Good day ladies and gentlemen and welcome to the Second Quarter ArvinMeritor, Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the presentation over to your host for today’s call Mr. Terry Huch, Director Investor Relations.

Good morning everyone and welcome to the ArvinMeritor Second Quarter 2008 Earnings Call. On the call today we have Chip McClure our Chairman, CEO and President, Jim Donlon our CFO and Jay Craig our Controller. The slides accompanying today’s call are available at www.ArvinMeritor.com we will refer to the slides in our discussion this morning. The content of this conference call which we are recording is the property of ArvinMeritor, Inc. It is protected by US international copyright law and may not be rebroadcast without the express written consent of ArvinMeritor. We consider your continued participation to be your consent to our recording. Our discussion may contain forward looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Let me refer you to slide two for a more complete disclosure of the risks that could affect our results. To the extent we refer to any non-GAAP measures in our call, you will find the reconciliation to GAAP in the slides on our website. Now I’d like to turn the call over to Chip.

Good morning everyone. Before I go through the second quarter highlights I’d like to express my appreciation for what our team has achieved. Despite a slower than expected truck market, volume declines in the North American light vehicle segment and near recession level economic performance in North America we delivered strong results this quarter. We are pleased to report that we improved our net income, EBITDA, our free cash flow, and our earnings per share. These improvements are direct results of a cost reduction and growth initiatives we’ve been implementing as part of our performance plus program which includes lean improvements in our global manufacturing operations. We’re confident that these actions have helped us build a strong foundation from which to build our future business and increase earnings potential. Now let’s turn to slide three. I’d like to take a few moments to review some of the highlights of our second quarter performance. We earned $0.37 per share from continuing operations before special items, up $0.20 compared to last year’s $0.17. We reported sales of $1.8 billion up 9% or $154 million compared to a year ago primarily due to foreign currency exchange rates. We achieved free cash flow of $134 million from operations net of capital expenditures for the second quarter. This compares to an outflow of $71 million in the same period of last year. Our cash flow has been and in the near term will continue to be affected by increased working capital requirements driven by higher sales volumes in Europe, Asia/Pacific, and South America. We believe, however that our strategic direction, diversified customer base, and global footprint should help us to weather some of these short term challenges. At the same time we will maintain our focus on five strategies and long term growth initiatives. We…

We’re going to start by review our income statement on slide nine. We had a good quarter, a 9% higher sales which Chip told you were due to stronger currency outside the US. We had a 61% increase in operating income. This reflects a good execution in our operations and mounting cost reductions. It also reflected improved business mix with strong growth in some of our best performing business units, particularly in our specialty products and in South America across all segments. SG&A was higher on an absolute basis but like our sales it was also inflated somewhat by currency exchange. As a percent of revenue it was about flat to last year at 6% but much better than two quarters ago when we were at 7%. Equity in Earnings of Affiliates has been a growing contributor to our bottom line over the last several years. We continue to see substantial profit growth in our unconsolidated subsidiaries outside the US. Like our other Truck operations in North America our large unconsolidated JV in the US is suffering from the continuing down turn here which brought down our affiliate income compared to last year. Interest expense was $8 million lower than a year ago reflecting lower debt balances and lower average interest rates. Our tax rate for the quarter was 34% which is higher than our normalized rate at this point in the cycle largely because of a discrete tax item. We continue to expect some meaningfully positive discrete tax items in the second half of the fiscal year. Income from continuing operations before special items was $27 million more than double last year’s results. The only special item was a $3 million restructuring charge in LVS for footprint actions under our Performance Plus Program. Adjusted earnings per share was $0.37…

The second quarter was a very good one for ArvinMeritor. To keep that momentum going we’re going to have to overcome the serious headwinds in raw material prices that both Chip and Jay have referred to. Slide 14 shows a picture that I know you are very familiar with. Back at the beginning of 2004 the industry faced a two year period of higher steel prices. They didn’t continue on that pace forever but they settled into a range that was much higher than it had been in the past. ArvinMeritor and many of our peers were poorly prepared for increases of that magnitude. We had fixed price steel contracts which protected us for a time but we didn’t have adequate pass through mechanisms. We’re now in a period of even more rapid escalation. We don’t know how long this phase will continue but we know that the index is going higher than the March data point that you see referenced on this chart. Steel makers have since notified customers of their intent to implement a surcharge on top of existing contractual prices. That’s not something we’re going to take lying down. We have some hard discussions coming up with both the suppliers and the customers. We’ve worked hard to get this company to the point that it’s at today and we intend to continue to improve our situation. We will sit down with the steel suppliers and assert our contractual position. We’ll make counter proposals on both pricing and timing and we’ll explore other supply avenues that may be available to us. Then we’ll work with the customers where we do not currently have satisfactory arrangements. Even where we do have indexing arrangements we may need to address extraordinary surcharges we face. We also may need to address time…

How let’s turn to slide 17. It’s clear that our number one priority for the remainder of 2008 and going to 2009 is to focus on addressing the steel issues as well as monitoring other highly volatile commodity markets. As I said earlier our customers and suppliers will have to be part of the solution. To summarize today’s call I’d like to emphasize the significance of our performance this quarter. Despite headwinds to the Truck and light vehicle North American volumes we clearly out performed the industry as well as many of our competitors. Proving that the aggressive steps we’ve taken including restructuring actions, lean manufacturing improvements, significant cost reductions, and profitable growth initiatives have had a positive impact on our bottom line. Again, that’s why I’m confident in reconfirming our guidance of $1.40 to $1.60 for our fiscal year. That’s why we’re able to significantly improve our CVS margins in this quarter even though the heavy truck market in North America is down more than 30%. That’s why when we strip away non-recurring items the underlying financial results for our LVS business segment also improved in the first half compared to the prior year despite lower light vehicle volumes in North America. Now let’s take some questions.

[Operator Instructions] Your first question comes from the line of Brian Johnson of Lehman Brothers. Brian Johnson – Lehman Brothers: Turning back to page 11 and 12 can you give us a sense of how currency has influenced the LVS and CVS margin development? If you were to take another cut at it and just look at the currency impact taking Euro denominated EBITDA over into the US how much of the improvement is due to that?

I’ll turn it over to Jay in a moment to give you the details but obviously as we look at the currency impact, Euro is a big one but as you know we’ve got a lot of business in Asia and South America we’re also seeing a different currency impact that way too. Let me turn it over to Jay to talk about it in more detail.

We’ve isolated the impact of the currency for the quarter, the strengthening of the foreign currency for the quarter we estimated to be relatively insignificant between $5 and $7 million impact on our second fiscal quarter. Brian Johnson – Lehman Brothers: On the EBITDA line?

On the EBITDA line. Brian Johnson – Lehman Brothers: The second thing is also on CVS margins. This is the first quarter, last quarter you talked about the non-re-occurrence of production issues in OE. Does this mean, it may not have just been in the quarter before, but when you look at this and you look at the operational metrics in the factories are you comfortable now you can flex up and down cost efficiently in Europe?

As you know we had a real focus on lean manufacturing so I feel much better about the performance of our plants on that side but as we also indicated there was capital investment we need to do that’s going to be really coming in the second half of the year. As we look at the first phase as far as lean improvements within the existing capacity primarily our plants and current suppliers, yes I feel comfortable with that. As we indicated a lot of the capital investment we’ll really start seeing that come online the second half of this year. Brian Johnson – Lehman Brothers: Final question, can you quantify your steel buy in terms of tonnage or dollar volume and of that how much is contractually passed through versus negotiated?

Obviously our steel, it’s hundreds of thousands of tons and both on the direct and the indirect side. As I indicated we’re going through that line item by line item with our suppliers and also our customers as to contractual obligations and what we look at with steel.

Your next question comes from the line of Doug Carlson of Banc of America.

I guess on the CVS margins you gave us an update on slide 11 with the specialty production volume could you give me a little more color on that?

As we look at that, as we mentioned probably the biggest ramp up in that has been on the military side with the MRAP vehicles and we mentioned in our comments and Jim’s slide that talked about that we continue to see that and since the first of the year there’s been 2,200 additional MRAP orders and we continue to have a strong position on that. As I look going forward into the future we’re really seeing some real opportunities in the off-highway business. We’ve had a very strong position in off-highway in China which is reflected in the current numbers. As I look at it going forward future growth opportunities in North America, Europe, South America and Africa.

The European OE production volume looks like it helped by 1% so it the capacity of right sizing or the improvement in your capacity there, how much are we finished with fixing that? Are we half way done, 75% done, it looks like there’s been a lot of improvement there?

As we said, a lot of that has been done as far as the internal improvement in the existing capacity we have and I feel good about the progress there and we indicated before really do see additional CapEx that’s been invested in that capacity coming on as a result of that capital investment coming on the second half of the year.

Last question, on the working capital side and the cash flow side some of the vendors that had difficulty in the market a quarter or so ago that hurt the working capital it looks like that’s stopped. Right now is the list of vendors that you had that had issues is that calmed down or is that still a problem?

It has somewhat and also I think as we’ve mentioned previously we had formed a troubled supplier group here which has been addressing those suppliers very proactively and aggressively. As far as the constant on a quarter over quarter basis so we’ve tried to again remain supportive of our suppliers in that regard this quarter.

Your next question comes from the line of Peter Nesvold of Bear Stearns. Peter Nesvold – Bear Stearns: As I look at the first two quarters of the year you’ve been able to upside expectations even as you’ve had to cut Class 8 forecast North America Trail or North America Light Duty Automotive as there’s been some, I don’t want to say cushion but there’s been upside to other parts of the model. As you progress through this year how much cushion would you say is left in the business plan so that if things like steel economics really do run away from us or if you have to cut that Class 8 outlook from 230 down to maybe 220 that there’s a more immediate hit to the EPS range of $1.40 to $1.60?

There’s no question when you look at it that the headwinds we faced are really several with the steel and the continued uncertainty in the volume really both on a commercial vehicle and the light vehicle side here in North America. I think on the other side when we look at the model and I think it’s really starting to pay off for us as far as having a diversified product portfolio also a global footprint and then I think thirdly would be our Performance Plus results we’re starting to get in that. When I look at those three items I think they’re really helping to offset that and as I said we’re starting to, last couple quarters we’ve seen that kind of performance and not ignoring the headwinds if we talked about feel that those having a diversified global product portfolio and the continued focus on Performance Plus. We’ve got the tools in place to address that going forward. Peter Nesvold – Bear Stearns: As a follow up on the aftermarket it seems like historically that’s been a pretty good barometer of what’s going on in terms of freight volumes. It seemed like freight exited ’07 very strong but is taking a bit of a step back here in calendar first quarter. What’s your aftermarket business telling you, are you still seeing accelerating improvement there, has it leveled off, is it starting to decline from how we exited last year, seasonally adjusted?

As a matter of fact, what I may do is have Jay talk about that in a little bit more detail because its part of the Performance Plus and he’s been working with that more closely. In a very general sense as you look at it there’s no question the last couple months there’s been some uncertainty as you look at the Class 8 orders and the tonnage but let me let Jay talk in details as it relates to the aftermarket business here in North America.

I think what we’ve seen is really different by region in North America certainly with some of the softening and Truck, ton and miles. We have seen some of the volumes in our aftermarket business it be under pressure in North America but because of some of our product extensions and our new products entries and obviously our acquisition of Mascot we decided to believe that we are increasing our market share. It’s a different story in Europe and South America where our gross strategies are being executed and we continue to see double digit growth in both of those regions that are more than offsetting some of the pressures that we’re seeing in North America.

Your next question comes from the line of Brett Hoselton of KeyBanc Capital Markets. Brett Hoselton – KeyBanc Capital Markets: I know we keep talking about the steel issue, can you possibly give us a sense of, as you look at the Commercial Vehicle segment, as you look at the Light Vehicle segment, can you talk about the specific segments where you think that you have the most exposure to rising steel prices? Secondly where you have the most risk of not being able to recover those steel prices?

What I may do on that one is turn it over to Jim to talk a little bit more on both as you refer to it the supply side and also the customer side in both markets the CVS and LVS side.

Generally on the CVS side we have put in place a better position for recovery with our customers and pass through with our customers so that segment of the business a better recovery pattern. On the LVS side it varies quite a bit by customer. Some of the customers have worked with us very closely and we have some good arrangements in place but unfortunately there are some that we have a lot of work to do on the LVS side to get to the recovery that is appropriate for this kind of a situation that we’re in right now. I would say a more difficult situation on the LVS side to working but we are committed and we will work our way through it. There is no way that these increases can find there way into ArvinMeritor’s results and so we’ve got a lot of work to do and we will but that is the segment that is the more difficult. Within LVS our wheels business is in a good cost position so when we talk to our customers there because of the good cost position of our wheels business we are able to work toward the full recovery on the wheels business. That leaves us with the chassis business which is also a very difficult area and that one we’ve got a lot of tough conversations coming up with a few customers that are not yet in the recovery category. Brett Hoselton – KeyBanc Capital Markets: In the past you’ve talked about the possibility or your desire to pursue an OPEB or Goodyear style VIBA deal or something along those lines. Is that something that’s still of interest to you and is that something that’s still a possibility at some point in time in the future and if so when?

We have been working on that and from our side we would be interested in some arrangement like that. We’ve had some early discussions about that and because our situation, our financial position, our forward outlook, our amount that we have related to the VIBA are different from what the UAW has worked with up to now with other companies. Our discussions have been at a slower pace while they are continuing to evaluate from their side just where we fit on their priority list of wanting to get a project like this done. From our side we’re interested, the UAW is evaluating it from many different angles and at this point they’re busy trying to get the big ones done that they’ve worked on with the main big three. We’re a little bit farther down on the priority list right now. We’d like to work with them whenever it would come up. We cannot be sure that it will ever come to fruition but your question was where are we about that and we are excited and would like to do something.

Your next question comes from the line of Chris McCray of BlackRock. Chris McCray – BlackRock: I wonder if you could give us some perspective on how much of your business in terms of pricing for raw materials is indexed today and what it might have looked like in that ’03, ’04 spike by comparison then I have a follow up related?

If you go back to the ’03, ’04 time frame obviously we’ve learned a lot from that. I don’t know that we really break it out as to how much is or is not indexed. Clearly there’s been a lot more of that discussion on that. I think its save to say that as you look at the—from a customer perspective a clear recognition from the customer perspective that steel is a real issue. There’s a lot more discussion on that. As you look at that from the experience, if you will, back in the ’03, ‘04 time frame the fact that we’ve been able from a lessons learned perspective put that in place recovery clearly this time are much better so we feel better about that. I think Jim has kind of laid that out as it looks to the difference between the CVS and LVS side. If I go back to the ’03, ’04 time frame it was probably less than 50% and today it’s in excess of 70%. As you look at that I think that its moving in the right direction but as Jim has indicated and we can’t ignore some of the dynamics that have taken place in the steel industry today that are causing some of these spikes literally in the very recent past that we need to address those. Even with the indexing that we have in place or contractual things we’ve had to have ongoing discussions with customers on a go forward basis that way. Chris McCray – BlackRock: You mentioned some suppliers actually trying to push pricing even in contract business. Can you give me some perspective on this? In this industry historically have contracts held or are they only as good as the environment. I don’t have the perspective that you would have there. Can you fill that in a little bit?

Up to now for the most part contracts have been honored. There are mechanisms in the form of surcharges which has been added from time to time which created some variability based on mostly alloy prices and so forth that were adjusting. Those were understood and a part of the contractual arrangement. What is now troubling is a major steel company indicating that a new surcharge will be added even over and above all of the existing contractual arrangements. That’s a troubling development that we’re having to deal with and at this point we don’t know for sure what the final outcome is going to be on that. It’s hitting right at this point in time and we’ll have to see how events unfold not only for us but for all of the big three for all of the other supply industry it’s going to reverberate through the whole industry.

As we indicated in our comments we are still continuing to work both on the supply side and the customer side. Even with the ones we do have with contractual indexes there are still lags that we need to work on there. Obviously continue to work on all facets and all phases of it both on the customer side and the supplier side.

We consider these that we’re facing now to be of an extraordinary nature really kind of outside of any normal mechanisms that have been put in place up to this point in time.

Your next question comes from the line of Jonathan Steinmetz of Morgan Stanley. Jonathan Steinmetz – Morgan Stanley: I want to push a little further on the steel issue here. I know you said you don’t want to see it in your own P&L but I think everybody in the whole food chain feels that way. I’m trying to understand within your guidance what sort of year on year margin hit do you have at this point from the steel hit and maybe if you could talk about what you could foresee on that as sort of a bull case scenario so to speak and a bear case scenario if things get really tough on that in terms of getting recovery?

In our guidance we had what I would call the normal up and down that we were seeing in the market for various surcharges and alloy changes and what have you. Throughout the year there’s been month to month up and downs and then the recovery of that going on to our customers with various indexing arrangements. That’s in the guidance. What has been contemplated for our current guidance that we’re giving you is that all of these extraordinary ones that are coming through at this point in time will pass through the food chain us being one of the elements of the food chain will pass through us to the customers and it will not affect our bottom line. We’ve got a lot of work to do to accomplish that but that’s what’s a part of our guidance. Jonathan Steinmetz – Morgan Stanley: If we watch through and it’s difficult to get recovery then I guess it would be difficult for your guidance to hold?

Yes. Jonathan Steinmetz – Morgan Stanley: Numerically it looks like in the first quarter this was about $17 million or so if I do the LVS and CVS margin hit right from steel and I guess you have other raw materials in there I don’t know how much those were. I’m still trying to understand you have to have some assumption within the guidance that you are giving as to what that margin hit looks like for the full year, if you are able to get these recoveries. I don’t know if you are able to share with us what that margin number would be.

What I would say to you is that that number that you calculated there is what has been there for the steel and the raw material and kind of like the gross increases as their coming at us and as Jay indicated in his comments down in the other line are our various recovery mechanisms that we have so that the net affect to us is not as severe as the number that you just calculated there. We’ve got the gross number and then a recovery so that the net is not as high as $17 million. We are working to mitigate this going forward and we are committed to making sure that it does not affect our guidance that we’ve given you for the full year. We have, as Chip said on an earlier question some amount of cushion for us to work on just slightly so that we can achieve our full year guidance even as we face these headwinds.

Your next question comes from line of Sarah Thompson of Lehman Brothers. Sarah Thompson – Lehman Brothers: On your free cash flow of negative $75 to $125 what are you assuming your borrowing on your off balance sheet AR?

We could barely hear you I think the question you’re asking is our assumption on the free cash flow for the balance of the year? Sarah Thompson – Lehman Brothers: How much are you assuming is borrowed under the off balance sheet AR?

As we look at it for the balance of the year we’re looking at the assumption is it will be flat. Sarah Thompson – Lehman Brothers: One other question, on your EBITDA the number that you gave in the press release is slightly lower than what’s on the slides about $5 million. Is that just the difference for FX?

I think that’s a fair assumption. That’s what Jim had mentioned in his comments.

Your next question comes from the line of Pat Archambault of Goldman Sachs. Pat Archambault – Goldman Sachs: On slide 11 on the European margin improvement can you give us a sense how much of that is due to the price renegotiations that you did with some of your customers there which kind of hit right away, and how much of that is due to improved efficiencies and through put the capacity additions. Based on that how much more could that go up in terms of a tail wind as you get more and more through put benefits in the remainder of the year?

Actually when you look at it I think it’s safe to say it’s really a combination of the two as you kind of indicated. I don’t know that we break it out between the two that way. I think it’s fairly representative of what we look at on a go forward basis. As we indicated in Europe I think the next step is when you see the additional capacity coming in, in the second half of this year with the incremental investment that we’ve made going forward. I think that will be the next step on that. I think what you’re seeing in there now is fairly reflective of what we’d envisioned going forward both between what we’ve been able to negotiate as far as Commercial terms with our customers and the productivity improvement within the plants. Pat Archambault – Goldman Sachs: To be clear on that, there should be an incremental benefit from the capacity additions on top of this year?

We talked about capacity addition what that will do right now the Commercial Vehicle markets in Europe continue to remain very strong because of the continued expansion in Central and Eastern Europe so the result is there is still some premium costs that result from that so with this capacity that puts in place I think you’ll see some elimination of that premium cost whether its from a freight over time etcetera in the future will be the improve we’ll see when that capacity comes online. Pat Archambault – Goldman Sachs: Have those additions already been made?

The investment has been made but some of these are long term investments so don’t anticipate to see the benefit of those investments until the second half of this year.

The new equipment for the most part is committed and purchased and on the way but not yet installed and operational at the factories. Pat Archambault – Goldman Sachs: Finally, a longer term question. Can you update us a little bit on your thoughts on the SCR debate for the Class 8 regulations in 2010 how you guys see that playing out, how you see that impacting potentially the market shares of some of your large customers as you clearly now there’s a couple that have stated that they’re not going to use SCR at least for the time being and there’s a few that are. I just wanted to get your overall thoughts on how that landscape is shaping up?

If you take a step back of that I really get to this whole question what we envision as you get into the ’09 and subsequent 2010 with the next emissions regulation. Within the SCR it’s really going to depend on the customers. As we look at it both from a cost perspective and new technology perspective and as you’ve indicated rightfully so that some of the producers of that equipment are able to do that with different technologies going forward. As we look at that I think that more recently there’s been indication that those emission targets can be hit with some producers with current technologies just being upgraded and obviously as we look at that I think that will change some of the dynamics as you look at the amount of pre-buy in 2009 and the subsequent drop off in 2010 I think what needs overlaid on that in addition the technology side is what’s happening in the economy right now because as Jay had indicated the softness in the Commercial Vehicle side has remained longer than had originally been anticipated because the economy. To answer your question I think that there’s going to be several different drivers that I think there’s still some question as to what the magnitude of the impact will be in 2010 but there’s no question as you look at the customer mix there are some customers out there that are early adopters of new technology those will still occur, those will still use the SCR. Some other ones will take a bit of a wait and see attitude and that’s kind of across the board with customers and obviously with the OEM. We continue to watch that as do others and do tend to think as we’ve indicated that as you look out there we watch to see what the impact will be to that for a pre-buy in 2009 which was indicated may be muted a bit and then obviously what the drop off will be in 2010 going forward.

This concludes our Q&A session for today. I will now turn the call over back over to Mr. Terry Huch for closing remarks.

I’d like to thank everyone for joining and invite you to follow up with me if you have other questions.

Thank you for your participation in today’s conference. This concludes the presentation you may now disconnect. Have a great day.