Fitch Ratings Assigns 'BBB-' To ArvinMeritor Inc.'s Notes

    CHICAGO--June 25, 2002--Fitch Ratings has assigned a rating of 'BBB-' to ArvinMeritor Inc.'s (ARM) notes due 2007. The rating reflects ARM's solid market positions with leading product lines, geographic presence, diversified end-markets and products, and executed/realized merger integration and restructuring plans. These factors along with tightened working capital management have enabled ARM to maintain a moderate level of operating profitability going through a cyclical trough in many of its end-markets, allowing for positive cash flow and some debt reduction. The Rating Outlook remains Stable.
    Total balance sheet debt amounted to $1.4 billion at 3/31/2002 from $1.7 billion at 3/31/2001. Net working capital, before securitized receivables funding, declined to $211 million from $471 million during the same period, contributing to much of the debt reduction. As a percentage of sales, net working capital was reduced to 4.3% from 7.5%. This favorable working capital trend mostly reflects declines in receivables (excluding securitized receivable funding effect) but also greater inventory efficiency. Fitch anticipates that ARM will be able to sustain its lower working capital base even as sales cycle back up eventually.
    For the six months ended 3/31/2002, sales had declined 6% from comparable period previous year to $3.3 billion while operating margin before restructuring charges and FASB 142 related goodwill adjustments increased to 4.5% from 4.4%. Restructuring efforts undertaken in FY 2001, with a follow-up in the first quarter 2002, in response to the falloff in some of ARM's key markets, have been responsible for the margin enhancement. Fitch expects that even as sales for the balance of FY 2002 remain flat to slightly off, margins will be preserved through the cost savings associated with the restructuring efforts undertaken.
    Some near term concerns are increased cash funding requirements for pension funding, increased costs related to employee health care benefits, and a product recall campaign which is currently estimated to cost $30 million. Overall, however, Fitch expects that ARM will continue to stay cash flow positive for FY 2002 and reduce net debt for the year.
    ArvinMeritor, Inc., headquartered in Troy, Michigan, is a global supplier of various automotive products such as exhaust systems, axles, brakes, suspension and ride control systems, door and roof systems and filters, serving both the original equipment (OE) and replacement aftermarkets. ARM was formed in July 2000 through the merger of Arvin Industries, Inc. and Meritor Automotive, Inc.