 67.2 66.1 52.9
======= ======= =======
</Table>
See Notes to Consolidated Financial Statements
34
<PAGE>
ARVINMERITOR, INC.
CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
<Table>
<Caption>
SEPTEMBER 30,
---------------
2002 2001
------ ------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 56 $ 101
Receivables (less allowance for doubtful accounts: 2002,
$18; 2001, $18)........................................ 1,251 965
Inventories............................................... 458 457
Other current assets...................................... 211 232
------ ------
TOTAL CURRENT ASSETS.............................. 1,976 1,755
------ ------
NET PROPERTY................................................ 1,179 1,200
NET GOODWILL................................................ 808 835
OTHER ASSETS................................................ 688 572
------ ------
TOTAL ASSETS...................................... $4,651 $4,362
====== ======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Short-term debt........................................... $ 15 $ 94
Accounts payable.......................................... 1,150 1,054
Accrued compensation and benefits......................... 283 184
Accrued income taxes...................................... 65 26
Other current liabilities................................. 230 314
------ ------
TOTAL CURRENT LIABILITIES......................... 1,743 1,672
------ ------
LONG-TERM DEBT.............................................. 1,435 1,313
ACCRUED RETIREMENT BENEFITS................................. 512 459
OTHER LIABILITIES........................................... 123 141
MINORITY INTERESTS.......................................... 58 69
PREFERRED CAPITAL SECURITIES................................ 39 57
SHAREOWNERS' EQUITY
Common stock (2002, 71.0 shares issued and 67.9
outstanding; 2001, 71.0 shares issued and 66.5
outstanding)........................................... 71 71
Additional paid-in capital................................ 554 547
Retained earnings......................................... 530 450
Treasury stock (2002, 3.1 shares; 2001, 4.5 shares)....... (46) (69)
Unearned compensation..................................... (12) (12)
Accumulated other comprehensive loss...................... (356) (336)
------ ------
TOTAL SHAREOWNERS' EQUITY......................... 741 651
------ ------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY......... $4,651 $4,362
====== ======
</Table>
See Notes to Consolidated Financial Statements
35
<PAGE>
ARVINMERITOR, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(IN MILLIONS)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------
2002 2001 2000
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income before cumulative effect of accounting change...... $ 149 $ 35 $ 218
Adjustments to income to arrive at cash provided by
operating activities:
Depreciation and other amortization.................... 196 193 143
Goodwill amortization.................................. -- 24 19
Gain on sale of business............................... (6) -- (83)
Restructuring costs, net of expenditures............... 5 51 19
Deferred income taxes.................................. (33) (57) 32
Pension and retiree medical expense.................... 78 62 58
Pension and retiree medical contributions.............. (136) (97) (89)
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures and foreign currency
adjustments:
Changes in receivable securitization................. (106) 211 --
Receivables.......................................... (144) 87 15
Inventories.......................................... (1) 107 (10)
Accounts payable..................................... 63 3 (28)
Changes in other working capital..................... 40 (14) (66)
Other assets and liabilities......................... 79 -- --
----- ----- -----
CASH PROVIDED BY OPERATING ACTIVITIES....................... 184 605 228
----- ----- -----
INVESTING ACTIVITIES
Capital expenditures...................................... (184) (206) (225)
Acquisitions of businesses and investments, net of cash
acquired............................................... (25) (34) (74)
Payment of certain merger-related assumed liabilities..... -- -- (49)
Proceeds from disposition of property and businesses...... 11 30 148
----- ----- -----
CASH USED FOR INVESTING ACTIVITIES.......................... (198) (210) (200)
----- ----- -----
FINANCING ACTIVITIES
Net increase (decrease) in revolving and other debt....... (600) (178) 245
Payment of notes.......................................... -- (125) --
Proceeds from issuance of notes........................... 591 -- --
Purchase of preferred capital securities.................. (18) (17) --
----- ----- -----
Net increase (decrease) in debt............................. (27) (320) 245
Cash dividends............................................ (27) (51) (35)
Purchase of treasury stock................................ -- (31) (172)
Proceeds from exercise of stock options................... 22 -- --
----- ----- -----
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES............ (32) (402) 38
----- ----- -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 1 (8) (18)
CHANGE IN CASH.............................................. (45) (15) 48
CASH AT BEGINNING OF YEAR................................... 101 116 68
----- ----- -----
CASH AT END OF YEAR......................................... $ 56 $ 101 $ 116
===== ===== =====
</Table>
See Notes to Consolidated Financial Statements
36
<PAGE>
ARVINMERITOR, INC.
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------------
2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
COMMON STOCK
Beginning balance......................................... $ 71 $ 71 $ 69
Shares issued to Arvin shareowners........................ -- -- 24
Conversion of outstanding Meritor shares.................. -- -- (15)
Cancellation of Meritor treasury stock.................... -- -- (7)
----- ----- -----
Ending balance............................................ 71 71 71
----- ----- -----
ADDITIONAL PAID-IN CAPITAL
Beginning balance......................................... 547 546 158
Shares issued to Arvin shareowners and Arvin stock options
converted.............................................. -- -- 492
Conversion of outstanding Meritor shares.................. -- -- 15
Cancellation of Meritor treasury stock.................... -- -- (119)
Exercise of stock options................................. 4 -- --
Issuance of restricted stock and other.................... 3 1 --
----- ----- -----
Ending balance............................................ 554 547 546
----- ----- -----
RETAINED EARNINGS
Beginning balance......................................... 450 466 283
Net income................................................ 107 35 218
Cash dividends (per share: 2002, $0.40; 2001, $0.76; 2000,
$0.64)................................................. (27) (51) (35)
----- ----- -----
Ending balance............................................ 530 450 466
----- ----- -----
TREASURY STOCK
Beginning balance......................................... (69) (53) (6)
Cancellation of Meritor treasury stock.................... -- -- 125
Purchase of treasury stock................................ -- (31) (172)
Exercise of stock options................................. 18 -- --
Issuance of restricted stock.............................. 5 15 --
----- ----- -----
Ending balance............................................ (46) (69) (53)
----- ----- -----
UNEARNED COMPENSATION
Beginning balance......................................... (12) -- --
Issuance of restricted stock.............................. (6) (16) --
Compensation expense...................................... 6 4 --
----- ----- -----
Ending balance............................................ (12) (12) --
----- ----- -----
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning balance......................................... (336) (237) (156)
Foreign currency translation adjustments.................. 46 (53) (81)
Minimum pension liability, net of tax..................... (66) (46) --
----- ----- -----
Ending balance............................................ (356) (336) (237)
----- ----- -----
TOTAL SHAREOWNERS' EQUITY......................... $ 741 $ 651 $ 793
===== ===== =====
COMPREHENSIVE INCOME (LOSS)
Net income................................................ $ 107 $ 35 $ 218
Foreign currency translation adjustments.................. 46 (53) (81)
Minimum pension liability, net of tax..................... (66) (46) --
----- ----- -----
TOTAL COMPREHENSIVE INCOME (LOSS)................. $ 87 $ (64) $ 137
===== ===== =====
</Table>
See Notes to Consolidated Financial Statements
37
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ArvinMeritor, Inc. (the company or ArvinMeritor) is a leading global
supplier of a broad range of integrated systems, modules and components serving
light vehicle, commercial truck, trailer and specialty original equipment
manufacturers and certain aftermarkets. The company also provides coil coating
applications to the transportation, appliance, construction and furniture
industries.
On July 7, 2000, Meritor Automotive, Inc. (Meritor) and Arvin Industries,
Inc. (Arvin) merged into ArvinMeritor (see Note 4). The merger was accounted for
utilizing the purchase method of accounting. The financial information for the
period prior to July 7, 2000, reflects the results of Meritor and its
consolidated subsidiaries. The information for periods after July 7, 2000,
represents the results of ArvinMeritor and its consolidated subsidiaries.
The company's fiscal quarters end on the Sundays nearest December 31, March
31, and June 30 and its fiscal year ends on the Sunday nearest September 30.
Fiscal 2002 ended on September 29, 2002. All year and quarter references relate
to the company's fiscal year and fiscal quarters unless otherwise stated.
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States (U.S.) requires the use of
estimates and assumptions related to the reporting of assets, liabilities,
revenues, expenses and the disclosure of contingent assets and liabilities.
Significant estimates and assumptions were used to value accrued product
warranties (see Note 13), retiree medical and pension obligations (see Notes 19
and 20), income taxes (see Note 21), and contingencies including asbestos and
environmental matters (see Note 22).
Consolidation and Joint Ventures
The consolidated financial statements include the accounts of the company
and those majority-owned subsidiaries in which the company has control. All
significant intercompany accounts and transactions are eliminated in
consolidation. The accounts and results of operations of controlled subsidiaries
where ownership is greater than 50 percent, but less than 100 percent, are
included in the consolidated results and are offset by a related minority
interest expense and liability recorded for the minority interest ownership.
Investments in affiliates that are not controlled or majority-owned are reported
using the equity method of accounting (see Note 12).
Foreign Currency
Local currencies are generally considered the functional currencies outside
the U.S. For operations reporting in local currencies, assets and liabilities
are translated at year-end exchange rates with cumulative currency translation
adjustments included as a component of Accumulated Other Comprehensive Loss.
Income and expense items are translated at average rates of exchange during the
year.
Impairment of Long-Lived Assets including Goodwill
Management periodically reviews long-lived assets, including goodwill and
other intangible assets, for potential impairment. Goodwill is reviewed
annually, or more frequently if certain indicators arise, by using discounted
cash flows and market multiples to determine fair value (see Note 3). Fair value
of all other long-lived assets is determined based on useful lives, cash flows
and profitability projections. An impairment loss would be recognized if the
review indicates that the carrying value of the asset exceeds the fair value.
38
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenues are recognized upon shipment of product and transfer of ownership
to the customer. Provisions for customer sales allowances and incentives are
made at the time of product shipment.
Earnings per Share
Basic earnings per share are based upon the weighted average number of
shares outstanding during each year. Diluted earnings per share assumes the
exercise of common stock options and the impact of restricted stock when
dilutive.
A reconciliation of basic average common shares outstanding to diluted
average common shares outstanding is as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
------------------
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
Basic average common shares outstanding.................. 66.4 66.1 52.9
Impact of restricted stock............................... 0.4 -- --
Impact of stock options.................................. 0.4 -- --
---- ---- ----
Diluted average common shares outstanding................ 67.2 66.1 52.9
==== ==== ====
</Table>
Other
Information relative to other accounting policies is included in the
related notes, specifically, inventories (see Note 9), customer reimbursable
tooling and engineering (see Note 10), property and depreciation (see Note 11),
capitalized software (see Note 12), financial instruments (see Note 16) and
stock options (see Note 18).
New Accounting Standards
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for
the Impairment or Disposal of Long-Lived Assets". The new standard requires one
model of accounting for long-lived assets to be disposed of, and broadens the
definition of discontinued operations to include a component of a segment. The
company adopted this standard effective October 1, 2002. The company does not
expect the adoption of SFAS 144 to have a significant impact on its financial
position or results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities",
which nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in Restructuring)". The new standard
requires a liability for a cost associated with an exit or disposal activity to
be recognized and measured initially at its fair value in the period in which
the liability is incurred, rather than at the time of commitment to an exit
plan. The standard is effective for exit or disposal activities initiated after
December 31, 2002.
3. GOODWILL IMPAIRMENT
Effective October 1, 2001, the company adopted Statement of Financial
Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets",
which requires goodwill to be subject to an annual impairment test, or more
frequently if certain indicators arise, and also eliminates goodwill
amortization. Prior to the adoption of SFAS 142, goodwill was amortized using
the straight-line method for periods not to exceed
39
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
40 years. As required by this standard, the company reviews the fair values of
each of its reporting units using discounted cash flows and market multiples.
Upon adoption of SFAS 142, the company recorded an impairment loss on
goodwill as a cumulative effect of accounting change for its coil coating
operations (classified as "Other" for segment reporting) of $42 million ($42
million after-tax, or $0.63 per diluted share) in the first quarter of fiscal
2002. Increased competition, consolidation in the coil coating applications
industry and the struggling U.S. steel market caused a decrease in the fair
value of this business. There have been no changes in the carrying value of
goodwill since September 30, 2001, other than the impairment loss on goodwill
for the coil coating operations and fluctuations due to changes in foreign
currency exchange rates.
Income before cumulative effect of accounting change and basic and diluted
earnings per share before cumulative effect of accounting change would have been
as follows had the company been accounting for goodwill under SFAS 142 for
fiscal 2001 and 2000 (in millions, except per share amounts):
<Table>
<Caption>
2002 2001 2000
----- ----- -----
<S> <C> <C> <C>
Reported income before cumulative effect of accounting
change.............................................. $ 149 $ 35 $ 218
Add back goodwill amortization expense, net of tax.... -- 20 16
----- ----- -----
Adjusted income before cumulative effect of accounting
change.............................................. $ 149 $ 55 $ 234
===== ===== =====
Reported basic earnings per share before cumulative
effect of accounting change......................... $2.24 $0.53 $4.12
Add back goodwill amortization expense, net of tax.... -- 0.30 0.30
----- ----- -----
Adjusted basic earnings per share before cumulative
effect of accounting change......................... $2.24 $0.83 $4.42
===== ===== =====
Reported diluted earnings per share before cumulative
effect of accounting change......................... $2.22 $0.53 $4.12
Add back goodwill amortization expense, net of tax.... -- 0.30 0.30
----- ----- -----
Adjusted diluted earnings per share before cumulative
effect of accounting change......................... $2.22 $0.83 $4.42
===== ===== =====
</Table>
Information regarding other intangible assets, which includes trademarks,
patents and licenses, is included in Note 12, and goodwill by segment is
included in Note 23.
4. ARVINMERITOR MERGER
On July 7, 2000, Meritor and Arvin merged to form ArvinMeritor. Under the
terms of the merger agreement, each share of Meritor common stock was converted
into the right to receive 0.75 share of common stock of ArvinMeritor, and each
share of Arvin common stock was converted into the right to receive one share of
common stock of ArvinMeritor plus $2.00 in cash. In total, approximately 62.3
million shares of Meritor, 24.3 million shares of Arvin and $48.5 million in
cash were exchanged for approximately 71.0 million shares of ArvinMeritor. All
share and per share data for periods prior to the merger have been restated to
conform with the exchange of Meritor shares to ArvinMeritor shares on a one to
0.75 basis in connection with the merger with Arvin.
The merger was accounted for utilizing the purchase method of accounting.
Accordingly, the results of operations of Arvin are included with those of the
company for the period subsequent to the date of the merger. Pro forma sales,
net income and basic and diluted earnings per share for the fiscal year ended
September 30, 2000, would have been $7,722 million, $287 million and $4.02 per
share, respectively, and exclude a non-recurring charge of $70 million ($58
million after-tax or $0.81 per basic and diluted share) for
40
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
merger-related expenses. The pro forma adjustments are based upon available
information and certain assumptions that management believes are reasonable. The
pro forma data is not necessarily indicative of the results of operations of
ArvinMeritor that would have been achieved if the merger had in fact occurred on
such dates. The pro forma data does not give effect to any restructuring costs
or to cost savings or other synergies that have resulted from the merger.
5. RESTRUCTURING COSTS
In the first-quarter of fiscal 2002, the company recorded a restructuring
charge of $15 million ($10 million after-tax, or $0.15 per basic and diluted
share) for severance and other employee costs related to a net reduction of
approximately 450 employees. All employees have been terminated under this
restructuring action, and $5 million of restructuring reserves relating to
severance payments remained in the consolidated balance sheet at September 30,
2002.
During fiscal 2001, the company recorded a net restructuring charge of $67
million ($45 million after-tax, or $0.68 per basic and diluted share). The
restructuring charge was net of approximately $4 million of restructuring
reserves established in fiscal 2000 that were reversed due to a change in
circumstances and $12 million of restructuring reserves established in fiscal
2001 that were reversed primarily due to actions taken to minimize severance
costs related to cost-reduction programs in Europe. The fiscal 2001 net charges
include severance and other employee costs of approximately $48 million related
to a net reduction of approximately 1,350 employees, with the balance primarily
associated with facility related costs from the rationalization of operations.
All employees have been terminated under this restructuring action, and $2
million of restructuring reserves relating to severance payments remained in the
consolidated balance sheet at September 30, 2002.
In fiscal 2001, the company also recorded approximately $34 million of
restructuring costs that were incurred as a result of the ArvinMeritor merger
and were reflected in the purchase price allocation. These costs include
approximately $17 million related to a net reduction of approximately 1,200
employees, with the balance primarily associated with facility related costs
from the rationalization of operations. All employees have been terminated under
this restructuring action, and $2 million of restructuring reserves relating to
severance payments remained in the consolidated balance sheet at September 30,
2002.
41
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of restructuring charges and merger-related restructuring
reserves as of September 30, 2002 is as follows (in millions):
<Table>
<Caption>
EMPLOYEE
TERMINATION ASSET
BENEFITS IMPAIRMENT OTHER TOTAL
----------- ---------- ----- -----
<S> <C> <C> <C> <C>
Fiscal 2001 original charge............. $ 60 $ 19 $ 4 $ 83
Reversal of charge in 2001.............. (12) -- -- (12)
Write-down of assets.................... -- (19) -- (19)
Cash payments through 9/30/02........... (46) -- (4) (50)
---- ---- --- ----
Subtotal...................... 2 -- -- 2
---- ---- --- ----
Fiscal 2001 merger-related reserves..... 17 17 -- 34
Cash payments through 9/30/02........... (15) -- -- (15)
Write-down of assets.................... -- (17) -- (17)
---- ---- --- ----
Subtotal...................... 2 -- -- 2
---- ---- --- ----
Fiscal 2002 charge...................... 15 -- -- 15
Cash payments through 9/30/02........... (10) -- -- (10)
---- ---- --- ----
Subtotal...................... 5 -- -- 5
---- ---- --- ----
Reserve balance at 9/30/02.............. $ 9 $ -- $-- $ 9
==== ==== === ====
</Table>
6. SALE OF BUSINESSES
In the third quarter of fiscal 2002, the company completed the sale of its
exhaust accessories manufacturing operations for approximately $11 million in
cash, resulting in a one-time gain of $6 million ($4 million after-tax, or $0.06
per basic and diluted share).
In the first quarter of fiscal 2000, the company completed the sale of its
Light Vehicle Systems (LVS) seat adjusting systems business for approximately
$135 million in cash, resulting in a one-time gain of $83 million ($51 million
after-tax, or $0.96 per basic and diluted share).
7. OTHER CHARGES, NET
During fiscal 2001, the company recorded $12 million ($8 million after-tax,
or $0.12 per basic and diluted share) for an employee separation agreement and
$5 million ($3 million after-tax, or $0.05 per basic and diluted share) for
environmental liability costs.
During fiscal 2000, the company incurred $10 million in merger expenses ($6
million after-tax, or $0.11 per basic and diluted share) related to the
ArvinMeritor merger (see Note 4), and recorded a gain on sale of land of $6
million ($3 million after-tax, or $0.05 per basic and diluted share).
8. ASSET SECURITIZATION
The company sells substantially all of the trade receivables of certain
subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly owned
special purpose subsidiary. ARC has entered into an agreement to sell an
undivided interest in up to $250 million of eligible receivables, as defined, to
certain bank conduits that fund their purchases through the issuance of
commercial paper. As of September 30, 2002 and 2001, $105 million and $211
million, respectively, of trade receivables had been sold and are excluded from
receivables in the consolidated balance sheet. The company has no retained
interest in the receivables sold, but does perform collection and administrative
functions. The receivables were sold at fair market value and a discount on the
sale was recorded in interest expense, net and other. A discount of $6 million
and $3 million
42
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was recorded in the fiscal years ended September 30, 2002 and 2001,
respectively. As of September 30, 2002 and 2001, the banks had a preferential
interest in approximately $201 million and $202 million, respectively, of the
remainder of the receivables held at ARC to secure the obligation under the
asset securitization facility. The gross amount of proceeds received from the
sale of receivables under this program was approximately $2,400 million and $700
million for fiscal 2002 and 2001, respectively. The accounts receivable
securitization program matures in September 2003.
If the company's credit ratings are reduced to certain levels, or if
certain receivables performance-based covenants are not met, it would constitute
a termination event, which, at the option of the banks, could result in
termination of the facility. At September 30, 2002 the company was in compliance
with all covenants.
9. INVENTORIES
Inventories are stated at the lower of cost (using LIFO, FIFO or average
methods) or market (determined on the basis of estimated realizable values) and
are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2002 2001
----- -----
<S> <C> <C>
Finished goods.............................................. $207 $238
Work in process............................................. 131 118
Raw materials, parts and supplies........................... 171 152
---- ----
Total............................................. 509 508
Less allowance to adjust the carrying value of certain
inventories (2002, $78; 2001, $69) to a LIFO basis........ (51) (51)
---- ----
Inventories....................................... $458 $457
==== ====
</Table>
10. OTHER CURRENT ASSETS
Other Current Assets are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2002 2001
----- -----
<S> <C> <C>
Current deferred income taxes (see Note 21)................. $116 $138
Customer reimbursable tooling and engineering............... 33 30
Asbestos-related recoveries (see Note 22)................... 20 24
Prepaid and other........................................... 42 40
---- ----
Other Current Assets........................................ $211 $232
==== ====
</Table>
Costs incurred for engineering and tooling projects, principally for light
vehicle products, for which customer reimbursement is contractually guaranteed
are classified as Other Current Assets. These costs are billed to the customer
and recorded as a receivable upon completion of the engineering or tooling
project. Provisions for losses are provided at the time management expects costs
to exceed anticipated customer reimbursement.
11. NET PROPERTY
Property is stated at cost. Depreciation of property is based on estimated
useful lives, generally using the straight-line method. Significant renewals and
betterments are capitalized, and replaced units are written off. Maintenance and
repairs, as well as renewals of minor amounts, are charged to expense.
Company-owned
43
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tooling is classified as property and depreciated over the shorter of its
expected life or the life of the related vehicle platform.
Net Property is summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-----------------
2002 2001
------- -------
<S> <C> <C>
Property at cost:
Land and land improvements.............................. $ 57 $ 55
Buildings............................................... 441 416
Machinery and equipment................................. 1,677 1,596
Company-owned tooling................................... 212 206
Construction in progress................................ 103 131
------- -------
Total..................................................... 2,490 2,404
Less accumulated depreciation............................. (1,311) (1,204)
------- -------
Net Property.............................................. $ 1,179 $ 1,200
======= =======
</Table>
12. OTHER ASSETS
Other Assets are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
----------------
2002 2001
---- ----
<S> <C> <C>
Long-term deferred income taxes (see Note 21)............. $187 $119
Investments in affiliates................................. 167 186
Prepaid pension costs (see Note 20)....................... 98 87
Fair value of interest rate swaps (see Note 16)........... 48 --
Net capitalized software costs............................ 44 42
Asbestos-related recoveries (see Note 22)................. 39 36
Trademarks................................................ 23 23
Patents and licenses (less accumulated amortization:
September 30, 2002, $5 and September 30, 2001, $3)...... 11 13
Other..................................................... 71 66
---- ----
Other Assets.............................................. $688 $572
==== ====
</Table>
At September 30, 2002 and 2001, the company had investments in 12 and 14
joint ventures, respectively, which were accounted for using the equity method
of accounting, as they were not controlled or majority-owned.
Costs relating to internally developed or purchased software are
capitalized and amortized utilizing the straight-line basis over periods not to
exceed seven years.
The company's trademarks, which were determined to have an indefinite life,
are not amortized, and patents and licenses are amortized over their contractual
lives. The company anticipates amortization expense for patents and licenses of
approximately $2 million per year for fiscal 2003 and 2004 and approximately $1
million per year for fiscal 2005 through 2007.
44
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER CURRENT LIABILITIES
Other Current Liabilities are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2002 2001
----- -----
<S> <C> <C>
Accrued product warranties.................................. $ 89 $ 94
Accrued taxes other than income taxes....................... 37 48
Asbestos-related reserves (see Note 22)..................... 20 24
Accrued interest expense.................................... 12 6
Accrued restructuring (see Note 5).......................... 9 46
Environmental reserves (see Note 22)........................ 8 18
Other....................................................... 55 78
---- ----
Other Current Liabilities................................... $230 $314
==== ====
</Table>
Accruals for product warranty costs are recorded at the time of shipment of
products to customers. Accruals for product recall campaigns are recorded at the
time the company's obligation is known and can be reasonably estimated. Warranty
reserves are based on several factors including past claims experience, sales
history, product manufacturing and engineering changes, industry developments
and various other considerations. As of September 30, 2002, accrued product
warranties included a liability related to a recall campaign associated with TRW
model 20-EDL tie rod ends (see Note 22).
14. OTHER LIABILITIES
Other Liabilities are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2002 2001
----- -----
<S> <C> <C>
Asbestos-related reserves (see Note 22)..................... $ 46 $ 47
Environmental reserves (see Note 22)........................ 26 25
Deferred payments........................................... 4 29
Other....................................................... 47 40
---- ----
Other Liabilities........................................... $123 $141
==== ====
</Table>
45
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. LONG-TERM DEBT
Long-Term Debt, net of discount where applicable, is summarized as follows
(in millions):
<Table>
<Caption>
SEPTEMBER 30,
---------------
2002 2001
------ ------
<S> <C> <C>
6 5/8 percent notes due 2007................................ $ 199 $ --
6 3/4 percent notes due 2008................................ 100 100
7 1/8 percent notes due 2009................................ 150 150
6.8 percent notes due 2009.................................. 499 498
8 3/4 percent notes due 2012................................ 400 --
Bank revolving credit facilities............................ 27 495
Lines of credit and other................................... 27 164
Fair value adjustment of notes.............................. 48 --
------ ------
Subtotal.................................................. 1,450 1,407
Less current maturities..................................... (15) (94)
------ ------
Long-Term Debt.............................................. $1,435 $1,313
====== ======
</Table>
Credit Facilities and Lines of Credit
The company has two unsecured credit facilities, which mature on June 27,
2005: a three-year, $400-million revolving credit facility and a five-year,
$750-million revolving credit facility. Borrowings are subject to interest based
on quoted LIBOR rates plus a margin, and a facility fee, both of which are based
upon the company's credit rating. At September 30, 2002, the margin over the
LIBOR rate was 105 basis points, and the facility fee was 20 basis points.
The company also has a $50-million uncommitted line of credit. Included in
lines of credit and other at September 30, 2001 are approximately $50 million of
borrowings from a non-consolidated affiliate. There were no borrowings from
related parties at September 30, 2002.
Debt Securities
On April 12, 2001, the company filed a shelf registration statement with
the Securities and Exchange Commission registering $750 million aggregate
principal amount of debt securities that may be offered in one or more series on
terms to be determined at the time of sale. On February 26, 2002, the company
completed a public offering of debt securities under the shelf registration
consisting of $400 million 10-year fixed-rate 8 3/4 percent notes due March 1,
2012. The notes were offered to the public at 100 percent of their principal
amount. On July 1, 2002, the company completed a second public offering of debt
securities under the shelf registration consisting of $200 million 5-year
fixed-rate 6 5/8 percent notes due June 15, 2007. The notes were offered to the
public at 99.684 percent of their principal amount. The proceeds of both
offerings, net of underwriting discounts and commissions, were used to repay
outstanding indebtedness under the revolving credit facilities and for general
corporate purposes.
Capital Securities
Included in the Consolidated Balance Sheet as of September 30, 2002 and
2001, are $39 million and $57 million, respectively, of 9.5 percent
company-obligated mandatorily redeemable preferred capital securities (capital
securities), issued by a wholly owned subsidiary trust of ArvinMeritor, due
February 1, 2027, and callable in February 2007. The company fully and
unconditionally guarantees the subsidiary trust's obligation under the capital
securities.
46
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest Rate Swap Agreements
The company entered into two interest rate swap agreements in March 2002.
These swap agreements, in effect, converted $300 million notional amount of the
8 3/4 percent notes and $100 million notional amount of the 6.8 percent notes to
variable interest rates. The fair value of the swaps was $48 million as of
September 30, 2002, and is recorded in other assets, with an offsetting amount
recorded in long-term debt. The swaps have been designated as fair value hedges
and the impact of the changes in their fair values is offset by an equal and
opposite change in the carrying value of the related notes. Under the terms of
the swap agreements, the company receives a fixed rate of interest of 8.75
percent and 6.8 percent on notional amounts of $300 million and $100 million,
respectively, and pays variable rates based on 3-month LIBOR plus a
weighted-average spread of 2.51 percent. The payments under the agreements
coincide with the interest payment dates on the hedged debt instruments, and the
difference between the amounts paid and received is included in interest
expense, net and other.
Leases
The company has entered into agreements to lease certain assets. These
assets are held by special purpose entities (SPEs), which were established and
are owned by independent third parties. These leases are accounted for as
operating leases, and the lease payments are charged to operating income. Under
current accounting principles generally accepted in the U.S., the assets and the
related obligations are excluded from the consolidated balance sheet, and the
SPEs are not consolidated. During fiscal 2002, the company purchased certain
assets for $35 million that were previously leased under one of these
arrangements. At September 30, 2002 and 2001, the original cost of the assets
under such arrangements was $120 million and $131 million, respectively.
Future minimum lease payments under these and other operating leases are
$26 million in 2003, $22 million in 2004, $21 million in 2005, $20 million in
2006, $18 million in 2007 and $46 million thereafter. These amounts reflect the
future minimum lease payments under the existing agreements, discussed above.
Covenants
The credit facilities require the company to maintain a total net debt to
earnings before interest, taxes depreciation and amortization (EBITDA) ratio of
3.25x and a minimum fixed charge coverage ratio (EBITDA less capital
expenditures to interest expense) of 1.50x. In addition, certain operating
leases require the company to maintain financial ratios that are similar to
those required under the company's credit facilities. At September 30, 2002, the
company was in compliance with all covenants.
16. FINANCIAL INSTRUMENTS
The company's financial instruments include cash and cash equivalents,
short-term debt, long-term debt, preferred capital securities, interest rate
swaps, and foreign exchange contracts. The company uses derivatives for hedging
and non-trading purposes in order to manage its interest rate and foreign
exchange rate exposures. The company's interest rate swap agreements are
discussed in Note 15.
Foreign Exchange Contracts
The company uses foreign exchange contracts to offset the effect of
exchange rate fluctuations on foreign currency denominated payables and
receivables. These contracts help minimize the risk of loss from changes in
exchange rates and are generally of short duration (less than three months). The
company has elected not to designate the foreign exchange contracts as hedges,
therefore, changes in the fair value of the foreign exchange contracts are
recognized in operating income. The net income impact of recording these
contracts at fair value in fiscal 2002 and 2001 did not have a significant
effect on the company's results of operations. As of
47
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
September 30, 2002 and 2001, the fair value of foreign exchange contracts was
not material. It is the policy of the company not to enter into derivative
instruments for speculative purposes.
Fair Value
Fair values of financial instruments are summarized as follows (in
millions):
<Table>
<Caption>
SEPTEMBER 30,
---------------------------------------------------------
2002 2001
--------------------------- ---------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............ $ 56 $ 56 $ 101 $ 101
Short-term debt...................... 15 15 94 94
Long-term debt....................... 1,435 1,433 1,313 1,310
Preferred capital securities......... 39 40 57 41
Interest rate swaps -- asset......... 48 48 -- --
</Table>
Cash and cash equivalents -- All highly liquid investments purchased with
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.
Short-term debt -- The carrying value of short-term debt approximates fair
value because of the short maturity of these borrowings.
Long-term debt and preferred capital securities -- Fair values are based on
the company's current incremental borrowing rate for similar types of borrowing
arrangements.
Interest rate swaps -- Fair values are estimated by obtaining quotes from
external sources.
17. CAPITAL STOCK
Common Stock
The company is authorized to issue 500 million shares of Common Stock, with
a par value of $1 per share, and 30 million shares of Preferred Stock, without
par value, of which two million shares are designated as Series A Junior
Participating Preferred Stock (Junior Preferred Stock). Under the Company Rights
Plan, a Preferred Share Purchase Right (Right) is attached to each share of
Common Stock pursuant to which the holder may, in certain takeover-related
circumstances, become entitled to purchase from the company 1/100th of a share
of Junior Preferred Stock at a price of $100, subject to adjustment. Also, in
certain takeover-related circumstances, each Right (other than those held by an
acquiring person) will be exercisable for shares of Common Stock or stock of the
acquiring person having a market value of twice the exercise price. In certain
events, the company may exchange each Right for one share of Common Stock or
1/100th of a share of Junior Preferred Stock. The Rights will expire on July 7,
2010, unless earlier exchanged or redeemed at a redemption price of $0.01 per
Right. Until a Right is exercised, the holder, as such, will have no voting,
dividend or other rights as a shareowner of the company.
The company has reserved approximately 15.6 million shares of Common Stock
in connection with its Long-Term Incentives Plan (the LTIP), Directors Stock
Plan, Incentive Compensation Plan, 1998 and 1988 Stock Benefit Plans, and
Employee Stock Benefit Plan for grants of non-qualified stock options, incentive
stock options, stock appreciation rights, restricted stock and stock awards to
key employees and directors. At September 30, 2002, there were 5.9 million
shares available for future grants under these plans.
48
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restricted Stock
Restricted stock grants to officers and other employees are summarized as
follows:
<Table>
<Caption>
GRANT NUMBER OF DATE TOTAL RECOGNITION
GRANT DATE: PRICE SHARES VESTED COMPENSATION PERIOD
- ----------- ------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
January 2002(1)....................... $19.640 291,000 Jan. 2005 $ 6 million 3 years
July 2001(2).......................... $18.850 681,832 July 2006 $13 million 3 years
January 2001(1)....................... $11.375 296,900 Jan. 2004 $ 3 million 3 years
</Table>
- ---------------
(1) In January 2002 and 2001, the company granted shares of restricted stock to
certain employees in accordance with the LTIP and the Employee Stock Benefit
Plan. The restricted shares are subject to continued employment by the
employee and vest after three years.
(2) In June 2001, the company commenced an offer to exchange certain outstanding
stock options for restricted shares of the company's Common Stock. All
outstanding stock options issued under the LTIP, the Employee Stock Benefit
Plan, the 1998 and the 1988 Stock Benefit Plans (together, "the plans") that
were held by active employees and had an exercise price of $22.25 or more
per share (except options that expired in June 2001) were eligible for
exchange. The exchange rate was based on a percentage of the present value
of the options and the market price of the Common Stock on May 25, 2001 of
$15.31 per share. In July 2001, 2,810,471 eligible options were cancelled
and restricted shares of Common Stock were issued under the plans in
exchange for those options. The restricted stock will vest in July 2006, if
the holder remains an active employee through that period, or earlier if
certain performance measures are achieved. Total compensation related to the
exchange is being expensed over a three-year recognition period assuming
that the performance measures will be met. During fiscal 2001, certain
restricted stock issued with this exchange vested early, resulting in the
recognition of compensation expense of $2 million.
Since the grant of restricted stock relates to future service, the total
compensation expense is recorded as unearned compensation and is shown as a
separate reduction of shareowners' equity. The unearned compensation is then
expensed over the recognition period. The company has granted the restricted
stock from treasury shares, and cash dividends on the restricted stock are
reinvested in additional shares of Common Stock during the period. Total
compensation expense recognized for restricted stock was $6 million and $4
million for fiscal 2002 and 2001, respectively.
Treasury Stock
In July 2000, the board of directors authorized a program to repurchase up
to $100 million of the company's Common Stock. This program was terminated in
November 2001. Prior to the termination, 5.4 million shares of ArvinMeritor
Common Stock were purchased at an aggregate cost of approximately $84 million,
or an average of $15.39 per share.
During fiscal 2002, approximately 1.5 million shares of treasury stock were
issued in connection with the exercise of stock options and issuance of
restricted stock under the company's incentive plans.
18. STOCK OPTIONS
Under the company's incentive plans, stock options are granted at prices
equal to the fair value on the date of grant and have a maximum term of 10
years. Vesting periods are generally three years from the date of grant.
49
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information relative to stock options is as follows (shares in thousands,
exercise price represents a weighted average):
<Table>
<Caption>
2002 2001 2000(1)
----------------- ----------------- -----------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning
of year................. 4,692 $23.00 6,395 $28.04 2,724 $29.49
Granted................... 1,553 19.93 1,573 15.06 729 22.09
Exercised................. (1,172) 18.35 (2) 19.31 -- --
Conversion of Arvin
options(2).............. -- -- -- -- 3,118 28.10
Conversion to restricted
stock(3)................ -- -- (2,810) 29.98 -- --
Cancelled or expired...... (183) 22.57 (464) 24.82 (176) 26.96
------ ------ -----
Outstanding -- end of
year.................... 4,890 23.16 4,692 23.00 6,395 28.04
====== ====== =====
Exercisable -- end of
year.................... 2,533 27.58 3,273 25.86 4,878 28.77
====== ====== =====
</Table>
- ---------------
(1) All Meritor option quantities and exercise prices have been adjusted by the
exchange ratio of one Meritor share for .75 ArvinMeritor share as part of
the merger (see Note 4).
(2) In connection with the merger, each Arvin outstanding option was converted
to an ArvinMeritor option on a one-to-one basis, plus $1.00 per share
reduction in the exercise price.
(3) In July 2001, certain stock options were converted to restricted shares of
Common Stock (see Note 17).
The following table provides additional information about outstanding stock
options at September 30, 2002 (shares in thousands, exercise price represents a
weighted average):
<Table>
<Caption>
OUTSTANDING EXERCISABLE
----------------------------- -----------------
EXERCISE REMAINING EXERCISE EXERCISE
PRICE RANGE SHARES YEARS PRICE SHARES PRICE
- ----------- ------ --------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$14.00 to $20.00.......................... 2,807 8.5 $18.07 553 $17.61
$20.01 to $27.00.......................... 337 5.9 23.05 234 22.93
$27.01 to $34.00.......................... 1,393 4.6 29.66 1,393 29.66
$34.01 to $41.00.......................... 353 5.5 38.08 353 38.08
----- -----
4,890 2,533
===== =====
</Table>
The company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Since stock options are granted at prices equal to fair market
value, no compensation expense is recognized in connection with stock options
granted to employees. The company's net income and earnings per share would have
been reduced to the pro forma amounts shown below if the company accounted for
its stock options using the fair value method provided by
50
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock Based Compensation" (in millions, except per share amounts):
<Table>
<Caption>
2002 2001 2000
----- ----- -----
<S> <C> <C> <C>
Net income --
As reported........................................ $ 107 $ 35 $ 218
Pro forma.......................................... 104 32 212
Basic earnings per share --
As reported........................................ $1.61 $0.53 $4.12
Pro forma.......................................... 1.57 0.48 4.01
Diluted earnings per share --
As reported........................................ $1.59 $0.53 $4.12
Pro forma.......................................... 1.55 0.48 4.01
</Table>
The weighted average fair value of options granted was $6.81, $3.93 and
$8.16 per share in fiscal 2002, 2001 and 2000, respectively. The fair value of
each option was estimated on the date of grant using the Black-Scholes pricing
model and the following assumptions:
<Table>
<Caption>
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
Average risk-free interest rate...................... 5.1% 5.7% 6.1%
Expected dividend yield.............................. 1.7% 5.0% 5.0%
Expected volatility.................................. 36.0% 37.0% 35.0%
Expected life (years)................................ 5 5 5
</Table>
19. RETIREMENT MEDICAL PLANS
ArvinMeritor has retirement medical plans that cover the majority of its
U.S. and certain non-U.S. employees and provide for medical payments to eligible
employees and dependents upon retirement.
The company's retiree medical obligations are measured as of June 30. The
following are the assumptions used in the measurement of the accumulated
projected benefit obligation (APBO):
<Table>
<Caption>
2002 2001
---- -----
<S> <C> <C>
Assumptions as of June 30
Discount rate............................................. 7.25% 7.50%
Health care cost trend rate (weighted average)............ 9.00% 11.00%
Ultimate health care trend rate........................... 5.00% 5.00%
Years to ultimate rate (2011)............................. 8 9
</Table>
The discount rate is the rate that the accumulated projected benefit
obligation is discounted. This rate is determined based on high-quality fixed
income investments that match the duration of expected retiree medical benefits.
The company has typically used the corporate AA/Aa bond rate for this
assumption. The health care cost trend rate represents the company's expected
annual rates of change in the cost of health care benefits. The trend rate noted
above represents a forward projection of health care costs as of the measurement
date. The company's projection for fiscal 2003 is an increase in health care
costs of 9.0 percent.
51
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The APBO for retiree medical as of the June 30 measurement date is
summarized as follows (in millions):
<Table>
<Caption>
APBO 2002 2001
- ---- ---- ----
<S> <C> <C>
Retirees.................................................... $502 $467
Employees eligible to retire................................ 17 20
Employees not eligible to retire............................ 57 55
---- ----
Total....................................................... $576 $542
==== ====
</Table>
The following reconciles the change in the APBO and the amounts included in
the consolidated balance sheet (in millions):
<Table>
<Caption>
2002 2001
----- -----
<S> <C> <C>
APBO -- beginning of year................................... $ 542 $ 465
Service cost.............................................. 4 4
Interest cost............................................. 38 36
Plan amendments........................................... (36) 5
Actuarial losses.......................................... 88 85
Benefit payments.......................................... (60) (53)
----- -----
APBO -- end of year......................................... 576 542
Items not yet recognized in the balance sheet --
Plan amendments........................................... 40 7
Actuarial (losses)/gains:
Discount rate............................................. (60) (47)
Health care cost trend rate............................... 4 41
Demographic and other..................................... (251) (225)
----- -----
Accrued retiree medical liability........................... $ 309 $ 318
===== =====
</Table>
The increase in the APBO was driven primarily by actuarial losses. The
actuarial losses resulted from the decrease in the discount rate assumption and
unfavorable health care cost trend experience. The demographic and other
actuarial losses relate to earlier than expected retirements due to certain
plant closings and restructuring actions. In accordance with Statement of
Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for
Postretirement Benefits Other than Pensions", a portion of the actuarial losses
is not subject to amortization. The actuarial losses that are subject to
amortization are generally amortized over the average expected remaining service
life, which is approximately 14 years. Union plan amendments are generally
amortized over the contract period, or 3 years. The company has approved changes
to certain retiree medical plans. These plan amendments will be effective in
fiscal 2003 and have been reflected in the APBO as of September 30, 2002.
52
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accrued retiree medical liability is included in the consolidated
balance sheet as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2002 2001
----- -----
<S> <C> <C>
Current -- included in accrued compensation and benefits.... $ 60 $ 50
Long-term -- included in accrued retirement benefits........ 249 268
---- ----
Accrued retiree medical liability........................... $309 $318
==== ====
</Table>
The components of retiree medical expense are as follows (in millions):
<Table>
<Caption>
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
Service cost.............................................. $ 4 $ 4 $ 2
Interest cost............................................. 38 36 33
Amortization of --
Prior service cost................................... (3) (3) (6)
Actuarial gains and losses........................... 12 4 5
--- --- ---
Retiree medical expense................................... $51 $41 $34
=== === ===
</Table>
A one-percentage point change in the assumed health care cost trend rate
for all years to, and including, the ultimate rate would have the following
effects (in millions):
<Table>
<Caption>
2002 2001
---- ----
<S> <C> <C>
Effect on total service and interest cost
1% Increase............................................ $ 4 $ 4
1% Decrease............................................ (4) (4)
Effect on APBO
1% Increase............................................ 50 42
1% Decrease............................................ (46) (38)
</Table>
20. RETIREMENT PENSION PLANS
ArvinMeritor sponsors defined benefit pension plans that cover most of its
U.S. employees and certain non-U.S. employees. Pension benefits for salaried
employees are based on years of credited service and compensation. Pension
benefits for hourly employees are based on years of service and specified
benefit amounts. The company's funding policy provides that annual contributions
to the pension trusts will be at least equal to the minimum amounts required by
ERISA in the U.S. and the actuarial recommendations or statutory requirements in
other countries.
Certain of the company's non-U.S. subsidiaries provide limited non-pension
benefits to retirees in addition to government-sponsored programs. The cost of
these programs is not significant to the company. Most retirees outside the U.S.
are covered by government-sponsored and administered programs.
The company's pension obligations are measured as of June 30. The U.S.
plans include a qualified and non-qualified pension plan. Non-U.S. includes
plans primarily in the United Kingdom, Canada and Germany.
53
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are the assumptions used in the measurement of the projected
benefit obligation (PBO) and net periodic pension expense:
<Table>
<Caption>
2002 2001
-------------------- --------------------
U.S. NON U.S. U.S. NON U.S.
----- ------------ ----- ------------
<S> <C> <C> <C> <C>
Assumptions as of June 30
Discount Rate....................... 7.25% 6.00 - 6.75% 7.50% 6.00 - 6.75%
Assumed return on plan assets....... 8.50% 8.00 - 8.50% 9.50% 9.00%
Rate of compensation increase....... 4.25% 2.50 - 3.50% 4.25% 2.50 - 4.00%
</Table>
The discount rate is the rate that the PBO is discounted. The rate is
determined based on high-quality fixed income investments that match the
duration of expected benefit payments. The company has typically used the
corporate AA/Aa bond rate for this assumption. The assumed return on plan assets
noted above represents a forward projection of the average rate of earnings
expected on the pension assets. This rate is used in the calculation of assumed
rate of return on plan assets, a component of net periodic pension expense. As
of June 30, 2002 the company has lowered the assumed rates of return on plan
assets in the U.S. to 8.50 percent, in the United Kingdom to 8.00 percent and in
Canada to 8.50 percent. These revised assumed rates of return will be used for
fiscal 2003 net periodic pension expense. The rate of compensation increase
represents the long-term assumption for expected increases to salaries for
pay-related plans.
The following table reconciles the change in the PBO and the change in plan
assets (in millions):
<Table>
<Caption>
2002 2001
------------------------- ------------------------
U.S. NON U.S. TOTAL U.S. NON U.S. TOTAL
JUNE 30 MEASUREMENT DATE ----- -------- ------ ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
PBO -- beginning of year................. $ 596 $390 $ 986 $ 490 $362 $ 852
Service cost........................ 20 12 32 18 13 31
Interest cost....................... 45 24 69 40 22 62
Participant contributions........... -- 3 3 -- 2 2
Amendments.......................... 5 -- 5 -- -- --
Actuarial loss...................... 11 2 13 59 19 78
Divestitures........................ -- -- -- -- (2) (2)
Termination benefits and early
retirement........................ -- -- -- 17 1 18
Benefit payments.................... (32) (19) (51) (28) (25) (53)
Foreign currency rate changes....... -- 19 19 -- (2) (2)
----- ---- ------ ----- ---- -----
PBO -- end of year....................... 645 431 1,076 596 390 986
----- ---- ------ ----- ---- -----
Change in plan assets
Fair value of assets -- beginning of
year................................... 398 372 770 409 421 830
Actual return on plan assets........ (32) (40) (72) (17) (28) (45)
Employer contributions.............. 52 9 61 34 10 44
Participant contributions........... -- 3 3 -- 2 2
Divestitures........................ -- -- -- -- (2) (2)
Benefit payments.................... (32) (19) (51) (28) (25) (53)
Foreign currency rate changes....... -- 16 16 -- (6) (6)
----- ---- ------ ----- ---- -----
Fair value of assets -- end of year...... 386 341 727 398 372 770
----- ---- ------ ----- ---- -----
Funded status............................ $(259) $(90) $ (349) $(198) $(18) $(216)
===== ==== ====== ===== ==== =====
</Table>
54
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following reconciles the funded status with the amount included in the
consolidated balance sheet (in millions):
<Table>
<Caption>
2002 2001
------------------------- ------------------------
U.S. NON U.S. TOTAL U.S. NON U.S. TOTAL
JUNE 30 MEASUREMENT DATE ----- -------- ------ ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Funded status............................ $(259) $(90) $ (349) $(198) $(18) $(216)
Items not yet recognized in balance
sheet:
Actuarial losses.................... 243 143 386 161 63 224
Prior service cost.................. 2 12 14 (3) 10 7
Initial net asset................... -- (6) (6) -- (8) (8)
Sept. 2002 employer contribution......... 15 -- 15 -- -- --
----- ---- ------ ----- ---- -----
Net prepaid/(liability).................. $ 1 $ 59 $ 60 $ (40) $ 47 $ 7
===== ==== ====== ===== ==== =====
</Table>
The increase in the PBO due to actuarial losses for fiscal 2002 and 2001
relates primarily to the reduction in the discount rate assumptions. In
accordance with Statement of Financial Accounting Standards No. 87 (SFAS 87),
"Employers' Accounting for Pensions", a portion of the actuarial losses is not
subject to amortization. The actuarial losses that are subject to amortization
are generally amortized over the expected remaining service life, which ranges
from 12 to 18 years, depending on the plan. The most significant impact on the
funded status has been the underperformance of the pension assets for both
fiscal 2002 and 2001. This was driven by worldwide financial market conditions,
which also contributed to the company's revision of the expected rate of return
on plan assets. Also in accordance with SFAS 87, the company utilizes a market-
related value of assets, which recognizes changes in the fair value of assets
over a five-year period.
The increase in the unfunded status resulted in the company recording an
additional minimum pension liability for both fiscal 2002 and 2001. SFAS 87
requires a company to record a minimum liability that is at least equal to the
unfunded accumulated benefit obligation. The company recorded an additional
minimum pension liability adjustment of $116 million and $75 million in fiscal
2002 and 2001, respectively. The additional minimum pension liability, net of a
deferred tax asset, is charged to accumulated other comprehensive loss.
Amounts included in the consolidated balance sheet at September 30 are
comprised of the following (in millions):
<Table>
<Caption>
2002 2001
------------------------ ------------------------
U.S. NON U.S. TOTAL U.S. NON U.S. TOTAL
----- -------- ----- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Prepaid pension asset..................... $ -- $ 98 $ 98 $ -- $ 87 $ 87
Accrued pension liability................. (175) (56) (231) (115) (43) (158)
Deferred tax asset........................ 67 4 71 29 -- 29
Accumulated other comprehensive loss...... 108 4 112 46 -- 46
Intangible asset and other................ 1 6 7 -- 3 3
Minority interest liability............... -- 3 3 -- -- --
----- ---- ----- ----- ---- -----
Net amount recognized..................... $ 1 $ 59 $ 60 $ (40) $ 47 $ 7
===== ==== ===== ===== ==== =====
</Table>
55
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accrued pension liability is included in Accrued Retirement Benefits in
the consolidated balance sheet as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2002 2001
----- -----
<S> <C> <C>
Accrued pension liability................................... $231 $158
Accrued retiree medical liability -- long term (see Note
19)....................................................... 249 268
Other....................................................... 32 33
---- ----
Accrued Retirement Benefits................................. $512 $459
==== ====
</Table>
In accordance with Statement of Financial Accounting Standards No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits", the
PBO, accumulated benefit obligation (ABO) and fair value of plan assets is
required to be disclosed for all plans where the ABO is in excess of plan
assets. The difference between the PBO and ABO is that the PBO includes
projected compensation increases. Additional information is as follows (in
millions):
<Table>
<Caption>
2002 2001
------------------------- ------------------------
ABO ASSETS ABO ASSETS
EXCEEDS EXCEED EXCEEDS EXCEED
ASSETS ABO TOTAL ASSETS ABO TOTAL
------- ------ ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
PBO................................. $739 $337 $1,076 $641 $345 $986
ABO................................. 663 288 951 548 294 842
Plan Assets......................... 418 309 727 398 372 770
</Table>
The components of net periodic pension expense were as follows (in
millions):
<Table>
<Caption>
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
Service cost............................................ $ 32 $ 31 $ 22
Interest cost........................................... 69 62 37
Assumed return on plan assets........................... (79) (74) (40)
Amortization of prior service cost...................... 3 3 4
Amortization of transition asset........................ (2) (2) (2)
Recognized actuarial loss............................... 4 1 3
---- ---- ----
Net periodic pension expense............................ $ 27 $ 21 $ 24
==== ==== ====
</Table>
The company also sponsors certain defined contribution savings plans for
eligible employees. Expense related to these plans was $11 million, $11 million
and $8 million for fiscal 2002, 2001 and 2000, respectively.
21. INCOME TAXES
The components of the Provision for Income Taxes are summarized as follows
(in millions):
<Table>
<Caption>
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
Current tax expense (benefit):
U.S. .............................................. $ 8 $ 23 $ 17
Foreign............................................ 94 61 91
State and local.................................... 6 (6) 1
---- ---- ----
Total current tax expense..................... 108 78 109
---- ---- ----
Deferred tax expense (benefit):
U.S. .............................................. 28 (32) 30
Foreign............................................ (53) (24) (3)
State and local.................................... (8) (1) 5
---- ---- ----
Total deferred tax expense (benefit).......... (33) (57) 32
---- ---- ----
Provision for Income Taxes.............................. $ 75 $ 21 $141
==== ==== ====
</Table>
56
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax expense represents tax deductions related to previously
accrued expenses. The deferred tax benefit represents the tax benefit of current
year net operating losses and tax credits carried forward, and the tax impact
related to certain accrued expenses that have been recorded for financial
statement purposes but are not deductible for income tax purposes until paid.
Net deferred income tax benefits included in Other Current Assets in the
accompanying consolidated balance sheet consist of the tax effects of temporary
differences related to the following (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2002 2001
----- -----
<S> <C> <C>
Accrued compensation and benefits........................... $ 49 $ 36
Accrued product warranties.................................. 29 32
Inventories................................................. 19 21
Receivables................................................. 10 19
Accrued restructuring....................................... 3 16
Other, net.................................................. 6 14
---- ----
Current deferred income taxes............................... $116 $138
==== ====
</Table>
Net deferred income tax benefits included in Other Assets in the
accompanying consolidated balance sheet consist of the tax effects of temporary
differences related to the following (in millions):
<Table>
<Caption>
SEPTEMBER 30,
-------------
2002 2001
----- -----
<S> <C> <C>
Accrued retiree medical liability........................... $ 95 $103
Loss and tax credit carryforwards........................... 212 91
Accrued pension liability................................... 21 12
Taxes on undistributed income............................... (32) (30)
Property.................................................... (83) (54)
Other, net.................................................. (15) 6
---- ----
Subtotal.................................................... 198 128
Valuation allowance......................................... (11) (9)
---- ----
Long-term deferred income taxes............................. $187 $119
==== ====
</Table>
Management believes it is more likely than not that current and long-term
deferred tax benefits will reduce future income tax payments. Significant
factors considered by management in its determination of the probability of the
realization of the deferred tax benefits include: (a) historical operating
results, (b) expectations of future earnings and (c) the extended period of time
over which the retirement medical liability will be paid. The valuation
allowance represents the amount of tax benefits related to net operating loss
and tax credit carryforwards, which management believes are not likely to be
realized. The carryforward periods for $145 million of net operating losses and
tax credit carryforwards expire between 2003 and 2022. The carryforward period
for the remaining net operating losses and tax credits is indefinite.
57
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The company's effective tax rate was different from the U.S. statutory rate
for the reasons set forth below:
<Table>
<Caption>
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate....................................... 35.0% 35.0% 35.0%
State and local income taxes............................. (0.6) (4.3) 1.2
Foreign income taxes..................................... (2.4) (2.8) 0.7
Goodwill................................................. -- 7.2 1.0
Recognition of basis differences......................... (1.8) (8.9) (0.4)
Tax on undistributed foreign earnings.................... 1.0 3.2 0.7
Other.................................................... 0.8 4.1 --
---- ---- ----
Effective tax rate....................................... 32.0% 33.5% 38.2%
==== ==== ====
</Table>
The income tax provisions were calculated based upon the following
components of income before income taxes (in millions):
<Table>
<Caption>
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
U.S. income (loss)...................................... $109 $(31) $139
Foreign income.......................................... 126 94 230
---- ---- ----
Total................................................... $235 $ 63 $369
==== ==== ====
</Table>
No provision has been made for U.S., state or additional foreign income
taxes related to approximately $190 million of undistributed earnings of foreign
subsidiaries that have been or are intended to be permanently reinvested.
22. 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 manufacturing operations of the company. The process of estimating
environmental liabilities is complex and dependent on physical and scientific
data at the site, 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 its
responsibility is established 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 estimated costs of remediation before
consideration of recovery from insurers or other third parties.
The company has been designated as a potentially responsible party at 8
Superfund sites, excluding sites as to which the company's records disclose no
involvement or as to which the company's potential liability has been finally
determined. Management estimates the total reasonably possible costs the company
could incur for the remediation of Superfund sites at September 30, 2002, to be
approximately $34 million, of which $13 million is recorded as a liability. In
addition to the Superfund sites, various other lawsuits, claims and proceedings
have been asserted against the company, alleging violations of federal, state
and local environmental protection requirements, or seeking remediation of
alleged environmental impairments, principally at previously disposed-of
properties. For these matters, management has estimated the total reasonably
possible costs the company could incur at September 30, 2002, to be
approximately $50 million, of which $21 million is
58
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded as a liability. Following are the components of the Superfund and
Non-Superfund environmental reserves (in millions):
<Table>
<Caption>
SEPTEMBER 30,
--------------
2002 2001
----- -----
<S> <C> <C>
Superfund sites............................................. $13 $18
Non-Superfund sites......................................... 21 25
--- ---
Total environmental reserves................................ $34 $43
=== ===
</Table>
A portion of the environmental reserves is included in Other Current
Liabilities (see Note 13), with the majority of the amounts recorded in Other
Liabilities (see Note 14).
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 and other factors that make
it difficult to accurately predict actual costs. However, based on management's
assessment, 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, advances in technology and additional
information about the ultimate clean up remedy could significantly change the
company's estimates. Management cannot assess the possible effect of compliance
with future requirements.
Asbestos
Maremont Corporation ("Maremont", a subsidiary of the company) and many
other companies are defendants in suits brought by individuals claiming personal
injuries as a result of exposure to asbestos-containing products. Maremont
manufactured friction products containing asbestos from 1953 through 1977, when
it sold its friction product business. Arvin acquired Maremont in 1986. During
fiscal 1997 through 2002, Maremont paid approximately $52 million to address
asbestos-related claims, substantially all of which was reimbursed by insurance.
Maremont's asbestos-related reserves and corresponding asbestos-related
recoveries are summarized as follows (in millions):
<Table>
<Caption>
SEPTEMBER 30,
--------------
2002 2001
----- -----
<S> <C> <C>
Unbilled committed settlements.............................. $ 9 $12
Pending claims.............................................. 50 48
Shortfall and other......................................... 7 11
--- ---
Total asbestos-related reserves................... $66 $71
=== ===
Asbestos-related recoveries................................. $59 $60
=== ===
</Table>
A portion of the asbestos-related recoveries and reserves are included in
current assets and liabilities, with the majority of the amounts recorded in
noncurrent assets and liabilities (see Notes 10, and 12 through 14).
The unbilled committed settlements reserve relates to committed settlements
that Maremont agreed to pay when Maremont participated in the Center for Claims
Resolution (CCR). Maremont shared in the payments of defense and indemnity costs
of asbestos-related claims with other CCR members. The CCR
59
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
handled the resolution and processing of asbestos claims on behalf of its
members until February 1, 2001, when it was reorganized and discontinued
negotiating shared settlements.
Since February 1, 2001, Maremont has hired its own litigation counsel and
is committed to examining the merits of each asbestos-related claim. For
purposes of establishing reserves for pending asbestos-related claims, Maremont
estimates its defense and indemnity costs based on the history and nature of
filed claims to date and Maremont's experience since February 1, 2001. Maremont
had approximately 37,500 and 27,500 pending asbestos-related claims at September
30, 2002 and 2001, 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.
Several former members of the CCR have filed for bankruptcy protection, and
these members have failed, or may fail, to pay certain financial obligations
with respect to settlements that were reached while they were CCR members.
Maremont is subject to claims for payment of a portion of these defaulted member
shares ("shortfall"). In an effort to resolve the affected settlements, Maremont
has entered into negotiations with plaintiffs' attorneys, and an estimate of
Maremont's obligation for the shortfall is included in the total
asbestos-related reserves. In addition, Maremont and its insurers are engaged in
legal proceedings to determine whether existing insurance coverage should
reimburse any potential liability related to this issue.
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 the insurance agreements in place. Based on
its assessment of the history and nature of filed claims to date, and of
Maremont's insurance carriers, management believes that existing insurance
coverage is adequate to cover substantially all costs relating to pending and
future asbestos-related claims.
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 for asbestos-related
claims are subject to considerable uncertainty because such liabilities are
influenced by variables that are difficult to predict. 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
Maremont's liability for asbestos-related claims, and the effect on the company,
could differ materially from current estimates.
Maremont has not accrued reserves for unknown claims that may be asserted
against it in the future. Maremont does not have sufficient information to make
a reasonable estimate of its potential liability for asbestos-related claims
that may be asserted against it in the future.
Product Recall Campaign
The company has recalled certain of its commercial vehicle axles equipped
with TRW model 20-EDL tie rod ends because of potential safety-related defects
in those ends. TRW, Inc. (TRW) manufactured the affected tie rod ends from June
1999 through June 2000 and supplied them to the company for incorporation into
its axle products.
TRW commenced recall campaigns in August 2000 and June 2001, covering 24
weeks of production, due to a purported manufacturing anomaly identified by TRW.
However, after an analysis of field returns and customer reports of excessive
wear, ArvinMeritor concluded that the defect was based on the design of a
bearing used in the ball socket, which is part of the tie rod end, and not on
the purported anomaly in the manufacturing process. The company reported its
finding to the National Highway Transportation Safety Administration in April
2002 and expanded the recall campaign to cover all of its axle products that had
incorporated TRW model 20-EDL tie rod ends.
60
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ArvinMeritor estimates the cost of recalling all TRW model 20-EDL tie rod
ends to be approximately $30 million, of which approximately $13 million is
estimated to be covered by TRW's recall campaigns. The company believes that it
is entitled to reimbursement by TRW for its costs associated with the campaigns.
On May 6, 2002, the company filed suit against TRW in the U.S. District Court
for the Eastern District of Michigan, claiming breach of contract and breach of
warranty, and seeking compensatory and consequential damages in connection with
the recall campaign. The company has recorded a liability and offsetting
receivable for the estimated cost of the recall campaign, which is not covered
by TRW's recall campaign. As of September 30, 2002, the company has recorded a
receivable from TRW for $17 million and has accrued product warranty reserves of
$15 million, net of claims paid to date. In addition, as of September 30, 2002
the company has recorded a $4 million receivable from TRW for reimbursement of
customer claims paid to date that are covered by TRW's recall campaign.
Other
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,
intellectual property, safety and health, and employment matters. Although the
outcome of litigation cannot be predicted with certainty, and some lawsuits,
claims or proceedings may be disposed of unfavorably to the company, management
believes the disposition of matters that are pending will not have a material
adverse effect on the company's business, financial condition or results of
operations.
23. BUSINESS SEGMENT INFORMATION
The company has three reportable operating segments: Light Vehicle Systems
(LVS), Commercial Vehicle Systems (CVS), and Light Vehicle Aftermarket (LVA).
LVS is a major supplier of air and emission systems, aperture systems (roof and
door systems and motion control products), and undercarriage systems (suspension
and ride control systems and wheel products) for passenger cars, light trucks
and sport utility vehicles to original equipment manufacturers. CVS supplies
drivetrain systems and components, including axles and drivelines, braking
systems, suspension systems and exhaust, ride control and filtration products
for medium- and heavy-duty trucks, trailers and off-highway equipment and
specialty vehicles. LVA supplies exhaust, ride control and filter products to
the light vehicle aftermarket. Business units that are not focused on automotive
products are classified as "Other". The company's coil coating operation is
included in this classification.
Segment information is summarized as follows (in millions):
Sales:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
<S> <C> <C> <C>
Light Vehicle Systems.................................... $3,632 $3,588 $2,031
Commercial Vehicle Systems............................... 2,249 2,199 2,872
Light Vehicle Aftermarket................................ 844 859 209
Other.................................................... 157 159 41
------ ------ ------
Total.................................................... $6,882 $6,805 $5,153
====== ====== ======
</Table>
61
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings:
<Table>
<Caption>
2002 2001 2000
----- ----- -----
<S> <C> <C> <C>
Operating Income:
Light Vehicle Systems..................................... $ 196 $ 213 $ 149
Commercial Vehicle Systems................................ 94 32 221
Light Vehicle Aftermarket................................. 58 44 6
Other..................................................... 4 (10) --
----- ----- -----
Segment operating income............................... 352 279 376
Restructuring costs....................................... (15) (67) (26)
Gain on sale of business.................................. 6 -- 83
Other charges, net........................................ -- (17) (4)
----- ----- -----
Operating income....................................... 343 195 429
Equity in earnings (losses) of affiliates................. (3) 4 29
Interest expense, net and other........................... (105) (136) (89)
----- ----- -----
Income before income taxes................................ 235 63 369
Provision for income taxes................................ (75) (21) (141)
Minority interests........................................ (11) (7) (10)
----- ----- -----
Income before cumulative effect of accounting change...... $ 149 $ 35 $ 218
===== ===== =====
Depreciation and Amortization:
2002 2001 2000
----- ----- -----
Light Vehicle Systems..................................... $ 97 $ 98 $ 55
Commercial Vehicle Systems................................ 73 93 98
Light Vehicle Aftermarket................................. 19 19 7
Other..................................................... 7 7 2
----- ----- -----
Total Depreciation and Amortization....................... $ 196 $ 217 $ 162
===== ===== =====
Capital Expenditures:
2002 2001 2000
----- ----- -----
Light Vehicle Systems..................................... $ 84 $ 110 $ 106
Commercial Vehicle Systems................................ 46 73 112
Light Vehicle Aftermarket................................. 15 18 5
Other..................................................... 39 5 2
----- ----- -----
Total Capital Expenditures................................ $ 184 $ 206 $ 225
===== ===== =====
</Table>
62
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segment Assets:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
<S> <C> <C> <C>
Light Vehicle Systems.................................... $1,873 $1,766 $1,794
Commercial Vehicle Systems............................... 1,594 1,565 1,775
Light Vehicle Aftermarket................................ 718 738 749
Other.................................................... 161 197 228
------ ------ ------
Segment total assets.................................. 4,346 4,266 4,546
Corporate(1)............................................... 305 96 174
------ ------ ------
Total assets............................................... $4,651 $4,362 $4,720
====== ====== ======
</Table>
Net Goodwill:
<Table>
<Caption>
2002 2001 2000
---- ---- ----
<S> <C> <C> <C>
Light Vehicle Systems.................................... $225 $221 $129
Commercial Vehicle Systems............................... 408 400 412
Light Vehicle Aftermarket................................ 175 172 173
Other.................................................... -- 42 42
---- ---- ----
Total goodwill........................................... $808 $835 $756
==== ==== ====
</Table>
- ---------------
(1) Corporate assets consist primarily of cash, taxes and prepaid pension costs.
For fiscal 2002 and 2001, segment assets include $105 million and $211
million, respectively, of receivables sold under the accounts receivable
securitization program (see Note 8). As a result, corporate assets are
reduced by these amounts to account for the impact of the sale.
Information on the company's geographic areas is summarized as follows (in
millions):
Sales by Geographic Area:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
<S> <C> <C> <C>
U.S. .................................................... $3,416 $3,476 $2,576
Canada................................................... 521 507 441
Mexico................................................... 312 312 235
------ ------ ------
Total North America.............................. 4,249 4,295 3,252
France................................................... 405 384 394
U.K. .................................................... 552 481 345
Other Europe............................................. 1,134 1,159 769
------ ------ ------
Total Europe..................................... 2,091 2,024 1,508
Other...................................................... 542 486 393
------ ------ ------
Total sales................................................ $6,882 $6,805 $5,153
====== ====== ======
</Table>
63
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assets by Geographic Area:
<Table>
<Caption>
2002 2001 2000
------ ------ ------
<S> <C> <C> <C>
U.S. .................................................... $2,463 $2,289 $2,537
Canada................................................... 168 166 176
Mexico................................................... 142 130 135
------ ------ ------
Total North America.............................. 2,773 2,585 2,848
U.K. .................................................... 583 566 542
France................................................... 216 203 226
Other Europe............................................. 746 692 725
------ ------ ------
Total Europe..................................... 1,545 1,461 1,493
Other...................................................... 333 316 379
------ ------ ------
Total assets............................................... $4,651 $4,362 $4,720
====== ====== ======
</Table>
Sales to DaimlerChrysler AG represented 16 percent, 15 percent and 18
percent of the company's sales in fiscal 2002, 2001, and 2000, respectively.
Sales to General Motors Corporation comprised 13 percent and 12 percent of the
company's sales in fiscal 2002 and 2001, respectively. Sales to Ford Motor
Company comprised 11 percent of the company's sales in fiscal 2002. No other
customer comprised 10 percent or more of the company's sales in each of the
three years ended September 30, 2002.
24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a condensed summary of the company's unaudited quarterly
results of operations for fiscal 2002 and 2001 and stock price data for fiscal
2002. The per share amounts are based on the weighted average shares outstanding
for that quarter.
<Table>
<Caption>
2002 FISCAL QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH 2002
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT SHARE-RELATED DATA)
<S> <C> <C> <C> <C> <C>
Sales............................................. $1,566 $1,687 $1,883 $1,746 $6,882
Cost of sales..................................... 1,412 1,511 1,667 1,552 6,142
Income before cumulative effect of accounting
change.......................................... 11 35 62 41 149
Basic earnings per share before cumulative effect
of accounting change............................ 0.17 0.53 0.93 0.61 2.24
Diluted earnings per share before cumulative
effect of accounting change..................... 0.17 0.52 0.91 0.61 2.22
</Table>
First quarter 2002 net income included a restructuring charge of $15
million ($10 million after-tax, or $0.15 per basic and diluted share) and third
quarter 2002 net income included a gain on the sale of the company's exhaust
accessories manufacturing operations of $6 million ($4 million after-tax, or
$0.06 per basic and diluted share).
<Table>
<Caption>
2002 FISCAL QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH 2002
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Stock Prices
High............................................ $20.95 $30.29 $32.50 $25.00 $32.50
Low............................................. $13.35 $18.74 $22.89 $17.67 $13.35
</Table>
64
<PAGE>
ARVINMERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 FISCAL QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH 2001
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT SHARE-RELATED DATA)
<S> <C> <C> <C> <C> <C>
Sales............................................. $1,659 $1,787 $1,794 $1,565 $6,805
Cost of sales..................................... 1,492 1,609 1,607 1,398 6,106
Net income (loss)................................. (10) 21 30 (6) 35
Earnings (loss) per share (basic and diluted)..... (0.15) 0.32 0.46 (0.09) 0.53
</Table>
First quarter 2001 net loss included a restructuring charge of $46 million
($30 million after-tax, or $0.45 per share), second quarter 2001 net income
included a restructuring charge of $9 million ($6 million after-tax, or $0.09
per share), third quarter 2001 net income included a restructuring charge of
$(1) million ($(1) million after-tax, or $(0.02) per share), and fourth quarter
2001 net loss included a restructuring charge of $13 million ($10 million
after-tax, or $0.15 per share), a charge associated with an employee separation
agreement of $12 million ($8 million after-tax, or $0.12 per share), and a
charge of $5 million ($3 million after-tax, or $0.05 per share) for
environmental liability costs.
Earnings per share for the year may not equal the sum of the four fiscal
quarters earnings per share due to changes in basic and diluted shares
outstanding.
25. SUPPLEMENTAL FINANCIAL INFORMATION
<Table>
<Caption>
2002 2001 2000
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Statement of income data:
Maintenance and repairs expense.................... $103 $106 $ 86
Research, development and engineering expense...... 132 136 115
Rental expense..................................... 32 28 26
Statement of cash flows data:
Interest payments.................................. $104 $139 $ 95
Income tax payments................................ 58 79 100
</Table>
26. SUBSEQUENT EVENTS
On October 31, 2002, the company announced an agreement to sell its CVS
off-highway planetary axle business. The off-highway planetary axle business had
fiscal 2002 sales of approximately $90 million. Completion of the sale is
contingent on satisfaction of certain conditions and the company expects to
complete the transaction in the first half of fiscal 2003.
In 1998, the company acquired a 49-percent interest in a German joint
venture, Zeuna Starker GmbH & Co. KG, an air and emissions systems company.
Under the terms of the shareholders' agreement, the owners of the majority
interest in the joint venture have the right to exercise a put option to require
the company to purchase the remaining 51 percent. On December 17, 2002, the
majority shareholders exercised the put option, and the company entered into
agreements to purchase the remaining 51 percent interest for a purchase price of
approximately $75 million. The company expects to complete the transaction in
the second quarter of fiscal 2003.
65
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ARVINMERITOR.
See the information under the captions Election of Directors and
Information as to Nominees for Directors and Continuing Directors in the 2003
Proxy Statement. No nominee for director was selected pursuant to any
arrangement or understanding between the nominee and any person other than
ArvinMeritor pursuant to which such person is or was to be selected as a
director or nominee. There are no family relationships, as defined in Item 401
of Regulation S-K, between any of the directors or nominees for directors and
any other director, executive officer or person nominated to become a director
or executive officer. See also the information with respect to executive
officers of ArvinMeritor under Item 4a of Part I.
ITEM 11. EXECUTIVE COMPENSATION.
See the information under the captions Compensation of Directors, Executive
Compensation, Agreements with Named Executive Officers and Retirement Benefits
in the 2003 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information under the captions Voting Securities and Ownership by
Management of Equity Securities in the 2003 Proxy Statement.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The number of stock options outstanding under our equity compensation
plans, the weighted average exercise price of outstanding options, and the
number of securities remaining available for issuance, as of September 30, 2002,
were as follows:
<Table>
<Caption>
(COLUMN A) (COLUMN B) (COLUMN C)
NUMBER OF SECURITIES TO WEIGHTED AVERAGE NUMBER OF SECURITIES REMAINING
BE ISSUED UPON EXERCISE EXERCISE PRICE OF AVAILABLE FOR FUTURE ISSUANCE
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY COMPENSATION PLANS
PLAN CATEGORY WARRANTS AND RIGHTS(1) WARRANTS AND RIGHTS (EXCLUDING SECURITIES REFLECTED IN COLUMN A)
- ------------- ----------------------- -------------------- --------------------------------------------
<S> <C> <C> <C>
Equity compensation plans
approved by security
holders................ 4,075,551 $23.31 5,517,606
Equity compensation plans
not approved by
security holders(2).... 814,400 $22.41 358,766
---------- ------ ----------
Total.......... 4,889,951(3) $23.16(3) 5,876,372(4)
========== ====== ==========
</Table>
- ---------------
(1) In addition to stock options, as of September 30, 2002, an aggregate of
923,244 shares of Common Stock, restricted Common Stock, and deferred Common
Stock were outstanding under equity compensation plans approved by security
holders and 610,225 shares of restricted Common Stock were outstanding under
equity compensation plans not approved by security holders.
(2) All of our equity compensation plans except the Employee Stock Benefit Plan
were approved by the shareholders of either Arvin or Meritor. The Employee
Stock Benefit Plan was adopted by the Arvin board of directors in 1998 and
expires in 2008. It is intended to provide compensation arrangements that
66
<PAGE>
will attract, retain and reward key non-officer employees and to provide
these employees with a proprietary interest in the company. The Plan
provides for the issuance of incentive awards to non-officer employees in
the form of stock options, tandem or non-tandem stock appreciation rights,
restricted stock, performance shares or performance units. For further
information, see the Plan document, which is filed as Exhibit 10-i to this
Annual Report on Form 10-K, and Notes 17 and 18 of the Notes to Consolidated
Financial Statements under Item 8. Financial Statements and Supplementary
Data below.
(3) The table includes options granted under Arvin's 1988 Stock Benefit Plan,
1998 Stock Benefit Plan and Employee Stock Benefit Plan, which we assumed in
connection with the Merger. A total of 3,118,255 options issued under these
plans, with a weighted average exercise price of $28.10, were assumed at the
time of the Merger.
(4) The following number of shares remained available for issuance under each of
our equity compensation plans at September 30, 2002. Grants under these
plans may be in the form of any of the listed types of awards:
<Table>
<Caption>
NUMBER OF
PLAN SHARES TYPE OF AWARD
- ---- --------- -------------------------------------
<S> <C> <C>
1997 Long-Term Incentives Plan.... 4,862,707 Stock options, restricted stock,
non-tandem stock appreciation rights,
common stock
Incentive Compensation Plan....... 194,071 Common stock, restricted stock
Directors Stock Plan.............. 67,575 Stock options, common stock,
restricted stock
1998 Stock Benefit Plan........... 393,253 Stock options, restricted stock,
non-tandem stock appreciation rights,
performance shares, performance units
Employee Stock Benefit Plan....... 358,766 Stock options, restricted stock,
non-tandem stock appreciation rights,
performance shares, performance units
</Table>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. CONTROLS AND PROCEDURES.
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
within the 90 days prior to the date of this report, we carried out an
evaluation under the supervision and with the participation of ArvinMeritor's
management, including Larry D. Yost, Chairman of the Board and Chief Executive
Officer, and S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports we file or submit under the Securities Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There have been no
significant changes in ArvinMeritor's internal controls or in other factors that
could significantly affect these controls subsequent to the date of that
evaluation.
In connection with the rule, we currently are in the process of further
reviewing and documenting our disclosure controls and procedures, including our
internal controls and procedures for financial reporting, and
67
<PAGE>
may from time to time make changes aimed at enhancing their effectiveness and to
ensure that our systems evolve with the business.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements (all financial statements listed below are those
of the company and its consolidated subsidiaries):
Statement of Consolidated Income, years ended September 30, 2002, 2001 and
2000.
Consolidated Balance Sheet, September 30, 2002 and 2001.
Statement of Consolidated Cash Flows, years ended September 30, 2002, 2001
and 2000.
Statement of Consolidated Shareowners' Equity, years ended September 30,
2002, 2001 and 2000.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(2) Financial Statement Schedule for the years ended September 30, 2002,
2001 and 2000.
<Table>
<Caption>
PAGE
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts............ S-1
</Table>
Schedules not filed with this Annual Report on Form 10-K are omitted
because of the absence of conditions under which they are required or because
the information called for is shown in the financial statements or related
notes.
(3) Exhibits
<Table>
<S> <C>
3-a Restated Articles of Incorporation of ArvinMeritor, filed as
Exhibit 4.01 to ArvinMeritor's Registration Statement on
Form S-4, as amended (Registration Statement No. 333-36448)
("Form S-4") is incorporated by reference.
3-b By-laws of ArvinMeritor, filed as Exhibit 3 to
ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended April 1, 2001 (File No. 1-15983), is
incorporated by reference.
4-a Rights Agreement, dated as of July 3, 2000, between
ArvinMeritor and The Bank of New York (successor to
EquiServeTrust Company, N.A.), as rights agent, filed as
Exhibit 4.03 to the Form S-4, is incorporated by reference.
4-b Indenture, dated as of April 1, 1998, between ArvinMeritor
and BNY Midwest Trust Company (successor to The Chase
Manhattan Bank), as trustee, filed as Exhibit 4 to Meritor's
Registration Statement on Form S-3 (Registration No.
333-49777), is incorporated by reference.
4-b-1 First Supplemental Indenture, dated as of July 7, 2000, to
the Indenture, dated as of April 1, 1998, between
ArvinMeritor and BNY Midwest Trust Company (successor to The
Chase Manhattan Bank), as trustee, filed as Exhibit 4-b-1 to
ArvinMeritor's Annual Report on Form 10-K for the fiscal
year ended September 30, 2000 (File No. 1-15983) ("2000 Form
10-K"), is incorporated by reference.
4-c Indenture dated as of July 3, 1990, as supplemented by a
First Supplemental Indenture dated as of March 31, 1994,
between ArvinMeritor and Harris Trust and Savings Bank, as
trustee, filed as Exhibit 4-4 to Arvin's Registration
Statement on Form S-3 (Registration No. 33-53087), is
incorporated by reference.
4-c-1 Second Supplemental Indenture, dated as of July 7, 2000, to
the Indenture dated as of July 3, 1990, between ArvinMeritor
and Harris Trust and Savings Bank, as trustee, filed as
Exhibit 4-c-1 to the 2000 Form 10-K, is incorporated by
reference.
</Table>
68
<PAGE>
<Table>
<S> <C>
4-d Indenture, dated as of January 28, 1997, between
ArvinMeritor and Wilmington Trust Company, as trustee, filed
as Exhibit 4.4 to Arvin's Registration Statement on Form S-3
(Registration No. 333-18521), is incorporated by reference.
4-d-1 First Supplemental Indenture, dated as of January 28, 1997,
to Indenture dated as of January 28, 1997, between
ArvinMeritor and Wilmington Trust Company, as trustee, filed
as Exhibit 4.5 to Arvin's Current Report on Form 8-K dated
February 10, 1997 (File No. 1-302), is incorporated by
reference.
4-d-2 Second Supplemental Indenture, dated as of July 7, 2000, to
Indenture dated as of January 28, 1997, between ArvinMeritor
and Wilmington Trust Company, filed as Exhibit 4-d-2 to the
2000 Form 10-K, is incorporated by reference.
10-a-1 Amended and Restated Five-Year Revolving Credit Agreement
dated as of June 27, 2001, among ArvinMeritor, the foreign
subsidiary borrowers and lenders from time to time party to
the agreement, Bank One, NA, as Administrative Agent, JP
Morgan Chase Bank as Syndication Agent, and Citicorp USA,
Inc. and Bank of America, NA, as Documentation Agents, filed
as Exhibit 10-b to ArvinMeritor's Quarterly Report on Form
10-Q for the quarterly period ended July 1, 2001 (File No.
1-15983), is incorporated by reference.
10-a-2 Amendment No. 2, dated as of February 1, 2002, to Amended
and Restated Five-Year Revolving Credit Agreement, filed as
Exhibit 10a to ArvinMeritor's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2002 (File No.
1-15983), is incorporated by reference.
10-a-3 Amendment No. 3, dated as of June 26, 2002, to Amended and
Restated Five-Revolving Credit Agreement, filed as Exhibit
10a to ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002 (File No. 1-15983), is
incorporated by reference.
10-b 3-Year Credit Agreement dated as of June 26, 2002, among
ArvinMeritor, the lenders from time to time party to the
agreement, Bank One, NA, as Administrative Agent, JP Morgan
Chase Bank as Syndication Agent, and Deutsche Bank
Securities Inc., Citicorp USA, Inc., and UBS Warburg LLC, as
Documentation Agents, filed as Exhibit 10b to ArvinMeritor's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2002 (File No. 1-15983), is incorporated by
reference.
*10-c-1 1997 Long-Term Incentives Plan, as amended and restated.
*10-c-2 Form of Restricted Stock Agreement under the 1997 Long-Term
Incentives Plan, filed as Exhibit 10-a-2 to Meritor's Annual
Report on Form 10-K for the fiscal year ended September 30,
1997 ("1997 Form 10-K"), is incorporated by reference.
*10-c-3 Form of Option Agreement under the 1997 Long-Term Incentives
Plan, filed as Exhibit 10(a) to Meritor's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1998
(File No. 1-13093), is incorporated by reference.
*10-d-1 Directors Stock Plan, filed as Exhibit 10-b-1 to the 1997
Form 10-K, is incorporated by reference.
*10-d-2 Form of Restricted Stock Agreement under the Directors Stock
Plan, filed as Exhibit 10-b-2 to the 1997 Form 10-K, is
incorporated by reference.
*10-d-3 Form of Option Agreement under the Directors Stock Plan,
filed as Exhibit 10(b) to Meritor's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998 (File No.
1-13093), is incorporated by reference.
*10-e Incentive Compensation Plan, filed as Exhibit 10-c-1 to the
1997 Form 10-K, is incorporated by reference.
*10-f Copy of resolution of the Board of Directors of
ArvinMeritor, adopted on July 6, 2000, providing for its
Deferred Compensation Policy for Non-Employee Directors,
filed as Exhibit 10-f to the 2000 Form 10-K, is incorporated
by reference.
*10-g Deferred Compensation Plan, filed as Exhibit 10-e-1 to
Meritor's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998 (File No. 1-13093), is incorporated
by reference.
</Table>
69
<PAGE>
<Table>
<S> <C>
*10-h 1998 Stock Benefit Plan, as amended, filed as Exhibit (d)(2)
to ArvinMeritor's Schedule TO, Amendment No. 3 (File No.
5-61023), is incorporated by reference.
*10-i Employee Stock Benefit Plan, as amended, filed as Exhibit
(d)(3) to ArvinMeritor's Schedule TO, Amendment No. 3 (File
No. 5-61023), is incorporated by reference.
*10-j 1988 Stock Benefit Plan, as amended, filed as Exhibit 10 to
Arvin's Quarterly Report on Form 10-Q for the quarterly
period ended July 3, 1988, and as Exhibit 10(E) to Arvin's
Quarterly Report on Form 10-Q for the quarter ended July 4,
1993 (File No. 1-302), is incorporated by reference.
10-k Second Amended and Restated Receivables Sale Agreement,
dated as of September 26, 2002, among ArvinMeritor
Receivables Corporation, ArvinMeritor, Credit Lyonnais,
Bayerische Landesbank, New York Branch, ABN AMRO N.V., Giro
Balanced Funding Corporation, La Fayette Asset
Securitization LLC, Amsterdam Funding Corporation and the
other purchasers party thereto.
10-l Second Amendment to Restated Purchase and Sale Agreement,
dated as of September 26, 2002, among the originators named
therein and ArvinMeritor Receivables Corporation.
12 Computation of ratio of earnings to fixed charges.
21 List of subsidiaries of ArvinMeritor.
23-a Consent of M. Lee Murrah, Esq., Chief Intellectual Property
Counsel of ArvinMeritor.
23-b Consent of Vernon G. Baker, II, Esq., Senior Vice President
and General Counsel of ArvinMeritor.
23-c Independent auditors' consent.
24 Power of Attorney authorizing certain persons to sign this
Annual Report on Form 10-K on behalf of certain directors
and officers of ArvinMeritor.
99-a Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act.
99-b Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act.
</Table>
- ---------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
We filed a Current Report on Form 8-K on July 3, 2002, reporting under Item
5, Other Events and Regulation FD Disclosure, that ArvinMeritor issued and sold
in an underwritten public offering $200 million principal amount of its 6 5/8%
Notes due 2007 on July 1, 2002, and filing under Item 7, Financial Statements
and Exhibits, certain exhibits relating to the new series of notes.
We filed a Current Report on Form 8-K on August 6, 2002, reporting under
Item 5, Other Events and Regulation FD Disclosure, that on August 6, 2002 the
Chief Executive Officer and Chief Financial Officer of the company had filed
with the Securities and Exchange Commission the certifications required by Order
No. 4-460, and filing those certifications as exhibits under Item 7, Financial
Statements and Exhibits.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ VERNON G. BAKER, II
------------------------------------
Vernon G. Baker, II
Senior Vice President and General
Counsel
Date: December 17, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 17th day of December, 2002 by the following
persons on behalf of the registrant and in the capacities indicated.
<Table>
<C> <S>
Larry D. Yost* Chairman of the Board and Chief Executive
Officer (principal executive officer) and
Director
Terrence E. O'Rourke* President and Chief Operating Officer and
Director
Joseph B. Anderson, Jr., Directors
Steven C. Beering,
Rhonda L. Brooks, Joseph P. Flannery,
William D. George, Jr., Richard W. Hanselman,
Charles H. Harff, Victoria B. Jackson,
James E. Marley, James E. Perrella,
and Martin D. Walker*
S. Carl Soderstrom, Jr.* Senior Vice President and Chief Financial
Officer
(principal financial officer)
Diane S. Bullock * Vice President and Controller
(principal accounting officer)
*By: /s/ BONNIE WILKINSON
------------------------------------------------
Bonnie Wilkinson
Attorney-in-fact**
**By authority of powers of attorney filed herewith.
</Table>
71
<PAGE>
CERTIFICATIONS
I, Larry D. Yost, Chairman of the Board and Chief Executive Officer of
ArvinMeritor, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of ArvinMeritor, Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures 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 annual
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ LARRY D. YOST
--------------------------------------
Larry D. Yost,
Chairman of the Board and
Chief Executive Officer
Date: December 17, 2002
72
<PAGE>
I, S. Carl Soderstrom, Jr., Senior Vice President and Chief Financial
Officer of ArvinMeritor, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of ArvinMeritor, Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures 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 annual
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ S. CARL SODERSTROM, JR.
--------------------------------------
S. Carl Soderstrom, Jr.
Senior Vice President and Chief
Financial Officer
Date: December 17, 2002
73
<PAGE>
SCHEDULE II
ARVINMERITOR, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED SEPTEMBER 30, 2002, 2001, AND 2000
<Table>
<Caption>
BALANCE AT CHARGED BALANCE AT
BEGINNING TO COSTS OTHER END
DESCRIPTION OF YEAR(A) AND EXPENSES DEDUCTIONS OTHER OF YEAR(A)
----------- ---------- ------------ ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 2002:
Allowance for doubtful accounts........ $18.1 $ 9.3 $ 9.4(b) $ 0.1 $18.1
Year ended September 30, 2001:
Allowance for doubtful accounts........ $21.7 $10.2 $14.0(b) $ 0.2 $18.1
Year ended September 30, 2000:
Allowance for doubtful accounts........ $10.4 $ 2.8 $ 2.4(b) $10.9(c) $21.7
</Table>
- ---------------
(a) Includes allowances for trade and other long-term receivables.
(b) Uncollectible accounts written off.
(c) Includes increase in allowance of $11.9 million due to Merger.
S-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.C.1
<SEQUENCE>3
<FILENAME>y66532exv10wcw1.txt
<DESCRIPTION>1997 LONG-TERM INCENTIVES PLAN
<TEXT>
<PAGE>
Exhibit 10-c-1
ARVINMERITOR, INC.
1997 LONG-TERM INCENTIVES PLAN
(Amended and Restated as of July 6, 2000)
1. PURPOSE
The purpose of the 1997 Long-Term Incentives Plan is to foster creation of
and enhance ArvinMeritor, Inc. (ArvinMeritor) shareowner value by linking the
compensation of officers and other key employees of the Corporation to increases
in the price of ArvinMeritor stock or by offering the incentives of long-term
monetary rewards to key employees of ArvinMeritor or its business units directly
linked to their contribution to the creation of ArvinMeritor shareowner value,
thus providing means by which persons of outstanding abilities can be attracted,
motivated and retained.
2. DEFINITIONS
For the purpose of the Plan, the following terms shall have the meanings
set forth below:
(a) ArvinMeritor. ArvinMeritor, Inc. or its predecessor, Meritor
Automotive, Inc., as the context requires.
(b) Assumed Rockwell Options. Options granted under the Rockwell Plan on
or after December 9, 1996 to persons who were Employees (as herein defined) on
the Distribution Date which (i) by action of the board of directors of Rockwell
under Section 11 of the Rockwell Plan have been adjusted as of the Distribution
Date to entitle the grantee thereof to purchase Shares; (ii) as so adjusted,
have been assigned to ArvinMeritor; and (iii) by action of the Board of
Directors have been assumed by ArvinMeritor under Section 5 of this Plan.
(c) Board of Directors. The Board of Directors of ArvinMeritor.
(d) Committee. The Compensation and Management Development Committee
designated by the Board of Directors from among its members who are not eligible
to receive a Grant under the Plan.
(e) Corporation. ArvinMeritor and those of its subsidiary corporations or
affiliates designated by the Committee to participate in the Plan.
(f) Distribution Date. The date of the pro-rata distribution by Rockwell
to its shareowners of all the issued and outstanding stock of ArvinMeritor.
(g) Employees. Officers and other key employees of the Corporation, but
not directors who are not also employees of the Corporation.
1
<PAGE>
Exhibit 10-c-1
(h) Executive Officer. An Employee who is an executive officer of
ArvinMeritor as defined in Rule 3b-7 under the Securities Exchange Act of 1934,
as amended, or any successor provision.
(i) Fair Market Value. The closing price of Shares as reported in the New
York Stock Exchange--Composite Transactions on the date of a determination (or
on the next preceding day Shares were traded if not traded on the date of a
determination).
(j) Grant. A grant made pursuant to the Plan by the Grant Committee to an
Employee in the form of Options, Stock Appreciation Rights or Restricted Shares
or a grant made pursuant to the Rockwell Plan of Assumed Rockwell Options.
(k) Grant Committee. The Committee excluding those members of the
Committee who are not at the time any Grant is made 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.
(l) Option. An option to purchase Shares granted to an Employee by the
Grant Committee pursuant to Section 5 or 8 of the Plan or an Assumed Rockwell
Option.
(m) Participant. Any Employee to whom a Grant is made.
(n) Performance Cycle. Any period of three or more consecutive fiscal
years of ArvinMeritor established for ArvinMeritor or a designated business
component under a Performance Plan.
(o) Performance Measure. Criteria established to serve as a measure of
performance of ArvinMeritor or a designated business component during a
Performance Cycle under a Performance Plan.
(p) Performance Objectives. Levels of achievement, related to the
Performance Measure, established as goals for a Performance Cycle to be used in
determining whether and to what extent grants under a Performance Plan shall be
deemed to be earned.
(q) Performance Plan. A performance plan applicable to ArvinMeritor or one
or more business components of the Corporation authorized pursuant to Section 4
of the Plan.
(r) Plan. This 1997 Long-Term Incentives Plan.
(s) Restricted Period. The period (i) not less than three years or (ii)
until achievement of performance goals specified at the time of Grant by the
Grant Committee with respect to a Grant of Restricted Shares during which the
Shares are subject to forfeiture if the grantee does not continue as an
Employee.
2
<PAGE>
Exhibit 10-c-1
(t) Restricted Shares. Shares subject to conditions prescribed by the
Committee under Section 7 of the Plan.
(u) Rockwell. Rockwell International Corporation.
(v) Rockwell Plan. The 1995 Long-Term Incentives Plan of Rockwell
International Corporation.
(w) Section 162(m). Section 162(m) of the Internal Revenue Code, as
amended, or any successor provision.
(x) Shares. Shares of Common Stock of ArvinMeritor.
(y) Stock Appreciation Right. A right granted to an Employee by the Grant
Committee pursuant to Section 6 or 8 of the Plan (i) in conjunction with all or
any part of any Option, which entitles the Employee, upon exercise of such
right, to surrender such Option, or any part thereof, and to receive a payment
equal to the excess of the Fair Market Value, on the date of such exercise, of
the Shares covered by such Option, or part thereof, over the purchase price of
such Shares pursuant to the Option (a Tandem Stock Appreciation Right) or (ii)
separate and apart from any Option, which entitles the Employee, upon exercise
of such right, to receive a payment measured by the increase in the Fair Market
Value of a number of Shares designated by such right from the date of grant of
such right to the date on which the Employee exercises such right (a
Freestanding Stock Appreciation Right).
(z) Supplementary Stock Plan. A supplementary stock plan applicable to
Employees subject to the tax laws of one or more countries other than the United
States authorized pursuant to Section 8 of the Plan.
3. PLAN ADMINISTRATION
(a) The Grant Committee shall determine the Employees to whom Grants are
made, the number of Shares or Stock Appreciation Rights to be subject to each
Grant and the Restricted Period for any Grant of Restricted Shares.
(b) The Committee shall exercise all other responsibilities, powers and
authority relating to the administration of the Plan not reserved to the Board
of Directors.
(c) The Board of Directors reserves the right, in its sole discretion, to
exercise or authorize another committee or person to exercise some of or all the
responsibilities, powers and authority vested in the Committee and the Grant
Committee under the Plan.
(d) In making their determinations with respect to Grants under the Plan
or grants under any Performance Plan, the Grant Committee and the Committee may
consider recommendations of the Chief Executive Officer of ArvinMeritor and
shall take into
3
<PAGE>
Exhibit 10-c-1
account such factors as the Employee's level of responsibility, performance,
performance potential, level and type of compensation and potential value of
Grants.
4. PERFORMANCE PLANS
(a) The Committee may authorize Performance Plans applicable to
ArvinMeritor or one or more business components of the Corporation on such terms
and conditions, not inconsistent with the Plan, and applicable to such Employees
or categories of Employees as the Committee shall determine. In connection with
its authorization of any Performance Plan, the Committee may authorize
ArvinMeritor's Chief Executive Officer to approve the definitive terms and
conditions of that Performance Plan, including but not limited to the Employees
or categories of Employees to which that Performance Plan shall apply and the
committee or person who shall be delegated authority to administer that
Performance Plan, except that authorization by the Committee shall be required
for participation by any Executive Officer in any Performance Plan. Each
Performance Plan shall include provision for: (i) establishment of Performance
Cycles of not less than three consecutive fiscal years for ArvinMeritor (if a
Performance Plan applicable to it should be authorized), and each designated
business component, provided that no Performance Cycle shall begin later than
September 30, 2007 and only one Performance Cycle for ArvinMeritor or any
designated business component shall begin with any one fiscal year; (ii)
establishment of a Performance Measure and Performance Objectives for each
Performance Cycle established for ArvinMeritor and each designated business
component; and (iii) approval by the Committee of any grants thereunder to any
Executive Officer. In addition, a Performance Plan may but need not provide for
(x) grants under such Performance Plan with respect to a Performance Cycle to be
made at any time during the Performance Cycle, provided that any grant made
after the first fiscal year of the Performance Cycle shall provide for a
pro-rated award; (y) adjustment (up or down) of the Performance Objectives or
modification of the Performance Measure (or both) for a Performance Cycle for
ArvinMeritor or any designated business component if the Committee (or with the
Committee's approval, the committee or person delegated to administer the
Performance Plan except insofar as it relates to any Executive Officer)
determines that conditions, including but not limited to changes in the economy,
changes in laws or government regulations, changes in generally accepted
accounting principles, or acquisitions or dispositions determined by the
Committee to be material, so warrant; and (z) a Change-of-Control contingency
similar to Section 13(f) of the Plan.
(b) Potential awards granted to participating Employees under Performance
Plans shall be expressed as cash amounts (whether in currency or in units having
a currency equivalent) and shall be paid in accordance with determinations of
the Committee. Payments shall be in cash unless the Committee determines to make
payment to one or more named participating Employees in Shares (which may be
Restricted Shares) or a combination of cash and Shares. Any payment which is
made in cash may be made in a lump sum, in installments or on a deferred basis.
Any payment which is made in Shares shall be valued at the Fair Market Value on
the last trading day of the week preceding the day of the Committee's
determination to make payment in Shares. No award under a
4
<PAGE>
Exhibit 10-c-1
Performance Plan shall bear interest except as may be determined by the
Committee in respect of payments made in installments or on a deferred basis.
(c) If and to the extent an award under a Performance Plan for any
Performance Cycle becomes payable to a participating Employee whose compensation
is subject to the limitation on deductibility under Section 162(m) for the
applicable year and the amount of that award when combined with all base,
incentive or other compensation of such Employee for the applicable year which
constitutes "applicable employee remuneration," as defined for purposes of
Section 162(m), would exceed the limitation of Section 162(m)(1), the amount
payable pursuant to the Performance Plan in excess of that limitation, whether
payable in cash, Shares or a combination of both, may in the sole discretion of
the Grant Committee be deferred until and paid on the first business day of the
calendar year following the Corporation's fiscal year in which such Employee's
employment by the Corporation terminates. Any Shares to which a participating
Employee will become entitled in respect of a payment deferred pursuant to this
paragraph shall be held in book-entry accounts subject to the direction of
ArvinMeritor (or if ArvinMeritor elects, certificates therefor may be issued in
the Employee's name but delivered to and held by ArvinMeritor) and any dividends
that may be paid in cash or otherwise on those Shares shall be delivered to and
held by ArvinMeritor until the end of the period for which such payment is
deferred unless the Grant Committee determines at the time it determines to
defer any payment pursuant to this paragraph that the Employee shall be entitled
to receive when paid dividends on Shares the delivery of which has been so
deferred. At the end of the deferral period under this paragraph, the
restrictions on the book-entry accounts for those Shares shall be released (or
any certificates issued shall be delivered), and any dividends and any cash
payment deferred pursuant to this paragraph shall be delivered, to the Employee,
together with interest on the amount of any cash dividends and any such cash
payment so delivered computed at the same rate and in the same manner as
interest credited from time to time under ArvinMeritor's Deferred Compensation
Plan.
5. OPTIONS
As of the Distribution Date, the Assumed Rockwell Options are assumed by
ArvinMeritor as Options under this Plan with the terms and conditions specified
on the respective dates of grant thereof under the Rockwell Plan as adjusted
pursuant to Section 11 of the Rockwell Plan. Thereafter, the Grant Committee may
grant from time to time to Employees, Options which may be incentive stock
options (as defined in Section 422 of the Internal Revenue Code), nonqualified
stock options, or both, to purchase Shares on terms and conditions determined by
the Grant Committee, consistent with the provisions of the Plan, including the
following:
(a) The purchase price of the Shares subject to any Option shall not be
less than the Fair Market Value on the date the Option is granted.
(b) Each Option may be exercised in whole or in part from time to time
during such period as the Option shall specify; provided, however, that if the
Grant Committee
5
<PAGE>
Exhibit 10-c-1
does not establish a different exercise schedule at or before the date of grant
of an Option, the Option shall become exercisable in three approximately equal
installments on each of the first, second and third anniversaries of the date
the Option is granted; and provided, further, that no Option shall be
exercisable prior to one year (except as provided in Section 9(c) or 13(f)) nor
after ten years from the date of the grant thereof.
(c) Each Option may provide for related Stock Appreciation Rights. The
aggregate Fair Market Value (determined as of the date the Option is granted) of
the Shares for which any Employee may be granted incentive stock options which
are exercisable for the first time in any calendar year under all plans of the
Corporation and any parent or subsidiary of the Corporation shall not exceed
$100,000 (or such other amount as may be fixed as the maximum amount permitted
by Section 422(d) of the Internal Revenue Code, as amended, or any successor
provision). The Grant Committee shall grant incentive stock options only to
employees of ArvinMeritor or a corporation which is a subsidiary of ArvinMeritor
within the meaning of Section 425(f) of the Internal Revenue Code.
(d) The purchase price of the Shares with respect to which an Option or
portion thereof is exercised shall be payable in full in cash or in Shares or in
a combination of cash and Shares. The value of any Share delivered in payment of
the purchase price shall be its Fair Market Value on the date the Option is
exercised.
6. STOCK APPRECIATION RIGHTS
(a) The Grant Committee may grant Tandem Stock Appreciation Rights to an
Employee either at the time of grant of an Option or at any time thereafter
during the term of an Option. A Tandem Stock Appreciation Right shall be
exercisable only when and to the extent that the related Option is exercisable.
(b) The Grant Committee may grant from time to time to Employees,
Freestanding Stock Appreciation Rights on terms and conditions determined by the
Grant Committee, consistent with the provisions of the Plan.
(c) The payment to which the grantee of a Stock Appreciation Right is
entitled upon exercise thereof may be made in Shares valued at Fair Market Value
on the date of exercise, or in cash or partly in cash and partly in Shares, as
the Grant Committee may determine.
(d) Upon exercise of a Tandem Stock Appreciation Right and surrender of
the related Option or part thereof, such Option, to the extent surrendered,
shall not thereafter be exercisable, and the Shares covered by the surrendered
Option shall not again be available for Grants pursuant to the Plan, or awards
under a Performance Plan.
(e) Upon exercise of a Freestanding Stock Appreciation Right, any Shares
delivered in payment thereof shall not again be available for Grants pursuant to
the Plan, or awards under a Performance Plan.
6
<PAGE>
Exhibit 10-c-1
7. RESTRICTED SHARES
The Grant Committee may grant from time to time to Employees, Restricted
Shares on terms determined by the Grant Committee, consistent with the
provisions of the Plan, including the following:
(a) The Grant Committee shall specify a Restricted Period and may specify
performance or other criteria for each Grant of Restricted Shares, and the
Restricted Shares granted shall be forfeited if the grantee does not continue as
an Employee throughout the Restricted Period, or if and to the extent the
specified performance or other criteria are not met during the Restricted
Period, except as otherwise provided in Section 9(a), 9(b) or 13(f).
(b) Restricted Shares granted to an Employee shall have all the attributes
of outstanding Shares, except that the registered owner shall have no right to
direct the transfer thereof. Restricted Shares shall be held in book-entry
accounts subject to the direction of ArvinMeritor (or if ArvinMeritor elects,
certificates therefor may be issued in the Employee's name but delivered to and
held by ArvinMeritor), and, unless the Grant Committee determines otherwise at
time of grant, any dividends that may be paid in cash or otherwise on Restricted
Shares shall be delivered to and held by ArvinMeritor, so long as the Restricted
Shares remain subject to forfeiture. As and to the extent that Restricted Shares
are no longer subject to forfeiture, the Employee shall have the right to direct
the transfer thereof, the restrictions on the book-entry accounts for those
Restricted Shares shall be released, and certificates that may have been issued
for those Restricted Shares and any dividends thereon held by ArvinMeritor shall
be delivered to the Employee. There shall also be paid to the Employee at such
time interest on the amount of cash dividends so delivered computed at the same
rate and in the same manner as interest credited from time to time under
ArvinMeritor's Deferred Compensation Plan.
8. SUPPLEMENTARY STOCK PLANS
(a) The Committee may authorize Supplementary Stock Plans applicable to
Employees subject to the tax laws of one or more countries other than the United
States and providing for the grant of Options, Stock Appreciation Rights,
Restricted Shares or any combination thereof to such Employees on terms and
conditions, consistent with the Plan, determined by the Committee which may
differ from the terms and conditions of Grants pursuant to Sections 5, 6 and 7
of the Plan for the purpose of complying with the conditions for qualification
of Options, Stock Appreciation Rights or Restricted Shares for favorable
treatment under foreign tax laws.
(b) Notwithstanding any other provision hereof, Options granted under any
Supplementary Stock Plan shall include provisions that conform with Sections
5(a), (b), (c) and (e) and 6(d); Restricted Shares granted under any
Supplementary Stock Plan shall include provisions that conform with Sections
7(a) and (b); and subject to Section 3(c),
7
<PAGE>
Exhibit 10-c-1
only the Grant Committee shall have authority to grant Options, Stock
Appreciation Rights or Restricted Shares under any Supplementary Stock Plan.
9. EFFECT OF DEATH OR TERMINATION OF EMPLOYMENT
(a) If a participating Employee's employment by the Corporation terminates
prior to the end of a Performance Cycle under a Performance Plan or the
Restricted Period applicable to any Grant of Restricted Shares because of the
Employee's (i) death or (ii) retirement under a retirement plan of the
Corporation not less than one year after the beginning of that Performance Cycle
or the date of that Grant, the amount of the award under the Performance Plan or
the number of Restricted Shares such Employee shall be deemed to have earned
shall be the amount or number thereof determined as though such Employee's
employment had not terminated prior to the end of the Performance Cycle or
Restricted Period.
(b) If a participating Employee's employment by the Corporation terminates
prior to the end of a Performance Cycle under a Performance Plan or the
Restricted Period applicable to any Grant of Restricted Shares, for any reason
other than (i) death or (ii) retirement under a retirement plan of the
Corporation not less than one year after the beginning of that Performance Cycle
or the date of that Grant, such Employee shall be deemed not to have earned any
award for purposes of the Performance Plan or Restricted Shares except as and to
the extent the Committee (or with the Committee's approval, the committee or
person delegated to administer a Performance Plan except insofar as it relates
to any Executive Officer), taking into account the purpose of the Plan and such
other factors as in its sole discretion it deems appropriate, may determine,
provided that the amount of the award or the number of Restricted Shares which
may be so determined by the Committee to have been earned shall not exceed the
amount or number which would have been earned had the provisions of paragraph
(a) above been applicable.
(c) If the employment by the Corporation of a Participant who (or whose
permitted transferee) holds an outstanding Grant of Options or Stock
Appreciation Rights terminates by reason of the death of the Participant, the
Options or Stock Appreciation Rights subject to that Grant and not theretofore
exercised may be exercised from and after the date of the death of the
Participant for a period of three years (or until the expiration date specified
in the Grant if earlier) even if any of them was not exercisable at the date of
death.
(d) If a Participant who (or whose permitted transferee) holds an
outstanding Grant of Options or Stock Appreciation Rights retires under a
retirement plan of the Corporation, at any time after a portion of the Options
or Stock Appreciation Rights subject to a particular Grant has become
exercisable, the Options or Stock Appreciation Rights subject to that Grant and
not theretofore exercised may be exercised from and after the date upon which
they are first exercisable under that Grant for a period of five years from the
date of retirement (or until the expiration date specified in the Grant if
earlier) even if any of them was not exercisable at the date of retirement.
8
<PAGE>
Exhibit 10-c-1
(e) If the employment by the Corporation of a Participant who (or whose
permitted transferee) holds an outstanding Grant of Options or Stock
Appreciation Rights is terminated for any reason other than death or retirement
under a retirement plan of the Corporation, the Options or Stock Appreciation
Rights subject to that Grant and not theretofore exercised may be exercised only
within three months after the termination of such employment (or until the
expiration date specified in the Grant if earlier) and only to the extent the
grantee thereof (or a permitted transferee) was entitled to exercise the Options
or Stock Appreciation Rights at the time of termination of such employment,
unless and except to the extent the Committee may otherwise determine; provided,
however, that the Committee shall not in any event permit a longer period of
exercise than would have been applicable had the provisions of paragraph (d)
above been applicable.
10. SHARES AVAILABLE
(a) The total number of Shares which may be delivered in payment and upon
exercise of Grants and in payments of awards under Performance Plans shall not
exceed 9 million*, as adjusted from time to time as herein provided, and the
total number of Shares as to which Grants may be made in any one fiscal year of
ArvinMeritor beginning after September 30, 1998 shall not exceed 3%** of the
total number of Shares outstanding (including for this purpose Shares held in
Treasury) as of the date of determination. Shares which may be delivered in
payment or upon exercise of Grants or in payment of awards under Performance
Plans may consist in whole or in part of unissued or reacquired Shares;
provided, however, that unless otherwise determined by the Committee, Shares
which may be granted as Restricted Shares shall consist only of reacquired
Shares. Subject to Sections 6(d) and (e), if for any reason Shares as to which
an Option has been granted cease to be subject to purchase thereunder or Shares
granted as Restricted Shares are forfeited to the Corporation, then such Shares
shall again be available under the Plan.
(b) The total number of Shares subject to Options and Stock Appreciation
Rights granted to any one Employee in any one fiscal year of ArvinMeritor under
all plans of ArvinMeritor and any parent or subsidiary of ArvinMeritor shall in
no event exceed 500,000, as adjusted from time to time as herein provided.
(c) No Option, Freestanding Stock Appreciation Right or Restricted Shares
shall be granted under the Plan or any Supplementary Stock Plan after September
30, 2007, but Options or Stock Appreciation Rights and Restricted Shares granted
theretofore may extend beyond that date, and Tandem Stock Appreciation Rights
may be granted after that date with respect to Options outstanding on that date.
- --------
* Amended July 6, 2000 to increase the number of shares of Meritor Automotive,
Inc. common stock authorized for issuance under the plan from 7 million to 12
million shares. At the exchange ratio applicable upon the merger of Meritor
Automotive, Inc. and Arvin Industries, Inc., these shares were converted to 9
million shares of ArvinMeritor common stock.
** Amended July 6, 2000 to increase the annual limit to 3%. Previous limit for
any one fiscal year beginning after September 30, 1998 was 1-1/2% of the total
number of outstanding shares.
9
<PAGE>
Exhibit 10-c-1
11. ADJUSTMENTS
If there shall be any change in or affecting Shares on account of any
merger, consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split or combination, or other distribution to holders of Shares
(other than a cash dividend), there shall be made or taken such amendments to
the Plan and such adjustments and actions thereunder as the Board of Directors
may deem appropriate under the circumstances. Such amendments, adjustments and
actions may include, without limitation, changes in the number of Shares which
may be issued or transferred, in the aggregate or to any one Employee, pursuant
to the Plan, the number of Shares subject to outstanding Options and Stock
Appreciation Rights and the related price per share; provided, however, that no
such amendment, adjustment or action may change the limitation prescribed by
Section 10(b) to a number of Shares that is a greater proportion of the total
number of Shares outstanding and held in Treasury as of the effective date of
that amendment, adjustment or action than the proportion of the number of Shares
prescribed by Section 10(b) to the total number of Shares outstanding and held
in Treasury immediately prior thereto.
12. AMENDMENT AND TERMINATION
The Committee shall have the power in its discretion to amend, suspend or
terminate the Plan or Grants thereunder at any time except that, subject to the
provisions of Section 11, (a) without the consent of the person affected, no
such action shall cancel or reduce a Grant theretofore made other than as
provided for or contemplated in the agreement evidencing the Grant and (b)
without the approval of the shareowners of ArvinMeritor, the Committee may not
(i) change the class of persons eligible to receive incentive stock options,
(ii) increase the number of Shares provided in Section 10(a) or 10(b), (iii)
reduce the Option exercise price of any Option below the Fair Market Value on
the date such Option was granted or decrease the forfeiture period for any Grant
below that permitted under the Plan.
13. MISCELLANEOUS
(a) Except as determined by the Committee, no person shall have any claim
to receive a Grant or any payment under a Performance Plan, to receive payment
in respect of a Grant or under a Performance Plan in any form other than the
Committee shall approve or, in circumstances where Section 9 is applicable, to
be deemed to have earned any award under a Performance Plan or Restricted Shares
or to be entitled to exercise Options or Stock Appreciation Rights for any
particular period after termination of employment. There is no obligation for
uniformity of treatment of Employees under the Plan or any Performance Plan. No
Employee shall have any right as a Participant or a participant under any
Performance Plan to continue in the employ of the Corporation for any period of
time or to a continuation of any particular rate of compensation, and the
Corporation expressly reserves the right to discharge or change the assignment
of any Employee at any time.
10
<PAGE>
Exhibit 10-c-1
(b) No Option, Stock Appreciation Right or right related to Restricted
Shares granted pursuant to the Plan or right to payment of an award under any
Performance Plan may be assigned, pledged or transferred except (i) by will or
by the laws of descent and distribution; or (ii) in the case of any Grant (other
than an Option granted as an incentive stock option) or any right to payment of
an award under a Performance Plan, by gift to any member of the Employee's
immediate family or to a trust for the benefit of one or more members of the
Employee's immediate family, if permitted in the applicable agreement governing
that Grant or right to payment; or (iii) as otherwise determined by the
Committee. Each Option, Stock Appreciation Right or right related to Restricted
Shares shall be exercisable, and each payment of an award under a Performance
Plan shall be payable, during the lifetime of the Employee to whom granted or
awarded only by or to such Employee, and any payment of an award under a
Performance Plan made after the death of a participating Employee entitled
thereto shall be paid to the legal representative of the estate or to the
designated beneficiary of such Employee, unless in any such case, the Grant or
right to payment has been transferred in accordance with the provisions of the
applicable agreement governing that Grant or right to payment, to a member of
the Employee's immediate family or a trust for the benefit of one or more
members of the Employee's immediate family, in which case it shall be
exercisable or payable only by or to such transferee (or to the legal
representative of the estate or to the heirs or legatees of such transferee).
For purposes of this provision, an Employee's "immediate family" shall mean the
Employee's spouse and natural, adopted or step-children and grandchildren.
(c) No person shall have the rights or privileges of a shareowner with
respect to Shares subject to an Option or deliverable as a payment upon exercise
of a Stock Appreciation Right or under a Performance Plan until exercise of the
Option or Stock Appreciation Right or delivery as a payment under the
Performance Plan.
(d) No fractional Shares shall be issued or transferred pursuant to the
Plan. If the portion of any payment pursuant to the Plan or a Performance Plan
to be made in Shares is not equal to the value of a whole number of Shares, the
person entitled thereto shall be paid an amount equal to the Fair Market Value
as of the date of exercise of any fractional Share deliverable in respect of
exercise of a Stock Appreciation Right and the Fair Market Value as of the date
of payment of any fractional Share deliverable in respect of any payment under a
Performance Plan.
(e) The Corporation, the Board of Directors, the Committee, the Grant
Committee and the officers of ArvinMeritor shall be fully protected in relying
in good faith on the computations and reports made pursuant to or in connection
with the Plan by the independent certified public accountants who audit the
Corporation's accounts or others (who may include Employees) whose services are
used by the Board of Directors, Committee or Grant Committee in its
administration of the Plan.
(f) Notwithstanding any other provision of the Plan, if a Change of
Control (as defined in Article 8, Section 8.10(a) of ArvinMeritor's Amended
By-Laws) shall occur, then unless prior to the occurrence thereof, the Board of
Directors shall have determined
11
<PAGE>
Exhibit 10-c-1
otherwise by vote of at least two-thirds of its members, (i) all Performance
Cycles (except those under Performance Plans that do not provide for a
Change-of-Control contingency) not then complete shall be deemed completed
forthwith, the Performance Objectives therefor shall be deemed to have been
attained, and each participating Employee shall be deemed to have earned the
maximum amount that could have been earned thereunder; (ii) all Options and any
Stock Appreciation Rights then outstanding pursuant to the Plan shall forthwith
become fully exercisable whether or not otherwise then exercisable; and (iii)
the restrictions on all Restricted Shares granted under the Plan shall forthwith
lapse.
(g) The Corporation shall have the right in connection with the delivery
of any Shares in payment of a Grant or a payment under a Performance Plan or
upon exercise of an Option to require as a condition of such delivery that the
recipient represent that such Shares are being acquired for investment and not
with a view to the distribution thereof.
(h) The Corporation shall have the right in connection with any payment
under a Performance Plan, exercise of any Option or Stock Appreciation Right or
termination of the Restricted Period for any Restricted Shares, to deduct from
any such payment or any other payment by the Corporation, an amount equal to any
taxes required by law to be withheld with respect thereto or to require the
Employee or other person receiving such payment, effecting such exercise or
entitled to Shares and related payments on termination of such Restricted
Period, as a condition of and prior to such payment or exercise or delivery of
Shares on such termination, to pay to the Corporation an amount sufficient to
provide for any such taxes so required to be withheld.
(i) Unless otherwise determined by the Committee or provided in an
agreement between any Employee and the Corporation, for purposes of the Plan an
Employee on authorized leave of absence will be considered as being in the
employ of the Corporation.
(j) The Corporation shall bear all expenses and costs in connection with
the operation of the Plan, including costs related to the purchase, issue or
transfer of Shares, but excluding taxes imposed on any person receiving a
payment or delivery of Shares under the Plan or a Performance Plan.
14. INTERPRETATIONS AND DETERMINATIONS
The Committee shall have the power from time to time to interpret the
Plan, to adopt, amend and rescind rules, regulations and procedures relating to
the Plan, to make, amend and rescind determinations under the Plan and to take
all other actions that the Committee shall deem necessary or appropriate for the
implementation and administration of the Plan. 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.
12
<PAGE>
Exhibit 10-c-1
15. EFFECTIVE DATE
Upon approval by the shareowners of ArvinMeritor, the Plan shall become
effective as of September 30, 1997.
13
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.K
<SEQUENCE>4
<FILENAME>y66532exv10wk.txt
<DESCRIPTION>2ND AMENDED & RESTATED RECEIVABLES SALE AGREEMENT
<TEXT>
<PAGE>
Exhibit 10-k
================================================================================
SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
DATED AS OF SEPTEMBER 26, 2002
AMONG
ARVINMERITOR RECEIVABLES CORPORATION,
AS THE SELLER,
ARVINMERITOR, INC.,
AS THE INITIAL COLLECTION AGENT,
CREDIT LYONNAIS,
ACTING THROUGH ITS NEW YORK BRANCH,
AS THE AGENT AND AS A PURCHASER AGENT,
BAYERISCHE LANDESBANK, NEW YORK BRANCH,
AS A PURCHASER AGENT
ABN AMRO BANK N.V., AS A PURCHASER AGENT
THE OTHER PURCHASER AGENTS
FROM TIME TO TIME HERETO,
THE RELATED COMMITTED PURCHASERS
FROM TIME TO TIME PARTY HERETO,
GIRO BALANCED FUNDING CORPORATION,
AS A CONDUIT PURCHASER,
LA FAYETTE ASSET SECURITIZATION LLC,
AS A CONDUIT PURCHASER,
AMSTERDAM FUNDING CORPORATION,
AS A CONDUIT PURCHASER
AND
THE OTHER CONDUIT PURCHASERS
FROM TIME TO TIME PARTY HERETO
================================================================================
<PAGE>
Exhibit 10-k
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I PURCHASES FROM SELLER AND SETTLEMENTS..................................................1
Section 1.1. Sales..................................................................................1
Section 1.2. Interim Liquidations...................................................................4
Section 1.3. Selection of Discount Rates and Tranche Periods........................................4
Section 1.4. Fees and Other Costs and Expenses......................................................4
Section 1.5. Maintenance of Sold Interest; Deemed Collection........................................5
Section 1.6. Reduction in Commitments...............................................................5
Section 1.7. Repurchases............................................................................5
Section 1.8. Security Interest......................................................................6
ARTICLE II SALES TO AND FROM CONDUIT PURCHASERS; ALLOCATIONS......................................7
Section 2.1. Required Purchases from a Conduit Purchaser............................................7
Section 2.2. Purchases by a Conduit Purchaser.......................................................7
Section 2.3. Allocations and Distributions..........................................................7
ARTICLE III ADMINISTRATION AND COLLECTIONS.........................................................9
Section 3.1. Appointment of Collection Agent........................................................9
Section 3.2. Duties of Collection Agent............................................................10
Section 3.3. Reports...............................................................................10
Section 3.4. Lock-Box Arrangements.................................................................11
Section 3.5. Enforcement Rights....................................................................11
Section 3.6. Collection Agent Fee..................................................................11
Section 3.7. Responsibilities of the Seller........................................................12
Section 3.8. Actions by Seller.....................................................................12
Section 3.9. Indemnities by the Collection Agent...................................................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................13
Section 4.1. Representations and Warranties of the Seller..........................................13
Section 4.2. Representations and Warrants of the Initial Collection Agent..........................15
ARTICLE V COVENANTS.............................................................................17
Section 5.1. Covenants of the Seller...............................................................17
Section 5.2. Covenants of the Initial Collection Agent.............................................22
ARTICLE VI INDEMNIFICATION.......................................................................25
Section 6.1. Indemnities by the Seller.............................................................25
Section 6.2. Increased Cost and Reduced Return.....................................................27
Section 6.3. Other Costs and Expenses..............................................................27
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
Section 6.4. Withholding Taxes.....................................................................28
Section 6.5. Payments and Allocations..............................................................29
ARTICLE VII CONDITIONS PRECEDENT..................................................................29
Section 7.1. Conditions to Closing.................................................................29
Section 7.2. Conditions to Each Purchase...........................................................30
Section 7.3. Addition and Removal of Originators...................................................30
ARTICLE VIII THE AGENT.............................................................................32
Section 8.1. Appointment and Authorization.........................................................32
Section 8.2. Delegation of Duties..................................................................32
Section 8.3. Exculpatory Provisions................................................................32
Section 8.4. Reliance by Agent and Purchaser Agents................................................33
Section 8.5. Assumed Payments......................................................................33
Section 8.6. Notice of Termination Events..........................................................34
Section 8.7. Non-Reliance on Agent and Other Purchasers............................................34
Section 8.8. Agent, Purchaser Agents and Affiliates................................................34
Section 8.9. Indemnification.......................................................................35
Section 8.10. Successor Agent.......................................................................35
ARTICLE IX MISCELLANEOUS.........................................................................35
Section 9.1. Termination...........................................................................35
Section 9.2. Notices...............................................................................35
Section 9.3. Payments and Computations.............................................................36
Section 9.4. Sharing of Recoveries.................................................................36
Section 9.5. Right of Setoff.......................................................................37
Section 9.6. Amendments............................................................................37
Section 9.7. Waivers...............................................................................37
Section 9.8. Successors and Assigns; Participations; Assignments...................................38
Section 9.9. Waiver of Confidentiality.............................................................40
Section 9.10. Confidentiality of Agreement..........................................................40
Section 9.11. Agreement Not to Petition.............................................................40
Section 9.12. Excess Funds..........................................................................41
Section 9.13. No Recourse...........................................................................41
Section 9.14. Headings; Counterparts................................................................41
Section 9.15. Cumulative Rights and Severability....................................................41
Section 9.16. Governing Law; Submission to Jurisdiction.............................................42
Section 9.17. Waiver of Trial by Jury...............................................................42
Section 9.18. Intended Tax Characterization.........................................................42
Section 9.19. Entire Agreement......................................................................42
Section 9.20. Extensions of Scheduled Termination Date..............................................42
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SCHEDULES DESCRIPTION
Schedule I Definitions
Schedule II Purchasers
EXHIBITS DESCRIPTION
Exhibit A Form of Incremental Purchase Request
Exhibit B Form of Periodic Report
Exhibit C Addresses and Names of Seller and Originators
Exhibit D Lock-Boxes and Lock-Box Banks
Exhibit E Form of Lock-Box Letter
Exhibit F Form of Compliance Certificate
Exhibit G Credit and Collection Policy
Exhibit H Form of Amendment and Reaffirmation of Limited Guaranty
Exhibit I Form of Supplement to Schedules
</TABLE>
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Exhibit 10-k
SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
THIS SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT, dated as of
September 26, 2002, among ArvinMeritor Receivables Corporation, a Delaware
corporation (the "Seller"), ArvinMeritor, Inc., an Indiana corporation (the
"Initial Collection Agent," and, together with any successor thereto, the
"Collection Agent"), the Related Committed Purchasers party hereto (the "Related
Committed Purchasers"), Giro Balanced Funding Corporation ("GBFC"), La Fayette
Asset Securitization LLC ("La Fayette"), Amsterdam Funding Corporation
("Amsterdam"), the other Conduit Purchasers from time to time party hereto,
Credit Lyonnais, acting through its New York Branch, as agent for the Purchasers
(the "Agent") and as a Purchaser Agent, Bayerische Landesbank, New York Branch
("BLB"), as a Purchaser Agent, ABN AMRO Bank N.V. ("ABN AMRO"), as a Purchaser
Agent and the other Purchaser Agents from time to time to the party hereto.
Certain capitalized terms used herein, and certain rules of construction, are
defined in Schedule I.
PRELIMINARY STATEMENT
The Seller, Initial Collection Agent, Agent, BLB, Atlantic Asset
Securitization Corp. ("Atlantic"), GBFC, La Fayette, ABN AMRO, Amsterdam, and
certain related committed purchasers are parties to an Amended and Restated
Receivables Sale Agreement, dated as of September 27, 2001 (such Amended and
Restated Receivables Sale Agreement, as heretofore amended, being referred to
herein as the "Original Agreement"); and
Subject to and upon the terms and conditions set forth herein, the parties
desire to amend and restate the Original Agreement in the form of this Agreement
to, among other things, provide for the appointment of Credit Lyonnais, acting
through its New York Branch, as successor agent under this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and the other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
PURCHASES FROM SELLER AND SETTLEMENTS
Section 1.1. Sales. (a) The Sold Interest. Subject to the terms and
conditions hereof, the Seller may, from time to time before the Termination
Date, sell to the Conduit Purchasers or, only if a Conduit Purchaser declines to
make the applicable purchase, ratably to the Related Committed Purchasers for
such Conduit Purchaser, an undivided percentage ownership interest in the
Receivables, the Related Security and all related Collections. Any such purchase
(a "Purchase") shall be made by each relevant Purchaser remitting funds to the
Seller, through the
<PAGE>
Agent, pursuant to Section 1.1(c) or by the Collection Agent remitting
Collections to the Seller pursuant to Section 1.1(d). The aggregate percentage
ownership interest so acquired by a Purchaser in the Receivables, the Related
Security and related Collections (its "Purchase Interest") shall equal at any
time the sum of the following percentages:
I + PRP
-----
ER
where:
I = the outstanding Investment of such Purchaser at such time;
ER = the Eligible Receivables Balance at such time; and
PRP = the Purchaser Reserve Percentage at such time.
Except during a Liquidation Period for a Purchaser, such Purchaser's Purchase
Interest will change whenever its Investment, its Purchaser Reserve Percentage
or the Eligible Receivables Balance changes. During a Liquidation Period for a
Purchaser its Purchase Interest shall remain constant at the percentage in
effect as of the day immediately preceding the commencement of the relevant
Liquidation Period, except for redeterminations to reflect Investment acquired
from or transferred to another Purchaser under the Transfer Agreement. The sum
of all Purchasers' Purchase Interests at any time is referred to herein as the
"Sold Interest," which at any time is the aggregate percentage ownership
interest then held by the Purchasers in the Receivables, the Related Security
and Collections.
(b) Conduit Purchasers' Purchase Option and Committed Purchasers'
Commitments. Subject to Section 1.1(d) concerning Reinvestment Purchases, at no
time will a Conduit Purchaser have any obligation to make a Purchase. Each
Committed Purchaser severally hereby agrees, subject to Section 7.2 and the
other terms and conditions hereof, (including, in the case of an Incremental
Purchase (as defined below), that the related Conduit Purchaser has refused to
make a requested Purchase), to make Purchases before the Termination Date, based
on the applicable Purchaser Group's Ratable Share of each Purchase (and, in the
case of each Committed Purchaser, its Commitment Percentage of its Purchaser
Group's Ratable Share of such Purchase), to the extent its Investment would not
thereby exceed its Commitment and the Matured Aggregate Investment would not
thereby exceed the Aggregate Commitments. Each Purchaser's first Purchase and
each additional Purchase by such Purchaser not made from Collections pursuant to
Section 1.1(d) is referred to herein as an "Incremental Purchase." Each Purchase
made by a Purchaser with the proceeds of Collections in which it has a Purchase
Interest, which does not increase the outstanding Investment of such Purchaser,
is referred to herein as a "Reinvestment Purchase." All Purchases hereunder
shall be made ratably by each Purchaser Group in accordance with the Commitment
of such Purchaser Group.
(c) Incremental Purchases. In order to request an Incremental Purchase
from a Purchaser, the Seller must provide to the Agent and each Purchaser Agent
an irrevocable written request (including by telecopier or other facsimile
communication) substantially in the form of Exhibit A, by (i) 10:00 a.m. (New
York City time) three Business Days before the requested date
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(the "Purchase Date") of such Purchase, in the case of each Purchase by a
Conduit Purchaser and in the case of each Purchase by the Committed Purchasers
that is to accrue Discount at the Eurodollar Rate and (ii) 10:00 a.m. (New York
City time) one Business Day before the requested Purchase Date in the case of
each Purchase by the Committed Purchasers that is to accrue Discount at the
Prime Rate. Each such notice shall specify the requested Purchase Date (which
must be a Business Day) and the requested amount (the "Purchase Amount") of such
Purchase, which must be in a minimum amount of $1,000,000 and multiples thereof
(or, if less, an amount equal to the Maximum Incremental Purchase Amount). All
Incremental Purchases must be requested ratably from all Conduit Purchasers
unless upon such request, a Conduit Purchaser, in its sole discretion,
determines not to make its Ratable Share of the requested Purchase (which
determination shall be made within one Business Day after the Seller's request
for an Incremental Purchase), in which case the Seller may request such Ratable
Share of the Incremental Purchase be made by the Related Committed Purchasers of
such Conduit Purchaser on the originally requested Purchase Date. Each Purchaser
Agent shall promptly notify the related Purchasers from which a Purchase is
requested of the contents of such request. If a Ratable Share of an Incremental
Purchase is requested from a Conduit Purchaser and such Conduit Purchaser
determines, in its sole discretion, to make the requested Purchase, such Conduit
Purchaser shall transfer to the Agent's Account its Ratable Share of such
Incremental Purchase by no later than 12:00 noon (New York City time) on the
Purchase Date. If a Ratable Share of an Incremental Purchase is requested from
the Committed Purchasers for a Purchaser Group, subject to Section 7.2 and the
other terms and conditions hereof, each Committed Purchaser for a Purchaser
Group shall transfer the applicable Purchaser Group's Ratable Share of the
requested Purchase Amount (and, in the case of each Committed Purchaser, its
Commitment Percentage of its Purchaser Group's Ratable Share of such Purchase)
into the Agent's Account by no later than 12:00 noon (New York City time) on the
Purchase Date. The Agent shall transfer to the Seller Account the proceeds of
any Incremental Purchase delivered into the Agent's Account.
(d) Reinvestment Purchases. Unless a Conduit Purchaser has provided to the
Agent, its Purchaser Agent, the Seller, and the Collection Agent a notice (which
notice has not been revoked) that it no longer wishes to make Reinvestment
Purchases (in which case such Conduit Purchaser's Reinvestment Purchases, but
not those of its Related Committed Purchasers shall cease), on each day before
the Termination Date that any Collections are received by the Collection Agent
and no Interim Liquidation is in effect a Purchaser's Purchase Interest in such
Collections shall automatically be used to make a Reinvestment Purchase by such
Purchaser, but only to the extent such Reinvestment Purchase would not cause the
Purchaser's Investment to increase above the amount of such Investment at the
start of the day plus any Incremental Purchases made by the Purchaser on that
day. A Conduit Purchaser may revoke any notice provided under the first sentence
of this Section 1.1(d) by notifying the Agent, its Purchaser Agent, the Seller
and the Collection Agent that it will make Reinvestment Purchases.
(e) Assignments. Pursuant to the Original Agreement, the Purchaser Agents
(on behalf of the related Conduit Purchasers) have from time to time purchased
Receivables which are currently outstanding in the amount of $105,000,000. The
parties hereto are amending and restating the Original Agreement in order to
remove Atlantic as a Conduit Purchaser hereunder and ABN AMRO as the Agent.
Pursuant to the terms of a Transfer Supplement, Atlantic has
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sold and assigned to La Fayette, and La Fayette has purchased and assumed from
Atlantic a Purchased Interest in the Receivables which are held by Credit
Lyonnais for the benefit of Atlantic in the amount of $10,500,000 for La
Fayette. Amsterdam hereby sells and assigns to La Fayette, and La Fayette hereby
purchases and assumes from Amsterdam, a Purchased Interest in the Receivables
which are held by ABN AMRO for the benefit of Amsterdam in the amount of
$10,500,000 such that the Purchased Interests of La Fayette in Receivables which
are outstanding on the date hereof shall equal $42,000,000 and the Purchased
Interest of Amsterdam shall equal $31,500,000. Amsterdam represents and warrants
that it is the legal and beneficial owner of the Purchased Interest assigned by
it hereunder and that such Purchased Interest is free and clear of any Adverse
Claim created by ABN AMRO and/or Amsterdam.
Section 1.2. Interim Liquidations. (a) Optional. The Seller may at any
time direct that Reinvestment Purchases cease and that an Interim Liquidation
commence for all Purchasers by giving the Agent, each Purchaser Agent and the
Collection Agent at least three Business Days' prior written (including telecopy
or other facsimile communication) notice specifying the date on which the
Interim Liquidation shall commence and, if desired, when such Interim
Liquidation shall cease (identified as a specific date prior to the Termination
Date or as when the Aggregate Investment is reduced to a specified amount). If
the Seller does not so specify the date on which an Interim Liquidation shall
cease, it may cause such Interim Liquidation to cease at any time before the
Termination Date, subject to Section 1.2(b) below, by notifying the Agent, each
Purchaser Agent and the Collection Agent in writing (including by telecopy or
other facsimile communication) at least three Business Days before the date on
which it desires such Interim Liquidation to cease.
(b) Mandatory. If at any time before the Termination Date any condition in
Section 7.2 is not fulfilled, the Seller shall immediately notify the Agent,
each Purchaser Agent and the Collection Agent, whereupon Reinvestment Purchases
shall cease and an Interim Liquidation shall commence, which shall only cease
upon the Seller confirming to the Agent that the conditions in Section 7.2 are
fulfilled.
Section 1.3. Selection of Discount Rates and Tranche Periods. The Discount
Rates, Tranche Periods and related matters for all Investment of each Purchaser
Group shall be set forth in and governed by the terms of, the Rate Supplement
for such Purchaser Group. Each such Rate Supplement shall supplement this
Agreement with respect to the terms and provisions set forth therein.
Section 1.4. Fees and Other Costs and Expenses. (a) The Seller shall pay
to each Purchaser Agent for the benefit of its Purchaser Group, such amounts as
agreed to with the Seller in the Fee Letter for such Purchaser Group.
(b) Investment and Discount shall be payable solely from Collections and
from amounts payable under Sections 1.5, 1.7 and 6.1 (to the extent amounts paid
under Section 6.1 indemnify against reductions in or non-payment of
Receivables). The Seller shall pay, as a full recourse obligation, all other
amounts payable hereunder and under the Rate Supplements (other than Discount),
including, without limitation, fees described in the Fee Letters and amounts
payable under Article VI.
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<PAGE>
Section 1.5. Maintenance of Sold Interest; Deemed Collection. (a) General.
If at any time before the Termination Date the Eligible Receivables Balance is
less than the sum of the Aggregate Investment (or, if a Termination Event
exists, the Matured Aggregate Investment) plus the Total Reserve, the Seller
shall immediately pay to the Agent an amount equal to such deficiency for
application to reduce the Investments of the Purchasers ratably in accordance
with the principal amount of their respective Investments, applied with respect
to each such Purchaser first to such Purchaser's Prime Tranches, if any, and
second to the other Tranches applicable to the Investment of such Purchaser with
the shortest remaining maturities unless otherwise specified by the Seller.
(b) Deemed Collections. If on any day the outstanding balance of a
Receivable is reduced or cancelled as a result of any defective or rejected
goods or services, any cash discount or adjustment (including any adjustment
resulting from the application of any special refund or other discounts or any
reconciliation), any setoff or credit (whether such claim or credit arises out
of the same, a related, or an unrelated transaction) or any other reason other
than the financial inability of the Obligor to pay undisputed indebtedness, the
Seller shall be deemed to have received on such day a Collection on such
Receivable in the amount of such reduction or cancellation. If on any day any
representation, warranty, covenant or other agreement of the Seller related to a
Receivable is not true or is not satisfied, the Seller shall be deemed to have
received on such day a Collection in the amount of the outstanding balance of
such Receivable. All such Collections deemed received by the Seller under this
Section 1.5(b) shall be remitted by the Seller to the Collection Agent in
accordance with Section 5.1(i).
(c) Adjustment to Sold Interest. At any time before the Termination Date
that the Seller is deemed to have received any Collection under Section 1.5(b)
("Deemed Collections") that derives from a Receivable that is otherwise reported
as an Eligible Receivable, so long as no Liquidation Period then exists, the
Seller may satisfy its obligations to deliver such amount to the Collection
Agent by instead notifying the Agent that the Sold Interest should be
recalculated by decreasing the Eligible Receivables Balance by the amount of
such Deemed Collections, so long as such adjustment does not cause the Sold
Interest to exceed 100%.
(d) Payment Assumption. Unless an Obligor otherwise specifies or another
application is required by contract or law, any payment received by the Seller
from any Obligor shall be applied as a Collection of Receivables of such Obligor
(starting with the oldest such Receivable) and remitted to the Collection Agent
as such.
Section 1.6. Reduction in Commitments. The Seller may, upon thirty days'
notice to the Agent and each Purchaser Agent, reduce the Aggregate Commitment in
increments of $1,000,000, so long as the Aggregate Commitment as so reduced is
no less than the Matured Aggregate Investment. Each such reduction in the
Aggregate Commitment shall reduce the Commitment of each Purchaser Group in
accordance with its Ratable Share (and, in the case of each Committed Purchaser,
its Commitment in accordance with its Commitment Percentage of its Purchaser
Group's Ratable Share of such reduction).
Section 1.7. Optional Repurchases. At any time that the Aggregate
Investment is less than 10% of the Aggregate Commitment in effect on the date
hereof, the Seller may, upon thirty
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days' notice to the Agent and each Purchaser Agent, repurchase the entire Sold
Interest from the Purchasers at a price equal to the outstanding Matured
Aggregate Investment and all other amounts then owed hereunder.
Section 1.8. Security Interest. (a) The Seller hereby grants to the Agent,
for its own benefit and for the ratable benefit of the Purchaser Agents and
Purchasers, a security interest in all Receivables, Related Security,
Collections and Lock-Box Accounts to secure the payment of all amounts other
than Investment owing hereunder and (to the extent of the Sold Interest) to
secure the repayment of all Investment.
(b) The Seller hereby assigns and otherwise transfers to the Agent (for
the benefit of the Agent, each Purchaser Agent, each Purchaser and any other
Person to whom any amount is owed hereunder), all of the Seller's right, title
and interest in, to and under the Purchase Agreement. The Seller shall execute,
file and record all financing statements, continuation statements and other
documents required to perfect or protect such assignment. This assignment
includes (a) all monies due and to become due to the Seller from the Originators
under or in connection with the Purchase Agreement (including fees, expenses,
costs, indemnities and damages for the breach of any obligation or
representation related to such agreements) and (b) all rights, remedies, powers,
privileges and claims of the Seller against the Originators under or in
connection with the Purchase Agreement. All provisions of the Purchase Agreement
shall inure to the benefit of, and may be relied upon by, the Agent, each
Purchaser Agent, each Purchaser and each such other Person. At any time that a
Termination Event has occurred and is continuing, the Agent shall have the sole
right to enforce the Seller's rights and remedies under the Purchase Agreement
to the same extent as the Seller could absent this assignment, but without any
obligation on the part of the Agent, any Purchaser Agent, any Purchaser or any
other such Person to perform any of the obligations of the Seller under the
Purchase Agreement (or the promissory note executed thereunder). All amounts
distributed to the Seller under the Purchase Agreement from Receivables sold to
the Seller thereunder shall constitute Collections hereunder and shall be
applied in accordance herewith.
(c) This agreement shall be a security agreement for purposes of the UCC.
Upon the occurrence of a Termination Event, the Agent shall have all rights and
remedies provided under the UCC as in effect in all applicable jurisdictions.
(d) ABN AMRO as the prior Agent under the Original Agreement (the "Prior
Agent") hereby assigns and transfers to Credit Lyonnais as the Agent under this
Agreement all of its right, title and interest in, to and under the liens and
security interests granted to ABN AMRO as the Prior Agent pursuant to Section
1.8 of the Original Agreement and all financing statements filed in connection
therewith, all without recourse, representation and warranty of any nature
whatsoever.
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<PAGE>
ARTICLE II
SALES TO AND FROM CONDUIT PURCHASERS; ALLOCATIONS
Section 2.1. Required Purchases from a Conduit Purchaser. (a) Each Conduit
Purchaser may, at any time, sell to its Related Committed Purchasers pursuant to
the relevant Transfer Agreement any percentage designated by such Conduit
Purchaser of such Conduit Purchaser's Investment and its related Conduit
Purchaser Settlement (each, a "Put").
(b) Any portion of any Investment of a Conduit Purchaser and related
Conduit Purchaser Settlement purchased by a Committed Purchaser shall be
considered part of such Committed Purchaser's Investment and related Conduit
Purchaser Settlement from the date of the relevant Put. Immediately upon any
purchase by a Committed Purchaser of any portion of the relevant Conduit
Purchaser's Investment, the Seller shall pay to the relevant Purchaser Agent
(for the ratable benefit of each such Purchaser) an amount equal to the sum of
(i) the Assigned Settlement and (ii) all unpaid Discount owed to such Conduit
Purchaser (whether or not then due) to the end of each applicable Tranche Period
to which any Investment being Put has been allocated, (iii) all accrued but
unpaid fees (whether or not then due) payable to such Conduit Purchaser in
connection herewith at the time of such purchase and (iv) all accrued and unpaid
costs, expenses and indemnities due to such Conduit Purchaser from the Seller in
connection herewith.
Section 2.2. Purchases by a Conduit Purchaser. Each Conduit Purchaser may
at any time deliver to its Purchaser Agent and each of its Related Committed
Purchasers a notification of assignment in substantially the form provided by
the relevant Transfer Agreement. If a Conduit Purchaser delivers such notice,
each of its Related Committed Purchasers shall sell to such Conduit Purchaser
and such Conduit Purchaser shall purchase in full from each such Related
Committed Purchasers, the Investment of such Related Committed Purchasers on the
last day of the relevant Tranche Periods, at a purchase price equal to such
Investment plus accrued and unpaid Discount thereon. Any sale from any Related
Committed Purchaser to the relevant Conduit Purchaser pursuant to this Section
2.2 shall be without recourse, representation or warranty except for the
representation and warranty that the Investment sold by such Related Committed
Purchaser is free and clear of any Adverse Claim created or granted by such
Related Committed Purchaser and that such Related Committed Purchaser has not
suffered a Bankruptcy Event.
Section 2.3. Allocations and Distributions. (a) Non-Reinvestment Periods.
Before the Termination Date unless an Interim Liquidation is in effect, on each
day during a period that a Conduit Purchaser is not making Reinvestment
Purchases (as established under Section 1.1(d)), the Collection Agent (i) shall
set aside and hold in trust solely for the benefit of the applicable Conduit
Purchaser (or deliver to the applicable Purchaser Agent, if so instructed
pursuant to Section 3.2(a)) such Conduit Purchaser's Purchase Interest in all
Collections received on such day and (ii) shall distribute on the last day of
each CP Tranche Period to the applicable Purchaser Agent (for the benefit of
such Conduit Purchaser) the amounts so set aside up to the amount of such
Conduit Purchaser's Purchase Interest and, to the extent not already paid in
full, all Discount thereon and all other amounts then due from the Seller in
connection with such
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Purchase Interest and Tranche Period. If any part of the Sold Interest in any
Collections is applied to pay any such amounts pursuant to this Section 2.3(a)
and after giving effect to such application the Sold Interest is greater than
100%, the Seller shall pay for distribution as part of the Sold Interest in
Collections, to the Collection Agent the amount so applied to the extent
necessary so that after giving effect to such payment the Sold Interest is no
greater than 100%.
(b) Termination Date and Interim Liquidations. On each day during any
Interim Liquidation and on each day on and after the Termination Date, the
Collection Agent shall set aside and hold solely for the account of each
Purchaser Agent, for the benefit of each Purchaser Group to the extent provided
below, (or deliver to each Purchaser Agent, if so instructed pursuant to Section
3.2(a)) and for the account of the Agent, all Collections received on such day
and such Collections shall be allocated as follows:
(i) first, to the Collection Agent until all amounts owed to the
Collection Agent under the Agreement have been paid in full;
(ii) second, ratably to each Purchaser Group until all Investment
of, and Discount and interest due but not already paid to, each Purchaser
Group has been paid in full;
(iii) third, ratably to such Purchaser Group until all other amounts
owed to such Purchaser Group under the Transaction Documents have been
paid in full;
(iv) fourth, to the Agent until all amounts owed to the Agent (other
than amounts owing the Agent in its role as a Purchaser Agent) have been
paid in full;
(v) fifth, to each Purchaser Agent until all amounts owed to the
Purchaser Agents under the Transaction Documents have been paid in full;
(vi) sixth, to any other Person to whom any amounts are owed under
the Transaction Documents until all such amounts have been paid in full;
and
(vii) seventh, to the Seller (or as otherwise required by applicable
law).
Unless an Interim Liquidation has ended by such date (in which case Reinvestment
Purchases shall resume to the extent provided in Section 1.1(d)), on the last
day of each Tranche Period (unless otherwise instructed by a Purchaser Agent
pursuant to Section 3.2(a)), the Collection Agent shall pay to the appropriate
parties, from such set aside Collections, all amounts allocated to such Tranche
Period and all Tranche Periods that ended before such date that are due in
accordance with the priorities in clauses (ii) and (iii) above. No distributions
shall be made to pay amounts under clauses (iv), (v), (vi) and (vii) above until
sufficient Collections have been set aside to pay all amounts described in
clauses (ii) and (iii) that may become payable for all outstanding Tranche
Periods. All distributions by the Agent shall be made ratably within each
priority level in accordance with the respective amounts then due each Person
included in such level unless otherwise agreed by all Purchaser Agents. If any
part of the Sold Interest in any Collections is applied to pay any amounts,
payable hereunder that are obligations of the Seller
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pursuant to Section 1.4(b) and after giving effect to such application the Sold
Interest is greater than 100%, the Seller shall pay for distribution in respect
of each applicable Purchaser's Investment as part of the Sold Interest in
Collections, to the Collection Agent the amount so applied to the extent
necessary so that after giving effect to such payment the Sold Interest is no
greater than 100%.
ARTICLE III
ADMINISTRATION AND COLLECTIONS
Section 3.1. Appointment of Collection Agent. (a) The servicing,
administering and collecting of the Receivables shall be conducted by a Person
(the "Collection Agent") designated to so act on behalf of the Purchasers under
this Article III. As the Initial Collection Agent, the Parent is hereby
designated as, and agrees to perform the duties and obligations of, the
Collection Agent. The Initial Collection Agent acknowledges that the Agent, each
Purchaser Agent, and each Purchaser have relied on the Initial Collection
Agent's agreement to act as Collection Agent (and the agreement of any of the
sub-collection agents to so act) in making the decision to execute and deliver
this Agreement and agrees that it will not voluntarily resign as Collection
Agent nor permit any sub-collection agent to voluntarily resign as a
sub-collection agent. At any time after the occurrence and during the
continuance of a Termination Event, the Agent may designate a new Collection
Agent to succeed the Initial Collection Agent (or any successor Collection
Agent).
(b) The Initial Collection Agent may (with prior written notice to the
Agent), and if requested by the Agent shall, delegate its duties and obligations
as Collection Agent to an Affiliate of the Initial Collection Agent (acting as a
sub-collection agent). The Initial Collection Agent shall delegate certain
duties with respect to Receivables originated by such respective Originator to
that respective Originator pursuant to the terms of the Letter Agreement.
Notwithstanding such delegation, the Initial Collection Agent shall remain
primarily liable for the performance of the duties and obligations so delegated,
and the Agent, each Purchaser Agent and each Purchaser shall have the right to
look solely to the Initial Collection Agent for such performance. The Agent may
at any time remove or replace any sub-collection agent.
(c) If replaced, the Collection Agent agrees it will terminate, and will
cause each existing sub-collection agent to terminate, its collection activities
in a manner requested by the Agent to facilitate the transition to a new
Collection Agent. The Collection Agent shall cooperate with and assist any new
Collection Agent (including providing access to, and transferring, all Records
and allowing (to the extent permitted by applicable law and contract) the new
Collection Agent to use all licenses, hardware or software necessary or
desirable to collect the Receivables). The Initial Collection Agent irrevocably
agrees to act (if requested to do so) as the data-processing agent for any new
Collection Agent (in substantially the same manner as the Initial Collection
Agent conducted such data-processing functions while it acted as the Collection
Agent).
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Section 3.2. Duties of Collection Agent. (a) The Collection Agent shall
take, or cause to be taken, all action necessary or advisable to collect each
Receivable in accordance with this Agreement, the Credit and Collection Policy
and all applicable laws, rules and regulations using the skill and attention the
Collection Agent exercises in collecting other receivables or obligations owed
solely to it. The Collection Agent shall, in accordance herewith, set aside all
Collections to which a Purchaser is entitled and pay from such Collections all
Discount and the fees set forth in the Fee Letters when due. If so instructed by
the Agent, the Collection Agent shall transfer to the Agent the amount of
Collections to which the Agent, each Purchaser Agent and the Purchasers are
entitled by the Business Day following receipt. Each party hereto hereby
appoints the Collection Agent to enforce such Person's rights and interests in
the Receivables, but (notwithstanding any other provision in any Transaction
Document) the Agent shall at all times have the sole right to direct the
Collection Agent to commence or settle any legal action to enforce collection of
any Receivable.
(b) If no Termination Event exists and the Collection Agent determines
that such action is appropriate in order to maximize the Collections, the
Collection Agent may, in accordance with the applicable Credit and Collection
Policy, extend the maturity of any Receivable, and extend the maturity or adjust
the outstanding balance of any Defaulted Receivables as the Collection Agent may
determine to be appropriate to maximize collections thereof; provided, however,
that if a Termination Event has occurred the Collection Agent may make such
extension or adjustment only upon written approval of the Agent. Any such
extension or adjustment shall not alter the status of a Receivable as a
Defaulted Receivable, affect the computation of the Delinquency Ratio or limit
any rights of the Agent or the Purchasers hereunder. If a Termination Event
exists, the Collection Agent may make such extensions or adjustments only with
the prior consent of the Instructing Group.
(c) The Collection Agent shall turn over to the Seller (i) any percentage
of Collections in excess of the Sold Interest, less all reasonable costs and
expenses of the Collection Agent for servicing, collecting and administering the
Receivables and (ii) subject to Section 1.5(d), the collections and records for
any indebtedness owed to the Seller that is not a Receivable. The Collection
Agent shall have no obligation to remit any such funds or records to the Seller
until the Collection Agent receives evidence (satisfactory to the Agent) that
the Seller is entitled to such items. The Collection Agent has no obligations
concerning indebtedness that is not a Receivable other than to deliver the
collections and records for such indebtedness to the Seller when required by
this Section 3.2(c).
Section 3.3. Reports. On or before the 25th day of each month, and, after
the occurrence and during the continuance of a Termination Event, at such other
times covering such other periods as is requested by the Agent or the
Instructing Group, the Collection Agent shall deliver to the Agent and each
Purchaser Agent a report reflecting information as of the close of business of
the Collection Agent for the immediately preceding calendar month or such other
preceding period as is requested (each a "Periodic Report"), containing the
information described on Exhibit B (with such modifications or additional
information as requested by the Agent or the Instructing Group); provided,
however, if the Parent's long-term unsecured debt rating from both Moody's and
S&P is less than Baa3 and BBB-, the Collection Agent shall deliver the Periodic
Report to the Agent and each Purchaser Agent on or before Wednesday of each week
for the
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immediately preceding calendar week; provided, further, however, if the Parent's
long-term unsecured debt rating is less than "Ba2" from Moody's or less than
"BB" from S&P, respectively, the Collection Agent shall deliver the Periodic
Report to the Agent and each Purchaser Agent on each Business Day.
Section 3.4. Lock-Box Arrangements. The Agent is hereby authorized to give
notice at any time to any or all Lock-Box Banks that the Agent is exercising its
rights under the Lock-Box Letters and to take all actions permitted under the
Lock-Box Letters. The Seller agrees to take any action requested by the Agent to
facilitate the foregoing. After the Agent takes any such action under the
Lock-Box Letters, the Seller shall immediately deliver to the Agent any
Collections received by the Seller. If the Agent takes control of any Lock-Box
Account, the Agent shall distribute Collections it receives in accordance
herewith and shall deliver to the Collection Agent, for distribution under
Section 3.2, all other amounts it receives from such Lock-Box Account.
Section 3.5. Enforcement Rights. (a) The Agent may, at any time, direct
the Obligors and the Lock-Box Banks to make all payments on the Receivables
directly to the Agent or its designee. The Agent may, and the Seller shall at
the Agent's request, withhold the identity of the Purchasers from the Obligors
and Lock-Box Banks. Upon the Agent's request and only after a Potential
Termination Event, the Seller (at the Seller's expense) shall (i) give notice to
each Obligor of the Purchasers' ownership of the Sold Interest and direct that
payments on Receivables be made directly to the Agent or its designee, (ii)
assemble for the Agent all Records and collateral security for the Receivables
and the Related Security and transfer to the Agent (or its designee), or (to the
extent permitted by applicable law and contract) license to the Agent (or its
designee) the use of, all software useful to collect the Receivables and (iii)
segregate in a manner acceptable to the Agent all Collections the Seller
receives and, promptly upon receipt, remit such Collections in the form
received, duly endorsed or with duly executed instruments of transfer, to the
Agent or its designee.
(b) The Seller hereby irrevocably appoints the Agent as its
attorney-in-fact coupled with an interest, with full power of substitution and
with full authority in the place of the Seller, to take any and all steps deemed
desirable by the Agent, in the name and on behalf of the Seller to (i) collect
any amounts due under any Receivable, including endorsing the name of the Seller
on checks and other instruments representing Collections and enforcing such
Receivables and the Related Security, and (ii) exercise any and all of the
Seller's rights and remedies under the Purchase Agreement. The Agent's powers
under this Section 3.5(b) shall not subject the Agent to any liability if any
action taken by it proves to be inadequate or invalid, nor shall such powers
confer any obligation whatsoever upon the Agent.
(c) None of the Agent, any Purchaser Agent or any Purchaser shall have any
obligation to take or consent to any action to realize upon any Receivable or
Related Security or to enforce any rights or remedies related thereto.
Section 3.6. Collection Agent Fee. On or before the 25th day of each
calendar month, the Seller shall pay to the Collection Agent a fee for the
immediately preceding calendar month as compensation for its services (the
"Collection Agent Fee") equal to (a) at all times the Initial
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Collection Agent or an Affiliate of the Initial Collection Agent is the
Collection Agent, the Seller Servicing Fee, the sufficiency of which is hereby
acknowledged, and (b) at all times any other Person is the Collection Agent, the
Outside Servicing Fee. The Agent may, with the consent of the Instructing Group,
pay the Collection Agent Fee to the Collection Agent from the Sold Interest in
Collections. The Seller shall be obligated to reimburse any such payment to the
extent required by Section 1.5 or 2.3.
Section 3.7. Responsibilities of the Seller. The Seller shall pay when due
all Taxes payable in connection with the Receivables and the Related Security or
their creation or satisfaction. The Seller shall cause each Originator to
perform all of its obligations under agreements related to the Receivables and
the Related Security to the same extent as if interests in the Receivables and
the Related Security had not been transferred hereunder or under the Purchase
Agreement. The Agent's or any Purchaser's exercise of any rights hereunder shall
not relieve the Seller or an Originator from such obligations. None of the
Agent, any Purchaser Agent or any Purchaser shall have any obligation to perform
any obligation of the Seller or an Originator or any other obligation or
liability in connection with the Receivables or the Related Security.
Section 3.8. Actions by Seller. If any goods related to a Receivable are
repossessed, the Seller agrees to resell, or to have the related Originator or
another Affiliate resell, such goods in a commercially reasonable manner for the
account of the Agent and remit, or have remitted, to the Agent the Purchasers'
share in the gross sale proceeds thereof net of any out-of-pocket expenses and
any equity of redemption of the Obligor thereon. Any such moneys collected by
the Seller or the related Originator or other Affiliate of the Seller pursuant
to this Section 3.8 shall be segregated and held in trust for the Agent and
remitted to the Agent's Account within one Business Day of receipt as part of
the Sold Interest in Collections for application as provided herein.
Section 3.9. Indemnities by the Collection Agent. Without limiting any
other rights any Person may have hereunder or under applicable law, the
Collection Agent hereby indemnifies and holds harmless the Agent, each Purchaser
Agent and each Purchaser and their respective officers, directors, agents and
employees (each a "Collection Agent Indemnified Party") from and against any and
all damages, losses, claims, liabilities, penalties, Taxes, costs and expenses
(including reasonable attorneys' fees and court costs) (all of the foregoing
collectively, the "Collection Agent Indemnified Losses") at any time imposed on
or incurred by any Collection Agent Indemnified Party arising out of or
otherwise relating to:
(i) any representation or warranty made by, on behalf of or in
respect of, the Collection Agent in this Agreement, any other Transaction
Document, any Periodic Report or any other information or report delivered
by the Collection Agent pursuant hereto, which shall have been false or
incorrect in any material respect when made;
(ii) the failure by the Collection Agent to comply with any
applicable law, rule or regulation related to any Receivable or the
Related Security;
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(iii) any loss of a perfected security interest (or in the priority
of such security interest) as a result of any commingling by the
Collection Agent of funds to which the Agent, any Purchaser Agent or any
Purchaser is entitled hereunder with any other funds;
(iv) the imposition of any Adverse Claim with respect to any
Receivable, Related Security or Lock-Box Account as a result of any action
taken by the Collection Agent; or
(v) any failure of the Collection Agent to perform its duties or
obligations in accordance with the provisions of this Agreement
(including, without limitation, compliance with the Credit and Collection
Policy) or any other Transaction Document to which the Collection Agent is
a party;
whether arising by reason of the acts to be performed by the Collection Agent
hereunder or otherwise, excluding only Collection Agent Indemnified Losses to
the extent (a) a final judgment of a court of competent jurisdiction determined
that such Collection Agent Indemnified Losses resulted from gross negligence or
willful misconduct of the Collection Agent Indemnified Party seeking
indemnification, (b) solely due to the credit risk of the Obligor and for which
reimbursement would constitute recourse to the Collection Agent for uncollected
or uncollectible Receivables, or (c) such Collection Agent Indemnified Losses
include Taxes on, or measured by, the overall net income of the Agent or any
Purchaser computed in accordance with the Intended Tax Characterization;
provided, however, that nothing contained in this sentence shall limit the
liability of the Collection Agent or limit the recourse of the Agent, any
Purchaser Agent and each Purchaser to the Collection Agent for any amounts
otherwise specifically provided to be paid by the Collection Agent hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Representations and Warranties of the Seller. The Seller
represents and warrants to the Agent, each Purchaser Agent and each Purchaser
that:
(a) Corporate Existence and Power. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and in each jurisdiction in which the conduct of its
business requires that it be qualified to do business in such jurisdiction
and has all corporate power and authority and all governmental licenses,
authorizations, consents and approvals required to carry on its business
in each jurisdiction in which its business is now conducted, except where
failure to obtain such license, authorization, consent or approval would
not have a material adverse effect on (i) its ability to perform its
obligations under, or the enforceability of, any Transaction Document,
(ii) its business or financial condition, (iii) the interests of the
Agent, any Purchaser Agent or any Purchaser under any Transaction Document
or (iv) the enforceability or collectibility of any material portion of
the Receivables.
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(b) Corporate Authorization and No Contravention. The execution,
delivery and performance by the Seller of each Transaction Document to
which it is a party (i) are within its corporate powers, (ii) have been
duly authorized by all necessary corporate action, (iii) do not contravene
or constitute a default under (A) any applicable law, rule or regulation,
(B) its charter or by-laws or (C) any agreement, order or other instrument
to which it is a party or its property is subject and (iv) will not result
in any Adverse Claim on any Receivable, the Related Security or
Collections (other than the Sold Interest) or give cause for the
acceleration of any indebtedness of the Seller.
(c) No Consent Required. No approval, authorization or other action
by, or filings with, any Governmental Authority or other Person is
required in connection with the execution, delivery and performance by the
Seller of any Transaction Document or any transaction contemplated
thereby.
(d) Binding Effect. Each Transaction Document to which the Seller is
a party constitutes the legal, valid and binding obligation of the Seller
enforceable against it in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting the enforcement of creditor's rights generally.
(e) Perfection of Ownership Interest. The Seller owns the
Receivables free of any Adverse Claim other than the interests of the
Agent, the Purchaser Agent and the Purchasers therein that are created
hereby, and each Purchaser shall at all times have a valid undivided
percentage ownership interest, which shall be a first priority perfected
security interest for purposes of Article 9 of the applicable Uniform
Commercial Code, in the Receivables, the Related Security and Collections
to the extent of its Purchase Interest then in effect.
(f) Accuracy of Information. All written information furnished by
the Seller to the Agent, any Purchaser Agent or any Purchaser in
connection with any Transaction Document, or any transaction contemplated
thereby, is true and accurate in all material respects as of the date of
such information or the date furnished, as applicable (and is not
incomplete by omitting any information necessary to prevent such
information from being materially misleading as of the date of such
information or the date furnished, as applicable).
(g) No Actions, Suits. There are no actions, suits or other
proceedings (including matters relating to environmental liability)
pending or threatened against or affecting the Seller or any of its
properties, that (i) if adversely determined (individually or in the
aggregate), may have a material adverse effect on the financial condition
of the Seller or on the collectibility of the Receivables or (ii) involve
any Transaction Document or any transaction contemplated thereby. The
Seller is not in default of any contractual obligation or in violation of
any order, rule or regulation of any Governmental Authority, which default
or violation may have a material adverse effect upon (i) the financial
condition of the Seller or (ii) the collectibility of the Receivables.
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(h) No Material Adverse Change. Since the date of its formation
there has been no material adverse change in the collectibility of the
Receivables or the Seller's (i) financial condition, business, operations
or prospects or (ii) ability to perform its obligations under any
Transaction Document.
(i) Accuracy of Exhibits; Lock-Box Arrangements. All information on
Exhibits C-D (listing offices and states of organization of the Seller and
the Originators and where they maintain Records; and Lock-Boxes) is true
and complete, subject to any changes permitted by, and notified to the
Agent in accordance with, Article V. The Seller has not granted any
interest in any Lock-Box or Lock-Box Account to any Person other than the
Agent and, upon execution and delivery of the Lock-Box Agreements and
delivery to a Lock-Box Bank of the related Lock-Box Letter, the Seller
will have title to each Lock-Box Account and the Agent will have exclusive
ownership and control of the Lock-Box Account at such Lock-Box Bank.
(j) Sales by an Originator. Each sale by each Originator to the
Seller of an interest in Receivables originated by such Originator and
Collections thereof has been made in accordance with the terms of the
Purchase Agreement, including the payment by the Seller to such Originator
of the purchase price described in the Purchase Agreement. Each such sale
has been made for "reasonably equivalent value" (as such term is used in
Section 548 of the Bankruptcy Code) and not for or on account of
"antecedent debt" (as such term is used in Section 547 of the Bankruptcy
Code) owed by such Originator to the Seller.
(k) No Potential Termination Event. No Potential Termination Event
has occurred and is continuing.
(l) Eligible Receivables. Each Receivable included in the Eligible
Receivables Balance as an Eligible Receivable on the date of any Purchase
or Incremental Purchase or listed as such on a Periodic Report is an
Eligible Receivable.
(m) Underwriting/Collection Practices. To the extent that the
Initial Collection Agent is the Collection Agent and the Originators are
sub-collection agents, it has complied with the Credit and Collection
Policy in all material respects, and such policy has not changed in any
material respect since the date hereof.
Section 4.2. Representations and Warrants of the Initial Collection Agent.
The Initial Collection Agent represents and warrants to the Agent, each
Purchaser Agent and each Purchaser that:
(a) Corporate Existence and Power. The Initial Collection Agent is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Indiana and in each jurisdiction in which the
conduct of its business requires that it be qualified to do business in
such jurisdiction and has all corporate power and authority and all
governmental licenses, authorizations, consents and approvals required to
carry on its business in each jurisdiction in which its business is now
conducted, except
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where failure to obtain such license, authorization, consent or approval
would not have a material adverse effect on (i) its ability to perform its
obligations under, or the enforceability of, any Transaction Document,
(ii) its business or financial condition, (iii) the interests of the
Agent, any Purchaser Agent or any Purchaser under any Transaction Document
or (iv) the enforceability or collectibility of any material portion of
the Receivables.
(b) Corporate Authorization and No Contravention. The execution,
delivery and performance by the Initial Collection Agent of each
Transaction Document to which it is a party (i) are within its corporate
powers, (ii) have been duly authorized by all necessary corporate action,
(iii) do not contravene or constitute a default under (A) any applicable
law, rule or regulation, (B) its charter or by-laws or (C) any agreement,
order or other instrument to which it is a party or its property is
subject where the contravention or default would have a material adverse
effect on (w) its ability to perform its obligations under, or the
enforceability of, any Transaction Document, (x) its business or financial
condition, (y) the interests of the Agent, any Purchaser Agent or any
Purchaser under any Transaction Document or (z) the enforceability or
collectibility of any material portion of the Receivables and (iv) will
not result in any Adverse Claim on any Receivable, the Related Security or
Collections other than the Sold Interest or give cause for the
acceleration of any indebtedness of the Initial Collection Agent.
(c) No Consent Required. No approval, authorization or other action
by, or filings with, any Governmental Authority or other Person is
required in connection with the execution, delivery and performance by the
Initial Collection Agent of any Transaction Document or any transaction
contemplated thereby.
(d) Binding Effect. Each Transaction Document to which the Initial
Collection Agent is a party constitutes the legal, valid and binding
obligation of the Initial Collection Agent enforceable against it in
accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditor's rights generally.
(e) Accuracy of Information. All written information furnished by
the Initial Collection Agent to the Agent, any Purchaser Agent or any
Purchaser in connection with any Transaction Document, or any transaction
contemplated thereby, is true and accurate in all material respects as of
the date of such information or the date furnished, as applicable (and is
not incomplete by omitting any information necessary to prevent such
information from being materially misleading as of the date of such
information or the date furnished, as applicable).
(f) No Actions, Suits. There are no actions, suits or other
proceedings (including matters relating to environmental liability)
pending or threatened against or affecting the Initial Collection Agent,
or any of its properties, that (i) if adversely determined (individually
or in the aggregate), is likely to have a material adverse effect on the
financial condition of the Initial Collection Agent and its Subsidiaries,
taken as whole, or on the collectibility of the Receivables or (ii)
involve any Transaction
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Document or any transaction contemplated thereby. The Initial Collection
Agent is not in default of any contractual obligation or in violation of
any order, rule or regulation of any Governmental Authority, which default
or violation is likely to have a material adverse effect upon (i) the
financial condition of the Initial Collection Agent and its Subsidiaries,
taken as whole, or (ii) the collectibility of the Receivables.
(g) No Material Adverse Change. Since December 31, 2001, there has
been no material adverse change in the collectibility of the Receivables
or the Initial Collection Agent's (i) financial condition, business,
operations or prospects other than as publicly disclosed prior to the date
hereof or (ii) ability to perform its obligations under any Transaction
Document.
(h) Accuracy of Exhibits; Lock-Box Arrangements. All information on
Exhibits C-D (listing offices of the Initial Collection Agent and the
Originators and where they maintain Records; and Lock-Boxes) is true and
complete, subject to any changes permitted by, and notified to the Agent
in accordance with, Article V.
(i) No Potential Termination Event. No Potential Termination Event
has occurred and is continuing.
(j) Underwriting/Collection Practices. To the extent that the
Initial Collection Agent is the Collection Agent and the Originators are
sub-collection agents, it has complied with the Credit and Collection
Policy in all material respects, and such policy has not changed in any
material respect since the date hereof.
ARTICLE V
COVENANTS
Section 5.1. Covenants of the Seller. The Seller hereby covenants and
agrees to comply with the following covenants and agreements, unless the Agent
(with the consent of the Instructing Group) shall otherwise consent:
(a) Financial Reporting. The Seller will maintain a system of
accounting established and administered in accordance with GAAP and will
furnish to the Agent, each Purchaser Agent and each Purchaser:
(i) Annual Financial Statements. Within 120 days after each
fiscal year of the Seller copies of its annual balance sheet (and an
annual profit and loss statement), certified by a Designated
Financial Officer thereof, prepared on a consolidated basis in
conformity with GAAP;
(ii) Quarterly Financial Statements. Within 60 days after each
(except the last) fiscal quarter of each fiscal year of the Seller,
copies of its quarterly balance sheet (and a profit and loss
statement) for the period from the beginning
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of the fiscal year to the close of such quarter), certified by a
Designated Financial Officer and prepared in a manner consistent
with the financial statements described in clause (i) of this
Section 5.l(a);
(iii) Officer's Certificate. Each time financial statements
are furnished pursuant to clause (i) or (ii) of Section 5.1(a), a
compliance certificate (in substantially the form of Exhibit F)
signed by a Designated Financial Officer, dated the date of such
financial statements;
(iv) Public Reports. Promptly upon becoming available, a copy
of each report or proxy statement filed by the Parent with the
Securities and Exchange Commission or any securities exchange; and
(v) Other Information. With reasonable promptness, such other
information (including non-financial information) respecting the
Receivables or the conditions and operations, financial or
otherwise, of the Seller and any Seller Entity as the Agent or any
Purchaser Agent from time to time reasonably may request in order to
protect the interests of the Agent or Committed Purchasers under
this Agreement.
(b) Notices. As soon as possible and in any event within 5 Business
Days of becoming actually aware of any of the following the Seller will
notify the Agent and each Purchaser Agent and provide a description of:
(i) Potential Termination Events. The occurrence of any
Potential Termination Event;
(ii) Downgrading. The downgrading, withdrawal or suspension of
any rating by any rating agency of any indebtedness of any Special
Obligor or of the Parent; or
(iii) Further Information. Any other information that the
Parent is required to deliver pursuant to the Credit Agreement at
the same time the Parent delivers such information to the required
parties pursuant to the Credit Agreement.
(c) Conduct of Business. The Seller will perform all actions
necessary to remain duly incorporated, validly existing and in good
standing in its jurisdiction of incorporation and to maintain all
requisite authority to conduct its business in each jurisdiction in which
it conducts business.
(d) Compliance with Laws. The Seller will comply with all laws,
regulations, judgments and other directions or orders imposed by any
Governmental Authority to which it or any Receivable, any Related Security
or Collection may be subject.
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(e) Furnishing Information and Inspection of Records. The Seller
will furnish to the Agent, the Purchaser Agents and the Purchasers such
information concerning the Receivables and the Related Security as the
Agent, a Purchaser Agent or a Purchaser may request. The Seller will, and
will cause each Originator to, permit, at any time during regular business
hours upon reasonable notice to the Seller, the Agent, any Purchaser (or
any representatives thereof) (i) to examine and make copies of all
Records, (ii) to visit the offices and properties of the Seller and each
Originator for the purpose of examining the Records and (iii) to discuss
matters relating hereto with any of the Seller's or such Originator's
officers, directors, employees or independent public accountants having
knowledge of such matters. No more than once a calendar year or any time
after the occurrence of a Termination Event, the Agent may (at the expense
of the Seller) or at any time (at the expense of the Purchasers) have an
independent public accounting firm conduct an audit of the Records or make
test verifications of the Receivables and Collections.
(f) Keeping Records. (i) The Seller will, and will cause each
Originator to, have and maintain (A) administrative and operating
procedures (including an ability to recreate Records if originals are
destroyed), (B) adequate facilities, personnel and equipment and (C) all
Records and other information necessary or advisable for collecting the
Receivables (including Records adequate to permit the immediate
identification of each new Receivable and all Collections of, and
adjustments to, each existing Receivable). The Seller will give the Agent
prior notice of any material change in such administrative and operating
procedures.
(ii) The Seller will, (A) at all times from and after the date
hereof, clearly and conspicuously mark its computer and master data
processing books and records with a legend describing the Agent's and the
Purchasers' interest in the Receivables and the Collections and (B) upon
the request of the Agent, so mark each contract relating to a Receivable
and deliver to the Agent all such contracts (including all multiple
originals of such contracts), with any appropriate endorsement or
assignment, or segregate (from all other receivables then owned or being
serviced by the Seller) the Receivables and all contracts relating to each
Receivable and hold in trust and safely keep such contracts so legended in
separate filing cabinets or other suitable containers at such locations as
the Agent may specify.
(g) Perfection. (i) The Seller will, and will cause each Originator
to, at its expense, promptly execute and deliver all instruments and
documents and take all action necessary or requested by the Agent
(including the execution and filing of financing or continuation
statements, amendments thereto or assignments thereof) to enable the Agent
to exercise and enforce all its rights hereunder and to vest and maintain
vested in the Agent a valid, first priority perfected security interest in
the Receivables, the Collections, the Related Security, the Purchase
Agreement, the Lock-Box Accounts and proceeds thereof free and clear of
any Adverse Claim other than the Seller's interest therein (and a
perfected ownership interest in the Receivables, Related Security and
Collections to the extent of the Sold Interest). The Agent will be
permitted to sign and file any continuation
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statements, amendments thereto and assignments thereof without the
Seller's signature, but shall provide prompt notice to the Seller of any
such filing.
(ii) The Seller will only change its name, identity or corporate
structure or relocate its state of organization or its chief executive
office or the Records following notice to the Agent and the delivery to
the Agent of all financing statements, instruments and other documents
(including direction letters) requested by the Agent.
(iii) The Seller will at all times maintain its chief executive
offices within a jurisdiction in the USA (other than in the states of
Alabama, Florida, Maryland and Tennessee) in which Article 9 of the UCC is
in effect. If the Seller or an Originator moves its chief executive office
to a location that imposes Taxes, fees or other charges to perfect the
Agent's and the Purchasers' interests hereunder or the Seller's interests
under the Purchase Agreement, the Seller will pay all such amounts and any
other costs and expenses incurred in order to maintain the enforceability
of the Transaction Documents, the Sold Interest and the interests of the
Agent, the Purchaser Agents and the Purchasers in the Receivables, the
Related Security, Collections, Purchase Agreement and Lock-Box Accounts.
(h) Performance of Duties. The Seller will perform its duties or
obligations in accordance with the provisions of each of the Transaction
Documents. The Seller (at its expense) will (i) fully and timely perform
in all material respects all agreements required to be observed by it in
connection with each Receivable, (ii) comply in all material respects with
the Credit and Collection Policy, and (iii) refrain from any action that
may impair the rights of the Agent, the Purchaser Agents or the Purchasers
in the Receivables, the Related Security, Collections, Purchase Agreement
or Lock-Box Accounts.
(i) Payments on Receivables, Lock-Box Accounts. The Seller will, and
will cause each Originator to, at all times instruct all Obligors to
deliver payments on the Receivables (including Deemed Collections) to a
Lock-Box or Lock-Box Account and will not change any such instructions
without the prior written consent of the Agent. If any such payments or
other Collections are received by the Seller, it shall hold such payments
in trust for the benefit of the Agent, the Purchaser Agents and the
Purchasers and promptly (but in any event within two Business Days after
receipt) remit such funds into a Lock-Box Account. The Seller will cause
each Lock-Box Bank to comply with the terms of each applicable Lock-Box
Letter. The Seller will only permit Collections to be deposited into any
Lock-Box Account. If such funds are nevertheless deposited into any
Lock-Box Account, the Seller will promptly identify and separate such
funds for segregation. The Seller will not, and will not permit any
Collection Agent or other Person to, commingle Collections or other funds
to which the Agent or any Purchaser is entitled with any other funds
(other than funds of Affiliates of the Seller in concentration accounts).
The Seller shall only add a Lock-Box Bank, Lock-Box, or Lock-Box Account
to those listed on Exhibit D if the Agent has received notice of and has
consented to such addition, a copy of any new Lock-Box Agreement and an
executed and acknowledged copy of a Lock-Box Letter substantially in the
form of Exhibit E (with such changes as are acceptable to the Agent) from
any new Lock-Box Bank. The Seller shall only
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terminate a Lock-Box Bank or Lock-Box, or close a Lock-Box Account, upon
30 days advance notice to the Agent.
(j) Sales and Adverse Claims Relating to Receivables or Related
Security. Except as otherwise provided herein, the Seller will not (by
operation of law or otherwise), dispose of or otherwise transfer, or
create or suffer to exist any Adverse Claim upon, any Receivables, Related
Security or any proceeds thereof.
(k) Extension or Amendment of Receivables. Except as otherwise
permitted in Section 3.2(b) and then subject to Section 1.5, the Seller
will not extend, amend, rescind or cancel any Receivable.
(l) Change in Credit and Collection Policy. The Seller will not make
any change in its Credit and Collection Policy which change would impair
the collectibility of any Receivable.
(m) Accounting for Sale. The Seller will not, account for, or
otherwise treat, the transactions contemplated hereby other than as a sale
of Receivables or inconsistent with the Purchasers' ownership interests in
the Receivables, Related Security and Collections.
(n) Certain Agreements. Except as otherwise permitted by this
Agreement, the Seller will not amend, modify, waive, revoke or terminate
any Transaction Document to which it is a party or any provision of
Seller's certificate of incorporation or by-laws.
(o) Other Business. The Seller will not: (i) engage in any business
other than the transactions contemplated by the Transaction Documents,
(ii) create, incur or permit to exist any Debt of any kind (or cause or
permit to be issued for its account any letters of credit or bankers'
acceptances) other than pursuant to this Agreement and the Subordinated
Notes, or (iii) form any Subsidiary or make any investments in any other
Person; provided, however, that the Seller shall be permitted to incur
minimal obligations to the extent necessary for the day-to-day operations
of the Seller (such as expenses for stationery, audits, maintenance of
legal status, etc.).
(p) Net Worth. The Seller shall not, as of the last day of each
calendar quarter, permit Net Worth to be less than $9,000,000.
(q) Nonconsolidation. The Seller will operate in such a manner that
the separate corporate existence of the Seller and each Seller Entity and
Affiliate thereof would not be disregarded in the event of the bankruptcy
or insolvency of any Seller Entity and Affiliate thereof and, without
limiting the generality of the foregoing:
(i) the Seller will not engage in any activity other than
those activities expressly permitted under the Seller's
organizational documents and the Transaction Documents, nor will the
Seller enter into any agreement other than this Agreement, the other
Transaction Documents to which it is a party and, with
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the prior written consent of the Agent, any other agreement
necessary to carry out more effectively the provisions and purposes
hereof or thereof;
(ii) the Seller will cause the financial statements and books
and records of the Seller and each Seller Entity to reflect the
separate corporate existence of the Seller;
(iii) except as otherwise expressly permitted hereunder, under
the other Transaction Documents and under the Seller's
organizational documents, the Seller will not permit any Seller
Entity or Affiliate thereof to (A) pay the Seller's expenses, (B)
guarantee the Seller's obligations, or (C) advance funds to the
Seller for the payment of expenses or otherwise;
(iv) the Seller will not act as agent for any Seller Entity or
Affiliate, but instead will present itself to the public as a
corporation separate from each such Person and independently engaged
in the business of purchasing and financing Receivables; and
(v) the Seller will always have an independent director on its
Board of Directors.
(r) Lock-Box Letters. Not later than October 25, 2002 the Seller
shall deliver to the Agent fully executed Lock-Box Letters with respect to
each Lock-Box set forth on Exhibit D hereto.
Section 5.2. Covenants of the Initial Collection Agent. The Initial
Collection Agent hereby covenants and agrees to comply with the following
covenants and agreements, unless the Agent (with the consent of the Instructing
Group) shall otherwise consent:
(a) Financial Reporting. The Initial Collection Agent will maintain
a system of accounting established and administered in accordance with
GAAP and will furnish to the Agent, each Purchaser Agent and each
Purchaser:
(i) Annual Financial Statements. Within 120 days after each
fiscal year of the Parent copies of its annual audited financial
statements (including a consolidated balance sheet, consolidated
statement of income and retained earnings and statement of cash
flows, with related footnotes) certified by Deloitte & Touche, LLP
or another firm of independent certified public accountants of
nationally recognized standing (which accountants shall have
acknowledged the reliance of the Agent, the Purchaser Agents and the
Purchasers on the financial statements audited by such accountants)
and prepared on a consolidated basis in conformity with GAAP;
(ii) Quarterly Financial Statements. Within 60 days after each
(except the last) fiscal quarter of each fiscal year of the Parent,
copies of its unaudited financial statements (including at least a
consolidated balance sheet as of the close
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of such quarter and statements of earnings and sources and
applications of funds for the period from the beginning of the
fiscal year to the close of such quarter) certified by a Designated
Financial Officer and prepared in a manner consistent with the
financial statements described in clause (i) of this Section 5.l(a);
(iii) Officer's Certificate. Each time financial statements
are furnished pursuant to clause (i) or (ii) of Section 5.1(a), a
compliance certificate (in substantially the form of Exhibit F)
signed by a Designated Financial Officer, dated the date of such
financial statements;
(iv) Public Reports. Promptly upon becoming available, a copy
of each report or proxy statement filed by the Parent with the
Securities and Exchange Commission or any securities exchange; and
(v) Other Information. With reasonable promptness, such other
information (including non-financial information) respecting the
Receivables or the conditions and operations, financial or
otherwise, of the Initial Collection Agent and any Seller Entity as
the Agent from time to time reasonably may request in order to
protect the interests of the Agent or Committed Purchasers under
this Agreement.
(b) Notices. As soon as possible and in any event within 5 Business
Days of becoming actually aware of any of the following the Initial
Collection Agent will notify the Agent and each Purchaser Agent and
provide a description of:
(i) Potential Termination Events. The occurrence of any
Potential Termination Event;
(ii) Downgrading. The downgrading, withdrawal or suspension of
any rating by any rating agency of any indebtedness of any Special
Obligor or of the Parent; or
(iii) Further Information. Any other information that the
Parent is required to deliver pursuant to the Credit Agreement at
the same time the Parent delivers such information to the required
parties pursuant to the Credit Agreement.
If the Agent or any Purchaser Agent receives such a notice, the Agent or
such Purchaser Agent shall promptly give notice thereof to each Purchaser
and, until each Conduit Purchaser has no Investment after the Termination
Date, to each CP Dealer and each Rating Agency.
(c) Conduct of Business. The Initial Collection Agent will perform
all actions necessary to remain duly incorporated, validly existing and in
good standing in its jurisdiction of incorporation and to maintain all
requisite authority to conduct its business in each jurisdiction in which
it conducts business.
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(d) Compliance with Laws. The Initial Collection Agent will comply
with all laws, regulations, judgments and other directions or orders
imposed by any Governmental Authority to which it or any Receivable, any
Related Security or Collection may be subject.
(e) Furnishing Information and Inspection of Records. The Initial
Collection Agent will furnish to the Agent, the Purchaser Agents and the
Purchasers such information concerning the Receivables and the Related
Security as the Agent, a Purchaser Agent or a Purchaser may request. The
Initial Collection Agent will, and will cause each Originator to, permit,
at any time during regular business hours upon reasonable notice to the
Initial Collection Agent, the Agent, any Purchaser Agent or any Purchaser
(or any representatives thereof) (i) to examine and make copies of all
Records, (ii) to visit the offices and properties of the Initial
Collection Agent and each Originator for the purpose of examining the
Records and (iii) to discuss matters relating hereto with any of the
Initial Collection Agent's or such Originator's officers, directors,
employees or independent public accountants having knowledge of such
matters. No more than once a calendar year or any time after the
occurrence of a Termination Event, the Agent may (at the expense of the
Initial Collection Agent) or at any time (at the expense of the
Purchasers) have an independent public accounting firm conduct an audit of
the Records or make test verifications of the Receivables and Collections.
(f) Keeping Records. (i) The Initial Collection Agent will, and will
cause each Originator to, have and maintain (A) administrative and
operating procedures (including an ability to recreate Records if
originals are destroyed), (B) adequate facilities, personnel and equipment
and (C) all Records and other information necessary or advisable for
collecting the Receivables (including Records adequate to permit the
immediate identification of each Obligor and each new Receivable and all
Collections of, and adjustments to, each existing Receivable). The Initial
Collection Agent will give the Agent prior notice of any material change
in such administrative and operating procedures.
(ii) The Initial Collection Agent will, (A) at all times from and
after the date hereof, clearly and conspicuously mark its computer and
master data processing books and records with a legend describing the
Agent's and the Purchasers' interest in the Receivables and the
Collections and (B) upon the request of the Agent, so mark each contract
relating to a Receivable and deliver to the Agent all such contracts
(including all multiple originals of such contracts), with any appropriate
endorsement or assignment, or segregate (from all other receivables then
owned or being serviced by the Initial Collection Agent) the Receivables
and all contracts relating to each Receivable and hold in trust and safely
keep such contracts so legended in separate filing cabinets or other
suitable containers at such locations as the Agent may specify.
(g) Performance of Duties. The Initial Collection Agent will perform
its duties or obligations in accordance with the provisions of each of the
Transaction Documents. The Initial Collection Agent (at its expense) will
(i) fully and timely perform in all material respects all agreements
required to be observed by it in connection
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with each Receivable, (ii) comply in all material respects with the Credit
and Collection Policy, and (iii) refrain from any action that may impair
the rights of the Agent, the Purchaser Agents or the Purchasers in the
Receivables, the Related Security, Collections, Purchase Agreement or
Lock-Box Accounts.
(h) Payments on Receivables, Lock-Box Accounts. If any payments on
Receivables or other Collections are received by the Initial Collection
Agent, it shall hold such payments in trust for the benefit of the Agent,
the Purchaser Agents and the Purchasers and promptly (but in any event
within two Business Days after receipt) remit such funds into a Lock-Box
Account. Except as set forth in Section 5.1(i) hereof, the Initial
Collection Agent will only permit Collections to be deposited into any
Lock-Box Account. If such funds of any Affiliate or Seller Entity are
deposited into any Lock-Box Account, the Initial Collection Agent will
promptly identify and separate such funds for segregation. Except as set
forth in Section 5.1(i) hereof, the Initial Collection Agent will not, and
will not permit any other Person to, commingle Collections or other funds
to which the Agent or any Purchaser is entitled with any other funds.
(i) Extension or Amendment of Receivables. Except as otherwise
permitted in Section 3.2(b) and then subject to Section 1.5, the Initial
Collection Agent will not extend, amend, rescind or cancel any Receivable.
(j) Change in Business or Credit and Collection Policy. The Initial
Collection Agent will not make any change in its business or in the
Originator's Credit and Collection Policy which change would impair the
collectibility of any Receivable.
ARTICLE VI
INDEMNIFICATION
Section 6.1. Indemnities by the Seller. Without limiting any other rights
any such Person may have hereunder or under applicable law, the Seller hereby
indemnifies and holds harmless, on an after-Tax basis, the Agent, each Purchaser
Agent and each Purchaser and their respective officers, directors, agents and
employees (each an "Indemnified Party") from and against any and all damages,
losses, claims, liabilities, penalties, Taxes, costs and expenses (including
reasonable attorneys' fees and court costs) (all of the foregoing collectively,
the "Indemnified Losses") at any time imposed on or incurred by any Indemnified
Party arising out of or otherwise relating to any Transaction Document, the
transactions contemplated thereby or the acquisition of any portion of the Sold
Interest, any commingling of funds, any failure of a Lock-Box Bank to comply
with the terms of a Lock-Box Letter, any Receivables or Collections, or any
action taken or omitted by any of the Indemnified Parties (including any action
taken by the Agent as attorney-in-fact for the Seller pursuant to Section
3.5(b)), whether arising by reason of the acts to be performed by the Seller
hereunder or otherwise, excluding only Indemnified Losses to the extent (a) such
Indemnified Losses to the extent such losses result from gross negligence or
willful misconduct of the Indemnified Party seeking indemnification, (b) solely
due to the credit risk of the Obligor and for which reimbursement would
constitute recourse to
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the Seller or the Collection Agent for uncollected or uncollectible Receivables
or (c) such Indemnified Losses are, or include Taxes on, or measured by, the
overall net income or gross receipts of the Agent, any Purchaser Agent or any
Purchaser computed in accordance with the Intended Tax Characterization;
provided, however, that nothing contained in this sentence shall limit the
liability of the Seller or the Collection Agent or limit the recourse of the
Agent, each Purchaser Agent and each Purchaser to the Seller or the Collection
Agent for any amounts otherwise specifically provided to be paid by the Seller
or the Collection Agent hereunder. Without limiting the foregoing
indemnification, but subject to the limitation set forth in clauses (a), (b) and
(c) of the previous sentence, the Seller shall indemnify the Agent, each
Purchaser Agent and each Purchaser for Indemnified Losses (including losses in
respect of uncollectible Receivables, regardless of whether reimbursement
therefor would constitute recourse to the Seller or the Collection Agent)
relating to or resulting from:
(i) reliance on any representation or warranty made by the Seller or
Collection Agent (or any officers of the Seller or the Collection Agent)
under or in connection with this Agreement, any Periodic Report or any
other information or report delivered by the Seller or the Collection
Agent pursuant hereto, which shall have been false or incorrect in any
material respect when made or deemed made;
(ii) the failure by the Seller or any Seller Entity to comply with
any applicable law, rule or regulation with respect to any Receivable, or
the nonconformity of any Receivable with any such applicable law, rule or
regulation;
(iii) the failure of the Seller to vest and maintain vested in the
Agent, for the benefit of the Purchaser Agents and the Purchasers, a
perfected interest in the Sold Interest and the property conveyed pursuant
to Section 1.1(a) and Section 1.8, free and clear of any Adverse Claim;
(iv) any commingling of funds to which the Agent, any Purchaser
Agent or any Purchaser is entitled hereunder with any other funds;
(v) failure of any Lock Box Bank (if appointed or designated by the
Seller or if otherwise a Lock Box Bank on the date hereof) to comply with
the terms of the applicable Lock Box Letter;
(vi) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor) of the Obligor to the payment of any Receivable
resulting from the sale or lease of goods or the rendering of services
related to such Receivable or the furnishing or failure to furnish any
such goods or services;
(vii) any failure of the Seller or any Seller Entity to perform its
duties or obligations in accordance with the provisions of this Agreement
and each of the other Transaction Documents to which it is a party; or
(viii) any environmental liability claim, products liability claim
or personal injury or property damage suit or other similar or related
claim or action of whatever sort,
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arising out of or in connection with any Receivable or any other suit,
claim or action of whatever sort relating to any of the Transaction
Documents.
Section 6.2. Increased Cost and Reduced Return. By way of clarification,
and not of limitation, of Section 6.1, if the adoption of any applicable law,
rule or regulation not in effect as of the date hereof, or any change therein,
or any change in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, or compliance by any Funding Source, the Agent, any Purchaser Agent or
any Purchaser (collectively, the "Funding Parties") with any request or
directive (whether or not having the force of law) of any such Governmental
Authority (a "Regulatory Change") (a) subjects any Funding Party to any charge
or withholding on or in connection with a Funding Agreement or this Agreement
(collectively, the "Funding Documents") or any Receivable, (b) changes the basis
of taxation of payments to any of the Funding Parties of any amounts payable
under any of the Funding Documents (except for changes in the rate of Tax on the
overall net income of such Funding Party), (c) imposes, modifies or deems
applicable any reserve, assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account of, or any
credit extended by, any of the Funding Parties, (d) has the effect of reducing
the rate of return on such Funding Party's capital to a level below that which
such Funding Party could have achieved but for such adoption, change or
compliance (taking into consideration such Funding Party's policies concerning
capital adequacy) or (e) imposes any other condition, and the result of any of
the foregoing is (x) to impose a cost on, or increase the cost to, any Funding
Party of its commitment under any Funding Document or of purchasing, maintaining
or funding any interest acquired under any Funding Document, (y) to reduce the
amount of any sum received or receivable by, or to reduce the rate of return of,
any Funding Party under any Funding Document or (z) to require any payment
calculated by reference to the amount of interests held or amounts received by
it hereunder, then, upon demand by the Agent, the Seller shall pay to the Agent
for the account of the Person such additional amounts as will compensate such
Agent, such Purchaser Agent or such Purchaser (or, in the case of a Conduit
Purchaser, will enable a Conduit Purchaser to compensate any Funding Source) for
such increased cost or reduction. Without limiting the foregoing, the Seller
acknowledges and agrees that the fees and other amounts payable by the Seller to
the Purchasers and the Agent have been negotiated on the basis that the unused
portion of each Committed Purchaser's Commitment is treated as a "short term
commitment" for which there is no regulatory capital requirement. If any
Committed Purchaser determines it is required to maintain capital against its
Unused Commitment (or any Purchaser is required to maintain capital against its
Investment) in excess of the amount of capital it would be required to maintain
against a funded loan in the same amount, such Purchaser shall be entitled to
compensation under this Section 6.2.
Section 6.3. Other Costs and Expenses. Also by way of clarification, and
not of limitation, of Section 6.1, the Seller shall pay to the Agent (with
respect to amounts owned to it) or the applicable Purchaser Agent (with respect
to amounts owed to it or any Purchaser in its Purchaser Group) on demand all
costs and expenses in connection with (a) the preparation, execution, delivery
and administration (including amendments of any provision) of the Transaction
Documents, (b) the sale of the Sold Interest, (c) the perfection of the Agent's
rights in the Receivables, Related Security and Collections, (d) the enforcement
by the Agent, any Purchaser Agent or the Purchasers of the obligations of the
Seller under the Transaction
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Documents or of any Obligor under a Receivable and (e) the maintenance by the
Agent of the Lock-Boxes and Lock-Box Accounts, including fees, costs and
expenses of legal counsel for the Agent and each Purchaser Agent relating to any
of the foregoing or to advising the Agent, any Purchaser Agent and any Funding
Source about its rights and remedies under any Transaction Document or any
related Funding Agreement and all costs and expenses (including counsel fees and
expenses) of the Agent, each Purchaser Agent, each Purchaser and each Funding
Source in connection with the enforcement of the Transaction Documents or any
Funding Agreement and in connection with the administration of the Transaction
Documents following a Termination Event. The Seller shall reimburse the Agent
and each Conduit Purchaser for the cost of the Agent's or such Conduit
Purchaser's auditors (which may be employees of such Person) auditing the books,
records and procedures of the Seller. The Seller shall reimburse each Conduit
Purchaser for any amounts such Conduit Purchaser must pay to any Committed
Purchaser pursuant to the related Transfer Agreement, this Agreement and the
Funding Agreements related thereto on account of any Tax. The Seller shall
reimburse each Conduit Purchaser on demand for all other costs and expenses
incurred by such Conduit Purchaser or any shareholder of such Conduit Purchaser
in connection with the Transaction Documents or the transactions contemplated
thereby, including the cost of auditing such Conduit Purchaser's books by
certified public accountants, the cost of the Ratings and the fees and
out-of-pocket expenses of counsel of the Agent, each Conduit Purchaser or any
shareholder, or administrator, of such Conduit Purchaser for advice relating to
such Conduit Purchaser's operation.
Section 6.4. Withholding Taxes. (a) All payments made by the Seller
hereunder shall be made without withholding for or on account of any present or
future taxes (other than overall net income taxes on the recipient). If any such
withholding is so required, the Seller shall make the withholding, pay the
amount withheld to the appropriate authority before penalties attach thereto or
interest accrues thereon and pay such additional amount as may be necessary to
ensure that the net amount actually received by each Purchaser, each Purchaser
Agent and the Agent free and clear of such taxes (including such taxes on such
additional amount) is equal to the amount that such Purchaser, such Purchaser
Agent or the Agent (as the case may be) would have received had such withholding
not been made. If the Agent, any Purchaser Agent or any Purchaser pays any such
taxes, penalties or interest the Seller shall reimburse the Agent, Purchaser
Agent or such Purchaser for that payment on demand. If the Seller pays any such
taxes, penalties or interest, it shall deliver official tax receipts evidencing
that payment or certified copies thereof to the Purchaser, each Purchaser Agent
or the Agent on whose account such withholding was made (with a copy to the
Agent if not the recipient of the original) on or before the thirtieth day after
payment.
(b) Before the first date on which any amount is payable hereunder for the
account of any Purchaser not incorporated under the laws of the USA such
Purchaser shall deliver to the Seller and the Agent each two (2) duly completed
copies of United States Internal Revenue Service Form W-8BEN or W-8ECI (or
successor applicable form) certifying that such Purchaser is entitled to receive
payments hereunder without deduction or withholding of any United States federal
income taxes. Each such Purchaser shall replace or update such forms when
necessary to maintain any applicable exemption and as requested by the Agent or
the Seller.
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Section 6.5. Payments and Allocations. If any Person seeks compensation
pursuant to this Article VI, such Person shall deliver to the Seller and its
Purchaser Agent a certificate setting forth the amount due to such Person, a
description of the circumstance giving rise thereto and the basis of the
calculations of such amount, which certificate shall be conclusive absent
manifest error. The Seller shall pay to the Agent amounts owed to it or to the
applicable Purchaser Agent amounts owed to such Purchaser Agent or owed to any
Purchaser in its Purchase Group, for the account of such Person the amount shown
as due on any such certificate within thirty (30) days after receipt of the
notice.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1. Conditions to Closing. This Agreement shall become effective
on the first date all conditions in this Section 7.1 are satisfied. On or before
such date, the Seller (or, in the case of Section 7.1(e)(ii), the Committed
Purchasers) shall deliver to the Agent the following documents in form,
substance and quantity acceptable to the Agent:
(a) A certificate of the Secretary of the Seller and each Seller
Entity certifying (i) the resolutions of the Seller's and each Seller
Entity's board of directors approving each Transaction Document to which
it is a party, (ii) the name, signature, and authority of each officer who
executes on the Seller's or each Seller Entity's behalf a Transaction
Document (on which certificate the Agent, each Purchaser Agent and each
Purchaser may conclusively rely until a revised certificate is received),
(iii) the Seller's and each Seller Entity's certificate or articles of
incorporation or limited liability company agreement, as applicable,
certified by the Secretary or Assistant Secretary of such entity, (iv) a
copy of the Seller's and each Seller Entity's by-laws and (v) good
standing certificates issued by the Secretaries of State of each
jurisdiction where the Seller and each Seller Entity is organized.
(b) All instruments and other documents required, or deemed
desirable by the Agent, to perfect the Agent's first priority interest in
the Receivables, Related Security, Collections, the Purchase Agreement and
the Lock-Box Accounts in all appropriate jurisdictions.
(c) UCC search reports from all jurisdictions the Agent requests.
(d) Executed copies of (i) all consents and authorizations necessary
in connection with the Transaction Documents (ii) direction letters
executed by the Seller authorizing the Agent to inspect and make copies
from the Seller's books and records maintained at any off-site data
processing or storage facilities, (iii) a Periodic Report covering the
month ended August 31, 2002, and (iv) each Transaction Document.
(e) Favorable opinions of counsel to the Seller and each Seller
Entity covering such matters as any Purchaser Agent or the Agent may
request.
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(f) A fully executed assignment agreement from ABN AMRO to the Agent
pursuant to which ABN AMRO assigns all of its right, title and interest
in, to and under the Lock-Box Letters and related Lock-Boxes in form and
substance satisfactory to the Agent.
(g) Such other approvals, opinions or documents as the Agent or any
Purchaser Agent may reasonably request.
Section 7.2. Conditions to Each Purchase. The obligation of each Committed
Purchaser to make any Purchase, and the right of the Seller to request or accept
any Purchase, are subject to the conditions (and each Purchase shall evidence
the Seller's representation and warranty that clauses (a)-(d) of this Section
7.2 have been satisfied) that on the date of such Purchase before and after
giving effect to the Purchase:
(a) no Potential Termination Event shall then exist or shall occur
as a result of the Purchase;
(b) the Termination Date has not occurred and, after giving effect
to the application of the proceeds of such Purchase, the outstanding
Matured Aggregate Investment would not exceed the Aggregate Commitment;
(c) the representations and warranties of the Seller, each
Originator and the Collection Agent contained herein or in any other
Transaction Document are true and correct in all material respects on and
as of such date (except to the extent such representations and warranties
relate solely to an earlier date and then as of such earlier date);
(d) each of the Seller and each Seller Entity is in full compliance
with the Transaction Documents to which it is a party (including all
covenants and agreements in Article V); and
(e) all legal matters related to the Purchase are reasonably
satisfactory to the Purchasers.
Nothing in this Section 7.2 limits the obligations (including those in Section
2.1) of each Related Committed Purchaser to its related Conduit Purchaser
(including any applicable Transfer Agreement).
Section 7.3. Addition and Removal of Originators. (a) Addition of
Originators. From time to time the Seller may request that an additional entity
(a "New Originator") be added as an Originator hereunder and under the Purchase
Agreement. Each such New Originator shall become a party to the Purchase
Agreement and an Originator hereunder on the date all of the conditions set
forth in this Section 7.3(a) are satisfied. On or before such date, the Seller
shall deliver to the Agent the following documents in form, substance and
quantity acceptable to the Agent:
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(i) a certificate of the Secretary of the New Originator certifying
(A) the resolutions of the New Originator's board of directors approving
each Transaction Document to which it is a party, (B) the name, signature,
and authority of each officer who executes on the New Originator's behalf
a Transaction Document (on which certificate the Agent, each Purchaser
Agent and each Purchaser may conclusively rely until a revised certificate
is received), (C) the New Originator's certificate or articles of
incorporation or limited liability company agreement, as applicable,
certified by the Secretary or Assistant Secretary of such entity, (D) a
copy of the New Originator's by-laws and (v) good standing certificates
issued by the Secretaries of State of each jurisdiction where the New
Originator is organized;
(ii) all instruments and other documents required, or deemed
desirable by the Agent, to perfect the Agent's first priority interest in
the Receivables, Related Security, Collections, the Purchase Agreement and
the Lock-Box Accounts in all appropriate jurisdictions;
(iii) UCC search reports from all jurisdictions the Agent requests;
(iv) executed copies of (A) a fully executed Joinder Agreement from
the New Originator in the form attached to the Purchase Agreement as
Exhibit B, (B) a fully executed Amendment and Reaffirmation of Limited
Guaranty executed by the Parent in the form attached hereto as Exhibit H
and (C) a fully executed Supplement to Exhibits in the form attached
hereto as Exhibit I;
(v) favorable opinions of counsel to the Seller and each Seller
Entity covering such matters as any Purchaser Agent or the Agent may
request;
(vi) the written consent of the Agent and the Purchaser Agents to
the addition of the New Originator; and
(vii) such other approvals, opinions or documents as the Agent or
any Purchaser Agent may reasonably request.
(b) Removal of Originator. From time to time, the Seller may request
that one or more Originators be removed as "Originators" hereunder and under the
Purchase Agreement by delivery to the Agent of written notice of such request,
which notice shall set forth the date on which such Originator(s) shall be
removed (a "Removal Date"), which date shall be no earlier than five Business
Days after the date such notice was delivered. On the Removal Date, the
Purchasers shall no longer purchase any Receivables originated by such
Originator; provided, however, that in no event shall such Originator be
relieved of any of its obligations under the Purchase Agreement or other
Transaction Documents with respect to any Receivables previously sold to the
Seller.
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ARTICLE VIII
THE AGENT
Section 8.1. Appointment and Authorization. (a) Each Purchaser and each
Purchaser Agent hereby irrevocably designates and appoints Credit Lyonnais,
acting through its New York Branch, as the "Agent" under the Transaction
Documents and authorizes the Agent to take such actions and to exercise such
powers as are delegated to the Agent hereby and to exercise such other powers as
are reasonably incidental thereto. The Agent shall hold, in its name, for the
benefit of each Purchaser, the Purchase Interest of such Purchaser. The Agent
shall not have any duties other than those expressly set forth in the
Transaction Documents or any fiduciary relationship with any Purchaser, and no
implied obligations or liabilities shall be read into any Transaction Document,
or otherwise exist, against the Agent. The Agent does not assume, nor shall it
be deemed to have assumed, any obligation to, or relationship of trust or agency
with, the Seller. Notwithstanding any provision of this Agreement or any other
Transaction Document, in no event shall the Agent ever be required to take any
action which exposes the Agent to personal liability or which is contrary to the
provision of any Transaction Document or applicable law.
(b) Each Purchaser hereby irrevocably designates and appoints the
respective institution identified on the applicable signature page hereto or in
the related Transfer Supplement (as applicable) as its Purchaser Agent
hereunder, and each authorizes such Purchaser Agent to take such action on its
behalf under the provisions of this Agreement and to exercise such powers and
perform such duties as are expressly delegated to such Purchaser Agent by the
terms of this Agreement, if any, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, no Purchaser Agent shall have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Purchaser or other Purchaser Agent or the Agent, and no
implied obligations or liabilities on the part of such Purchaser Agent shall be
read into this Agreement or otherwise exist against such Purchaser Agent. No
Purchaser Agent assumes, nor shall it be deemed to have assumed, any obligation
to, or relationship of trust or agency with, the Seller.
Section 8.2. Delegation of Duties. The Agent and each Purchaser Agent may
execute any of its duties through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
Neither the Agent nor any Purchaser Agent shall be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
Section 8.3. Exculpatory Provisions. None of the Agent, any Purchaser
Agent or any of their respective directors, officers, agents or employees shall
be liable for any action taken or omitted (i) with the consent or at the
direction of the Instructing Group or (ii) in the absence of such Persons gross
negligence or willful misconduct. Neither the Agent nor any Purchaser Agent
shall be responsible to any Purchaser or other Person for any recitals,
representations, warranties or other statements made by the Seller, any Seller
Entity or any of its Affiliates, (ii) the value, validity, effectiveness,
genuineness, enforceability or sufficiency of any Transaction Document, (iii)
any failure of the Seller, and Seller Entity or any of its Affiliates to perform
any obligation or (iv) the satisfaction of any condition specified in Article
VII. Neither
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the Agent nor any Purchaser Agent shall have any obligation to any Purchaser to
ascertain or inquire about the observance or performance of any agreement
contained in any Transaction Document or to inspect the properties, books or
records of the Seller, any Seller Entity or any of its Affiliates.
Section 8.4. Reliance by Agent and Purchaser Agents. (a) The Agent and
each Purchaser Agent shall in all cases be entitled to rely, and shall be fully
protected in relying, upon any document, other writing or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person and upon advice and statements of legal counsel (including counsel
to the Seller), independent accountants and other experts selected by the Agent
or such Purchaser Agent. The Agent and each Purchaser Agent shall in all cases
be fully justified in failing or refusing to take any action under any
Transaction Document unless it shall first receive such advice or concurrence of
the Purchasers, and assurance of its indemnification, as it deems appropriate.
(b) The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement in accordance with a request of the
Instructing Group, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all Purchasers, the Agent and Purchaser
Agents.
(c) Each Purchaser Agent shall determine with its Purchaser Group the
number of such Purchasers (each, a "Voting Block"), which shall be required to
request or direct such Purchaser Agent to take action, or refrain from taking
action, under this Agreement on behalf of such Purchasers. Such Purchaser Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement in accordance with a request of its appropriate Voting
Block, and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of such Purchaser Agent's Purchasers.
(d) Unless otherwise advised in writing by a Purchaser Agent or by any
Purchaser on whose behalf such Purchaser Agent is purportedly acting, each party
to this Agreement may assume that (i) such Purchaser Agent is acting for the
benefit and on behalf of each of the Purchasers in respect of which such
Purchaser Agent is identified as being the "Purchaser Agent" in the definition
of "Purchaser Agent" hereto, as well as for the benefit of each assignee or
other transferee from any such Person, and (ii) each action taken by such
Purchaser Agent has been duly authorized and approved by all necessary action on
the part of the Purchasers on whose behalf it is purportedly acting. Each
Purchaser Agent and the Purchasers in its Purchaser Group shall agree amongst
themselves as to the circumstances and procedures for removal and resignation of
such Purchaser Agent.
Section 8.5. Assumed Payments. Unless the Agent shall have received notice
from the applicable Purchaser Agent before the date of any Incremental Purchase
that the applicable Purchaser Group will not make available to the Agent the
amount it is scheduled to remit as part of such Incremental Purchase, the Agent
may assume such Purchaser Group has made such amount available to the Agent when
due (an "Assumed Payment") and, in reliance upon such assumption, the Agent may
(but shall have no obligation to) make available such amount to the appropriate
Person. If and to the extent that any Purchaser in a Purchaser Group shall not
have
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made its Assumed Payment available to the Agent, such Purchaser and the Seller
hereby agree to pay the Agent forthwith on demand such unpaid portion of such
Assumed Payment up to the amount of funds actually paid by the Agent, together
with interest thereon for each day from the date of such payment by the Agent
until the date the requisite amount is repaid to the Agent, at a rate per annum
equal to the Federal Funds Rate for the first three days such amounts are past
due and thereafter at a rate per annum equal to the Federal Funds Rate plus 2%.
Section 8.6. Notice of Termination Events. Neither any Purchaser Agent nor
the Agent shall be deemed to have knowledge or notice of the occurrence of any
Potential Termination Event unless the Agent or such Purchaser Agent has
received notice from any Purchaser or the Seller stating that a Potential
Termination Event has occurred hereunder and describing such Potential
Termination Event. If the Agent receives such a notice, it shall promptly give
notice thereof to each Purchaser Agent whereupon each Purchaser Agent shall
promptly give notice thereof to the members of its Purchaser Group. If a
Purchaser Agent receives such a notice from any Person other than the Agent, it
shall promptly give notice thereof to the Agent and each Purchaser Agent
whereupon each Purchaser Agent shall promptly give notice thereof to the members
of its Purchaser Group. The Agent shall take such action concerning a Potential
Termination Event as may be directed by the Instructing Group (or, if required
for such action, all of the Purchasers), but until the Agent receives such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, as the Agent deems advisable and in the best
interests of the Purchasers.
Section 8.7. Non-Reliance on Agent and Other Purchasers. Each Purchaser
expressly acknowledges that none of the Agent, the Purchaser Agents nor any of
their respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no act by
the Agent hereafter taken, including any review of the affairs of the Seller or
any Seller Entity, shall be deemed to constitute any representation or warranty
by the Agent. Each Purchaser represents and warrants to the Agent and the
Purchaser Agents that, independently and without reliance upon the Agent, any
Purchaser Agent or any other Purchaser and based on such documents and
information as it has deemed appropriate, it has made and will continue to make
its own appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of the Seller,
the Seller Entities and the Receivables and its own decision to enter into this
Agreement and to take, or omit, action under any Transaction Document. The Agent
shall deliver each month to any Purchaser that so requests a copy of the
Periodic Report(s) received covering the preceding calendar month. Except for
items specifically required to be delivered hereunder, the Agent shall not have
any duty or responsibility to provide any Purchaser or any Purchaser Agent with
any information concerning the Seller, any Seller Entity or any of its
Affiliates that comes into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
Section 8.8. Agent, Purchaser Agents and Affiliates. The Agent, each
Purchaser Agent and their respective Affiliates may extend credit to, accept
deposits from and generally engage in any kind of business with the Seller, any
Seller Entity or any of their Affiliates and Credit Lyonnais may exercise or
refrain from exercising its rights and powers as if it were not the Agent. The
parties acknowledge that Credit Lyonnais acts as agent for La Fayette and
subagent
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for La Fayette's management company in various capacities, as well as providing
credit facilities and other support for La Fayette not contained in the
Transaction Documents.
Section 8.9. Indemnification. Each Purchaser Group shall indemnify and
hold harmless the Agent and its officers, directors, employees, representatives
and agents (to the extent not reimbursed by the Seller or any Seller Entity and
without limiting the obligation of the Seller or any Seller Entity to do so),
ratably in accordance with its Ratable Share from and against any and all
liabilities, claims, obligations, losses, damages, penalties, costs, expenses
and disbursements of any kind whatsoever that may at any time be imposed on,
incurred by or asserted against the Agent or such Person as a result of or
related to, any of the transactions contemplated by the Transaction Documents or
the execution, delivery or performance of the Transaction Documents or any other
document furnished in connection therewith (but excluding any such liabilities,
claims, obligations, losses, damages, penalties, costs, expenses or
disbursements resulting solely from the gross negligence or willful misconduct
of the Agent or such Person as finally determined by a court of competent
jurisdiction).
Section 8.10. Successor Agent. The Agent may, upon at least five (5) days
notice to the Seller and each Purchaser Agent, resign as Agent. Such resignation
shall not become effective until a successor agent is appointed by an
Instructing Group and has accepted such appointment. Upon such acceptance of its
appointment as Agent hereunder by a successor Agent, such successor Agent shall
succeed to and become vested with all the rights and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Transaction Documents. After any retiring Agent's
resignation hereunder, the provisions of Article VI and this Article VIII shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was the Agent.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Termination. Each Conduit Purchaser shall cease to be a party
hereto when the Termination Date has occurred, such Conduit Purchaser holds no
Investment and all amounts payable to it hereunder have been indefeasibly paid
in full. This Agreement shall terminate following the Termination Date when no
Investment is held by a Purchaser and all other amounts payable hereunder have
been indefeasibly paid in full, but the rights and remedies of the Agent, each
Purchaser Agent and each Purchaser concerning any representation, warranty or
covenant made, or deemed to be made, by the Seller, and under Section 3.9,
Article VI, Section 8.9, Section 9.12 and Section 9.13, shall survive such
termination.
Section 9.2. Notices. Unless otherwise specified, all notices and other
communications hereunder shall be in writing (including by telecopier or other
facsimile communication), given to the appropriate Person at its address or
telecopy number set forth on the signature pages hereof or at such other address
or telecopy number as such Person may specify, and effective when received at
the address specified by such Person. Each party hereto, however, authorizes the
Agent and each Purchaser Agent to act on telephone notices of Purchases and
Discount Rate and
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Tranche Period selections from any person the Agent or such Purchaser Agent in
good faith believes to be acting on behalf of the relevant party and, at the
Agent's or such Purchaser Agent's option, to tape record any such telephone
conversation. Each party hereto agrees to deliver promptly to the Agent and each
Purchaser Agent a confirmation of each telephone notice given or received by
such party (signed by an authorized officer of such party), but the absence of
such confirmation shall not affect the validity of the telephone notice. The
Agent's or such Purchaser Agent's records of all such conversations shall be
deemed correct and, if the confirmation of a conversation differs in any
material respect from the action taken by the Agent or such Purchaser Agent, the
records of the Agent or such Purchaser Agent shall govern absent manifest error.
The number of days for any advance notice required hereunder may be waived
(orally or in writing) by the Person receiving such notice and, in the case of
notices to the Agent or such Purchaser Agent, the consent of each Person to
which the Agent or such Purchaser Agent is required to forward such notice.
Section 9.3. Payments and Computations. Notwithstanding anything herein to
the contrary, any amounts to be paid or transferred by the Seller or the
Collection Agent to, or for the benefit of, any Purchaser, or any other Person
shall be paid or transferred to the Agent or the appropriate Purchaser Agent
(for the benefit of such Purchaser or other Person). The Agent or the
appropriate Purchaser Agent shall promptly (and, if reasonably practicable, on
the day it receives such amounts) forward each such amount to the Person
entitled thereto and such Person shall apply the amount in accordance herewith.
All amounts to be paid or deposited hereunder shall be paid or transferred on
the day when due in immediately available Dollars (and, if due from the Seller
or Collection Agent, by 11:00 a.m. (New York City time), with amounts received
after such time being deemed paid on the Business Day following such receipt).
The Seller hereby authorizes the Agent to debit the Seller Account for
application to any amounts owed by the Seller hereunder. The Seller shall, to
the extent permitted by law, pay to the Agent or the appropriate Purchaser Agent
upon demand, for the account of the applicable Person, interest on all amounts
not paid or transferred by the Seller or the Collection Agent when due hereunder
at a rate equal to the Prime Rate plus 1%, calculated from the date any such
amount became due until the date paid in full. Any payment or other transfer of
funds scheduled to be made on a day that is not a Business Day shall be made on
the next Business Day, and any Discount Rate or interest rate accruing on such
amount to be paid or transferred shall continue to accrue to such next Business
Day. All computations of interest, fees and Discount shall be calculated for the
actual days elapsed based on a 360 day year.
Section 9.4. Sharing of Recoveries. Each Purchaser agrees that if it
receives any recovery, through set-off, judicial action or otherwise, on any
amount payable or recoverable hereunder in a greater proportion than should have
been received hereunder or otherwise inconsistent with the provisions hereof,
then the recipient of such recovery shall purchase for cash an interest in
amounts owing to the other Purchasers (as return of Investment or otherwise),
without representation or warranty except for the representation and warranty
that such interest is being sold by each such other Purchaser free and clear of
any Adverse Claim created or granted by such other Purchaser, in the amount
necessary to create proportional participation by the Purchasers in such
recovery (as if such recovery were distributed pursuant to Section 2.3). If all
or any portion of such amount is thereafter recovered from the recipient, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
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Section 9.5. Right of Setoff. During a Termination Event, each Purchaser
is hereby authorized (in addition to any other rights it may have) to setoff,
appropriate and apply (without presentment, demand, protest or other notice
which are hereby expressly waived) any deposits and any other indebtedness held
or owing by such Purchaser (including by any branches or agencies of such
Purchaser) to, or for the account of, the Seller against amounts owing by the
Seller hereunder (even if contingent or unmatured).
Section 9.6. Amendments. Except as otherwise expressly provided herein, no
amendment or waiver hereof shall be effective unless signed by the Seller and
the Instructing Group. In addition, no amendment of any Transaction Document
shall, without the consent of (a) all the Related Committed Purchasers, (i)
extend the Termination Date (including an extension effected through a waiver of
a Termination Event) or the date of any payment or transfer of Collections by
the Seller to the Collection Agent or by the Collection Agent to the Agent, (ii)
reduce the rate or extend the time of payment of Discount for any Eurodollar
Tranche or Prime Tranche, (iii) reduce or extend the time of payment of any fee
payable to the Related Committed Purchasers, (iv) except as provided herein,
release, transfer or modify any Committed Purchaser's Purchase Interest or
change any Commitment, (v) amend the definition of Instructing Group,
Termination Event or Section 1.1, 1.2, 1.5, 1.8, 2.1, 2.2, 2.3, 6.1, 6.2, 6.3,
6.4, 7.2 or 9.6 or any provision of the Limited Guaranty, (vi) consent to the
assignment or transfer by the Seller or any Originator of any interest in the
Receivables other than transfers hereunder, or (vii) amend any defined term
relevant to the restrictions in clauses (i) through (vi) in a manner which would
circumvent the intention of such restrictions or (b) the Agent and each affected
Purchaser Agent, amend any provision hereof if the effect thereof is to affect
the indemnities to, or the rights or duties of, the Agent or any Purchaser Agent
or to reduce any fee payable for the Agent's or such Purchaser Agent's own
account. Notwithstanding the foregoing, the amount of any fee or other payment
due and payable from the Seller to any Person may be changed or otherwise
adjusted solely with the consent of the Seller and the party to which such
payment is payable. Any amendment hereof shall apply to each Purchaser equally
and shall be binding upon the Seller, the Purchasers, each Purchaser Agent and
the Agent. If required by the Rating Agencies for any Conduit Purchaser, no
material amendment hereof or assignment, termination, resignation or removal
hereunder shall be effective unless a statement is obtained from the applicable
Rating Agencies that its Rating will not be downgraded, withdrawn or suspended
as a result of such amendment, assignment, termination, resignation or removal.
Section 9.7. Waivers. No failure or delay of the Agent, any Purchaser
Agent or any Purchaser in exercising any power, right, privilege or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right, privilege or remedy preclude any other or
further exercise thereof or the exercise of any other power, right, privilege or
remedy. Any waiver hereof shall be effective only in the specific instance and
for the specific purpose for which such waiver was given; provided that any
waiver of a Termination Event shall be in writing. After any waiver, the Seller,
the Purchasers, the Purchaser Agents and the Agent shall be restored to their
former position and rights and any Potential Termination Event waived shall be
deemed to be cured and not continuing, but no such waiver shall extend to (or
impair any right consequent upon) any subsequent or other Potential Termination
Event. Any additional Discount that has accrued after a Termination Event before
the execution of a waiver thereof,
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solely as a result of the occurrence of such Termination Event, may be waived by
the Agent or related Purchaser Agent at the direction of the Purchaser entitled
thereto.
Section 9.8. Successors and Assigns; Participations; Assignments. (a)
Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Except as otherwise provided herein, the Seller may not assign or transfer any
of its rights or delegate any of its duties without the prior consent of the
Agent and the Purchasers Agents.
(b) Participations. Any Purchaser may sell to one or more Persons
affiliated with the Purchaser without the prior consent of the Seller, and to
one or more other Persons with the prior consent of the Seller (which consent
shall not be unreasonably withheld) (each a "Participant") participating
interests in the interests of such Purchaser hereunder and under the applicable
Transfer Agreement. Such Purchaser shall remain solely responsible for
performing its obligations hereunder, and the Seller, the applicable Purchaser
Agent and the Agent shall continue to deal solely and directly with such
Purchaser in connection with such Purchaser's rights and obligations hereunder
and under the applicable Transfer Agreement. Each Participant shall be entitled
to the benefits of Article VI and shall have the right of setoff through its
participation in amounts owing hereunder and under the applicable Transfer
Agreement to the same extent as if it were a Purchaser hereunder and under the
applicable Transfer Agreement, which right of setoff is subject to such
Participant's obligation to share with the Purchasers as provided in Section
9.4. A Purchaser shall not agree with a Participant to restrict such Purchaser's
right to agree to any amendment hereto or to the applicable Transfer Agreement,
except amendments described in clause (a) of Section 9.6.
(c) Assignments by Related Committed Purchasers. Any Related Committed
Purchaser may assign to one or more Persons ("Purchasing Committed Purchasers"),
acceptable to the applicable Purchaser Agent in its sole discretion and, prior
to the occurrence of a Termination Event, subject to the prior written consent
of the Seller (which consent will not be unreasonably withheld) any portion of
its Commitment as a Related Committed Purchaser hereunder and under the
applicable Transfer Agreement and Purchase Interest pursuant to a supplement
hereto and to the Transfer Agreement (a "Transfer Supplement") in form
satisfactory to the applicable Purchaser Agent executed by each such Purchasing
Committed Purchaser, such selling Committed Purchaser and the applicable
Purchaser Agent. Any such assignment by a Related Committed Purchaser must be
for an amount of at least Ten Million Dollars. Each Purchasing Committed
Purchaser shall pay a fee of Three Thousand Dollars to the applicable Purchaser
Agent. Any partial assignment shall be an assignment of an identical percentage
of such selling Related Committed Purchaser Investment and its Commitment as a
Related Committed Purchaser hereunder and under any applicable Transfer
Agreement. Upon the execution and delivery to the applicable Purchaser Agent of
the Transfer Supplement and payment by the Purchasing Committed Purchaser to the
selling Related Committed Purchaser of the agreed purchase price, such selling
Related Committed Purchaser shall be released from its obligations hereunder and
under the applicable Transfer Agreement to the extent of such assignment and
such Purchasing Committed Purchaser shall for all purposes be a Related
Committed Purchaser party hereto and shall have all the rights and obligations
of a Related Committed Purchaser hereunder to the same extent as if it were an
original party hereto and to the applicable Transfer
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Agreement with a Commitment as a Related Committed Purchaser, any Investment and
any related Assigned Settlement described in the Transfer Supplement.
(d) Replaceable Related Committed Purchaser. If any Related Committed
Purchaser other than a Committed Purchaser (including Credit Lyonnais) that
provides program enhancement to a Conduit Purchaser (a "Replaceable Purchaser")
shall (i) petition the Seller for any amounts under Section 6.2 or 6.4 or (ii)
have a short-term debt rating lower than the "A-1" by S&P and "P-1" by Moody's,
and, if the commercial paper of the applicable Conduit Purchaser is rated by
Fitch, "F1" by Fitch, the Seller or applicable Conduit Purchaser may designate a
replacement financial institution (a "Replacement Related Committed Purchaser")
acceptable to the Agent and the applicable Conduit Purchaser, in its sole
discretion and, prior to the occurrence of a Termination Event, subject to the
prior written consent of the Seller (which consent will not be unreasonably
withheld) to which such Replaceable Related Committed Purchaser shall, subject
to its receipt of an amount equal to its Investment, any related Assigned
Settlement, and accrued Discount and fees thereon (plus, from the Seller, any
Early Payment Fee that would have been payable if such transferred Investment
had been paid on such date) and all amounts payable under Section 6.2, promptly
assign all of its rights, obligations and Commitment hereunder and under the
applicable Transfer Agreement, together with all of its Purchase Interest, and
any related Assigned Settlement, to the Replacement Related Committed Purchaser
in accordance with Section 9.8(c).
(e) Assignment by Conduit Purchasers. Each party hereto agrees and
consents (i) to each Conduit Purchaser's assignment, participation, grant of
security interests in or other transfers of any portion of not less than
$25,000,000 of, or any of its beneficial interest in, the Purchase Interest and
the related Assigned Settlement and (ii) to the complete assignment by such
Conduit Purchaser of all of its rights and obligations hereunder to any Person
reasonably acceptable to Agent, and upon such assignment such Conduit Purchaser
shall be released from all obligations and duties hereunder; provided, however,
that a Conduit Purchaser may not, without the prior consent of its Related
Committed Purchaser, transfer any of its rights under the related Transfer
Agreement to cause its Related Committed Purchaser to purchase the Purchaser
Interest of such Conduit Purchaser and the Assigned Settlement unless the
assignee (i) is a corporation whose principal business is the purchase of assets
similar to the Receivables, (ii) has the related Purchaser Agent as its
administrative agent and (iii) issues commercial paper with credit ratings
substantially comparable to the then current ratings of such Conduit Purchaser.
Each new Conduit Purchaser shall pay a fee of Three Thousand Dollars to the
Agent. Each Conduit Purchaser shall notify the Seller prior to any such
assignment and shall promptly notify each other party hereto of any such
assignment. Upon such an assignment of any portion of a Conduit Purchaser's
Purchase Interest and the related Assigned Settlement and the payment to the
Agent of the fee specified above, the assignee shall have all of the rights of
such Conduit Purchaser hereunder relate to such Purchase Interest and related
Assigned Settlement.
(f) Opinions of Counsel. If required by the Agent or any Purchaser Agent
or to maintain the Ratings, each Transfer Supplement must be accompanied by an
opinion of counsel of the assignee as to such matters as the Agent or such
Purchaser Agent may reasonably request.
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Section 9.9. Waiver of Confidentiality. The Seller hereby consents to the
disclosure of any nonpublic information relating thereto among the Agent, the
Purchaser Agents and the Purchasers and by the Agent, the Purchaser Agents or
the Purchasers to (i) any officers, directors, members, managers, employees or
outside accountants, auditors or attorneys thereof, (ii) any prospective or
actual assignee or participant, (iii) any rating agency, surety, guarantor or
credit or liquidity enhancer to the Agent, any Purchaser Agent or any Purchaser,
(iv) any entity organized to purchase, or make loans secured by, financial
assets for which a Purchaser Agent provides managerial services or acts as an
administrative agent, (v) any Conduit Purchaser's administrator, management
company, referral agents, issuing agents or depositaries or CP Dealers and (vi)
Governmental Authorities with appropriate jurisdiction.
Section 9.10. Confidentiality of Agreement. (a) Unless otherwise required
by applicable law, order of any court or administrative agency, or otherwise by
any governmental authority, the Seller agrees to maintain the confidentiality of
the Transaction Documents (and all drafts thereof) in its communications with
third parties and otherwise; provided, however, that the Transaction Documents
may be disclosed to third parties to the extent such disclosure is (i) required
in connection with a sale of receivables of Seller, (ii) made solely to Persons
who are legal counsel for the purchaser of such receivables, and (iii) made
pursuant to a written agreement of confidentiality in form and substance
reasonably satisfactory to the Agent and each Purchaser Agent; provided further,
however, that the Transaction Documents may be disclosed to the Seller's legal
counsel and independent auditors; and provided further, however, that neither
the Seller nor the Collection Agent have any obligation of confidentiality in
respect of any information which may be generally available to the public or
becomes available to the public through no fault of the Seller or the Collection
Agent.
(b) Unless otherwise required by applicable law, order of any court or
administrative agency, or otherwise by any Governmental Authority, the Agent and
each Purchaser Agent agree to maintain the confidentiality, in its
communications with third parties and otherwise, of any information regarding
the Seller obtained in connection with the Transaction Documents which has been
identified by the Seller to the Agent as confidential in nature (the
"Confidential Material"); provided, however, that the Confidential Material may
be disclosed to third parties to the extent such disclosure is (i) to a Rating
Agency, (ii) required in connection with the exercise of any remedy hereunder or
under any related documents, instruments and agreements, or (iii) to any actual
or proposed participant or assignee of all or part of its rights hereunder, or
an actual or proposed liquidity or enhancement provider, in each case which has
agreed in writing to be bound by the provisions of this Section, or (iv) to any
Committed Purchaser; provided further, however, that the Transaction Documents
may be disclosed to each of the Purchaser Agent's and the Agent's respective
legal counsel and independent auditors; and provided further, however, that the
Agent and each Purchaser Agent shall not have any obligation of confidentiality
in respect of any information which may be generally available to the public or
becomes available to the public through no fault of such Person.
Section 9.11. Agreement Not to Petition. Each party hereto agrees, for the
benefit of the holders of the privately or publicly placed indebtedness for
borrowed money for each Conduit Purchaser, not, prior to the date which is one
(1) year and one (1) day after the payment in full of all such indebtedness, to
acquiesce, petition or otherwise, directly or indirectly, encourage, assist,
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join, invoke, or cause such Conduit Purchaser to invoke, the process of any
Governmental Authority for the purpose of (a) commencing or sustaining a case
against such Conduit Purchaser under any federal or state bankruptcy, insolvency
or similar law (including the Federal Bankruptcy Code), (b) appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official for such Conduit Purchaser, or any substantial part of its
property, or (c) ordering the winding up or liquidation of the affairs of such
Conduit Purchaser.
Section 9.12. Excess Funds. Other than amounts payable under Section 9.4,
each Conduit Purchaser shall be required to make payment of the amounts required
to be paid pursuant hereto only if such Conduit Purchaser has Excess Funds (as
defined below). If such Conduit Purchaser does not have Excess Funds, the excess
of the amount due hereunder (other than pursuant to Section 9.4) over the amount
paid shall not constitute a "claim" (as defined in Section 101(5) of the Federal
Bankruptcy Code) against such Conduit Purchaser until such time as such Conduit
Purchaser has Excess Funds. If such Conduit Purchaser does not have sufficient
Excess Funds to make any payment due hereunder (other than pursuant to Section
9.4), then such Conduit Purchaser may pay a lesser amount and make additional
payments that in the aggregate equal the amount of deficiency as soon as
possible thereafter. The term "Excess Funds" means the excess of (a) the
aggregate projected value of such Conduit Purchaser's assets and other property
(including cash and cash equivalents), over (b) the sum of (i) the sum of all
scheduled payments of principal, interest and other amounts payable on publicly
or privately placed indebtedness of such Conduit Purchaser for borrowed money,
plus (ii) the sum of all other liabilities, indebtedness and other obligations
of such Conduit Purchaser for borrowed money or owed to any credit or liquidity
provider, together with all unpaid interest then accrued thereon, plus (iii) all
taxes payable by such Conduit Purchaser to the Internal Revenue Service, plus
(iv) all other indebtedness, liabilities and obligations of such Conduit
Purchaser then due and payable, but the amount of any liability, indebtedness or
obligation of such Conduit Purchaser shall not exceed the projected value of the
assets to which recourse for such liability, indebtedness or obligation is
limited. Excess Funds shall be calculated once each Business Day.
Section 9.13. No Recourse. The obligations of each Conduit Purchaser,
their respective management companies, their respective administrators and
referral agents (each a "Program Administrator") under any Transaction Document
or other document (each, a "Program Document") to which a Program Administrator
is a party are solely the corporate obligations of such Program Administrator
and no recourse shall be had for such obligations against any Affiliate,
director, officer, member, manager, employee, attorney or agent of any Program
Administrator.
Section 9.14. Headings; Counterparts. Article and Section Headings in this
Agreement are for reference only and shall not affect the construction of this
Agreement. This Agreement may be executed by different parties on any number of
counterparts, each of which shall constitute an original and all of which, taken
together, shall constitute one and the same agreement.
Section 9.15. Cumulative Rights and Severability. All rights and remedies
of the Purchasers, the Purchaser Agents and Agent hereunder shall be cumulative
and non-exclusive of any rights or remedies such Persons have under law or
otherwise. Any provision hereof that is
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prohibited or unenforceable in any jurisdiction shall, in such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and without affecting such
provision in any other jurisdiction.
Section 9.16. Governing Law; Submission to Jurisdiction. THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND
NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK. THE SELLER HEREBY SUBMITS TO
THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK, NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF, OR RELATING
TO, THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. The
Seller hereby irrevocably waives, to the fullest extent permitted by law, any
objection it may now or hereafter have to the venue of any such proceeding and
any claim that any such proceeding has been brought in an inconvenient forum.
Nothing in this Section 9.16 shall affect the right of the Agent, any Purchaser
Agent or any Purchaser to bring any action or proceeding against the Seller or
its property in the courts of other jurisdictions.
Section 9.17. Waiver of Trial by Jury. To the extent permitted by
applicable law, each party hereto irrevocably waives all right of trial by jury
in any action, proceeding or counterclaim arising out of, or in connection with,
any transaction document or any matter arising thereunder.
Section 9.18. Intended Tax Characterization. It is the intention of the
parties hereto that, for the purposes of all Taxes, the transactions
contemplated hereby shall be treated as a loan by the Purchasers (through the
Agent) to the Seller that is secured by the Receivables (the "Intended Tax
Characterization"). The parties hereto agree to report and otherwise to act for
the purposes of all Taxes in a manner consistent with the Intended Tax
Characterization.
Section 9.19. Entire Agreement. The Transaction Documents constitute the
entire understanding of the parties thereto concerning the subject matter
thereof. Any previous or contemporaneous agreements, whether written or oral,
concerning such matters are superceded thereby.
Section 9.20. Extensions of Scheduled Termination Date. Not more than 90
days, but prior to 75 days before the Scheduled Termination Date then in effect,
the Seller may request that each Committed Purchaser extend its Commitment for
an additional 364 days. Each Committed Purchaser shall respond to such request
not later than 45 days before the then Scheduled Termination Date. If, by the
date 45 days before the then Scheduled Termination Date, any Committed Purchaser
(a "Non-Consenting Purchaser") has not notified the Agent it agrees to so extend
its Commitment for an additional 364 day period, unless any other Committed
Purchaser (including any Person who thereby becomes a Committed Purchaser)
assumes the Commitment of each such Non-Consenting Lender on or before the date
45 days before the then Scheduled Termination Date and agrees to extend such
Commitment for an additional 364 day period, the Scheduled Termination Date
shall not be extended. If all Committed Purchasers agree to extend the Scheduled
Termination Date, or if the Commitment of each Non-Consenting Purchaser is
assumed by another Committed Purchaser pursuant to the
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<PAGE>
preceding sentence, the Scheduled Termination Date shall be extended for an
additional 364 day period. Otherwise the Scheduled Termination Date shall take
place as scheduled.
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<PAGE>
Exhibit 10-k
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date hereof.
<TABLE>
<S> <C>
LA FAYETTE ASSET SECURITIZATION LLC, CREDIT LYONNAIS, acting through its
as a Conduit Purchaser New York Branch, as the Agent, a Purchaser
Agent and a Committed Purchaser
By: By:
----------------------------------------- -----------------------------------------
Title: Title:
---------------------------------- ----------------------------------
Address: c/o Credit Lyonnais Address: 1301 Avenue of the Americas
1301 Avenue of the Americas New York, New York 10019-6022
New York, New York 10019-6022 Attn: Ms. Konstantina Kourmpetis-
Attn: Ms. Konstantina Kourmpetis- Transaction Manager/
Transaction Manager/Structured Structured Finance
Finance Telephone: 212-261-7814
Telephone: 212-261-7814 Telecopy: 212-459-3258
Telecopy: 212-459-3258
</TABLE>
Signature Page for
Receivables Sale Agreement
<PAGE>
<TABLE>
<S> <C>
GIRO BALANCED FUNDING CORPORATION, BAYERISCHE LANDESBANK, New York Branch,
as a Conduit Purchaser as a Purchaser Agent
By: By:
----------------------------------------- -----------------------------------------
Title: Kevin Burns/Vice President Title: Alexander Kohnert/First VP
Address: 114 West 47th Street, Suite 1715 By:
New York, New York 10036 ----------------------------------------
Attention: Kevin Burns - Title: Lori-Ann Wynter/Vice President
Vice President
Telephone: (212)302-5151
Telecopy: (212)302-8767 Address: 560 Lexington Avenue
New York, New York 10022
Attention: Asset Securitization
Telephone: (212) 230-9005
Telecopy: (212) 230-9020
BAYERISCHE LANDESBANK, Cayman Islands Branch,
as a Committed Purchaser
By:
-----------------------------------------
Title:
-----------------------------------
By:
-----------------------------------------
Title:
-----------------------------------
Address: 560 Lexington Avenue
New York, New York 10022
Attention: Corporate Lending
Telephone: (212) 230-9012