ARVINMERITOR INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 28, 2003
COMMISSION FILE NUMBER 1-15983
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ARVINMERITOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 435-1000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the registrant's voting and non-voting common
equity held by non-affiliates of the registrant on March 28, 2003 (the last
business day of the most recently completed second fiscal quarter) was
approximately $947.6 million.

68,496,814 shares of the registrant's Common Stock, par value $1 per share,
were outstanding on November 30, 2003.

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 18, 2004 is incorporated by
reference into Part III.

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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, heating, ventilation and air conditioning, and doors
industries.

ArvinMeritor was incorporated in Indiana in March 2000, in connection with
the merger of Meritor Automotive, Inc. ("Meritor") and Arvin Industries, Inc.
("Arvin"), which 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.

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 year 2003 ended on September 28, 2003. All year and quarter references
relate to our fiscal year and fiscal quarters unless otherwise stated.

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 18, 2004 (the "2004 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, trailer
producers and specialty vehicle manufacturers, and certain aftermarkets. Our
total sales in fiscal year 2003 were $7.8 billion. Our ten largest customers
accounted for approximately 65% of fiscal year 2003 sales. We operated 122
manufacturing facilities in 24 countries around the world in fiscal year 2003,
including facilities operated by joint ventures in which we have interests.
Sales outside the United States accounted for approximately 57% of total sales
in fiscal year 2003. We also participated in ten joint ventures that generated
unconsolidated revenues of $1.1 billion in fiscal 2003.

We serve customers worldwide through the following operating segments:

- Light Vehicle Systems ("LVS") supplies air and emissions systems,
aperture systems (roof and door systems and products and motion control
products), and undercarriage systems (suspension and ride control systems
and wheel products) for passenger cars, motorcycles, all-terrain
vehicles, 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 and ride control products for medium-and heavy-duty
trucks, trailers and specialty vehicles to OEMs and to the commercial
vehicle aftermarket.

- Light Vehicle Aftermarket ("LVA") supplies exhaust, ride control and
filter products and other automotive parts 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 22 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, 2003, 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, 2003.

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, which are outside our
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control and cannot be predicted with certainty, can have a positive or negative
effect on our financial results. 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.

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 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.

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. We
are working 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; pricing
pressures from OEMs that could negatively impact suppliers' earnings even when
sales are increasing; and an increasing emphasis on engineering and technology.
Our business strategies, described below, are influenced by these industry
factors and trends and are focused on leveraging our resources to create a
competitive cost structure.

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 2003, our annual sales
include $4.4 billion for LVS, $2.4 billion for CVS, $0.8 billion for LVA
and $0.2 billion for Other.

- Customers. A diverse customer base helps to mitigate market
fluctuations. We have a large customer base comprised of most major
vehicle producers.

- 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 areas of our business that we believe have the most potential for
leveraging into other products and markets, and we are working to grow these. We
seek to take advantage of opportunities for operating synergies and cross
selling of products between our light vehicle and commercial vehicle businesses.
For example, CVS continues to adapt

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products and technologies, originally developed by LVS air and emissions
systems, in the development of exhaust products for its commercial vehicle
customers.

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 leverage our capabilities, gain access to
new customers and technologies, enter new product markets and implement our
business strategies. We also 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"
below 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 partnering for joint
development of integrated vehicles.

One of our significant growth strategies is to provide engineering and
design expertise, develop new products and improve existing products that meet
these customer needs. We will continue to invest in new technologies and product
development and 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 is a supplier of complete roof modules comprised of a roof head liner
bound to an outer shell using a patented process, which can also
incorporate LVS sunroof technology. Our roof module is featured in the
DaimlerChrysler SMART car.

- LVS has begun production on a modular door concept for a European OEM,
and has developed a glass motion module for use in door systems, which is
currently being evaluated by several OEMs, including some Japanese
customers. LVS also has a contract with Hyundai to provide door modules,
incorporating window regulators, latches, motors, speakers and wire
harnesses, for two platforms beginning production in 2005.

- LVS' suspension systems group has entered into an agreement to provide
several front modules to a major OEM, with production beginning in 2004,
including a wheel end module featuring a knuckle, hub and bearing and
brake assemblies; strut modules including a spring, shock and upper
mount; and a cross car module incorporating the cradle assembly, axle
assembly, steering system, lower control arms and stabilizer bar.

- CVS has contracts to provide integrated axles and wheel ends to
Freightliner, and integrated axles and suspension systems for Blue Bird
and Workhorse.

- CVS is developing a portfolio of technologically advanced products and
applications to address increasingly stringent regulatory standards for
diesel particulate matter and nitrogen oxide emissions. These include:

- Thermal Regenerator -- on demand, active regeneration technology that
offers a safe and effective way to remove diesel particulate matter.

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- Selective Catalytic Reduction (SCR) System -- a compact, low-weight
option to effectively reduce nitrogen oxide emissions to the levels
required to meet the 2005 European standards. The system also achieves
reduction of diesel particulate matter and allows the engine to operate
in ways that could maximize fuel economy.

- Hydrogen-Assisted Regeneration Technology, based on plasma fuel
reformer -- a system that creates a hydrogen-rich gas from any fuel
source, which enables more efficient regeneration of nitrogen oxide
adsorbers and lean nitrogen oxide traps. This technology could be less
sensitive to sulfur contamination and could use less fuel than
conventional regeneration and consume minimal power.

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, Columbus, Indiana and Augsberg,
Germany, 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 equipment required for changes in
environmental and safety-related regulatory provisions. OEMs select suppliers
based not only on the cost and quality of products, but also on their ability to
meet these demands. We utilize our technological expertise to anticipate trends
and 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 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 emissions regulations, LVS is an industry leader in air and
emissions systems that improve fuel economy and reduce air pollutants, while CVS
is leveraging our expertise in light vehicle air and emissions technologies to
bring products to the commercial vehicle market, as described in the preceding
section. Looking forward, we will continue to develop products 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.

We believe these more stringent regulations will result in continued growth
in Europe, and the potential growth in North America, of diesel engines. Diesel
engines have the advantage of improved fuel economy, better vehicle handling and
improving emissions levels. Through our Zeuna Starker subsidiary, LVS has
contracts to provide diesel emissions systems to six light vehicle OEMs in
Europe, with production beginning in 2004. Approximately 40% of all new vehicles
in Europe are sold with diesel engine powertrains.

Strengthen our Presence in Emerging Global Markets. Geographic expansion
to meet the global sourcing needs of customers and to address new markets is an
important element of our growth strategy. ArvinMeritor currently has joint
ventures and wholly-owned subsidiaries in China and India and is negotiating
several programs to support customers as they establish and expand operations in
those markets. We also have regional joint ventures in South America, a market
with potential for significant growth.

Drive a Continuous Improvement Culture Focused on 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 work to achieve significant
cost savings, increase productivity and efficiency and streamline operations.
They focus on eliminating non-value-added tasks, reducing lead and cycle times
and improving customer service.

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A continuous improvement culture is important to our business operations
and to maintaining and improving our earnings. Process improvement initiatives
are required to achieve our goals with respect to return on invested capital
(defined as net income plus minority interest plus tax effected interest,
divided by total debt plus equity plus minority interest liability) ("ROIC"). We
believe that ROIC is a key performance measure, and that our focus on ROIC will
help 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, 2003. A narrative description of
the principal products of our three operating segments and other operations
follows the chart.

SALES BY PRODUCT

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(1) Prior to January 2003, we owned a minority interest in Zeuna Starker & Co.
KG ("Zeuna Starker"), a German air and emissions systems company. At that
time, we acquired the remaining interest in Zeuna Starker, and its sales are
included in LVS air and emissions systems for the portion of fiscal year
2003 after the date of acquisition.

(2) We sold our seat motors business in August 2001. Sales from these products
are included in LVS aperture systems prior to that date.

(3) In December 2002, we sold our off-highway planetary axle business. Prior to
that date, sales from these products are included in CVS specialty systems.

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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 systems and
exhaust system components, including air induction and filtration, 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 integrated airflow systems that combine air induction and
exhaust systems.

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. Prior to January 2003, we owned a
49% interest in Zeuna Starker, an exhaust systems supplier headquartered in
Germany. At that time, we acquired the remaining 51% interest, and Zeuna Starker
is now a wholly owned subsidiary.

Zeuna Starker has contracts to provide diesel emissions systems to light
vehicle OEMs in Europe, with production beginning in 2004. See "Business
Strategies -- Enhance Core Products to Address Safety and Environmental Issues"
above for information on the importance of diesel technology to LVS strategies
for future growth.

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 complete roofs, 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 and Europe.

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 with electronic function
capabilities, which are custom designed for individual applications 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
manufacturers. Our access control products include modular and integrated door
latches, actuators, trunk and hood latches and fuel flap locking devices, with a
leadership market position in Europe. We manufacture access control systems at
assembly facilities in North and South America, Europe and the Asia/Pacific
region.

Motion Control Products. We manufacture and supply 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.

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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. In fiscal year 2003, we
manufactured ride control products and were a leading supplier in the European
OEM market through our 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, 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 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 and
Permalube(TM) driveline, which are low maintenance, permanently lubricated
designs 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 and produces stability control
systems for tractors and trailers, which are designed to help maintain vehicle
stability and aid in reducing tractor-trailer rollovers.

Specialty Products

Off-Highway Vehicle Products. We supply brakes in North America, South
America, Europe and the Asia/Pacific region, and heavy-duty axles and drivelines
in the Asia/Pacific region, for use in numerous off-highway vehicle
applications, including construction, material handling, agriculture, mining and
forestry. These products are designed to tolerate high tonnages and operate
under extreme conditions. In December 2002, we sold our off-highway planetary
axle business. See "Strategic Initiatives" below.

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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.

Through our 50%-owned joint venture with Randon Participacoes, we develop,
manufacture and sell truck suspensions, trailer axles and suspensions and
related wheel-end products in the South American market.

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
addition to the joint venture's range of transmission models is the
FreedomLine(TM), a fully automated mechanical truck transmission without a
clutch pedal.

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 CARQUEST, NAPA and AC Delco
(ride control) and Motorcraft, Quaker State, Shell and Mobil (filters).

Other

"Other" consists of our coil coating operation, which is not focused
predominantly on automotive products. 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 2003.

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

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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 are unable to generate sufficient cost savings in the
future to offset such price reductions, our gross margins will 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 2003,
DaimlerChrysler AG (which owns Chrysler, Mercedes-Benz AG and Freightliner
Corporation), a significant customer of LVS and CVS, accounted for approximately
16% of our total sales. In addition, General Motors Corporation, a significant
customer of LVS, accounted for approximately 12% of our total sales. No other
customer accounted for over 10% of our total sales in fiscal year 2003.

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.

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, HVAC and doors 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, Valeo, Brose and Aisin Seiki (latch systems);
Stabilus and Suspa (motion control products); Thyssen-Krupp, Rassini 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 ("Dana") (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,
Goerlich's, 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.

9

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.
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.

In March 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 decreased after
imposition of the tariffs, and we experienced rising steel prices and spot
shortages of certain steel products beginning in the second half of fiscal year
2002 and continuing through fiscal year 2003, primarily in our LVS segment. We
estimate that higher steel prices and other costs associated with steel
shortages reduced our operating income by approximately $30 million in fiscal
year 2003. See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations for information on
the effect of these factors on our financial results for those periods.
President Bush rescinded the tariffs in December 2003. We cannot predict the
effect of the rescission of the tariffs on availability or price of steel in
fiscal year 2004. If supplies are inadequate for our needs, or if prices remain
at current levels or increase and we are unable to either pass these prices to
our customer base or mitigate the costs 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.

We believe that the industry in which we operate could 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.

On July 9, 2003, we initiated a tender offer to acquire the outstanding
common stock of Dana for $15 per share in cash. The offer was conditioned on,
among other things, the tender and acceptance of more than two-thirds of Dana's
shares; the removal or invalidation of Dana's "poison pill," an anti-takeover
mechanism; receipt of necessary regulatory approvals; obtaining sufficient
financing; and other customary conditions. On July 22, 2003, Dana announced that
its Board of Directors had recommended that its shareholders reject the tender
offer. On November 17, 2003, we announced that we had increased the offer price
to $18.00 per share and that the offer would expire at 5:00 P.M. (E.S.T.) on
December 2, 2003 unless the Dana Board of Directors agreed to begin negotiating
a merger agreement by that date. The Dana Board again rejected the offer, and
the tender offer was terminated on November 24, 2003.

During fiscal year 2003, we completed the following strategic initiatives
(see Note 5 of the Notes to Consolidated Financial Statements under Item 8.
Financial Statements and Supplementary Data below):

- In December 2002, we sold our off-highway planetary axle business. The
sale included manufacturing sites at Oshkosh, Wis. and St. Etienne,
France and the planetary axle operations in Osasco, Brazil, and Seoul,
Korea.

10

- In January 2003, we acquired the remaining 51% interest in Zeuna Starker,
a German air and emissions company in which we had previously held a 49%
interest.

- In August 2003, we sold our LVS exhaust tube manufacturing facility. The
facility continues to supply stainless steel exhaust tubing to our US and
Canadian air and emissions technologies plants under a supply agreement.

In fiscal year 2003, we recorded restructuring charges of $22 million
related to workforce reductions and facility consolidations and closures in the
LVS and LVA segments. The purpose of these actions was primarily to address the
competitive challenges in the automotive supplier industry and weak demand in
the exhaust aftermarket business, and to realign the LVS businesses. The charge
related to asset impairment costs from facility closures and the rationalization
of operations, as well as employee severance benefits for approximately 400
salaried employees and 400 hourly employees. We also recorded restructuring
costs of $5 million in fiscal year 2003 as a result of the acquisition of Zeuna
Starker, relating to severance and other termination benefits for approximately
300 employees. See Note 4 of the Notes to Consolidated Financial Statements
under Item 8. Financial Statements and Supplementary Data below for further
information.

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 may be able to
finance such acquisitions by issuance of additional debt or equity securities.
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, 2003, we participated in 25 joint ventures with
interests in the United States, Brazil, Canada, China, Colombia, the Czech
Republic, Germany, India, Japan, Mexico, 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). 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); and our 50% interest in Arvin Sango Inc.
in the United States.

In October 2002, Kayaba purchased our 40% interest in a Spanish joint
venture that manufactures steering pumps, and our participation in the joint
venture terminated.

In January 2003, our Mexican joint venture with Quimmco S.A. de C.V. was
restructured, and we increased our ownership share from 40% to 49.99%. The new
joint venture, Sistemas Automotrices de Mexico S.A. de C.V., manufactures axles,
air brakes and drivelines for medium- and heavy-duty commercial trucks and
trailers, primarily for OEMs in Mexico. The new joint venture is also expected
to play a larger role in supplying the company and its customers in other
locations.

On December 18, 2003, we entered into a definitive agreement to sell our
75% interest in a joint venture in Spain to our joint venture partner, Kayaba.
The joint venture manufactures shock absorbers for the global automotive market.
Completion of the transaction is subject to receipt of regulatory approvals and
other customary conditions. We expect the sale to be completed in the second
quarter of fiscal year 2004.

11

RESEARCH AND DEVELOPMENT

We have significant research, development, engineering and product design
capabilities. We spent $167 million in fiscal year 2003, $132 million in fiscal
year 2002 and $136 million in fiscal year 2001 on research, development and
engineering. At September 30, 2003, we employed approximately 2,000 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.

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, Zeuna Starker(R) (air and emissions systems) with respect to LVS, 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, 2003, 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 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. 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. 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, 2003, to be approximately $33 million, of
which $11 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, 2003, to be approximately $48
million, of which $22 million is recorded as a liability.

See Note 21 of the Notes to Consolidated Financial Statements under Item 8.
Financial Statements and Supplementary Data below for information on the changes
in environmental accruals during fiscal year 2003.
12

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
uncertainties, including the financial condition of other potentially
responsible parties, the success of the remediation and other factors that make
it difficult to predict actual costs accurately. 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 48% of our total assets as of September 30, 2003 and 46% of
fiscal year 2003 sales were outside North America. See Note 22 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, 2003.

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;

- 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 in fiscal year 2004 is difficult to predict. We enter into
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). 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.

13

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, 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. We have sought and will
continue to seek to expand our operations globally to mitigate the effect of
periodic fluctuations in demand of the automotive industry in one or more
particular countries.

The following table sets forth vehicle production in principal markets
served by LVS and CVS for the last five fiscal years:

- ---------------
Source: Automotive industry publications and management estimates.

We anticipate the North American heavy-duty truck market to be up
approximately 35% in fiscal year 2004, with production at an estimated 222,000
units. In Western Europe, we expect production of heavy- and medium-duty trucks
to remain relatively flat at 363,000 units. Our most recent outlook shows North
American and Western European light vehicle production to be 15.8 million and
16.2 million vehicles, respectively, during fiscal year 2004. See 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 the effects of recent market cycles 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.

14

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 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 -- "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, 2003, 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:

15

These facilities had an aggregate floor space of approximately 29.6 million
square feet, substantially all of which is in use. We owned approximately 78%
and leased approximately 22% 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, 2003, is as follows:

ITEM 3. LEGAL PROCEEDINGS.

1. 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. During the period from July 1, 1998 through October
11, 2001, a number of judgments and orders were issued in the District Court
case, including: a jury verdict in favor of Eaton, finding that Meritor had
infringed Eaton's patent and awarding compensatory damages; an order granting
damages to Eaton in the amount of $2.9 million, plus post-judgment interest; a
ruling by the judge in a separate phase of the trial that we had not provided
clear and convincing evidence that Eaton had engaged in inequitable conduct in
obtaining its patent and that the patent was unenforceable; an order granting
Eaton's request for a permanent injunction against our manufacturing or selling
the Engine SynchroShift(TM) transmission and any "colorable variations;" and an
order denying our motions for a new trial and for judgment as a matter of law.
We appealed these judgments and orders to the United States Court of Appeals for
the Federal Circuit ("Federal Circuit").

On March 27, 2003, after de novo review of the District Court's
interpretation of Eaton's claims and the facts of the case, the Federal Circuit
reversed the District Court's judgment that the company had infringed Eaton's
patent and vacated the award of damages and the entry of a permanent injunction
against the company. The Federal Circuit affirmed the District Court's judgment
of patent validity and no inequitable conduct by Eaton. Eaton filed a request
for rehearing with the Federal Circuit on April 11, 2003, asserting that the
case should be remanded to the District Court for consideration of whether the
company had infringed Eaton's patent under the Federal Circuit's new claim
interpretation. The Federal Circuit denied Eaton's request for rehearing on May
12, 2003. The time for appealing these decisions has expired, and this matter is
now concluded.

2. 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.

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 shared with other CCR members in the payments of defense and
indemnity costs for asbestos-related claims. The CCR handled the

16

resolution and processing of asbestos claims on behalf of its members
until February 2001, when it was reorganized and discontinued negotiating
shared settlements. There were no significant billings to insurance
companies related to committed settlements in fiscal year 2003.

- Pending claims: Upon dissolution of the CCR in February 2001, Maremont
began handling asbestos-related claims through its own defense counsel
and is committed to examining the merits of each asbestos-related claim.
Maremont had approximately 63,000 and 37,500 pending asbestos-related
claims at September 30, 2003 and 2002, 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. 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. Maremont developed experience factors for
indemnity and litigation costs using data on actual experience in
resolving claims since February 2001 and its assessment of the nature of
the claims. Billings to insurance companies for indemnity and defense
costs of resolved cases were $15 million in fiscal year 2003.

- 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. Payments by the
company related to shortfall and other were $1 million in fiscal year
2003.

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
asbestos-related claims.

At September 30, 2003, Maremont had established reserves of $82 million
relating to these potential asbestos-related liabilities and corresponding
asbestos-related recoveries of $76 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.

3. ArvinMeritor, along with hundreds of other companies, is also a
defendant in suits claiming personal injury as a result of exposure to asbestos
used in products manufactured by Rockwell many years ago. Liability for these
claims was transferred to the company at the time of the spin-off of the
automotive business to Meritor from Rockwell in 1997. Most of the complaints,
however, do not identify any of Rockwell's products or specify which of the
claimants, if any, were exposed to asbestos attributable to Rockwell's products,
and past experience has shown that the vast majority of the claimants will never
identify any of Rockwell's products. For those claimants who do show that they
worked with Rockwell's products, we nevertheless believe we have meritorious
defenses, and we defend those cases vigorously. Historically, ArvinMeritor has
been dismissed from most (approximately 95%) of these claims with no payment to
claimants. Rockwell maintained insurance coverage that we believe covers
indemnity and defense costs, over and above self-

17

insurance retentions, for most of the claims where there is any exposure to
Rockwell's products. We do not believe these lawsuits will have a material
adverse effect on ArvinMeritor's financial condition.

ArvinMeritor has not established reserves for pending claims and
corresponding recoveries for Rockwell-legacy asbestos-related claims, and
defense and indemnity costs related to these claims are expensed as incurred. We
have not established reserves because management believes that the amounts
involved are not material. In determining the amount of pending claims and
corresponding recoveries in connection with these matters, we use estimates of
our defense and indemnity costs, based on the history and nature of filed claims
to date and Rockwell's and our experience in resolving claims. 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 our liability for Rockwell-legacy
asbestos-related claims, and the effect on ArvinMeritor, could differ materially
from current estimates.

Rockwell was not a member of the CCR and handled its asbestos-related
claims using its own litigation counsel. As a result, we do not have any
additional potential liabilities for committed CCR settlements or shortfall (as
described above) in connection with the Rockwell-legacy cases.

4. See Item 1. Business, "Environmental Matters" for information relating
to environmental proceedings.

5. 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, environmental, 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 2003.

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, 2003, are as follows:

LARRY D. YOST, 65 -- 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, 50 -- 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.

BRIAN P. CASEY, 49 -- Vice President and Treasurer since July 2003; Vice
President, Global Systems of Lear Corporation (automotive component supplier)
from September 2002 to July 2003; Assistant Treasurer of Lear Corporation from
June 2000 to September 2002; Treasury Director of Kellogg Company (packaged
goods manufacturer) from June 1995 to June 2000.

LINDA M. CUMMINS, 56 -- 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 Communi-
18

cations of United Technologies Automotive (automotive component supplier) from
August 1997 to August 1999.

WILLIAM K. DANIEL, 38 -- 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 Director of Arvin Replacement
Products in Europe from January 1998 to November 1999.

JUAN L. DE LA RIVA, 59 -- Senior Vice President and President, Light
Vehicle Systems since August 2003. Senior Vice President, Corporate Development
& Strategy, Engineering and Procurement of ArvinMeritor from October 2001 to
August 2003; 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.

THOMAS A. GOSNELL, 53 -- 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.

PERRY L. LIPE, 57 -- Senior Vice President and Chief Information Officer
since July 2000. Vice President, Information Technology of Arvin from September
1998 to July 2000.

TERRENCE E. O'ROURKE, 56 -- 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.

RAKESH SACHDEV, 47 -- Vice President and Controller since August 2003. Vice
President and General Manager, Worldwide Braking Systems of ArvinMeritor from
December 2000 to July 2003; Vice President and General Manager, Worldwide
Trailer Products of ArvinMeritor from February 1999 to December 2000; various
senior management positions with Cummins Inc. (diesel engines and related
components) prior to February 1999, most recently as Chief Financial Officer of
Cummins' Automotive Business Unit.

DEBRA L. SHUMAR, 47 -- Senior Vice President, Continuous Improvement,
Quality, Engineering and Technology, since September 2003. Senior Vice
President, Continuous Improvement and Quality of ArvinMeritor from July 2002 to
September 2003; 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., 50 -- 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.

ERNEST T. WHITUS, 48 -- 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.

BONNIE WILKINSON, 53 -- 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

19

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, 2003, there were 32,601 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 2003 and 2002 were as follows:

Quarterly cash dividends in the amount of $0.10 per share were declared and
paid in each quarter of the last two fiscal years.

In July 2003, we issued a total of 1,512 restricted shares of Common Stock
to three non-employee directors of ArvinMeritor, in lieu of cash payment of the
quarterly retainer and meeting fees for board service. In addition, on July 16,
2003, we issued 750 restricted shares of Common Stock to one newly-elected non-
employee director, as a pro rata portion of the annual grant of shares under the
Directors Stock Plan. All of 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.

20

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.

ARVINMERITOR, INC.

SELECTED FINANCIAL DATA

- ---------------
(1) Fiscal 2003 net income and basic and diluted earning per share include a
restructuring charge of $22 million ($15 million after-tax, or $0.22 per
share) and a gain on divestitures of $22 million ($15 million after-tax, or
$0.22 per share). Fiscal 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 include 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 include a 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 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 include restructuring costs of $28 million ($17 million
after-tax, or $0.33 per share) and a 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.

21

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW AND OUTLOOK

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.

During fiscal 2003, the company experienced a reduction in margins driven
by the performance of its Light Vehicle Systems and Light Vehicle Aftermarket
business segments. Excess industry capacity and customer consolidations led to a
reduction in selling prices and the acquisition of Zeuna Starker contributed to
margin dilution in the LVS business. The company's cost reduction programs and
restructuring activities were unable to fully offset the impact of lower prices
and higher steel costs.

Over the business cycle the company has experienced periodic fluctuations
in demand for light, commercial and specialty vehicles and related aftermarkets,
most notably our commercial vehicle markets in North America. Vehicle production
in our principal markets for the last five fiscal years is shown below:

- ---------------
Source: Automotive industry publications and management estimates.

Our fiscal 2004 outlook for light vehicle production is 15.8 million
vehicles in North America and 16.2 million vehicles in Western Europe. We expect
that North American heavy-duty (also referred to as Class 8) truck production
will increase about 35 percent in fiscal 2004 to 222,000 units. This recovery,
along with new business wins and greater market penetration, should put the
company in a good position to continue its organic growth.

The company continues to integrate Zeuna Starker and further consolidate
its LVS businesses to address competitive challenges in the automotive supplier
industry. Anticipated restructuring actions include additional facility
closures, business consolidations and workforce downsizing. The company
estimates total fiscal 2004 pre-tax costs of approximately $15 to $20 million
and annualized pre-tax savings of approximately $20 million related to these
actions. These restructuring costs are expected to be incurred between the
second and fourth quarters of fiscal 2004.

Other factors that could affect the company's results for the full fiscal
year include the impact of currency fluctuations on sales and operating income,
which is difficult to predict. In addition, the company terminated its tender
offer to acquire all of the outstanding shares of Dana Corporation. For
additional information concerning the company's tender offer see the discussion
under the heading Tender Offer below.

On December 18, 2003, the company signed a definitive agreement to sell its
75 percent shareholding in AP Amortiguadores S.A. (APA). The joint venture
manufactures shock absorbers for the global automotive

22

market. Although the sale is subject to regulatory approval, the company expects
the transaction to be completed in the second quarter of fiscal 2004. APA had
sales of $158 million in fiscal 2003.

RESULTS OF OPERATIONS

The following is a summary of the financial results for the fiscal years
ended September 30, 2003, 2002 and 2001.

TOTAL COMPANY

2003 COMPARED TO 2002

Sales for fiscal 2003 were $7,788 million, up $906 million, or 13 percent,
over last year. The increase in sales was primarily attributable to the
acquisition of Zeuna Starker, which added $550 million in sales, and favorable
foreign currency translation, primarily due to the stronger euro, which added
approximately
23

$370 million in sales. Excluding the effects of currency and the Zeuna Starker
acquisition, sales declined in North America and Europe. However, sales were up
by approximately 40 percent in the rest of the world, driven by sales growth in
the Asia/Pacific region.

Operating income was $309 million, a decline of $34 million, compared to
fiscal 2002, reflecting an operating margin of 4.0 percent, down from 5.0
percent in fiscal 2002. While operating income for fiscal 2003 was favorably
impacted by a gain on the sale of the exhaust tube manufacturing facility of $20
million (see Note 5 of the Notes to Consolidated Financial Statements), this
gain was more than offset by continued pricing pressures, higher steel and other
steel related costs of approximately $30 million, higher premium product launch
costs of $8 million, higher engineering and warranty costs of $10 million and
increased pension and other retirement expenses of approximately $20 million. In
the fourth quarter of fiscal 2003, the company also recorded $11 million of
costs related to account reconciliations and information system implementation
issues in a facility in Mexico, of which $6 million related to prior fiscal
years (see Note 23 of the Notes to Consolidated Financial Statements). It has
been determined that the amount related to prior fiscal years is not material on
a quantitative and qualitative basis both individually or in the aggregate.
Also, during fiscal 2003 the company recorded restructuring charges of $22
million. These costs included severance and other employee termination costs of
$13 million related to a reduction of approximately 400 salaried employees and
400 hourly employees, and $9 million associated with asset impairment costs from
the rationalization of operations. The company recorded restructuring charges of
$15 million in fiscal 2002. For more information concerning the status of the
company's restructuring programs, see Note 4 of the Notes to Consolidated
Financial Statements. Fiscal 2002 operating income included a gain on the sale
of the company's exhaust accessories manufacturing operations of $6 million.

Equity in earnings of affiliates was $8 million in fiscal 2003, as compared
to equity in losses of affiliates of $3 million a year ago. The increase was
primarily related to improved performance and higher earnings of the company's
commercial vehicle affiliates. Interest expense, net and other for fiscal 2003
was $104 million, compared to $105 million in fiscal 2002. The effective income
tax rate of 32% in fiscal 2003 was unchanged from fiscal 2002.

Net income for fiscal 2003 was $136 million, or $2.00 per diluted share, as
compared to $107 million, or $1.59 per diluted share in the prior year. Net
income in fiscal 2003 included a fourth quarter charge for the cumulative effect
of accounting change upon adoption of FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities" of $6 million ($4 million
after-tax, or $0.06 per diluted share). Net income in fiscal 2002 included the
cumulative effect of the goodwill accounting change upon adoption of Statement
of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other
Intangible Assets." In fiscal 2002, the company recorded an impairment loss on
goodwill as a cumulative effect of accounting change for its coil coating
operations of $42 million ($42 million after-tax, or $0.63 per diluted share).

2002 COMPARED TO 2001

Sales for fiscal 2002 were $6,882 million, up $77 million, or one percent,
over fiscal 2001. The sales increase was primarily attributable to higher
production volumes of North American heavy-duty trucks and the favorable impact
of a stronger euro.

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 in fiscal 2001. The company improved 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 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 asset impairment costs
from the rationalization of operations. For more information concerning the
status of the company's restructuring programs, see Note 4 of the Notes to
Consolidated Financial Statements.

24

Fiscal 2002 results include a gain on sale of the company's exhaust
accessories manufacturing operations of $6 million. Fiscal 2001 operating income
includes other charges of $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.

Equity in losses of affiliates was $3 million in fiscal 2002, as compared
to equity in earnings of affiliates of $4 million in fiscal 2001. 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.

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 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 the cumulative effect of the goodwill
accounting change of $42 million or $0.63 per diluted share. Net income in
fiscal 2001 included goodwill amortization expense of $20 million or $0.30 per
diluted share.

BUSINESS SEGMENTS

LIGHT VEHICLE SYSTEMS

2003 COMPARED TO 2002

Light Vehicle Systems (LVS) sales increased to $4,355 million in fiscal
2003, up $754 million, or 21 percent, from $3,601 million a year ago. Foreign
currency translation, primarily as a result of the stronger euro, favorably
impacted sales by approximately $240 million and the acquisition of Zeuna
Starker added $550 million in sales.

LVS operating income was $147 million in fiscal 2003, down $39 million, or
21 percent, from fiscal 2002. During fiscal 2003, LVS experienced narrowing
margins, due primarily to industry overcapacity, customer price concessions and
increases in material costs. As a result, operating margin declined to 3.4
percent from 5.2 percent in fiscal 2002. As part of the company's long-term
strategy to reduce vertical integration, concentrate on systems design and
integration and focus on core competencies, it sold its exhaust tube
manufacturing facility. Fiscal 2003 operating income included a $20 million gain
on the sale of this facility. This gain was offset by an $11 million charge
related to the previously discussed account reconciliations and information
system implementation issues in a facility in Mexico. Higher product launch
costs and steel and other steel related costs of approximately $8 million and
$20 million, respectively, also negatively impacted operating income. As part of
an ongoing strategy to implement actions to improve profitability and to better
align LVS' capacity with market conditions, LVS continued its restructuring
efforts and recorded $19 million and $7 million of restructuring charges in
fiscal 2003 and 2002, respectively. These charges included costs associated with
facility rationalization and consolidations and workforce reductions. For more
information concerning the status of LVS' restructuring programs, see Note 4 of
the Notes to Consolidated Financial Statements.

2002 COMPARED TO 2001

LVS sales increased to $3,601 million in fiscal 2002, up $43 million from
$3,558 million in fiscal 2001. Sales were up in fiscal 2002 principally due to
new business awards. Acquisition activity added approximately $80 million to
sales in fiscal 2002 due to the inclusion of two previously unconsolidated joint
ventures in
25

Germany and China for which a controlling interest was acquired in fiscal 2002.
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.

LVS operating income was $186 million in fiscal 2002, compared to $184
million in fiscal 2001. Operating margins were 5.2 percent in fiscal 2002 and
2001. Operating margins were impacted by pricing pressure from the vehicle
manufacturers, higher engineering and selling, general and administrative costs
of $7 million, start-up costs associated with a new Detroit manufacturing
facility of approximately $9 million and increases in steel costs of
approximately $3 million. Restructuring costs totaled $7 million and $27 million
in fiscal 2002 and 2001, respectively, as LVS continued to identify and
implement cost-reduction initiatives to mitigate the pricing pressures from the
vehicle manufacturers.

COMMERCIAL VEHICLE SYSTEMS

2003 COMPARED TO 2002

Commercial Vehicle Systems (CVS) sales were $2,422 million, up $173
million, or eight percent, from fiscal 2002. Foreign currency translation
increased sales by approximately $98 million, as compared to fiscal 2002. During
fiscal 2003, CVS sold net assets related to its off-highway planetary axle
products. The loss of sales associated with this transaction was approximately
$90 million in fiscal 2003. Removing the effects of currency and the sale of the
off-highway axle business, sales would have been higher than fiscal 2002 by
approximately $165 million. This was primarily due to higher trailer volumes in
North America, additional sales in Mexico and sales growth in China. These
increases were partially offset by declines in the North American heavy-duty
truck markets (also known as Class 8 trucks), which experienced production
declines of 3.0 percent due in part to buyers purchasing Class 8 trucks in
fiscal 2002 in advance of the emissions standards change that occurred on
October 1, 2002.

CVS operating income was $122 million, an increase of $34 million from
fiscal 2002. Operating margin improved to 5.0 percent, up from 3.9 percent in
fiscal 2002. The increase in operating income is largely attributable to the
higher sales volumes and cost savings resulting from prior year restructuring
programs and other cost-reduction actions. These cost reductions were partially
offset by higher engineering and warranty costs of $10 million in fiscal 2003.
Restructuring charges attributable to the CVS segment were $6 million in fiscal
2002.

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 $88 million, an increase of $96 million from
fiscal 2001. Operating margin improved to 3.9 percent, up from (0.4) percent in
fiscal 2001. Restructuring charges attributable to the CVS segment were $6
million and $40 million, respectively, in fiscal 2002 and 2001. Cost savings
from these restructuring programs and other cost-reduction actions resulted in
CVS lowering its fixed cost structure and contributed to the operating margin
improvement.

LIGHT VEHICLE AFTERMARKET

2003 COMPARED TO 2002

Light Vehicle Aftermarket (LVA) sales were $845 million in fiscal 2003, a
three percent decrease from $875 million in the prior year. Favorable foreign
currency translation increased sales by approximately $30 million and the
consolidation of a joint venture in Venezuela as of October 1, 2002 added sales
of $15 million. Despite these increases, sales declined as LVA continued to
experience lower demand across all product lines during fiscal 2003. Increasing
global competition, customer consolidation and the decreased need
26

for replacement parts, due to the longer life and improved quality of original
equipment parts, continued to weaken demand for these products.

LVA operating income was $31 million in fiscal 2003, with an operating
margin of 3.7 percent, compared to operating income of $66 million and an
operating margin of 7.5 percent in fiscal 2002. Lower volumes, price decreases,
higher steel prices of approximately $5 million, and higher changeover and
product returns costs of approximately $7 million contributed to the decrease
from the prior year. Included in operating income in fiscal 2002 was a $6
million gain on sale of the company's exhaust accessories manufacturing
operations.

2002 COMPARED TO 2001

LVA sales were $875 million in fiscal 2002, a two percent decrease from
$889 million in fiscal 2001. LVA continued to experience lower demand in exhaust
and ride control products during fiscal 2002, as the quality of original
equipment parts continued to weaken demand for these products.

LVA operating income was $66 million in fiscal 2002, with an operating
margin of 7.5 percent, compared to operating income of $46 million and an
operating margin of 5.2 percent in fiscal 2001. Despite lower sales for
aftermarket parts, LVA was able to increase its operating margin, as the result
of improved pricing and cost-reduction activities.

AFFILIATES

At September 30, 2003, the company had investments in 10 joint ventures
that were not majority-owned or controlled and were accounted for under the
equity method of accounting. These strategic alliances provide for sales,
product design, development and manufacturing in certain product and geographic
areas. Aggregate sales of these affiliates were $1,092 million, $1,565 million
and $1,641 million in fiscal 2003, 2002 and 2001, respectively. The decrease in
sales in fiscal 2003 is principally due to the acquisition of the remaining 51
percent interest in Zeuna Starker in the second quarter of fiscal 2003.

The company's equity in earnings (losses) of affiliates was $8 million in
fiscal 2003, $(3) million in fiscal 2002, and $4 million in fiscal 2001. Cash
dividends to ArvinMeritor were $19 million in fiscal 2003 and 2002 and $24
million in fiscal 2001.

FINANCIAL CONDITION

The company remains committed to strong cash flow generation and investment
grade capital structure. The company's primary source of liquidity continues to
be cash generated from operations, supplemented by its accounts receivables
securitization programs and, as required, borrowings on the revolving credit
facilities. The company's total debt to capitalization ratio was 62 percent at
September 30, 2003 compared to 65 percent at September 30, 2002.

CASH FLOWS

OPERATING CASH FLOW -- Cash flow from operations was $255 million in fiscal
2003, up $71 million from fiscal 2002. The increase is largely attributable to
the accounts receivable securitization program. Operating cash flow for fiscal
2003 included net receivable sales of $94 million. The company increased its
balance outstanding under its U.S. accounts receivable facility and used the
proceeds from these receivables sales to fund the acquisition of the remaining
51-percent interest in Zeuna Starker and for other general corporate purposes.
During fiscal 2002, as a result of strong cash flow, the company reduced its
balance outstanding under the accounts receivable securitization program by $106
million. Offsetting the increase in receivable sales in fiscal 2003 were higher
pension and retiree medical contributions of $27 million and higher working
capital levels primarily due to payments in fiscal 2003 for taxes and incentive
compensation that were expensed in fiscal 2002, higher inventory levels and
additional investments in customer reimbursable tooling. Working capital as a
percentage of sales at September 30, 2003, 2002 and 2001 was 6.6 percent, 4.3
percent and 4.2 percent, respectively. In computing this ratio, the company
defines working capital as current assets, excluding cash and cash equivalents,
less current liabilities, excluding short-term debt. The company then

27

adjusts current assets to include receivables sold under the securitization and
factoring programs. Cash flow from operations was $605 million in fiscal 2001.

INVESTING CASH FLOW -- Cash used for investing activities was $172 million
in fiscal 2003, $198 million in fiscal 2002 and $210 million in fiscal 2001.
Capital expenditures increased to $193 million in fiscal 2003 from $184 million
in fiscal 2002. Capital expenditures were $206 million in fiscal 2001. The
company continues to aggressively manage its capital expenditures. As a
percentage of sales, capital expenditures continued to decline and were 2.5
percent, 2.7 percent and 3.0 percent of sales in fiscal 2003, 2002 and 2001,
respectively. During fiscal 2003, the company used $88 million of cash for the
acquisition of businesses and other investments compared to $25 million and $34
million in fiscal 2002 and 2001, respectively. The increase in fiscal 2003 was
principally due to the acquisition of Zeuna Starker, which used cash of $69
million. The company received proceeds of $109 million from the disposition of
property and businesses in fiscal 2003 principally from the sale of its exhaust
tube manufacturing facility and its off-highway planetary axle business. During
fiscal 2002, the company received proceeds of $11 million from the sale of its
exhaust accessories manufacturing operations (See Note 5 of the Notes to
Consolidated Financial Statements). During fiscal 2001, the company received $30
million of proceeds from dispositions of assets.

FINANCING CASH FLOW -- Cash used for financing activities was $56 million
in fiscal 2003, compared to $32 million in fiscal 2002 and $402 million in
fiscal 2001. The company increased its amount outstanding on revolving debt by
$26 million in fiscal 2003 and used this and other sources of cash to repay
lines of credit and other debt, principally related to the payoff of $23 million
of debt associated with the sale of the exhaust tube manufacturing facility. The
company also paid down certain higher cost debt assumed as a result of the
acquisition of Zeuna Starker. 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 used $27 million of
cash in fiscal 2002 and $320 million in fiscal 2001, to reduce total debt. The
company paid dividends of $27 million in fiscal 2003 and 2002 and $51 million in
fiscal 2001. In fiscal 2002, proceeds of $22 million were received from the
exercise of stock options. In fiscal 2001 the company made payments of $31
million for the repurchase of its stock.

LIQUIDITY

The company is contractually obligated to make payments as follows (in
millions):

- ---------------

(1) Excludes fair value adjustment of notes of $46 million

In addition to the obligations in the table, the company sponsors defined
benefit pension plans that cover most of its U.S. employees and certain non-U.S.
employees. The company's funding practice 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. Management expects funding for its retirement pension plans of
approximately $150 million in fiscal 2004.

The company also 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. Management expects medical
plan benefit payments of approximately $70 million in fiscal 2004.

28

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 credit facilities require the company to maintain a total net debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio
no greater than 3.25x and a minimum fixed charge coverage ratio (EBITDA less
capital expenditures to interest expense) no less than 1.50x. At September 30,
2003, the company was in compliance with all covenants.

The company has $150 million remaining under the shelf registration filed
with the SEC in April 2001 (see Note 14 of the Notes to Consolidated Financial
Statements).

LEASES -- One operating lease requires the company to maintain financial
ratios that are similar to those required by the company's revolving credit
agreements. At September 30, 2003, the company was in compliance with all
covenants (see Note 14 of the Notes to Consolidated Financial Statements). The
company has residual value guarantees of $29 million related to two of its
leases.

ACCOUNTS RECEIVABLE SECURITIZATION FACILITY -- As discussed in Note 7 of
the Notes to Consolidated Financial Statements, the company participates in two
accounts receivable securitization programs 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 eligible trade receivables of certain U.S.
subsidiaries to a group of banks. As of September 30, 2003 and 2002, the company
had utilized $210 million and $105 million, respectively, of the accounts
receivable securitization facility. In addition to the U.S. securitization
program, Zeuna Starker had entered into an agreement to sell an undivided
interest in up to 50 million euro of eligible trade receivables to a bank. As a
result of the acquisition of the remaining 51-percent interest in Zeuna Starker,
the company amended this agreement and continued selling receivables under this
accounts receivable securitization program. As of September 30, 2003, the
company had utilized 24 million euro ($27 million) of the accounts receivable
securitization facility. The U.S. accounts receivable securitization program
matures in September 2004 and the company expects to renew the facility at that
time. The euro program matures in March 2005.

In addition to its securitization programs, several of the company's
European subsidiaries factor accounts receivable with financial institutions.
Such receivables are factored without recourse to the company and are excluded
from accounts receivable at September 30, 2003. The amounts of factored
receivables were $47 million and $60 million at September 30, 2003 and 2002,
respectively. There can be no assurance that this facility will be used or
available to the company in the future.

If the company's credit ratings were reduced to certain levels, or if
certain receivables performance-based covenants were not met, it would
constitute a termination event, which, at the option of the banks, could result
in termination of the facilities. At September 30, 2003, the company was in
compliance with all covenants.

On May 20, 2003, Standard & Poor's (S&P) downgraded the company's long-term
debt to BB+ from BBB-. Borrowings under the company's revolving credit
facilities are subject to interest based on quoted LIBOR rates plus a margin,
and a facility fee, both of which are based on the company's credit rating. As a
result of the downgrading by S&P, the applicable margin over the LIBOR rate
increased to 115 basis points from 105 basis points, and the facility fee
increased to 22.5 basis points from 20.0 basis points. This increase had no
material effect on interest expense, net and other for fiscal 2003. Also as a
result of this downgrade, the method of determining bank reserves and
receivables eligible for sale under the U.S. accounts receivable securitization
facility was modified and the program fee increased to 50.0 basis points from
37.5 basis points. At September 30, 2003, the amount of receivables eligible for
sale was reduced by approximately $40 million as a result of the downgrade.

On July 8, 2003, following the announcement of the intended tender offer to
acquire all of the outstanding shares of Dana Corporation, S&P and Moody's
Investors Service placed the company on negative credit watch, indicating that
the company's current credit ratings of BB+ and Baa3, respectively, are under
review. These actions by the rating agencies had no impact on the cost or
availability of borrowings under the revolving credit facilities or sales of
receivables under the securitization facility.

29

TENDER OFFER

On July 9, 2003, the company commenced a tender offer to acquire all of the
outstanding shares of Dana Corporation (Dana) for $15.00 per share in cash. On
July 22, 2003, Dana's Board of Directors recommended that its shareowners reject
the company's initial cash tender offer. On November 17, 2003, the company
increased its tender offer to $18.00 per share in cash and indicated it would
terminate its offer on December 2, 2003 unless the Dana Board of Directors
agreed to begin negotiating a definitive merger agreement. On November 24, 2003,
following Dana's announcement that its Board of Directors recommended that its
shareowners reject the company's increased offer, the company announced that it
had terminated its $18.00 per share all cash tender offer. As a result of the
company's decision to terminate its tender offer, the company expects to record
a net charge of approximately $8 million ($5 million after-tax, or $0.07 per
diluted share) in the first quarter of fiscal 2004. The pre-tax charge includes
approximately $15 million of direct incremental acquisition costs incurred since
the announcement of the tender offer and a gain of approximately $7 million
related to the sale of Dana stock owned by the company.

Further information concerning this tender offer can be found in the
Schedule TO, as amended, filed by the company with the Securities and Exchange
Commission (File No. 5-10058).

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. Our 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.
plans are 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:

The discount 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. The rate of compensation increase represents the
long-term assumption for expected increases to salaries for pay-related plans.

30

The effects of the indicated increase and decrease in selected assumptions,
assuming no changes in benefit levels and no amortization of gains or losses for
the plans in 2004, is shown below (in millions):

- ---------------

NA -- Not Applicable

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):

The discount rate is the rate that the accumulated projected benefit
obligation is determined using assumptions similar 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 2004 is an increase in health care
costs of 8.0 percent. For measurement purposes, the annual increase in health
care costs was assumed to decrease gradually to 5.0 percent by fiscal 2011 and
remain at that level thereafter.

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):

PRODUCT WARRANTIES -- The company's Commercial Vehicle Systems (CVS) and
Light Vehicle Aftermarket (LVA) segments record product warranty costs at the
time of shipment of products to customers. Warranty reserves are based primarily
on factors, which include past claims experience, sales history, product
manufacturing and engineering changes and industry developments. In addition,
liabilities for product recall campaigns are recorded at the time the company's
obligation is known and can be reasonably

31

estimated. The company's Light Vehicle Systems (LVS) segment records product
warranty liabilities based on its individual customer or warranty-sharing
agreements. Product warranties are recorded for known warranty issues when
amounts can be reasonably estimated.

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 costs and indemnity based on
the history and nature of filed claims to date and Maremont's experience since
February 1, 2001. See Note 21 of 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 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.

IMPAIRMENT OF LONG-LIVED ASSETS, INCLUDING GOODWILL -- Long-lived assets,
excluding goodwill, to be held and used are reviewed for impairment whenever
adverse events or changes in circumstances indicate a possible impairment. An
impairment loss is recognized when the carrying value exceeds the fair value.
Long-lived assets held for sale are recorded at the lower of their carrying
amount or fair value less the cost to sell. Goodwill is reviewed annually, or
more frequently if certain indicators arise, by using discounted cash flows and
market multiples to determine the fair value of each reporting unit. An
impairment loss may be recognized if the review indicates that the carrying
value of the reporting unit exceeds its fair value.

INCOME TAXES -- Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The company records a valuation allowance
for which utilization of the deferred tax asset is uncertain. Management
judgment is required in determining the company's provision for income taxes,
deferred tax assets and liabilities and the valuation allowance recorded against
the company's net deferred tax assets. The valuation allowance would need to be
adjusted in the event future taxable income is materially different than amounts
estimated. Significant factors considered by management in its determination of
the probability of the realization of the deferred tax assets include: (a)
historical operating results, (b) expectations of future earnings and (c) the
extended period of time over which the retirement medical and pension
liabilities will be paid.

NEW ACCOUNTING PRONOUNCEMENTS

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
32

broadens the definition of discontinued operations to include a component of a
segment. The company adopted this standard effective October 1, 2002. The
adoption of SFAS 144 did not have an impact on the company's 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." 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 company adopted this standard for exit or disposal activities
initiated after December 31, 2002.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires a guarantor to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation it assumes under the guarantee. This requirement applies to
guarantees issued after December 31, 2002. Guarantees issued prior to January 1,
2003, are not subject to the recognition and measurement provisions of FIN 45
but are subject to expanded disclosure requirements. Disclosure of residual
value guarantees under certain leases is included in Note 14 of the Notes to
Consolidated Financial Statements and information related to indemnification
agreements is included in Note 21 of the Notes to Consolidated Financial
Statements. Disclosure related to the company's product warranty obligations is
included in Note 12 of the Notes to Consolidated Financial Statements. The
adoption of this accounting standard did not have a material impact on the
company's results of operations or financial position in fiscal 2003.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." This interpretation provides
guidance on whether or not a variable interest entity, in which the company
holds a variable interest, should be consolidated with the company. FIN 46
applied immediately to variable interest entities created after January 31,
2003. Variable interest entities created before February 1, 2003 are subject to
the provisions of FIN 46 for the first interim period beginning after December
15, 2003. The company has chosen to adopt the provisions of FIN 46 in the fourth
quarter of fiscal 2003. Upon adoption, the company recorded a $6 million charge
($4 million after-tax, or $0.06 per diluted share) as a cumulative effect of a
change in accounting principle for the difference between the net book value of
the leased assets and the company's obligation under one of its leases. The
effect upon adoption to the company's financial position was to increase
property and other assets by $50 million and increase long-term debt by $54
million. In connection with the sale of the exhaust tube manufacturing facility,
the company repaid $23 million of the long-term debt that was consolidated by
the company as a result of the adoption of FIN 46. In addition, management has
determined that a wholly owned finance subsidiary trust of the company is a
variable interest entity in which the company is not the primary beneficiary. As
a result, the company no longer consolidates the trust, which issued $39 million
of outstanding preferred capital securities, and has included as long-term debt
$39 million of outstanding 9.5 percent junior subordinated debentures due to the
trust. There was no impact to the company's financial position or results of
operations as a result of the de-consolidation of the trust (see Note 14 of the
Notes to Consolidated Financial Statements).

Effective October 1, 2002, the company voluntarily changed to the fair
value method of accounting for its stock-based compensation plans and began
expensing the fair value of stock options. In December 2002, the FASB issued
Statement of Financial Accounting Standards No. 148 (SFAS 148), "Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value method. The company has elected the modified
prospective method, which allows for the recognition of compensation expense for
the non-vested portion of previously issued stock options, as well as for new
grants of stock options. The modified prospective method does not require
restatement of prior period results. The company recorded compensation expense
for fiscal 2003 of $7 million ($5 million after-tax, or $0.07 per diluted
share). Disclosure of the impact for fiscal 2002 and 2001, if the fair value
method had been applied for those periods, is included in Note 17 of the Notes
to Consolidated Financial Statements.

33

INTERNATIONAL OPERATIONS

Approximately 48 percent of the company's total assets as of September 30,
2003, and 46 percent of fiscal 2003 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.

It is difficult to predict the impact the euro and other currencies will
have on the company's sales and operating income 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 15 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 14 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 movement in foreign currency exchange rates and interest rates
applied to the underlying exposures described above. As of September 30, 2003,
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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quantitative and Qualitative Disclosures About Market
Risk.

34

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, 2003 and
2002, 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, 2003. 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, 2003 and 2002, and the results of their operations
and their cash flows for each of the three years in the fiscal year ended
September 30, 2003 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, effective
July 1, 2003, the Company changed its method of accounting for its interests in
variable interest entities, and effective October 1, 2001, the company changed
its method of accounting for goodwill.

DELOITTE & TOUCHE LLP
Detroit, Michigan
December 19, 2003

35

ARVINMERITOR, INC.

STATEMENT OF CONSOLIDATED INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

See Notes to Consolidated Financial Statements
36

ARVINMERITOR, INC.

CONSOLIDATED BALANCE SHEET
(IN MILLIONS)

See Notes to Consolidated Financial Statements
37

ARVINMERITOR, INC.

STATEMENT OF CONSOLIDATED CASH FLOWS
(IN MILLIONS)

See Notes to Consolidated Financial Statements
38

ARVINMERITOR, INC.

STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

See Notes to Consolidated Financial Statements
39

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.

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. The
2003, 2002 and 2001 fiscal years ended on September 28, 2003, September 29, 2002
and September 30, 2001, respectively. 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 related disclosures. Significant estimates and
assumptions were used to value product warranty liabilities (see Note 12),
retiree medical and pension obligations (see Notes 18 and 19), income taxes (see
Note 20), and contingencies including asbestos and environmental matters (see
Note 21).

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 11). The company's consolidated
financial statements also include those variable interest entities in which the
company holds a variable interest and is the primary beneficiary (see Note 3).

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

Long-lived assets, excluding goodwill, to be held and used are reviewed for
impairment whenever adverse events or changes in circumstances indicate a
possible impairment. An impairment loss is recognized when the carrying value
exceeds the fair value. Long-lived assets held for sale are recorded at the
lower of their carrying amount or fair value less cost to sell. Goodwill is
reviewed for impairment annually, or more frequently if certain indicators
arise, by using discounted cash flows and market multiples to determine the fair
value of each reporting unit. An impairment loss may be recognized if the review
indicates that the carrying value of the reporting unit exceeds its fair value.

40

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):

Other

Information relative to other accounting policies is included in the
related notes, specifically, inventories (Note 8), customer reimbursable tooling
and engineering (Note 9), property and depreciation (Note 10), capitalized
software (Note 11), product warranties (Note 12), financial instruments (Note
15), stock options (Note 17), retirement medical plans (Note 18) retirement
pension plans (Note 19), income taxes (Note 20) and environmental and asbestos
(Note 21).

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 adoption of SFAS
144 did not have an impact on the company's 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." 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 company adopted this standard for exit or disposal activities
initiated after December 31, 2002.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires a guarantor to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation it assumes under the guarantee. This requirement applies to
guarantees issued after December 31, 2002. Guarantees issued prior to January 1,
2003, are not subject to the recognition and measurement provisions of FIN 45
but are subject to expanded disclosure requirements. Disclosure of residual
value guarantees under certain leases is included in Note 14 and information
related to indemnification agreements is included in Note 21. Disclosure related
to the company's product warranty liabilities is included in Note 12.

41

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." This interpretation provides
guidance on whether or not a variable interest entity, in which the company
holds a variable interest, should be consolidated by the company. FIN 46 applied
immediately to variable interest entities created after January 31, 2003.
Variable interest entities created before February 1, 2003 are subject to the
provisions of FIN 46 for the first interim period beginning after December 15,
2003. The company has chosen to adopt the provisions of FIN 46 in the fourth
quarter of fiscal 2003. Disclosure of the impact of adopting FIN 46 is included
in Note 3.

Effective October 1, 2002, the company voluntarily changed to the fair
value method of accounting for its stock-based compensation plans and began
expensing the fair value of stock options. In December 2002, the FASB issued
Statement of Financial Accounting Standards No. 148 (SFAS 148), "Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value method. The company has elected the modified
prospective method, which allows for the recognition of compensation expense for
the non-vested portion of previously issued stock options, as well as for new
grants of stock options. The modified prospective method does not require
restatement of prior period results. The company recorded compensation expense
for fiscal 2003 of $7 million ($5 million after-tax, or $0.07 per diluted share)
associated with the expensing of stock options. Disclosure of the impact for
fiscal 2002 and 2001, if the fair value method had been applied, for those
periods, is included in Note 17.

3. ACCOUNTING CHANGES

As discussed in Note 2, effective July 1, 2003 the company adopted FIN 46.
The company determined that an entity related to one of its lease agreements is
a variable interest entity in which the company had a variable interest, and
accordingly, was consolidated. Management concluded that the company held a
variable interest due to a residual value guarantee it is obligated for at the
end of the lease agreement. Upon adoption, the company recorded a $6 million
charge ($4 million after-tax, or $0.06 per diluted share) as a cumulative effect
of a change in accounting principle for the difference between the net book
value of the leased assets and the company's obligation under the lease. The
effect of adopting this accounting change on the company's financial position
was to increase property and other assets by $50 million and increase long-term
debt by $54 million. Information related to the company's leases is included in
Note 14. In addition, management has determined that a wholly owned finance
subsidiary trust of the company is a variable interest entity in which the
company is not the primary beneficiary. As a result, the company no longer
consolidates the trust. There was no impact to the company's financial position
or results of operations as a result of the de-consolidation of the trust (see
Note 14).

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. Upon adoption of SFAS 142, the company recorded an impairment loss
on goodwill for its coil coating operations as a cumulative effect of a change
in accounting principle 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. Information
regarding changes in the carrying value of goodwill by segment is included in
Note 22.

Fiscal 2001 net income would have been $55 million, or $0.83 per basic and
diluted share had the company been accounting for goodwill under SFAS 142 for
fiscal 2001.

4. RESTRUCTURING COSTS

The company has approved workforce reductions and facility consolidations
in its Light Vehicle Systems (LVS) business segment. These measures follow the
management realignment of the company's LVS
42

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

business and are also intended to address the competitive challenges in the
automotive supplier industry. Additionally, the company has approved plans for a
work force reduction and facility closure in its Light Vehicle Aftermarket (LVA)
business segment. The LVA actions are a result of weak demand in the exhaust
aftermarket business. During fiscal 2003, the company recorded restructuring
costs totaling $22 million ($15 million after-tax, or $0.22 per diluted share)
related to these programs. These costs included employee termination and benefit
costs of $13 million related to a reduction of approximately 400 salaried and
400 hourly employees and $9 million associated with asset impairment costs from
facility closures and the rationalization of operations. At September 30, 2003,
$8 million of restructuring reserves relating to employee termination benefit
payments remained in the consolidated balance sheet. The company expects $6
million of the balance to be paid in fiscal 2004 with the remaining amounts
being paid in fiscal 2005 and 2006.

Also in fiscal 2003, the company recorded restructuring costs of $5 million
that were incurred as a result of the integration of Zeuna Starker GmbH & Co. KG
(Zeuna Starker) into the Light Vehicle Systems business. These costs relate to
severance and other termination benefits associated with approximately 300
employees of Zeuna Starker. The acquisition was accounted for using the purchase
method of accounting and these restructuring costs were reflected in the
purchase price allocation. At September 30, 2003, $4 million of restructuring
reserves related to this integration remained in the consolidated balance sheet.
The company expects a significant portion of the balance to be paid in fiscal
2004.

In the first quarter of fiscal 2002, as part of a plan to reduce fixed
costs, the company recorded a restructuring charge of $15 million ($10 million
after-tax, or $0.15 per diluted share) for severance and other employee costs
related to a net reduction of approximately 450 salaried employees. All such
employees have been terminated under this restructuring action.

During fiscal 2001, the company recorded a net restructuring charge of $67
million ($45 million after-tax, or $0.68 per 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. The fiscal
2001 net charges include employee termination benefits of $48 million related to
a net reduction of approximately 1,350 employees, with the balance primarily
associated with asset impairment costs from the rationalization of operations.
All such employees have been terminated under this restructuring action.

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 associated with asset impairment costs from the
rationalization of operations. All such employees have been terminated under
this restructuring action.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the changes in the restructuring reserves is as follows (in
millions):

5. ACQUISITIONS AND DIVESTITURES

In 1998, the company acquired a 49-percent interest in Zeuna Starker, a
German air and emissions systems company. In the second quarter of fiscal 2003,
the company purchased the remaining 51-percent interest in Zeuna Starker for a
net purchase price of $69 million. At September 30, 2003, the company has
initially recorded $107 million of goodwill associated with the purchase price
allocation. Incremental sales from Zeuna Starker were $550 million in fiscal
2003.

As part of the company's long-term strategy to be less vertically
integrated and to focus on core competencies, the company divested its exhaust
tube manufacturing facility during the fourth quarter of fiscal 2003. The
company received $67 million in cash, resulting in a gain of $36 million. The
company will continue to purchase exhaust tubing from the buyer through a supply
agreement through 2006. Management concluded that due to the supply agreement
terms, a portion of the gain should be deferred and recognized as income over
the supply agreement term. During fiscal 2003, $20 million ($14 million
after-tax, or $0.21 per diluted share) of the gain was recognized as a gain on
divestiture, with the remaining amount to be recognized in fiscal years 2004
through 2006. In connection with this transaction, the company used $23 million
of the proceeds to repay a portion of the long term debt, associated with this
facility, that was consolidated by the company as a result of the adoption of
FIN 46 (see Note 3).

The company completed the sale of net assets related to the manufacturing
and distribution of its off-highway planetary axle products in the second
quarter of fiscal 2003 for $36 million, resulting in a gain on divestiture of $2
million ($1 million after-tax, or $0.01 per diluted share). Sales of off-highway
planetary axle products were approximately $110 million in fiscal 2002. The
company did not consider these products core to its commercial vehicle systems
business.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In the third quarter of fiscal 2002, the company completed the sale of its
exhaust accessories manufacturing operations for $11 million in cash, resulting
in a gain of $6 million ($4 million after-tax, or $0.06 per diluted share). The
company did not consider this operation core to its aftermarket exhaust business
in North America.

6. OTHER CHARGES, NET

During fiscal 2001, the company recorded a charge of $12 million ($8
million after-tax, or $0.12 per diluted share) for an employee separation
agreement and $5 million ($3 million after-tax, or $0.05 per diluted share) for
additional environmental liability costs.

7. ACCOUNTS RECEIVABLE SECURITIZATION AND FACTORING

The company sells substantially all of the trade receivables of certain
U.S. subsidiaries to ArvinMeritor Receivables Corporation (ARC), a wholly owned,
special purpose subsidiary. ARC has entered into an agreement to sell an
undivided interest in up to $250 million of eligible receivables to certain bank
conduits that fund their purchases through the issuance of commercial paper. As
of September 30, 2003 and 2002 the company had utilized $210 million and $105
million, respectively, of the U.S. accounts receivable securitization facility.
As of September 30, 2003 and 2002 the banks had a preferential interest in $255
million and $201 million, respectively, of the remainder of the receivables held
at ARC to secure the obligation under the U.S. accounts receivable
securitization facility.

Zeuna Starker had entered into an agreement to sell an undivided interest
in up to 50 million euro of eligible trade receivables to a bank that funds its
purchases through the issuance of commercial paper. As a result of the
acquisition of the remaining 51-percent interest in Zeuna Starker, the company
amended this agreement and continued to sell receivables under this program. As
of September 30, 2003, the company had utilized 24 million euro ($27 million) of
this accounts receivable securitization facility. As of September 30, 2003, the
bank had a preferential interest in 4 million euro ($5 million) of the remainder
of the receivables held at Zeuna Starker to secure the obligation under the
asset securitization facility.

The company does not have a retained interest in the receivables sold, but
does perform collection and administrative functions. The receivables under
these programs were sold at fair market value and a discount on the sale was
recorded in interest expense, net and other. A discount of $5 million, $6
million and $3 million was recorded in fiscal years 2003, 2002 and 2001,
respectively. The gross amount of proceeds received from the sale of receivables
under these programs was $2,771 million, $2,351 million and $711 million for
fiscal 2003, 2002 and 2001 respectively. The U.S. accounts receivable
securitization program and the euro program mature in September 2004 and March
2005, respectively.

If the company's credit ratings were reduced to certain levels, or if
certain receivables performance-based covenants were not met, it would
constitute a termination event, which, at the option of the banks, could result
in termination of the facilities. At September 30, 2003, the company was in
compliance with all covenants.

In addition to its securitization programs, several of the company's
European subsidiaries factor eligible accounts receivables with financial
institutions. The receivables are factored without recourse to the company and
are excluded from accounts receivable. The amounts of factored receivables were
$47 million and $60 million at September 30, 2003 and 2002, respectively.

45

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. 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):

9. OTHER CURRENT ASSETS

Other Current Assets are summarized as follows (in millions):

Costs incurred for engineering and tooling projects, principally for light
vehicle products, for which customer reimbursement is contractually guaranteed
are classified as customer reimbursable tooling and engineering in Other Current
Assets. These costs are billed to the customer upon completion of the
engineering or tooling project. Provisions for losses are provided at the time
management expects costs to exceed anticipated customer reimbursement.

10. NET PROPERTY

Property is stated at cost. Depreciation of property is based on estimated
useful lives, generally using the straight-line method. Estimated useful lives
for buildings and improvements range from 10 to 50 years and estimated useful
lives for machinery and equipment range from 3 to 20 years. Significant renewals
and betterments are capitalized, and disposed or replaced property is written
off. Maintenance and repairs, as well as renewals of minor amounts, are charged
to expense. Company-owned tooling is classified as property and depreciated over
the shorter of its expected life or the life of the related vehicle platform,
generally not to exceed three years.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net Property is summarized as follows (in millions):

11. OTHER ASSETS

Other Assets are summarized as follows (in millions):

At September 30, 2003 and 2002, the company had investments in ten and
twelve joint ventures, respectively, which were accounted for using the equity
method of accounting. As discussed in Note 5, in the second fiscal quarter of
2003, the company purchased the remaining 51% interest in Zeuna Starker. Prior
to this transaction, the company's investment in Zeuna Starker was accounted for
using the equity method and was included in Investment in Affiliates.

In accordance with the provisions of Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, costs relating to internally developed or purchased software in the
preliminary project stage and the post-implementation stage are expensed as
incurred. Costs in the application development stage that meet the criteria for
capitalization are capitalized and amortized using the straight-line basis over
the economic useful life.

The company's trademarks, which were determined to have an indefinite life,
are not amortized. Patents, licenses and other intangible assets are amortized
over their contractual or estimated useful lives, as appropriate. The company
recorded $7 million of other intangible assets, related to tradenames and
customer relationships in connection with the acquisition of Zeuna Starker. The
company anticipates amortization

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expense for patents, licenses and other intangible assets of approximately $3
million per year for fiscal 2004 and 2005, $2 million in fiscal 2006 and $1
million per year for fiscal 2007 and 2008.

12. OTHER CURRENT LIABILITIES

Other Current Liabilities are summarized as follows (in millions):

The company's Commercial Vehicle Systems (CVS) and Light Vehicle
Aftermarket (LVA) segments record product warranty costs at the time of shipment
of products to customers. Warranty reserves are primarily based on factors,
which include past claims experience, sales history, product manufacturing and
engineering changes and industry developments. Liabilities for product recall
campaigns are recorded at the time the company's obligation is known and can be
reasonably estimated. As of September 30, 2003 and 2002, product warranties
included a product recall campaign liability associated with TRW model 20-EDL
tie rod ends (see Note 21).

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

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

13. OTHER LIABILITIES

Other Liabilities are summarized as follows (in millions):

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. LONG-TERM DEBT

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

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 to be offered in one or more series on terms
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 from both offerings, net of
underwriting discounts and commissions, were used to reduce outstanding
indebtedness under the revolving credit facilities and for general corporate
purposes.

Subordinated Debentures

In January 1997, Arvin Capital I (the trust), a wholly owned finance
subsidiary trust of ArvinMeritor, issued 9.5 percent Company-Obligated
Mandatorily Redeemable Preferred Capital Securities of a Subsidiary Trust
(preferred capital securities), due February 1, 2027, and callable in February
2007 at a premium and in February 2017 at par. The proceeds from the capital
securities are invested entirely in 9.5 percent junior subordinated debentures
of the company, which are the sole assets of the trust. The company fully and
unconditionally guarantees the trust's obligation to the holders of the
preferred capital securities.

Prior to fiscal 2003, the trust was consolidated by the company and the
preferred capital securities were included in the consolidated balance sheet.
During the fourth quarter of fiscal 2003, the company adopted FIN 46. Under the
provisions of FIN 46, it was determined that the trust is a variable interest
entity in which the company does not have a variable interest and therefore is
not the primary beneficiary. Upon adoption of FIN 46, the company no longer
consolidates the trust, which issued the $39 million of outstanding preferred
capital securities, and has included in long-term debt $39 million of junior
subordinated debentures due to the trust. There was no impact to net income as a
result of the de-consolidation of the trust.

49

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Bank Revolving Credit Facilities

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, 2003, the margin over the
LIBOR rate was 115 basis points, and the facility fee was 22.5 basis points.

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 $46 million and $48
million as of September 30, 2003 and 2002, respectively, 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 manufacturing and
administrative assets. Under two of the agreements, the assets are held by
variable interest entities, which were established and are owned by independent
third parties who provide financing through debt and equity participation. The
company has determined that it has a variable interest in one of the variable
interest entities, due to a residual value guarantee that obligates the company,
not the third party owners, to absorb a majority of the variable interest
entity's losses. The assets and liabilities of this variable interest entity
were consolidated in the fourth quarter of fiscal 2003 and are included in Net
Property, Other Assets and Long Term Debt in the consolidated balance sheet at
September 30, 2003 (see Note 3).

Management has concluded that the company's other leasing arrangements are
not with variable interest entities, and therefore such entities are not subject
to consolidation by the company. The company has provided $29 million of
residual value guarantees of which $3 million are associated with its
unconsolidated leasing arrangements.

Future minimum lease payments under these and other operating leases are
$22 million in 2004, $21 million in 2005, $19 million in 2006, $18 million in
2007, $18 million in 2008 and $40 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 no
greater than 3.25x and a minimum fixed charge coverage ratio (EBITDA less
capital expenditures to interest expense) no less than 1.50x. In addition, an
operating lease requires the company to maintain financial ratios that are
similar to those required under the company's credit facilities. At September
30, 2003, the company was in compliance with all covenants.

50

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. FINANCIAL INSTRUMENTS

The company's financial instruments include cash and cash equivalents,
marketable securities, short-term debt, long-term debt, 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 14.

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 2003 and 2002 did not have a significant
effect on the company's results of operations. In addition, as of September 30,
2003 and 2002, the fair value of foreign exchange contracts was not material.
The company does not enter into derivative instruments for speculative purposes.

Fair Value

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

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.

Marketable securities -- Fair values are based on current market prices of
the underlying investment.

Interest rate swaps -- Fair values are estimated by obtaining quotes from
external sources.

Short-term debt -- The carrying value of short-term debt approximates fair
value because of the short maturity of these borrowings.

Long-term debt -- Fair values are based on the company's current
incremental borrowing rate for similar types of borrowing arrangements.

16. 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

51

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 2003, there were 4.2 million
shares available for future grants under these plans.

Restricted Stock

Restricted stock grants to officers and other employees are summarized as
follows:

- ---------------
(1) 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) Includes shares of restricted stock awarded to the company's officers.
Vesting of these shares is also subject to satisfaction of conditions
related to the company's financial performance.

(3) 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.

As 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 expensed
over the vesting period. The company 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 $9 million, $6 million, and $4 million for fiscal years
2003, 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.

52

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During fiscal 2003, approximately 0.6 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.

17. 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. Stock options vest over a three year period from the date of grant.

Information relative to stock options is as follows (shares in thousands,
exercise price represents a weighted average):

- ---------------
(1) In July 2001, certain stock options were converted to restricted shares of
Common Stock (see Note 16).

The following table provides additional information about outstanding stock
options at September 30, 2003 (shares in thousands, exercise price represents a
weighted average):

As discussed in Note 2, effective October 1, 2002, the company voluntarily
changed its accounting for stock options granted under its various stock-based
compensation plans and began expensing the fair value of stock options. If the
company had expensed the fair value of stock options for fiscal 2002 and 2001,
the

53

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

company's net income and earnings per share would have been reduced to the pro
forma amounts shown below (in millions, except per share amounts).

The weighted average fair values of options granted were $5.20, $6.81 and
$3.93 per share in fiscal 2003, 2002 and 2001, respectively. The fair value of
each option was estimated on the date of grant using the Black-Scholes pricing
model and the following assumptions:

18. 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):

The discount rate is used to calculate the present value of the APBO. 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 2004 is an increase in health care costs of 8.0 percent.

54

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The APBO as of the June 30 measurement date is summarized as follows (in
millions):

The following reconciles the change in the APBO and the amounts included in
the consolidated balance sheet (in millions):

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. In fiscal 2002, the company
approved changes to certain retiree medical plans. These plan amendments were
implemented in fiscal 2003 and were reflected in the APBO as of September 30,
2002.

The retiree medical liability is included in the consolidated balance sheet
as follows (in millions):

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of retiree medical expense are as follows (in millions):

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):

19. 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. The Non-U.S. plans
include 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:

The discount rate is used to calculate the present value of the PBO. The
rate used reflects a rate of return 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.

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

This rate is used in the calculation of assumed rate of return on plan assets, a
component of net periodic pension expense. The rate of compensation increase
represents the long-term assumption for expected increases to salaries for
pay-related plans. This rate was reduced in fiscal 2003 in the U.S. to 3.75%
from 4.25% to reflect management's expectations of future compensation
increases.

The following table reconciles the change in the PBO and the change in plan
assets (in millions):

The following reconciles the funded status with the amount included in the
consolidated balance sheet (in millions):

The increase in the PBO due to actuarial losses for fiscal 2003 and 2002
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

57

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. In addition, a significant impact on the
funded status has been the underperformance of the pension assets for both
fiscal 2003 and 2002. This was driven by worldwide financial market conditions.
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 2003 and 2002. 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 $294 million and $116 million in fiscal
2003 and 2002, 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):

The pension liability is included in Retirement Benefits in the
consolidated balance sheet as follows (in millions):

In accordance with Statement of Financial Accounting Standard 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):

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ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of net periodic pension expense are as follows (in
millions):

The company also sponsors certain defined contribution savings plans for
eligible employees. Expense related to these plans was $13 million, $11 million
and $11 million for fiscal 2003, 2002 and 2001, respectively.

20. INCOME TAXES

The components of the Provision for Income Taxes are summarized as follows
(in millions):

The deferred tax expense or benefit represents tax effects of current year
deductions or items of income that will be recognized in future period for tax
purposes. The deferred tax benefit primarily represents the tax benefit of
current year net operating losses and tax credits carried forward.

59

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net deferred income tax assets included in Other Current Assets in the
consolidated balance sheet consist of the tax effects of temporary differences
related to the following (in millions):

Net deferred income tax assets included in Other Assets in the consolidated
balance sheet consist of the tax effects of temporary differences related to the
following (in millions):

Management believes it is more likely than not that current and long-term
deferred tax assets 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 and pension liabilities will be paid. The
increase in the long-term deferred tax asset associated with intangible assets
was primarily driven by a restructuring of certain Brazilian operations, which
resulted in a benefit to the company's fiscal 2003 effective tax rate of 14.5%.
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 $186 million of net
operating losses and tax credit carryforwards expire between fiscal 2004 and
2022. The carryforward period for the remaining net operating losses and tax
credits is indefinite.

60

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:

The income tax provisions were calculated based upon the following
components of income before income taxes (in millions):

For fiscal 2003 and 2002, no provision has been made for U.S., state or
additional foreign income taxes related to approximately $411 million and $190
million, respectively of undistributed earnings of foreign subsidiaries that
have been or are intended to be permanently reinvested.

21. 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 eight
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, 2003, to be
approximately $33 million, of which $11 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,

61

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

principally at previously disposed-of properties. For these matters, management
has estimated the total reasonably possible costs the company could incur at
September 30, 2003, to be approximately $48 million, of which $22 million is
recorded as a liability.

Following are the components of the Superfund and Non-Superfund
environmental reserves (in millions):

A portion of the environmental reserves is included in Other Current
Liabilities (see Note 12), with the majority of the amounts recorded in Other
Liabilities (see Note 13).

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, and subject to the difficulties inherent in estimating these future
costs, the company believes that its expenditures for environmental capital
investment and remediation necessary to comply with present regulations
governing environmental protection and other expenditures for the resolution of
environmental claims will not have a material adverse effect on the company's
business, financial condition or results of operations. In addition, in future
periods, new laws and regulations, 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 Industries, Inc. ("Arvin") acquired
Maremont in 1986. Maremont's asbestos-related reserves and corresponding
asbestos-related recoveries are summarized as follows (in millions):

A portion of the asbestos-related recoveries and reserves are included in
Other Current Assets and Liabilities, with the majority of the amounts recorded
in Other Noncurrent Assets and Liabilities (see Notes 9, and 11 through 13).

62

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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. There were no significant billings to insurance companies related
to committed settlements in fiscal 2003. A 2003 review of CCR files indicated
that Maremont was not named as a defendant in certain previously recorded
unbilled settlements. Accordingly, the unbilled settlements and asbestos related
recoveries were reduced by $5 million.

Upon dissolution of the CCR in February 2001, Maremont began handling
asbestos-related claims through its own defense counsel and is committed to
examining the merits of each asbestos-related claim. Maremont had approximately
63,000 and 37,500 pending asbestos-related claims at September 30, 2003 and
2002, 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. 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. As of September 30, 2003 and 2002, Maremont used
experience factors for estimating indemnity and litigation liabilities using
data on actual experience in resolving claims since February 2001 and its
assessment of the nature of the claims. Billings to insurance companies for
indemnity and defense costs of resolved cases were $15 million in fiscal 2003.

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. Payments by the company
related to shortfall and other were $1 million in fiscal 2003.

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
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 recorded 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.

63

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

ArvinMeritor estimates the cost of its expanded recall of TRW model 20-EDL
tie rod ends to be approximately $17 million. 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 recorded a liability and offsetting receivable for the estimated
cost of its expanded recall campaign. As of September 30, 2003 and September 30,
2002, the company had recorded a receivable from TRW for $17 million. Although
the outcome of this matter cannot be predicted with certainty, the company
believes that it is entitled to reimbursement by TRW for its costs associated
with the campaign. In addition, at September 30, 2003 and 2002, the company
recorded $2 million and $4 million of receivables respectively from TRW for
reimbursement of customer claims paid to date covered by the TRW recall
campaign. The company recorded product warranty reserves for this matter of $7
million and $15 million, net of claims paid to date, as of September 30, 2003
and September 30, 2002, respectively. See Note 12 for additional information
related to the company's product warranties.

Indemnifications

The company has provided indemnifications in conjunction with certain
transactions, primarily divestitures. These indemnities address a variety of
matters, which may include environmental, tax, asbestos, and employment-related
matters, and the periods of indemnification vary in duration. The overall
maximum amount of the obligation under such indemnifications cannot be
reasonably estimated. The company is not aware of any claims or other
information that would give rise to material payments under such indemnities.

UBS Securities LLC acted as the company's financial advisor and the dealer
manager in connection with the tender offer for the outstanding shares of Dana
Corporation (see Note 25). The company has agreed to indemnify UBS Securities
LLC and certain related persons against various liabilities and expenses in
connection with its engagement, including various liabilities and expenses under
the federal securities laws.

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.

64

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

22. 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, motorcycles and
all-terrain vehicles, light trucks and sport utility vehicles to original
equipment manufacturers (OEMs). CVS supplies drivetrain systems and components,
including axles and drivelines, braking systems, suspension systems and exhaust
and ride control products, for medium- and heavy-duty trucks, trailers and
specialty vehicles to OEMs and the commercial vehicle aftermarket. LVA supplies
exhaust, ride control and filter products and other automotive parts to the
passenger car, light truck and sport utility 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:

Earnings:

65

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation and Amortization:

Capital Expenditures:

Segment Assets:

- ---------------

(1) Corporate assets consist primarily of cash, taxes and prepaid pension costs.
For fiscal 2003, 2002 and 2001, segment assets include $284 million, $165
million and $211 million, respectively, of receivables sold under the
accounts receivable securitization and factoring programs (see Note 7). As a
result, corporate assets are reduced by these amounts to account for the
impact of the sale.

Goodwill:

66

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the changes in the carrying value of goodwill is as follows
(in millions):

Sales by geographic area are based on the location of the selling unit.
Information on the company's geographic areas is summarized as follows (in
millions):

Sales by Geographic Area:

Assets by Geographic Area:

Sales to DaimlerChrysler AG represented 16 percent, 16 percent and 15
percent of the company's sales in fiscal 2003, 2002 and 2001, respectively.
Sales to General Motors Corporation comprised 12 percent,

67

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13 percent and 12 percent of the company's sales in fiscal 2003, 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 fiscal years ended September 30, 2003.

23. QUARTERLY FINANCIAL INFORMATION

The following is a condensed summary of the company's unaudited quarterly
results of operations for fiscal 2003 and 2002 and stock price data for fiscal
2003. The per share amounts are based on the weighted average shares outstanding
for that quarter.

Fourth quarter 2003 income before cumulative effect of accounting change
included a gain on the sale of the net assets associated with the company's
exhaust tube manufacturing facility of $14 million, or $0.21 per diluted share,
and a restructuring charge of $5 million, or $0.07 per diluted share. Third
quarter income before cumulative effect of accounting change included a
restructuring charge of $3 million, or $0.04 per diluted share. Second quarter
2003 income before cumulative effect of accounting change included a
restructuring charge of $7 million, or $0.10 per diluted share.

Also included in the fourth quarter of fiscal 2003 income before cumulative
effect of accounting change was a $6 million after-tax charge, or $0.09 per
diluted share, related to account reconciliations and information system
implementation issues in a facility in Mexico, of which $4 million related to
prior fiscal years. Account reconciliations include transactions previously not
identified or recorded, resulting from the failure to either reconcile accounts
or to resolve reconciliation issues in a timely matter. It has been determined
that the amount related to prior fiscal years is not material, both individually
and in the aggregate on both a quantitative and qualitative basis, to the trends
in the financial statements for the periods presented, to the prior periods
affected and to a fair presentation of the company's results of operations and
financial position.

68

ARVINMERITOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

First quarter 2002 income before cumulative effect of accounting change
included a restructuring charge of $10 million, or $0.15 per diluted share, and
third quarter 2002 net income included a gain on the sale of the company's
exhaust accessories manufacturing operations of $4 million, or $0.06 per basic
and diluted share.

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.

24. SUPPLEMENTAL FINANCIAL INFORMATION

25. SUBSEQUENT EVENT

On July 9, 2003, the company commenced a tender offer to acquire all of the
outstanding shares of Dana Corporation (Dana) for $15.00 per share in cash. On
July 22, 2003, Dana's Board of Directors recommended that its shareowners reject
the company's initial cash tender offer. On November 17, 2003, the company
increased its tender offer to $18.00 per share in cash and indicated it would
terminate its offer on December 2, 2003 unless the Dana Board of Directors
agreed to begin negotiating a definitive merger agreement. On November 24, 2003,
following Dana's announcement that its Board of Directors recommended that its
shareowners reject the company's increased offer, the company announced that it
had terminated its $18.00 per share all cash tender offer. As a result of the
company's decision to terminate its tender offer, the company expects to record
a net charge of approximately $8 million ($5 million after-tax, or $0.07 per
diluted share) in the first quarter of fiscal 2004. The pre-tax charge includes
approximately $15 million of direct incremental acquisition costs incurred since
the announcement of the tender offer and a gain of approximately $7 million
related to the sale of Dana stock owned by the company.

On December 18, 2003, the company signed a definitive agreement to sell its
75 percent shareholding in AP Amortiguadores S.A. (APA). The joint venture
manufactures shock absorbers for the global automotive market. Although the sale
is subject to regulatory approval, the company expects the transaction to be
completed in the second quarter of fiscal 2004. APA had sales of $158 million in
fiscal 2003.

69

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

As required by Rule 13a-15 under the Securities Exchange Act of 1934,
management, with the participation of Larry D. Yost, Chairman of the Board and
Chief Executive Officer, and S. Carl Soderstrom, Jr., Senior Vice President and
Chief Financial Officer, evaluated the effectiveness of the design and operation
of our disclosure controls and procedures as of September 30, 2003. Based upon
that evaluation, the Chief Executive Officer and the Chief Financial Officer
have concluded that, except as described in the next paragraph, our disclosure
controls and procedures are effective at a reasonable level of assurance 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.

In the fourth quarter of fiscal year 2003, management, in consultation with
the company's internal audit function, identified deficiencies in internal
controls relating to account reconciliations and information system
implementation issues at a facility in Mexico. This constituted a "reportable
condition" under the standards established by the American Institute of
Certified Public Accountants. These deficiencies impacted the reporting of
financial results by this facility over a period of several years (see Note 23
of the Notes to Consolidated Financial Statements under Item 8. Financial
Statements and Supplementary Data). It has been concluded that the amount
related to prior fiscal years is not material. Management has established a
remediation plan that is expected to be substantially complete by the end of the
first quarter of fiscal year 2004. This matter and the plan for remediation have
been discussed in detail with the company's Audit Committee and independent
auditors.

Except as described in the preceding paragraph, there have been no changes
in ArvinMeritor's disclosure controls and procedures in the fiscal quarter ended
September 30, 2003 that have materially affected or are reasonably likely to
materially affect our disclosure controls and procedures.

In connection with the rule, we continue to further review and document our
disclosure controls and procedures, including our internal control over
financial reporting, and may from time to time make changes aimed at enhancing
their effectiveness and ensuring that our systems evolve with the business.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ARVINMERITOR.

See the information under the captions Election of Directors, Information
as to Nominees for Directors and Continuing Directors, Compliance with Section
16(a) of the Exchange Act and Code of Ethics in the 2004 Proxy Statement. See
also the information with respect to executive officers of ArvinMeritor under
Item 4a of Part I. No director or nominee for director was selected pursuant to
any arrangement or understanding between that individual 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 director and any
other director, executive officer or person nominated to become a director or
executive officer.

ArvinMeritor has a separately designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934. The current members of the Audit Committee are William D. George,
Jr. (chairman), Charles H. Harff, Victoria B. Jackson and James E. Marley. The
Board of Directors has determined that ArvinMeritor has at least one "audit
committee financial expert" (as defined in Section 401(h) of Regulation S-K),
William D. George, Jr., serving on the Audit Committee. Mr. George is
"independent," as defined in the listing standards of the New York Stock
Exchange.

70

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 2004 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 2004 Proxy Statement.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

See the information under the caption Proposal to Approve the 2004
Directors Stock Plan -- Securities Authorized for Issuance under Other Equity
Compensation Plans in the 2004 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

PART IV

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

See the information under the caption Independent Accountants' Fees in the
2004 Proxy Statement.

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, 2003, 2002 and
2001.

Consolidated Balance Sheet, September 30, 2003 and 2002.

Statement of Consolidated Cash Flows, years ended September 30, 2003, 2002
and 2001.

Statement of Consolidated Shareowners' Equity, years ended September 30,
2003, 2002 and 2001.

Notes to Consolidated Financial Statements.

Independent Auditors' Report.

(2) Financial Statement Schedule for the years ended September 30, 2003,
2002 and 2001.

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.

71

(3) Exhibits

3-a Restated Articles of Incorporation of ArvinMeritor, filed as
Exhibit 4.01 to ArvinMeritor's Registration Statement on
Form S-4, as amended (Registration Statement No. 333-36448)
("Form S-4") is incorporated by reference.
3-b By-laws of ArvinMeritor, filed as Exhibit 3 to
ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended June 29, 2003 (File No. 1-15983), is
incorporated by reference.
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.
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-Year 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.

72

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,
filed as Exhibit 10-c-2 to ArvinMeritor's Annual Report on
Form 10-K for the fiscal year ended September 29, 2002 (File
No. 1-15983) ("2002 Form 10-K"), is incorporated by
reference.
*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.
*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 quarterly period 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, filed as Exhibit 10-k to the
2002 Form 10-K, is incorporated by reference.
10-l Second Amendment to Second Amended and Restated Receivables
Sale Agreement, dated as of March 25, 2003, among
ArvinMeritor Receivables Corporation, the company, the
Purchaser Agents named therein and Credit Lyonnais, acting
through its New York Branch, as Agent, filed as Exhibit 10a
to ArvinMeritor's Quarterly Report on Form 10-Q for the
quarterly period ended March 30, 2003 (File No. 1-15983), is
incorporated by reference.

73

10-m Third Amendment to Second Amended and Restated Receivables
Sale Agreement, dated as of September 25, 2003, among
ArvinMeritor Receivables Corporation, the company, the
Related Committed Purchasers named therein, the Purchaser
Agents named therein and Credit Lyonnais, acting through its
New York Branch, as Agent.
10-n Amended and Restated Purchase and Sale Agreement, dated
September 27, 2001, among the originators named therein and
ArvinMeritor Receivables Corporation, filed as Exhibit 10-n
to ArvinMeritor's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001 (File No. 1-15983), is
incorporated by reference.
10-o First Amendment to Restated Purchase and Sale Agreement,
dated as of March 25, 2002, among the originators named
therein, ArvinMeritor Receivables Corporation and ABN AMRO
Bank N.V., filed as Exhibit 10d 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-p Second Amendment to Restated Purchase and Sale Agreement,
dated as of September 26, 2002, among the originators named
therein and ArvinMeritor Receivables Corporation, filed as
Exhibit 10-l to the 2002 Form 10-K, is incorporated by
reference.
10-q Second Amended and Restated Receivables Purchase Agreement,
dated as of March 10, 2003, among Zeuna Starker, Galleon
Capital Corporation, as Purchaser, State Street Global
Markets LLC, as Administrator, and State Street Bank and
Trust Company, as Relationship Bank, filed as Exhibit 10b to
ArvinMeritor's Form 10-Q for the quarterly period ended
March 30, 2003 (File No. 1-15983), is incorporated by
reference.
*10-r Agreement, dated as of October 28, 2003, between
ArvinMeritor and Craig M. Stinson.
12 Computation of ratio of earnings to fixed charges.
21 List of subsidiaries of ArvinMeritor.
23-a Consent of Vernon G. Baker, II, Esq., Senior Vice President
and General Counsel of ArvinMeritor.
23-b 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.
31-a Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a) under the Securities Exchange Act of 1934, as
amended (Exchange Act).
31-b Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a) under the Exchange Act.
32-a Certification of the Chief Executive Officer pursuant to
Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section
1350.
32-b Certification of the Chief Financial Officer pursuant to
Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section
1350.

- ---------------
* Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K.

On July 21, 2003, we filed a Current Report on Form 8-K reporting under
Item 12, "Results of Operations and Financial Condition," that on July 21, 2003,
ArvinMeritor had issued a press release reporting our financial results for the
fiscal quarter ended June 30, 2003, and filing the press release as an exhibit
under Item 7. "Financial Statements and Exhibits."

74

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 19, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 19th day of December, 2003 by the following
persons on behalf of the registrant and in the capacities indicated.

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
Rhonda L. Brooks, Joseph P. Flannery,
William D. George, Jr., Richard W. Hanselman,
Charles H. Harff, Victoria B. Jackson,
James E. Marley, William R. Newlin,
James E. Perrella, and Martin D. Walker*

S. Carl Soderstrom, Jr.* Senior Vice President and Chief Financial
Officer
(principal financial officer)

Rakesh Sachdev* Vice President and Controller
(principal accounting officer)

*By: /s/ BONNIE WILKINSON
------------------------------------------------
Bonnie Wilkinson
Attorney-in-fact**

**By authority of powers of attorney filed herewith.

75

SCHEDULE II

ARVINMERITOR, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002, AND 2001

- ---------------

(a) Uncollectible accounts written off.

(b) Underlying deferred tax asset written off.

S-1

EXHIBIT INDEX

- ---------------

* Management contract or compensatory plan or arrangement.