JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
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OPERATOR JOSHUAM
2019 Annual Report
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
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OPERATOR JOSHUAM
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
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PAGE NO. 1
OPERATOR JOSHUAM
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the Fiscal Year Ended September 29, 2019
For the transition period from ___ to ___
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 1-15983
MERITOR, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of incorporation
or organization)
2135 West Maple Road
Troy, Michigan
(Address of principal executive offices)
38-3354643
(I.R.S. Employer
identification no)
48084-7186
(Zip Code)
Registrant’s telephone number, including area code: (248) 435-1000
Title of each class
Common Stock, $1 Par Value
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Trading Symbol(s)
MTOR
Name of each exchange on which registered
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
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 No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding twelve months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant on March 31, 2019 (the last
business day of the most recently completed second fiscal quarter) was approximately $1,661,010,508
78,123,347 shares of the registrant’s Common Stock, par value $1 per share, were outstanding on November 12, 2019.
Certain information contained in the definitive Proxy Statement for the Annual Meeting of Shareholders of the registrant to be held on January 23, 2020
is incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
JOB TITLE Meritor AR
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PART I.
PART II.
PART III.
PART IV.
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4A.
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations . . .
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . .
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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JOB TITLE Meritor AR
JOB NUMBER 365806(1)
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Item 1. Business.
Overview
PART I
Meritor, Inc. (“we”, “us” or “our”), headquartered in Troy, Michigan, is a premier global supplier of a broad range of integrated
systems, modules and components to original equipment manufacturers (“OEMs”) and the aftermarket for the commercial vehicle,
transportation and industrial sectors. We serve commercial truck, trailer, military, bus and coach, construction, and other industrial
OEMs and certain aftermarkets. Our principal products are axles, suspension systems, drivelines and brakes.
Meritor was incorporated in Indiana in 2000 in connection with the merger of Meritor Automotive, Inc. and Arvin Industries,
Inc. As used in this Annual Report on Form 10-K, the terms “company,” “Meritor,” “we,” “us” and “our” include Meritor, its
consolidated subsidiaries and its predecessors unless the context indicates otherwise.
Meritor serves a broad range of customers worldwide, including medium- and heavy-duty truck OEMs, specialty vehicle
manufacturers, certain aftermarkets, and trailer producers. Our total sales from continuing operations in fiscal year 2019 were
approximately $4.4 billion. Our ten largest customers accounted for approximately 77 percent of fiscal year 2019 sales from
continuing operations. Sales from operations outside North America accounted for approximately 33 percent of total sales from
continuing operations in fiscal year 2019. Our continuing operations also participated in four unconsolidated joint ventures, which
we accounted for under the equity method of accounting and that generated revenues of approximately $1.2 billion in fiscal
year 2019.
Our fiscal year ends on the Sunday nearest to September 30. Fiscal year 2019 ended on September 29, 2019, fiscal year
2018 ended on September 30, 2018, and fiscal year 2017 ended on October 1, 2017. All year and quarter references relate to our
fiscal year and fiscal quarters unless otherwise stated. For ease of presentation, September 30 is utilized consistently throughout
this report to represent the fiscal year end.
Whenever an item in this Annual Report on Form 10-K refers to information 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.
References in this Annual Report on Form 10-K to our belief that we are 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, engineering, research and development efforts, innovative solutions and the quality
of our products and services, in each case relative to that of our competitors in the markets we address.
Our Business
Our reporting segments are as follows:
• The Commercial Truck segment supplies drivetrain systems and components, including axles, drivelines and braking
and suspension systems, primarily for medium- and heavy-duty trucks and other applications in North America,
South America, Europe and Asia Pacific. This segment also includes our aftermarket businesses in Asia Pacific and
South America.
• The Aftermarket, Industrial and Trailer segment supplies axles, brakes, drivelines, suspension parts and other
replacement parts to commercial vehicle and industrial aftermarket customers, primarily in North America and Europe.
In addition, this segment supplies drivetrain systems and certain components, including axles, drivelines, brakes and
suspension systems for military, construction, bus and coach, fire and emergency and other applications in North America
and Europe. It also supplies a variety of undercarriage products and systems for trailer applications in North America.
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Business Strategies
We are currently a premier global supplier of a broad range of integrated systems, modules and components to OEMs and
the aftermarket for the commercial vehicle, transportation and industrial sectors, and we believe we have market-leading positions
in many of the markets we serve. We are working to enhance our leadership positions and capitalize on our existing customer,
product and geographic strengths. For additional market related discussion, see the Trends and Uncertainties section in Item 7.
Our business continues to address a number of challenging industry-wide issues including the following:
• Uncertainty around the global market outlook;
• Volatility in price and availability of steel, components and other commodities;
• Potential for disruptions in the financial markets and their impact on the availability and cost of credit;
• Volatile energy and transportation costs;
• Impact of currency exchange rate volatility; and
• Consolidation and globalization of OEMs and their suppliers.
Other
Other significant factors that could affect our results and liquidity include:
• Significant contract awards or losses of existing contracts or failure to negotiate acceptable terms in contract renewals;
• Ability to successfully launch a significant number of new products, including potential product quality issues, and obtain
new business;
• Ability to manage possible adverse effects on our European operations, or financing arrangements related thereto,
following the United Kingdom’s decision to exit the European Union, or in the event one or more other countries exit the
European monetary union;
• Ability to further implement planned productivity, cost reduction, and other margin improvement initiatives;
• Ability to successfully execute and implement strategic initiatives;
• Ability to work with our customers to manage rapidly changing production volumes;
• Ability to recover, and timing of recovery of, steel price and other cost increases from our customers;
• Any unplanned extended shutdowns or production interruptions by us, our customers or our suppliers;
• A significant deterioration or slowdown in economic activity in the key markets in which we operate;
• Competitively driven price reductions to our customers;
• Potential price increases from our suppliers;
• Additional restructuring actions and the timing and recognition of restructuring charges, including any actions associated
with prolonged softness in markets in which we operate;
• Higher-than-planned warranty expenses, including the outcome of known or potential recall campaigns;
• Uncertainties of asbestos claim, environmental and other legal proceedings, the long-term solvency of our insurance
carriers, and the potential for higher-than-anticipated costs resulting from environmental liabilities, including those related
to site remediation;
• Significant pension costs; and
• Restrictive government actions (such as restrictions on transfer of funds and trade protection measures, including import
and export duties, quotas and customs duties and tariffs).
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Our specific business strategies are influenced by these industry factors and global trends and are focused on leveraging
our resources to continue to develop and produce competitive product offerings. We believe the following strategies will allow us to
maintain a balanced portfolio of commercial truck, industrial and aftermarket businesses covering key global markets. See Item 1A.
Risk Factors below for information on certain risks that could have an impact on our business, financial condition or results of
operations in the future.
Completion of M2019 Growth-Focused Plan
Fiscal year 2019 was the last year of our M2019 plan - see Non-GAAP Financial Measures in Item 7. The financial targets
we set for this plan were as follows:
• Grow revenue at 20 percent cumulatively above market levels, measured from the end of fiscal year 2015.
• Increase adjusted diluted earnings per share (“EPS”) from continuing operations by $1.25, measured from fiscal
year 2015.
• Reduce the ratio of net debt to adjusted EBITDA to less than 1.5 times.
Overall, these were aggressive targets. Driven by an intense focus throughout the organization, we successfully exceeded
our adjusted diluted EPS target. Additionally, we made significant progress on both revenue outperformance and the leverage ratio.
To achieve these results we focused on three main priorities:
• Exceeding customer expectations.
• Transforming to a growth-oriented organization.
• Continuing to invest in employees.
Results for each of the financial metrics as follows:
• With a target of 20 percent, the company achieved market outperformance of 16 percent or $604 million through
diversified growth in the off-highway, specialty, defense and trailer businesses.
• The company increased its adjusted diluted EPS by $2.25 against its $1.25 target for a 142-percent increase (compared
to an 80-percent target increase). This was achieved a year earlier than planned.
• Meritor achieved a ratio of net debt to EBITDA of 1.6 compared to the objective of 1.5 net debt to EBITDA. This result was
slightly short of target due to the strategic acquisition of AxleTech in fiscal year 2019.
Exceed Customer Expectations
For 110 years, our products have evolved to meet the changing needs of our customers in major regions of the world. As
technology has advanced, we have designed products that are more fuel efficient, lighter weight, safer, more durable and more
reliable. The Meritor brand is well established globally and reflects a broad and growing portfolio of high-quality products for
various applications.
We have worked hard to become an innovation partner to our customers. From concept to launch, we work collaboratively to
ensure we are designing reliable and high quality products that meet or exceed their unique expectations now and in the future. In
addition to technology and product collaboration, we also meet regularly with our customers to review our performance in a number
of other areas including quality, delivery and cost.
In our M2019 plan, we set an overall quality target of 25 parts per million (“PPM”). In fiscal year 2019, Meritor achieved a
quality score of 108 parts per million. This score was driven by certain issues experienced at one facility in North America for a
specific customer that was ultimately resolved. If this incident was isolated, Meritor’s quality score globally would have been 24,
just below our M2019 target, despite the 17 percent increase in Class 8 truck production in fiscal year 2019. We believe this level
of quality further differentiates us in the commercial vehicle industry. Also this fiscal year, four of Meritor’s facilities received the
PACCAR 10 PPM Quality Award given to suppliers who meet or exceed its rigorous standard of 10 or fewer defective parts for
every 1 million parts shipped to this customer; two facilities received the Daimler Masters of Quality Award, and one facility earned
a Silver Performance recognition from Motor Coach Industries.
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This year, we continued the excellent delivery performance we have demonstrated at greater than 99 percent. Despite
production volumes in North America being significantly higher year over year, we achieved on-time delivery of 99 percent for the
three-year plan. Our customers rely on Meritor for this level of delivery performance and it differentiates us with our OEM customers.
We will maintain our focus on driving down operating costs through material cost-reduction and labor and burden
improvements with a target achievement of 1.5 percent improvement per year that we achieved throughout fiscal year 2019. We
are continuing to drive material performance with three different approaches: commercial negotiations, best-cost-country sourcing
and technical innovation. And, we are improving in labor and burden by addressing several areas simultaneously, including better
equipment utilization, reduced changeover time, elimination of waste, improved shift and asset utilization, investing in equipment
to improve cycle time and flexibility and employee involvement.
We believe we effectively manage complexity for low volumes and support our customers’ needs during periods of peak
volumes. The quality, durability and on-time delivery of our products has earned us strong positions in the markets we support. As
we seek to extend and expand our business with existing customers and establish relationships with new ones, our objective is to
ensure we are getting a fair value for the recognized benefits of our products and services and the strong brand equity we hold in
the marketplace.
Transform to a Growth-Oriented Organization
We know that despite changes and volatility in global market conditions, it is important that we generate profitable top-line
growth. We designed the M2019 plan to enable us to achieve the growth we are targeting while operating in a cyclical industry
that can be greatly impacted by economic factors. We are increasing our market share with key customers, renewing long-term
contracts and winning new business in all of our end markets around the globe across both of our reportable segments.
We have increased the pace of product introduction over the past several years, which is a key component to growing
revenue. Prior to our M2016 plan, we were launching approximately three major programs annually. We have effectively doubled
that number each year during the M2019 timeframe. We are developing these products jointly with our customers for their future
product programs, and we have line of sight to revenue streams for each of these products. In fiscal year 2019, we launched six
products as follows, and in the three-year M2019 timeframe we launched 21 programs in total.
• P5271 Axle - Produced for Volvo in Thailand.
• Slipper Suspension - Launched with Ashok Leyland in India to replace the bell crank suspension typically used in the
region. Suspension is lighter, easier to align, requires less maintenance and improves fuel efficiency.
• 13X Axle - Developed specifically for the India market targeting the medium commercial vehicle segment. It is 59 lbs.
lighter and 1 percent more efficient than the current axle being used by Meritor.
• DuaLite 146 Axle - Lighter weight fabricated housing versus slot forged housing used for Meritor’s local 146 carrier
in China.
• 17X HE Solo with Superfast Ratio - Launched with Volvo in Europe. Axle is 1 percent more efficient than Meritor’s 17X
EVO. It has extended ratio coverage including superfast ratios to enable higher system efficiency.
• 17X HE Solo with Superfast Ratio - Introduced for the heavy 6x2 market in North America and is 1 percent more efficient
than previous axle.
We expect to continue to broaden our relationships with our global strategic customers, earn the business of new customers,
increase aftermarket share in core product areas, expand our components business by utilizing our time-proven core competencies
of forging, machining and gear manufacturing, and enter near adjacent markets that we believe will be a good match with our
core competencies.
Meritor achieved major milestones in fiscal year 2019 related to next-generation technologies engineered to fit multiple
vehicle applications for customers’ needs now and in the future. Through new business awards with global manufacturers and
continued evolution of its Blue Horizon™ powertrain solutions, the company continued to establish itself as a leader in transformative
technologies for the commercial vehicle industry. Specific achievements include:
• Twenty-two electrification programs with global manufacturers for a total of 130 fully electric medium- and heavy-duty
commercial trucks to be on the road through 2020.
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• Completion of two multi-year projects for the development, testing and evaluation of advanced, zero-emission electric
yard tractors and Class 8 trucks supported with grants from the California Energy Commission. The electric yard tractors
are operating at Dole Fresh Fruit’s terminal at the Port of San Diego, as well as other locations in California. The electric
trucks are operating at the Port of San Diego.
• A contract to supply all-electric drivetrain systems for 38 terminal tractors to be used at the Port of Long Beach and the
Port of Oakland, California.
• An award to supply drivetrain components including front- and rear-drive steer axles, air disc brakes and an innovative
right angle gear box for an electric urban bus developed by Alstom. Production for the manufacturer’s first orders of the
all-electric Aptis buses for cities such as Paris and Strasbourg in France are scheduled to begin this summer.
• Participation in VWCO’s (Volkswagen Caminhões e Ônibus) e-Consortium to collaborate in the development of electric
commercial vehicles in Brazil, beginning with the launch of the OEM’s 11-ton e-Delivery truck equipped with Meritor’s
12X™ drive axle with eOptimized™ gearing, in 2020.
• Expansion of its electric drivetrain solutions to include the 12Xe™ for Class 4-7 and the 17Xe™ for heavy duty 4x2 and
6x2 trucks.
While we are planning for the majority of Meritor’s growth to be organic, we have allocated capital for targeted acquisitions
that would be an accelerant in our growth trajectory. To that end, this year we acquired AxleTech. This transaction advances our
M2022 objectives to accelerate global sales and growth by leveraging the company’s core competencies to grow strategically in
adjacent markets. The addition of AxleTech enhances Meritor’s growth platform, bringing a highly complementary global product
portfolio across the off-highway, defense, specialty and aftermarket segments that includes a full product line of independent
suspensions, axles, braking solutions and drivetrain components. These capabilities will enable Meritor to offer global customers a
wider array of differentiated products and solutions while further diversifying the company’s portfolio.
As industry trends continue to drive the need for equipment that complies with environmental and safety-related regulatory
provisions, OEMs select suppliers based not only on the cost and quality of their products, but also on their ability to meet stringent
environmental and safety requirements and to service and support the customer after the sale. We use our technological and
market expertise to develop and engineer products that address mobility, safety, regulatory and environmental concerns. In fiscal
year 2019, we published Meritor’s first sustainability report to share the work we have done in the areas of Advanced Technologies;
Environment, Health and Safety; Manufacturing Initiatives; Human Capital, Social Responsibility and Corporate Governance with
our stakeholders.
Our commitment to designing and manufacturing braking solutions for the commercial vehicle market has resulted in more
commercial vehicles in North America having Meritor brakes than any other brake manufacturer. We believe Meritor’s EX+ air disc
brakes are among the highest performing brakes in the marketplace. We recently announced the launch of our lightweight, single-
piston EX+™ LS air disc brake, a next-generation braking solution designed and engineered for linehaul and trailer applications.
We designed the EX+ LS air disc brake to meet fleets expectations for efficiency, safety and weight reduction. Built with exceptional
taper wear control, the new air disc brake is designed and validated to perform like a twin-piston brake. Meritor brakes represent
more than half of the North America Class 8 commercial vehicle market, and more than 8 million of Meritor’s air disc brakes are
in operation globally.
We believe the quality of our core product lines, our ability to service our products through our aftermarket capabilities,
and our sales and service support teams give us a competitive advantage. An important element of being a preferred supplier
is the ability to deliver service through the entire life cycle of the product. Also, as our industry becomes more international,
our manufacturing footprint around the world and our ability to supply customers with regionally-tailored product solutions are
competencies of increasing importance.
Invest in Employees
The safety of our employees is our top priority. Total case rate is a measure of recordable workplace injuries normalized per
100 employees per year. Our target under the M2019 plan was to achieve a case rate of less than 0.65. In fiscal year 2019, we
achieved an overall total recordable case rate of 0.59 injuries per 200,000 hours worked, compared to 0.72 in the prior year. The
total number of recordable injuries fell by 21 percent compared to fiscal year 2018. Our most active quarter for injuries is typically
the fourth quarter. This year, we experienced a 48 percent decline compared to the same quarter in the prior fiscal year. Our “I Have
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A Hand In Safety” campaign drove a 47 percent decrease in hand injuries since the second quarter of fiscal year 2019. In an effort
to continually improve our safety rate, we will maintain our diligence through training and education of our employees, reducing
certain behaviors that are known to create safety issues and continue to maximize risk identification and hazard assessment.
We believe that our strength to compete in the global market is dependent upon the engagement of every Meritor employee
and that a high-performing team is critical to the level of performance we want to achieve. We have a strong and experienced
leadership group and a committed team, both of which are focused on sustaining the strong foundation we built under the M2016
and M2019 plans. We will also continue to strengthen the diversity and inclusiveness of our workforce because we recognize the
value of different opinions and backgrounds in a company as global as Meritor.
We have established various development and training programs to help our employees grow as we grow. This year, we
continued the leadership development programs for managers, directors and senior leaders around the world. For managers, we
offered eLearning modules and courses that address important areas for advancement including accountability, delegation, and
providing and receiving feedback. For certain director-level employees, we led our third annual Leadership Edge - a 10-month
program whose objective is to develop advanced leadership skills, prepare high-potential leaders for senior level positions and
strengthen business acumen. And for certain senior-level leaders, we continued the Summit leadership development program,
which provides executive coaching, the opportunity to attend specific executive training sessions tailored to each individual’s
background and career goals, participation in a MBA-level finance course, if needed, and engagement in mentorship opportunities
with a member of Meritor’s Board of Directors. To ensure we provide a rich experience for our employees, we will continue to
measure employee engagement to build on the competencies that are important to our future.
Launch of New M2022 Plan
With the completion of our M2019 plan, we have now launched our M2022 plan. The financial targets we established for
this plan are the following:
• +$300 million in new business
• 12.5 percent adjusted EBITDA margin
• $4.00 adjusted diluted earnings per share
• 75 percent free cash flow conversion (free cash flow / adjusted income from continuing operations)
(see Non-GAAP Financial Measures in Item 7)
Our M2022 plan was designed with a focus on strong operating fundamentals, growth above the market, continued discipline
in capital allocation, and building our leadership position in advanced technologies. And, as with our prior three-year plans, we have
established specific measurable targets to evaluate our performance against. We believe these clear objectives and targets are the
unique differentiator of Meritor’s plans. These targets are well understood by our stakeholders. We believe we will be as successful
in our execution of the M2022 plan as we were with the M2019 and M2016 plans as we continually raise the bar on our overall
performance and subsequently return higher value to Meritor shareholders.
Products
Meritor designs, develops, manufactures, markets, distributes, sells, services and supports a broad range of products for
use in the transportation and industrial sectors. In addition to sales of original equipment systems and components, we provide our
original equipment, aftermarket and remanufactured products to vehicle OEMs, their dealers (who in turn sell to motor carriers and
commercial vehicle users of all sizes), independent distributors, and other end-users in certain aftermarkets.
6
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
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PAGE NO. 7
OPERATOR JOSHUAM
The following chart sets forth, for each of the fiscal years 2019, 2018 and 2017, information about product sales comprising
more than 10% of consolidated revenue in any of those years. A narrative description of our principal products follows the chart.
Product Sales:
Axles, Suspension Systems and Drivelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brakes and Brake-Related Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
September 30,
2018
74%
24%
2%
100%
2019
73%
25%
2%
100%
2017
73%
25%
2%
100%
Axles, Suspension Systems & Drivelines
We believe we are one of the world’s leading independent suppliers of axles for medium- and heavy-duty commercial
vehicles, with the leading market position in axle manufacturing in North America, South America and Europe, and are one of the
major axle manufacturers in the Asia-Pacific region. Our extensive truck axle product line includes a wide range of front steer axles
and rear drive axles. Our front steer and rear drive axles can be equipped with our cam, wedge or air disc brakes, automatic slack
adjusters, and complete wheel-end equipment such as hubs, rotors and drums.
We supply heavy-duty axles in certain global regions for use in numerous off-highway vehicle applications, including
construction, material handling, and mining. We also supply axles for use in military tactical wheeled vehicles, principally in North
America and Europe. These products are designed to tolerate high tonnage and operate under extreme conditions. We also supply
axles for use in buses, coaches and recreational vehicles, fire trucks and other specialty vehicles in North America, Asia Pacific
and Europe, and we believe we are a leading supplier of bus and coach axles in North America.
We are one of the major manufacturers of heavy-duty trailer axles in North America. Our trailer axles are available in more
than 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 suspension modules and brake products, including drum brakes and disc brakes.
We supply universal joints and driveline components, including our Permalube™ universal joint and RPL Permalube™
driveline, which are maintenance free, permanently lubricated designs used often in the high mileage on-highway market. We
supply drivelines in North America for use in numerous on-highway vehicle applications. We also supply transfer cases for use in
specialty vehicles in North America, Turkey and Europe. In addition, we supply trailer air suspension systems and products with an
increasing market presence in North America. We supply transfer cases and drivelines for use in military tactical wheeled vehicles,
principally in North America and Europe. In addition, we also supply advanced suspension modules for use in light-, medium- and
heavy-duty military tactical wheeled vehicles, principally in North America, Turkey and Europe.
Brakes and Brake-Related Components
We believe we are one of the leading independent suppliers of air brakes to medium- and heavy-duty commercial vehicle
manufacturers in North America and Europe. In Brazil, we believe that Master Sistemas Automotivos Limitada, our 49%-owned
joint venture with Randon S. A. Implementos e Participações, is a leading supplier of brakes and brake-related products.
Through manufacturing facilities located in North America, Asia Pacific 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; wedge drum brakes, which are lightweight and provide
automatic internal wear adjustment; air disc brakes, which provide enhanced stopping distance and improved fade resistance for
demanding applications; and wheel-end components such as hubs, drums and rotors.
Our brakes and brake system components are used in military tactical wheeled vehicles, principally in North America, Turkey
and Europe. We supply brakes for use in buses, coaches and recreational vehicles, fire trucks and other specialty vehicles in North
America and Europe, and we believe we are the leading supplier of bus and coach brakes in North America. We also supply brakes
for commercial vehicles, buses and coaches in Asia Pacific and air and hydraulic brakes for off-highway vehicles in North America
and Europe.
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JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
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PAGE NO. 8
OPERATOR JOSHUAM
Other Products
In addition to the products discussed above, we sell other complementary products, including third-party and private label
items, through our aftermarket distribution channels. These products are generally sold under master distribution or similar
agreements with outside vendors and include brake shoes and friction materials; automatic slack adjusters; yokes and shafts;
wheel-end hubs and drums; ABS and stability control systems; shock absorbers and air springs; and air brakes.
Customers; Sales and Marketing
We have numerous customers worldwide and have developed long-standing business relationships with many of these
customers. Our ten largest customers accounted for approximately 77 percent of our total sales in fiscal year 2019. Sales to
customers that accounted for 10 percent or more of our total sales in fiscal year 2019 included AB Volvo, Daimler AG, PACCAR
and Navistar, representing approximately 22 percent, 19 percent, 13 percent and 10 percent, respectively. No other customer
accounted for 10 percent or more of our total sales in fiscal year 2019.
Original Equipment Manufacturers (OEMs)
In North America, we design, engineer, market and sell products principally to OEMs, dealers and distributors. While our
North American sales are typically direct to OEMs, our ultimate commercial truck customers include trucking and transportation
fleets. Fleet customers may specify our components and integrated systems for installation in the vehicles they purchase from
OEMs. We employ what we refer to as a “push-pull” marketing strategy. We “push” for being the standard product at the OEM. At
the same time, our district field managers then call on fleets and OEM dealers to “pull-through” our components on specific truck
purchases. For all other markets, we specifically design, engineer, market and sell products principally to OEMs for their market-
specific needs or product specifications.
For certain large OEM customers, our supply arrangements are negotiated on a long-term contract basis for a multi-year
period that may 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.
Sales to other OEMs are typically made through open order releases or purchase orders at market-based prices that do not require
the purchase of a minimum number of products. The customer typically has the right to cancel or delay these orders on reasonable
notice. We typically compete to either retain business or try to win new business from OEMs when long-term contracts expire.
We have established leading positions in many of the markets we serve as a global supplier of a broad range of drivetrain
systems, brakes and components. Based on available industry data and internal company estimates, our market-leading positions
include independent truck drive axles (i.e., those manufactured by an independent, non-captive supplier) in North America, Europe,
South America and India through a joint venture; truck drivelines in North America; truck air brakes in North America and South
America (through a joint venture); and military wheeled vehicle drivetrains, suspensions and brakes in North America.
Our global customer portfolio includes AB Volvo, Daimler AG, PACCAR, Navistar International Corporation, Oshkosh, Traton
Group, CNH Industrial, Ashok Leyland, XCMG, Wabash National, and Gillig.
Aftermarket
We market and sell truck, trailer, off-highway and other products principally to, and service such products principally
for, OEMs, their parts marketing operations, their dealers and other independent distributors and service garages within the
aftermarket industry. Our product sales are generated through long-term agreements with certain of our OEM customers and
distribution agreements and sales to independent dealers and distributors. Sales to other OEMs are typically made through open
order releases or purchase orders at market-based prices, which do not require the purchase of a minimum number of products.
The customer typically has the right to cancel or delay these orders on reasonable notice.
Our product offerings allow us to service all stages of our customers’ vehicle ownership lifecycle. In North America, we stock
and distribute thousands of parts from top national brands to our customers or what we refer to as our “all makes” strategy. Our
district field managers call on our OEM’s, OEM dealers, fleet customers and independent customers to market our full product line
capabilities on a regular basis to seek to ensure that we satisfy our customers’ needs. Our aftermarket business sells products
under the following brand names: Meritor, Euclid, Trucktechnic, US Gear, AxleTech and Mach.
Based on available industry data and internal company estimates, we believe our North America aftermarket business has
the overall market leadership position for the portfolio of products that we offer.
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JOB TITLE Meritor AR
JOB NUMBER 365806(1)
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OPERATOR JOSHUAM
Competition
We compete worldwide with a number of North American and international providers of components and systems, some of
which are owned by or associated with some of our customers. The principal competitive factors are price, quality, service, product
performance, design and engineering capabilities, new product innovation and timely delivery. Certain OEMs manufacture their
own components that compete with the types of products we supply.
Our major competitors for axles are Dana Incorporated and, in certain markets, OEMs that manufacture axles for use
in their own products. Emerging competitors for axles include DTNA’s Detroit Axle, Allison, ZF Friedrichshafen in Europe, and
Hande, Fuwa and Ankai in China. Our major competitors for brakes are Bendix/Knorr Bremse, ZF and, in certain markets, OEMs
that manufacture brakes for use in their own products. Our major competitors for industrial applications are MAN, Oshkosh,
AM General, Marmon-Herrington, Dana Incorporated, Knorr Bremse, Kessler & Co., Carraro, NAF, Sisu and, in certain markets,
OEMs that manufacture industrial products for use in their own vehicles. Our major competitors for trailer applications are Fuwa,
Hendrickson and SAF-Holland.
Raw Materials and Suppliers
Our purchases of raw materials and parts are concentrated over a limited number of suppliers. We are dependent upon our
suppliers’ ability to meet cost performance targets, quality specifications and delivery schedules. The inability of a supplier to meet
these requirements, the loss of a significant supplier, or work stoppages could have an adverse effect on our ability to meet our
customers’ delivery requirements.
The cost of our core products is susceptible to changes in overall steel commodity prices, including ingredients used for
various grades of steel. We have generally structured our major steel supplier and customer contracts to absorb and pass on
normal index-related market fluctuations in steel prices. While we have had steel pricing adjustment programs in place with most
major OEMs, the price adjustment programs tend to lag behind the movement in steel costs and have generally not contemplated
non-steel index related increases.
Significant future volatility in the commodity markets or a deterioration in product demand may require us to pursue customer
price increases through surcharges or other pricing arrangements. In addition, if suppliers 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 otherwise mitigate the
costs, our operating results could be further adversely affected.
We continuously work to address these competitive challenges by reducing costs and, as needed, restructuring operations.
We manage supplier risk by conducting periodic assessments for all major suppliers and more frequent rigorous assessments
of high-risk suppliers. On an ongoing basis, we monitor third-party financial statements, conduct surveys through supplier
questionnaires, and conduct site visits. We have developed a supplier improvement process where we identify and develop actions
to address ongoing financial, quality and delivery issues to further mitigate potential risk. We are proactive in managing our supplier
relationships to avoid supply disruption. Our process employs dual sourcing and resourcing trigger points that cause us to take
aggressive actions and then monitor the progress closely.
Acquisitions, Divestitures and Restructuring
As described above, our business strategies are focused on enhancing our market position by continuously evaluating the
competitive differentiation of our product portfolio, focusing on our strengths and core competencies, and growing the businesses
that offer the most attractive returns. Implementing these strategies involves various types of strategic initiatives.
As part of our M2019 plan, we evaluated acquisition opportunities that fit strategically with our core competencies and
growth initiatives and regularly reviewed the prospects of our existing businesses to determine whether any of them should be
modified, restructured, sold or otherwise discontinued. On July 26, 2019, we acquired AxleTech for approximately $179 million
in cash, subject to certain purchase price adjustments (see Note 4 of the Notes to the Consolidated Financial Statements under
Item 8. Financial Statements and Supplementary Data below). We completed a $3 million investment in Transportation Power, Inc.
(“TransPower”) in each of the first and third quarters of fiscal year 2019. We also completed a $6 million investment in TransPower
in fiscal year 2018 (see Note 14 of the Notes to Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data below).
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JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
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PAGE NO. 10
OPERATOR JOSHUAM
In the third quarter of fiscal year 2018, we completed the acquisition of substantially all of the assets of AA Gear &
Manufacturing, Inc. (see Note 4 of the Notes to Consolidated Financial Statements under Item 8. Financial Statements and
Supplementary Data below). In the second quarter of fiscal year 2018, we completed the sale of our equity interest in Meritor
Huayang Vehicle Braking Company Ltd. (see Note 7 of the Notes to Consolidated Financial Statements under Item 8. Financial
Statements and Supplementary Data below). In the fourth quarter of fiscal year 2017, we completed the sale of our interest in
Meritor WABCO Vehicle Control Systems to a subsidiary of our joint venture partner, WABCO Holdings Inc. (see Note 4 of the Notes
to Consolidated Financial Statements under Item 8. Financial Statements and Supplementary Data below). In the fourth quarter of
fiscal year 2017, we also completed the acquisition of the product portfolio and related technologies of Fabco Holdings, Inc. (see
Note 4 of the Notes to Consolidated Financial Statements under Item 8. Financial Statements and Supplementary Data below).
Restructuring Actions
Global Restructuring Programs: On September 27, 2019, we approved and began executing a restructuring plan to reduce
salaried and hourly headcount globally. This restructuring plan is intended to reduce labor costs in response to an anticipated
decline in most global truck and trailer market volumes. With this restructuring plan, we expect to incur approximately $20 million
in employee severance costs across both of our reportable segments. During the fourth quarter of fiscal year 2019, we incurred
$4 million in restructuring costs in the Commercial Truck segment and $3 million in the Aftermarket, Industrial and Trailer segment.
Restructuring actions associated with this plan are expected to be substantially complete by the end of the first quarter of fiscal
year 2020.
AxleTech Restructuring: On July 29, 2019, shortly after acquiring AxleTech, we approved a restructuring plan related to the
integration of the business. This restructuring plan is intended to realize certain targeted synergies, primarily from the elimination
of cost overlap. With this restructuring plan, we expect to incur $11 million of total costs in the Aftermarket, Industrial and Trailer
segment with approximately $7 million related to employee severance charges and approximately $4 million related to asset
impairment. During the fourth quarter of fiscal year 2019, we recorded $3 million of severance related restructuring costs in
the Aftermarket, Industrial and Trailer segment. Restructuring associated with severance actions is expected to be substantially
completed during fiscal year 2020.
Segment Realignment Program: On March 12, 2018, we announced a realignment of operations to further drive long-term
strategic objectives while also assigning new responsibilities as part of our commitment to leadership development. As a part of
this program, we approved various labor restructuring actions in the Aftermarket, Industrial and Trailer segment. We recorded
$3 million of restructuring costs during fiscal year 2018 in connection with this program. These actions were substantially complete
as of September 30, 2018.
Other Restructuring Actions: During fiscal year 2018, we recorded restructuring costs of $3 million primarily associated with
labor reduction programs in the Commercial Truck segment and Aftermarket, Industrial and Trailer segment.
Fiscals 2017 & 2016 Aftermarket Actions: During the third quarter of fiscal year 2016, we approved various restructuring
plans in the North American and European Aftermarket businesses. We recorded $5 million of restructuring costs during the third
quarter of fiscal year 2016 and $4 million of restructuring costs during fiscal year 2017. Restructuring actions associated with
these plans were substantially complete as of September 30, 2017.
Joint Ventures
As the industries in which we operate have become more globalized, joint ventures and other cooperative arrangements have
become an important element of our business strategies. These strategic alliances provide for sales, product design, development
and manufacturing in certain product and geographic areas. As of September 30, 2019, our continuing operations participated in
the following non-consolidated joint ventures:
Master Sistemas Automotivos Limitada . . . . . . . . . . . . . . . . . . .
Sistemas Automotrices de Mexico S.A. de C.V.. . . . . . . . . . . . . .
Ege Fren Sanayii ve Ticaret A.S. . . . . . . . . . . . . . . . . . . . . . . . .
Automotive Axles Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Braking systems
Axles, drivelines and brakes
Braking systems
Rear drive axle assemblies and braking systems
Key Products
Country
Brazil
Mexico
Turkey
India
In the fourth quarter of fiscal year 2017, we closed on the sale of our interest in Meritor WABCO Vehicle Control Systems to
a subsidiary of our joint venture partner, WABCO Holdings Inc.
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JOB TITLE Meritor AR
JOB NUMBER 365806(1)
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PAGE NO. 11
OPERATOR JOSHUAM
Aggregate sales of our non-consolidated joint ventures were $1,231 million, $1,101 million and $1,156 million in fiscal years
2019, 2018 and 2017, respectively.
In accordance with accounting principles generally accepted in the United States, our Consolidated Financial Statements
include the financial position and operating results of those joint ventures in which we have control. For additional information on
our unconsolidated joint ventures and percentage ownership thereof see Note 15 of the Notes to Consolidated Financial Statements
under Item 8. Financial Statements and Supplementary Data below.
Research and Development
We have significant research, development, engineering and product design capabilities. We spent $75 million in fiscal
year 2019, $73 million in fiscal year 2018 and $69 million in fiscal year 2017 on company-sponsored research, development
and engineering. We employ professional engineers and scientists globally and have additional engineering capabilities through
contract arrangements in low-cost countries. We also have advanced technical centers in North America, South America, Europe
and India.
Patents and Trademarks
We own or license many United States and foreign patents and patent applications in our engineering and 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 believe that the loss or termination of any one of them would materially affect a business
segment or Meritor as a whole.
Our registered trademarks for Meritor® and the Bull design are important to our business. Other significant trademarks
owned by us include Euclid® and Trucktechnic® for aftermarket products.
Substantially all of our U.S.-held intellectual property rights are subject to a first-priority perfected security interest securing
our obligations to the lenders under our credit facility. See Note 18 of the Notes to Consolidated Financial Statements under Item
8. Financial Statements and Supplementary Data below.
Employees
At September 30, 2019, we had approximately 9,100 employees (which includes consolidated joint ventures). At that date, 77
employees in the United States were covered by collective bargaining agreements. Most of our facilities outside of the United States
and Canada are unionized. We strive to foster and maintain positive relationships with our hourly and salaried employees.
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 operations. We record
liabilities for environmental issues in the accounting period in which they are considered to be probable 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 ten Superfund sites, excluding sites as to which our records
disclose no involvement or as to which our liability has been finally determined. 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. We have established reserves for these liabilities when they are considered to be probable and reasonably estimable.
See Note 25 of the Notes to Consolidated Financial Statements under Item 8. Financial Statements and Supplementary Data below
for information as to our estimates of the total reasonably possible costs we could incur and the amounts recorded as a liability as
of September 30, 2019, and as to changes in environmental accruals during fiscal year 2019.
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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 our current 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 Meritor’s Chief Legal Officer and with outside advisors who specialize in environmental matters, 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, changes in remediation plans, 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.
Seasonality; Cyclicality
We may experience seasonal variations in the demand for our products, to the extent OEM vehicle production fluctuates.
Historically, for most of our operations, demand has been somewhat lower in the quarters ended September 30 and December 31,
when OEM plants may close for summer shutdowns and holiday periods or when there are fewer selling days during the quarter. Our
aftermarket business and our operations in India generally experience seasonally higher demand in the quarter ending March 31.
In addition, the industries in which we operate have been characterized historically by periodic fluctuations in overall demand
for trucks, trailers and other specialty vehicles for which we supply products, resulting in corresponding fluctuations in demand for
our products. Production and sales of the vehicles for which we supply products generally depend on economic conditions and a
variety of other factors that are outside of our control, including freight tonnage, customer spending and preferences, vehicle age,
labor relations and regulatory requirements. See Item 1A. Risk Factors below. Cycles in the major vehicle industry markets of North
America and Europe are not necessarily concurrent or related but do tend to be correlated to general economic trends.
See Trends and Uncertainties in Item 7. Management’s Discussion and Analysis for estimated commercial truck production
volumes for selected original equipment markets based on available sources and management’s estimates.
Available Information
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 we make with the Securities and Exchange Commission (“SEC”) are available free of charge on our
website (www.Meritor.com), as soon as reasonably practicable after they are filed. The information contained on the company’s
website is not included in, or incorporated by reference into, this Annual Report on Form 10-K.
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,” “will” and similar expressions. Actual results may differ materially from those projected as a result of
certain risks and uncertainties, including but not limited to reliance on major OEM customers and possible negative outcomes from
contract negotiations with our major customers, including failure to negotiate acceptable terms in contract renewal negotiations
and our ability to obtain new customers; the outcome of actual and potential product liability, warranty and recall claims; our
ability to successfully manage rapidly changing volumes in the commercial truck markets and work with our customers to manage
demand expectations in view of rapid changes in production levels; global economic and market cycles and conditions; availability
and sharply rising costs of raw materials, including steel, and our ability to manage or recover such costs; our ability to manage
possible adverse effects on European markets or our European operations, or financing arrangements related thereto following
the United Kingdom’s decision to exit the European Union or, in the event one or more other countries exit the European monetary
union; risks inherent in operating abroad (including foreign currency exchange rates, restrictive government actions regarding
trade, implications of foreign regulations relating to pensions and potential disruption of production and supply due to terrorist
attacks or acts of aggression); risks related to our joint ventures; rising costs of pension benefits; the ability to achieve the expected
benefits of strategic initiatives and restructuring actions; our ability to successfully integrate the products and technologies of Fabco
Holdings, Inc., AA Gear Mfg., Inc. and AxleTech and future results of such acquisitions, including their generation of revenue and
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OPERATOR JOSHUAM
their being accretive; the demand for commercial and specialty vehicles for which we supply products; whether our liquidity will be
affected by declining vehicle production in the future; OEM program delays; demand for and market acceptance of new and existing
products; successful development and launch of new products; labor relations of our company, our suppliers and customers,
including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial
condition of our suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of
normal trade credit terms by our suppliers; potential impairment of long-lived assets, including goodwill; potential adjustment of the
value of deferred tax assets; competitive product and pricing pressures; the amount of our debt; our ability to continue to comply
with covenants in our financing agreements; our ability to access capital markets; credit ratings of our debt; the outcome of existing
and any future legal proceedings, including any proceedings or related liabilities with respect to environmental, asbestos-related, or
other matters; possible changes in accounting rules; and other substantial costs, risks and uncertainties, including but not limited
to those detailed herein and from time to time in other filings of the company with the SEC. 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 1A. Risk Factors
Our business, financial condition and results of operations can be impacted by a number of risks, including those described
below and elsewhere in this Annual Report on Form 10-K, any one of which could cause our actual results to vary materially from
recent results or from anticipated future results. Any of these individual risks could materially and adversely affect our business,
financial condition and results of operations. This effect could be compounded if multiple risks were to occur.
We may not be able to execute our M2022 Plan.
In the first quarter of fiscal 2019, we announced our M2022 plan, a multi-year plan to drive growth, expand margins,
expand earnings per share, and generate cash and value. In connection with the plan, we established certain financial goals
relating to securing new revenue, profit improvement and cash flow generation. The M2022 plan is based on our current planning
assumptions, and achievement of the plan is subject to a number of risks. Our plan includes assumptions that we are able to
successfully launch new products, secure new business wins, expand our current customer relationships, reduce costs, and that
any increases in raw materials prices are substantially offset by customer recovery mechanisms. If our assumptions are incorrect,
if management is not able to execute the plan or if our business suffers from any number of additional risks set forth herein, we
may not be able to achieve the financial goals we have announced for the M2022 plan.
We depend on large OEM customers, and loss of sales to these customers or failure to negotiate acceptable terms
in contract renewal negotiations, or to obtain new customers, could have an adverse impact on our business.
We are dependent upon large OEM customers with substantial bargaining power with respect to price and other commercial
terms. In addition, we have long-term contracts with certain of these customers that are subject to renegotiation and renewal from
time to time. 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 or failure to negotiate acceptable terms in contract renewal negotiations, loss of market share by
these customers, insolvency of such customers, reduced or delayed customer requirements, plant shutdowns, strikes or other work
stoppages affecting production by such customers), continued reduction of prices to these customers, or a failure to obtain new
customers, could have a significant adverse effect on our financial results. There can be no assurance that we will not lose all or
a portion of sales to our large volume customers, or that we will be able to offset any reduction of prices to these customers with
reductions in our costs or by obtaining new customers.
During fiscal year 2019, sales to customers that accounted for 10 percent or more of our total sales included AB Volvo, Daimler
AG, PACCAR and Navistar, which represented approximately 22 percent, 19 percent, 13 percent and 10 percent, respectively. No
other customer accounted for 10 percent or more of our total sales in fiscal year 2019.
The level of our sales to large OEM customers, including the realization of future sales from awarded business or obtaining
new business or customers, is inherently subject to a number of risks and uncertainties, including the number of vehicles that
these OEM customers actually produce and sell. Several of our significant customers have major union contracts that expire
periodically and are subject to renegotiation. Any strikes or other actions that affect our customers’ production during this process
would also affect our sales. Further, to the extent that the financial condition, including bankruptcy or market share, of any of
our largest customers deteriorates or their sales otherwise continue to decline, our financial position and results of operations
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could be adversely affected. In addition, our customers generally have the right to replace us with another supplier under certain
circumstances. Accordingly, we may not in fact realize all of the future sales represented by our awarded business. Any failure to
realize these sales could have a material adverse effect on our financial condition and results of operations.
Our ability to manage rapidly changing production and sales volume in the commercial vehicle market may
adversely affect our results of operations.
Production and sales in the commercial vehicle market have historically been volatile. Our business may experience difficulty
in adapting to rapidly changing production and sales volumes. In an upturn of the cycle, when demand increases for production,
we may have difficulty in meeting such extreme or rapidly increasing demand. This difficulty may include not having sufficient
manpower or working capital to meet the needs of our customers or relying on other suppliers who may not be able to respond
quickly to a changed environment when demand increases rapidly. In addition, certain volume requirements can necessitate
premium freight and the associated costs to support the customer demand. In contrast, in the downturn of the cycle, we may have
difficulty sustaining profitability given fixed costs (as further discussed below).
A downturn in the global economy could materially adversely affect our results of operations, financial condition
and cash flows.
Past recessions have had a significant adverse impact on our business, customers and suppliers. Our cash and liquidity
needs were impacted by the level, variability and timing of our customers’ worldwide vehicle production and other factors outside
of our control. If the global economy were to take another significant downturn, depending upon the length, duration and severity
of another recession, our results of operations, financial condition and cash flow would be materially adversely affected again.
Our levels of fixed costs can make it difficult to adjust our cost base to the extent necessary, or to make such adjustments
on a timely basis, and continued volume declines can result in non-cash impairment charges as the value of certain long-lived
assets is reduced. As a result, our financial condition and results of operations have been and would be expected to continue to be
adversely affected during periods of prolonged declining production and sales volumes in the commercial vehicle markets.
The negative impact on our financial condition and results of operations from continued volume declines could also have
negative effects on our liquidity. If cash flows are not available from our operations, we may be required to rely on the banking and
credit markets to meet our financial commitments and short-term liquidity needs; however, we cannot predict whether that funding
will be available at all or on commercially reasonable terms. In addition, in the event of reduced sales, levels of receivables would
decline, which would lead to a decline in funding available under our U.S. receivables facilities or under our European factoring
arrangements.
Our working capital requirements may negatively affect our liquidity and capital resources.
Our working capital requirements can vary significantly, depending in part on the level, variability and timing of our customers’
worldwide vehicle production and the payment terms with our customers and suppliers. As production volumes increase, our
working capital requirements to support the higher volumes generally increase. If our working capital needs exceed our other
cash flows from operations, we would look to our cash balances and availability for borrowings under our borrowing arrangements
to satisfy those needs, as well as potential sources of additional capital, which may not be available on satisfactory terms or in
adequate amounts.
In addition, since many of our accounts receivable factoring programs support our working capital requirements in Europe,
any dissolution of the European monetary union, if it were to occur, or any other termination of our European factoring agreements
could have a material adverse effect on our liquidity if we were unable to renegotiate such agreements or find alternative sources
of liquidity.
One of our consolidated joint ventures in China participates in bills of exchange programs to settle accounts receivable from
its customers and obligations to its trade suppliers. These programs are common in China and generally require the participation
of local banks. Any disruption in these programs, if it were to occur, could have an adverse effect on our liquidity if we were unable
to find alternative sources of liquidity.
14
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 15
OPERATOR JOSHUAM
We operate in an industry that is cyclical and that has periodically experienced significant year-to-year fluctuations
in demand for vehicles; we also experience seasonal variations in demand for our products.
The industries in which we operate have been characterized historically by significant periodic fluctuations in overall demand
for medium- and heavy-duty trucks and other vehicles for which we supply products, resulting in corresponding fluctuations in
demand for our products. The length and timing of any cycle in the vehicle industry cannot be predicted with certainty.
Production and sales of the vehicles for which we supply products generally depend on economic conditions and a variety
of other factors that are outside our control, including freight tonnage, customer spending and preferences, vehicle age, labor
relations and regulatory requirements. In particular, demand for our Commercial Truck segment products can be affected by a pre-
buy before the effective date of new regulatory requirements, such as changes in emissions standards. Historically, implementation
of new, more stringent, emissions standards has increased heavy-duty truck demand prior to the effective date of the new
regulations, and correspondingly decreased this demand after the new standards are implemented. In addition, any expected
increase in the heavy-duty truck demand prior to the effective date of new emissions standards may be offset by instability in the
financial markets and resulting economic contraction in the U.S. and worldwide markets.
Sales from the aftermarket portion of our Aftermarket, Industrial and Trailer segment depend on overall levels of truck ton
miles and gross domestic product (GDP), among other things, and may be influenced by times of slower economic growth or
economic contraction based on the average age of commercial truck fleets.
We may also experience seasonal variations in the demand for our products to the extent that vehicle production fluctuates.
Historically, for most of our business, 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 or when there are fewer selling days
during the quarter. In addition, our aftermarket business and our operations in India generally experience seasonally higher demand
in the quarter ending March 31.
Continued fluctuation in the prices of raw materials and transportation costs has adversely affected our business
and, together with other factors, will continue to pose challenges to our financial results.
Prices of raw materials, primarily steel, for our manufacturing needs and costs of transportation have fluctuated sharply in
past years, including rapid increases which had a negative impact on our operating income for certain periods. These steel price
increases, along with increasing transportation costs, created pressure on profit margins, and as they recur in the future, they
could unfavorably impact our financial results going forward. While we have had steel pricing adjustment programs in place with
most major OEMs, the price adjustment programs typically lag the increase in steel costs and have generally not contemplated all
non-index-related increases in steel costs. Raw material price fluctuation, together with the volatility of the commodity markets,
which can be impacted by a variety of factors, including changes in trade laws and tariffs, will continue to pose risks to our financial
results. If we are unable to pass price increases on to our customer base or otherwise mitigate the costs, our operating income
could be adversely affected.
Escalating price pressures from customers may adversely affect our business.
To a certain extent, pricing pressure by OEMs is a characteristic of the commercial vehicle industry. Virtually all OEMs
have price reduction initiatives and objectives each year with their suppliers, and such actions are expected to continue in the
future. Accordingly, we must be able to reduce our operating costs in order to maintain our current margins. Price reductions have
impacted our margins and may do so in the future. There can be no assurance that we will be able to avoid future customer price
reductions or offset future customer price reductions through improved operating efficiencies, new manufacturing processes,
sourcing alternatives or other cost reduction initiatives.
We operate in a highly competitive industry.
Each of Meritor’s businesses operates in a highly competitive environment. We compete worldwide with a number of North
American and international providers of components and systems, some of which are owned by or associated with some of our
customers. Certain OEMs manufacture products for their own use that compete with the types of products we supply, and any
future increase in this activity could displace Meritor’s sales. In addition, cost reduction strategies in our industry have led to an
increase in the consolidation and globalization of OEMs and their suppliers, which could increase the amount of competition or
displacement we face from OEMs that manufacture products similar to ours for their own use or from suppliers that are affiliated
with or otherwise supported by OEMs.
15
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 16
OPERATOR JOSHUAM
The commercial vehicle market is also experiencing a period of significant technological change as a result of the trends
toward electrified drivetrains and the integration of advanced electronics into traditional products. These trends have led to an
increase in the significance of technology to our current and future products and the amount of capital we need to invest to
develop these new technologies, as well as an increase in the amount of competition we face from technology focused new
market entrants. If we misjudge the amount of capital to invest or are otherwise unable to continue providing products that meet
our customers’ needs in this environment of rapid technological change, our market competitiveness could be adversely affected.
Exchange rate fluctuations could adversely affect our financial condition and results of operations.
As a result of our substantial international operations, we are exposed to foreign currency risks that arise from our normal
business operations, including risks in connection with our transactions that are denominated in foreign currencies. While we
employ financial instruments to hedge certain of our foreign currency exchange risks relating to these transactions, our efforts to
manage these risks may not be successful. In addition, we translate sales and other results denominated in foreign currencies into
U.S. dollars for purposes of our consolidated financial statements. As a result, appreciation of the U.S. dollar against these foreign
currencies generally will have a negative impact on our reported revenues and operating income, while depreciation of the U.S.
dollar against these foreign currencies will generally have a positive effect on reported revenues and operating income. For fiscal
years 2018 and 2017, our reported financial results benefited from depreciation of the U.S. dollar against foreign currencies. For
fiscal year 2019, our reported financial results were adversely affected by appreciation of the U.S. dollar against foreign currencies.
A disruption in supply of raw materials or parts could impact our production and increase our costs.
Some of our significant suppliers have experienced weak financial condition in the past. In addition, some of our significant
suppliers are located in developing countries. We are dependent upon the ability of our suppliers to meet performance and quality
specifications and delivery schedules. The inability of a supplier to meet these requirements, the loss of a significant supplier, or
any labor issues or work stoppages at a significant supplier could disrupt the supply of raw materials and parts to our facilities and
could have an adverse effect on us.
Work stoppages or similar difficulties could significantly disrupt our operations.
A work stoppage at one or more of our manufacturing facilities could have a material adverse effect on our business. In
addition, if a significant customer were to experience a work stoppage, that customer could halt or limit purchases of our products,
which could result in shutting down the related manufacturing facilities. Also, a significant disruption in the supply of a key
component due to a work stoppage at one of our suppliers could result in shutting down manufacturing facilities, which could have
a material adverse effect on our business.
Our international operations are subject to a number of risks.
We have a significant number of facilities and operations outside the United States, including investments and joint ventures
in developing countries. During fiscal year 2019, approximately 40 percent of our sales from continuing operations were generated
outside of the United States. Our strategy to grow in emerging markets may put us at risk due to the risks inherent in operating
in such markets. 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 (as more fully discussed above);
• risks to our liquidity if the European monetary union were to dissolve and we were unable to renegotiate European
factoring agreements or find alternative sources of liquidity;
• risks arising from the United Kingdom’s decision to exit the European Union, or in the event one or more other countries
exit the European monetary union;
• local economic and political conditions;
• disruptions of capital and trading markets;
• possible terrorist attacks or acts of aggression that could affect vehicle production or the availability of raw materials
or supplies;
16
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 17
OPERATOR JOSHUAM
• restrictive governmental actions (such as restrictions on transfer of funds and trade protection measures, including import
and export duties, 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 and foreign governments affecting trade, foreign investment and loans;
• the ability to attract and retain qualified personnel;
• 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.
Certain of our operations are conducted through joint ventures, which have unique risks.
We conduct certain of our operations through joint ventures, many of which act as our suppliers, pursuant to the terms of the
agreements that we entered into with our partners. We may share management responsibilities and information with one or more
partners that may not share our goals and objectives. Additionally, one or more partners may fail to satisfy contractual obligations,
conflicts may arise between us and any of our partners, the ownership of one of our partners may change or our ability to control
decision making or compliance with applicable rules and regulations may be limited. Additionally, our ability to sell our interest in a
joint venture may be subject to contractual and other limitations. Accordingly, any of the foregoing could adversely affect our results
of operations, financial condition and cash flow.
Our strategic initiatives may be unsuccessful, may take longer than anticipated, or may result in unanticipated
costs.
The success and timing of any future divestitures and acquisitions will depend on a variety of factors, many of which are
not within our control. If we engage in acquisitions, we may finance these transactions by borrowing or issuing 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. There is also no assurance that the total costs associated with
any current and future restructuring will not exceed our estimates, or that we will be able to achieve the intended benefits of these
restructurings.
Our liquidity, including our access to capital markets and financing, could be constrained by limitations in the
overall credit market, our credit ratings, our ability to comply with financial covenants in our debt instruments,
and our suppliers suspending normal trade credit terms on our purchases, or by other factors beyond our control.
Our current senior secured revolving credit facility matures in June 2024. Upon expiration of this facility, we will require
a new or renegotiated facility (which may be smaller and have less favorable terms than our current facility) or other financing
arrangements. Our ability to access additional capital in the long term will depend on availability of capital markets and pricing on
commercially reasonable terms as well as our credit profile at the time we are seeking funds, and there is no guarantee that we
will be able to access additional capital.
On November 11, 2019, our Standard & Poor’s corporate credit rating and senior unsecured credit rating were BB and
BB-, respectively, and our Moody’s Investors Service corporate credit rating and senior unsecured credit rating were Ba3 and B1,
respectively. Any lowering of our credit ratings could increase our cost of future borrowings and could reduce our access to capital
markets and result in lower trading prices for our securities.
17
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 18
OPERATOR JOSHUAM
Our liquidity could also be adversely impacted if our suppliers were to suspend normal trade credit terms and require more
accelerated payment terms, including payment in advance or payment on delivery of purchases. If this were to occur, we would be
dependent on other sources of financing to bridge the additional period between payment of our suppliers and receipt of payments
from our customers.
Disruptions in the financial markets could impact the availability and cost of credit which could negatively affect
our business.
Disruptions in the financial markets, including the bankruptcy, insolvency or restructuring of certain financial institutions, and
the lack of liquidity generally could impact the availability and cost of incremental credit for many companies and may adversely
affect the availability of credit already arranged. Such disruptions could adversely affect the U.S. and world economy, further
negatively impacting consumer spending patterns in the transportation and industrial sectors. In addition, as our customers and
suppliers respond to rapidly changing consumer preferences, they may require access to additional capital. If that capital is not
available or its cost is prohibitively high, their business would be negatively impacted, which could result in further restructuring or
even reorganization under bankruptcy laws. Any such negative impact, in turn, could negatively affect our business either through
loss of sales to any of our customers so affected or through inability to meet our commitments (or inability to meet them without
excess expense) because of loss of supplies from any of our suppliers so affected. There are no assurances that government
responses to these disruptions would restore consumer confidence or improve the liquidity of the financial markets.
In addition, disruptions in the capital and credit markets could adversely affect our ability to draw on our senior secured
revolving credit facility or our U.S. accounts receivable securitization facility. Our access to funds under the facilities is dependent
on the ability of the banks that are parties to the facilities to meet their funding commitments. Those banks may not be able to
meet their funding commitments to us if they experience shortages of capital and liquidity or if they experience excessive volumes
of borrowing requests from Meritor and other borrowers within a short period of time. Longer-term disruptions in the capital and
credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives, or failures of significant financial
institutions could adversely affect our access to liquidity needed for our business. Any disruption could require us to take measures
to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can
be arranged.
A violation of the financial covenants in our senior secured revolving credit facility could result in a default thereunder
and could lead to an acceleration of our obligations under this facility and, potentially, other indebtedness.
Our ability to borrow under our existing financing arrangements depends on our compliance with covenants in the related
agreements and on our performance against covenants in our bank credit facility that require compliance with certain financial
ratios as of the end of each fiscal quarter. To the extent that we are unable to maintain compliance with these requirements or to
perform against the financial ratio covenants due to one or more of the various risk factors discussed herein or otherwise, our ability
to borrow, and our liquidity, would be adversely impacted.
Availability under the senior secured revolving credit facility is subject to a financial covenant based on the ratio of our priority
debt (consisting principally of amounts outstanding under the senior secured revolving credit facility, U.S. accounts receivable
securitization and factoring programs, and third-party non-working capital foreign debt) to EBITDA. We are required to maintain
a total priority-debt-to-EBITDA ratio, as defined in the agreement, of not more than 2.25 to 1.00 as of the last day of each fiscal
quarter through maturity.
If an amendment or waiver is needed (in the event we do not meet one of these covenants) and not obtained, we would be
in violation of that covenant, and the lenders would have the right to accelerate the obligations upon the vote of the lenders holding
more than 50% of outstanding loans thereunder. A default under the senior secured revolving credit facility could also constitute a
default under our outstanding convertible notes as well as our U.S. receivables facility and could result in the acceleration of these
obligations. In addition, a default under our senior secured revolving credit facility could result in a cross-default or the acceleration
of our payment obligations under other financing agreements. If our obligations under our senior secured revolving credit facility
and other financing arrangements are accelerated as described above, our assets and cash flow may be insufficient to fully repay
these obligations, and the lenders under our senior secured revolving credit facility could institute foreclosure proceedings against
our assets.
18
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 19
OPERATOR JOSHUAM
The phaseout of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference
rate, may have an adverse effect on our business.
In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced that it would
phase out LIBOR by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established or if alternative
rates or benchmarks will be adopted. Our senior secured revolving credit facility, current term loan, U.S. accounts receivables
securitization facility and certain of our accounts receivable factoring programs utilize LIBOR as a benchmark for calculating the
applicable interest rate. Changes in the method of calculating LIBOR, the elimination of LIBOR or the replacement of LIBOR with an
alternative rate or benchmark may require us to renegotiate or amend these facilities, loans and programs, which may adversely
affect interest rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash
flows and liquidity. We cannot predict the effect of the potential changes to or elimination of LIBOR or the establishment and use
of alternative rates or benchmarks and the corresponding effects on our cost of capital.
We are exposed to environmental, health and safety and product liabilities.
Our business is subject to liabilities with respect to environmental, health and safety matters. In addition, we are required
to comply with federal, state, local and foreign laws and regulations governing the protection of the environment and health and
safety, and we could be held liable for damages arising out of human exposure to hazardous substances or other environmental
or natural resource damages. Environmental, health and safety laws and regulations are complex, change frequently and tend to
be increasingly stringent. As a result, our future costs to comply with such laws and regulations may increase significantly. There
is also an inherent risk of exposure to warranty and product liability claims, as well as product recalls, in the commercial vehicle
industry if our products fail to perform to specifications or are alleged to cause property damage, injury or death.
With respect to environmental liabilities, we have been designated as a potentially responsible party at ten Superfund sites
(excluding sites as to which our records disclose no involvement or as to which our liability has been finally determined). In addition
to the Superfund sites, various other lawsuits, claims and proceedings have been asserted against us alleging violations of federal,
state and local and foreign environmental protection requirements or seeking remediation of alleged environmental impairments.
We establish reserves for these liabilities when we determine that the company has a probable obligation and we can reasonably
estimate it, but the process of estimating environmental liabilities is complex and dependent on evolving 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 our current estimates
because of these and other uncertainties which make it difficult to predict actual costs accurately. In future periods, new laws
and regulations, changes in remediation plans, advances in technology and additional information about the ultimate clean-up
remedy could significantly change our estimates and have a material impact on our financial position and results of operations.
Management cannot assess the possible effect of compliance with future requirements.
We are exposed to asbestos litigation liability.
We, along with many other companies, have been named as a defendant in lawsuits alleging personal injury as a result of
exposure to asbestos used in certain components of products of Rockwell International Corporation (“Rockwell”). Liability for these
claims was transferred to us at the time of the spin-off of Rockwell’s automotive business to Meritor in 1997.
The uncertainties of asbestos claims and other litigation, including the outcome of litigation with insurance companies
regarding the scope of asbestos coverage and the long-term solvency of our insurance carriers, make it difficult to predict
accurately the ultimate resolution of asbestos claims. The possibility of adverse rulings or new legislation affecting asbestos claim
litigation or the settlement process increases that uncertainty. Although we have established reserves to address asbestos liability
and corresponding receivables for recoveries from our insurance carriers, if our assumptions with respect to the nature of pending
and future 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 us, could differ materially from our current estimates and, therefore, could
have a material impact on our financial position and results of operations.
19
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 20
OPERATOR JOSHUAM
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, could adversely
affect our results of operations.
The U.S. government has adopted a new approach to trade policy and in some cases has attempted to renegotiate or
terminate certain existing bilateral or multi-lateral trade agreements. It has also imposed tariffs on certain foreign goods, including
steel and certain commercial vehicle parts, which have begun to result in increased costs for goods imported into the U.S. In
response to these tariffs, a number of U.S. trading partners have imposed retaliatory tariffs on a wide range of U.S. products,
which makes it more costly for us to export our products to those countries. If we are unable to pass price increases on to our
customer base or otherwise mitigate the costs, or if demand for our exported products decreases due to the higher cost, our results
of operations could be materially adversely affected. In addition, further tariffs have been proposed by the U.S. and its trading
partners and additional trade restrictions could be implemented on a broader range of products or raw materials. The resulting
environment of retaliatory trade or other practices could have a material adverse effect on our business, results of operations,
customers, suppliers and the global economy.
We are exposed to the rising cost of pension benefits.
The commercial vehicle industry, like other industries, continues to be impacted by the cost of pension benefits. In estimating
our expected obligations under our pension benefit plans, we make certain assumptions as to economic and demographic factors,
such as discount rates, and investment returns. If actual experience of these factors is worse than our assumptions, our obligations
could grow which could in turn increase the amount of mandatory contributions to these plans in the coming years. Our pension
plans were underfunded by $122 million as of September 30, 2019.
Impairment in the carrying value of long-lived assets and goodwill could negatively affect our operating results
and financial condition.
We have a significant amount of long-lived assets and goodwill on our Consolidated Balance Sheet. Under U.S. generally
accepted accounting principles, long-lived assets, excluding goodwill, are required to be reviewed for impairment whenever adverse
events or changes in circumstances indicate a possible impairment. If business conditions or other factors cause our operating
results and cash flows to decline, we may be required to record non-cash impairment charges. Goodwill must be evaluated for
impairment at least annually. If the carrying value of our reporting units exceeds their current fair value, the goodwill is considered
impaired and is reduced to fair value via a non-cash charge to earnings. Events and conditions that could result in impairment in the
value of our long-lived assets and goodwill include changes impacting the industries in which we operate, particularly the impact
of any downturn in the global economy, as well as competition and advances in technology, adverse changes in the regulatory
environment, or other factors leading to reduction in expected long-term sales or operating results. If the value of long-lived assets
or goodwill is impaired, our earnings and financial condition could be adversely affected.
The value of our deferred tax assets could become impaired, which could materially and adversely affect our
results of operations and financial condition.
In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740
“Income Taxes,” each quarter we determine the probability of the realization of deferred tax assets using significant judgments
and estimates with respect to, among other things, historical operating results, expectations of future earnings and tax planning
strategies. If we determine in the future that there is not sufficient positive evidence to support the valuation of these assets, due
to the risk factors described herein or other factors, we may be required to adjust the valuation allowance to reduce our deferred
tax assets. Such a reduction could result in material non-cash expenses in the period in which the valuation allowance is adjusted
and could have a material adverse effect on our results of operations and financial condition. In addition, future changes in laws or
regulations could have a material impact on the company’s overall tax position.
Our overall effective tax rate is equal to our total tax expense as a percentage of our total earnings before tax. However,
tax expenses and benefits are determined separately for each tax paying component (an individual entity) or group of entities
that is consolidated for tax purposes in each jurisdiction. Losses in certain jurisdictions that have valuation allowances against
their deferred tax assets provide no current financial statement tax benefit unless required under the intra-period allocation
requirements of ASC Topic 740. As a result, changes in the mix of projected earnings between jurisdictions, among other factors,
could have a significant impact on our overall effective tax rate.
20
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 21
OPERATOR JOSHUAM
Our unrecognized tax benefits recorded in accordance with FASB ASC Topic 740 could significantly change.
FASB ASC Topic 740, “Income Taxes,” defines the confidence level that a tax position must meet in order to be recognized
in the financial statements. This topic requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to
be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive
assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered
more likely than not to be sustained based solely on its technical merits, no benefits of the position are to be recognized. Moreover,
the more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit.
In the event that the more-likely-than-not threshold is not met, we would be required to change the relevant tax position which
could have an adverse effect on our results of operations and financial condition.
We may be restricted on the use of tax attributes from a tax law “ownership change.”
Section 382 of the U.S. Internal Revenue Code of 1986, as amended, limits the ability of a corporation that undergoes an
“ownership change” to use its tax attributes, such as net operating losses and tax credits. In general, an “ownership change”
occurs if shareholders owning five percent or more (applying certain look-through rules) of an issuer’s outstanding common
stock, collectively, increase their ownership percentage by more than fifty percentage points within any three-year period over
such shareholders’ lowest percentage ownership during this period. If we were to issue new shares of stock, such new shares
could contribute to such an “ownership change” under U.S. tax law. Moreover, not every event that could contribute to such an
“ownership change” is within our control. If an “ownership change” under Section 382 were to occur, our ability to utilize tax
attributes in the future may be limited.
Assertions against us or our customers relating to intellectual property rights could materially impact our business.
Our industry is characterized by companies that hold large numbers of patents and other intellectual property rights and that
vigorously pursue, protect and enforce intellectual property rights. From time to time, third parties may assert against us and our
customers and distributors their patents and other intellectual property rights to technologies that are important to our business.
Claims that our products or technology infringe third-party intellectual property rights, regardless of their merit or resolution,
are frequently costly to defend or settle and divert the efforts and attention of our management and technical personnel. In addition,
many of our supply agreements require us to indemnify our customers and distributors from third-party infringement claims, which
have in the past and may in the future require that we defend those claims and might require that we pay damages in the case of
adverse rulings. Claims of this sort also could harm our relationships with our customers and might deter future customers from
doing business with us. We do not know whether we will prevail in these proceedings given the complex technical issues and
inherent uncertainties in intellectual property litigation. If any pending or future proceedings result in an adverse outcome, we could
be required to:
• cease the manufacture, use or sale of the infringing products or technology;
• pay substantial damages for infringement;
• expend significant resources to develop non-infringing products or technology;
• license technology from the third-party claiming infringement, which license may not be available on commercially
reasonable terms, or at all;
• enter into cross-licenses with our competitors, which could weaken our overall intellectual property portfolio;
• lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection
and assertion of our intellectual property against others;
• pay substantial damages to our customers or end users to discontinue use or replace infringing technology with
non-infringing technology; or
• relinquish rights associated with one or more of our patent claims, if our claims are held invalid or otherwise unenforceable.
Any of the foregoing results could have a material adverse effect on our business, financial condition and results of operations.
21
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 22
OPERATOR JOSHUAM
We utilize a significant amount of intellectual property in our business. If we are unable to protect our intellectual
property, our business could be adversely affected.
Our success depends in part upon our ability to protect our intellectual property. To accomplish this, we rely on a combination
of intellectual property rights, including patents, trademarks and trade secrets, as well as customary contractual protections
with our customers, distributors, employees and consultants, and security measures to protect our trade secrets. We cannot
guarantee that:
• any of our present or future patents will not lapse or be invalidated, circumvented, challenged, abandoned or, in the case
of third-party patents licensed or sub-licensed to us, be licensed to others;
• any of our pending or future patent applications will be issued or have the coverage originally sought;
• our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection
may be weak; or
• any of the trademarks, trade secrets or other intellectual property rights that we presently employ in our business will not
lapse or be invalidated, circumvented, challenged, abandoned or licensed to others.
In addition, we may not receive competitive advantages from the rights granted under our patents and other intellectual
property rights. Our competitors may develop technologies that are similar or superior to our proprietary technologies, duplicate our
proprietary technologies, or design around the patents we own or license. Our existing and future patents may be circumvented,
blocked, licensed to others, or challenged as to inventorship, ownership, scope, validity or enforceability. Effective intellectual
property protection may be unavailable or more limited in one or more relevant jurisdictions relative to those protections available
in the U.S., or may not be applied for in one or more relevant jurisdictions. If we pursue litigation to assert our intellectual property
rights, an adverse decision in any of these legal actions could limit our ability to assert our intellectual property rights, limit the value
of our technology or otherwise negatively impact our business, financial condition and results of operations.
We are a party to a number of patent and intellectual property license agreements. Some of these license agreements
require us to make one-time or periodic payments. We may need to obtain additional licenses or renew existing license agreements
in the future. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms.
A breach or failure of our information technology infrastructure could adversely impact our business and operations.
We recognize the increasing volume of cyber-attacks and employ commercially practical efforts to provide reasonable
assurance such attacks are appropriately mitigated. Each year, we evaluate the threat profile of our industry to stay abreast of
trends and to provide reasonable assurance our existing countermeasures will address any new threats identified. Despite our
implementation of security measures, our IT systems and those of our service providers are vulnerable to circumstances beyond
our reasonable control including acts of malfeasance, acts of terror, acts of government, natural disasters, civil unrest, and
denial of service attacks, any of which may lead to the theft of our intellectual property and trade secrets or business disruption.
To the extent that any disruption or security breach results in a loss or damage to our data or an inappropriate disclosure of
confidential information, it could cause significant damage to our reputation, affect our relationships with our customers, suppliers
and employees, lead to claims against the company and ultimately harm our business. Additionally, we may be required to incur
significant costs to protect against damage caused by these disruptions or security breaches in the future.
Item 1B. Unresolved Staff Comments.
None.
22
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 23
OPERATOR JOSHUAM
Item 2. Properties.
At September 30, 2019, our operating segments, including all consolidated joint ventures, had the following facilities in
the United States, Europe, South America, Canada, Mexico and the Asia-Pacific region. For purposes of these numbers, multiple
facilities in one geographic location are counted as one facility.
Commercial Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing and
Distribution Facilities
17
17
—
34
Engineering Facilities, Sales
Offices, Warehouses and
Service Centers
9
7
4
20
These facilities had an aggregate floor space of approximately 11.1 million square feet, substantially all of which is in use. We
owned approximately 59 percent and leased approximately 41 percent of this floor space. Substantially all of our owned domestic
plants and equipment are subject to liens securing our obligations under our revolving credit facility with a group of banks (see Note
18 of the Notes to Consolidated Financial Statements under Item 8. Financial Statements and Supplementary Data). 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 (in square feet) of these facilities at September 30, 2019, (including new space under construction)
is as follows:
Owned Facilities
Leased Facilities
Aftermarket,
Industrial and
Trailer
2,144,790
—
257,257
—
—
2,402,047
Other
417,800
—
—
—
—
417,800
Commercial Truck
391,939
—
543,558
1,055,819
571,743
2,563,059
Aftermarket,
Industrial and
Trailer
1,653,431
40,517
164,272
59,086
33,356
1,950,662
Other
Total
— 5,882,723
40,517
—
2,843,354
8,117
— 1,521,846
809,467
—
11,097,907
8,117
Region
United States . . .
Canada . . . . . . .
Europe . . . . . . . .
Asia Pacific. . . . .
Latin America . . .
Total . . . . . . .
Commercial Truck
1,274,763
—
1,870,150
406,941
204,368
3,756,222
Item 3. Legal Proceedings.
• See Note 25 of the Notes to Consolidated Financial Statements under Item 8. Financial Statements and Supplementary
Data for information with respect to litigation related to asbestos and product liability, which is incorporated herein by
reference thereto.
• See Item 1. Business, “Environmental Matters” and Note 25 of the Notes to Consolidated Financial Statements under
Item 8. Financial Statements and Supplementary Data for information relating to environmental proceedings, which is
incorporated herein by reference thereto.
• In March 2016, two virtually identical complaints were filed against our company and other defendants in the United
States District Court for the Eastern District of Michigan. The complaints are proposed class actions alleging that we
violated federal and state antitrust and other laws in connection with a former business of ours that manufactured and sold
exhaust systems for automobiles. The first proposed class is composed of persons and entities that purchased or leased
a passenger vehicle during a specified time period; the second is a purported class of automobile dealers. We accepted
service of these complaints in July 2016. We settled both of these lawsuits for a total of $1 million. The settlements
were preliminarily approved by the court in June and September 2018. A third complaint on behalf of a proposed class of
direct purchasers was filed against our company and other defendants in the same court in November 2016; we accepted
service in April 2017. In December 2017, we were served with a similar suit naming the company as a defendant on
behalf of a purported class of purchasers in Alberta, Canada, and were served with a nearly identical complaint in British
23
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 24
OPERATOR JOSHUAM
Columbia, Canada in March 2018. In August 2017, our subsidiary, Meritor do Brasil Sistema Automotivos Ltda., received
notice that it was made a formal party to an investigation by the antitrust authority of the Brazilian government relating
to the alleged existence of a cartel in the exhaust systems and components market in Brazil. In September 2019, the
Brazilian antitrust authority issued a non-binding opinion imputing the conduct of the cartel to Meritor. We do not know
when a binding ruling will be issued by the Brazilian antitrust authority. We intend to defend ourselves vigorously against
the unsettled claims and currently believe the risk of loss would not be material to our financial statements.
• Various other lawsuits, claims and proceedings have been or may be instituted or asserted against Meritor or our
subsidiaries relating to the conduct of our business, including those pertaining to product liability, tax, warranty or recall
claims, intellectual property, safety and health, contract 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 Meritor,
management believes, after consulting with Meritor’s Chief Legal Officer, that the disposition of matters that are pending
will not have a material effect on our business, financial condition or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 4A. Executive Officers of the Registrant.
The name, age, positions and offices held with Meritor and principal occupations and employment during the past five years
of each of our executive officers as of November 12, 2019, are as follows:
Jeffrey A. Craig, 59 - Chief Executive Officer and President since April 2015 and President and Chief Operating Officer
from June 2014 until April 2015. Mr. Craig has served as a director of Meritor since April 2015; Senior Vice President and
President, Commercial Truck & Industrial from February 2013 until May 2014; Senior Vice President and Chief Financial Officer
from May 2008 until January 2013; Acting Controller from May 2008 to January 2009; Senior Vice President and Controller
from May 2007 until May 2008; Vice President and Controller from May 2006 until April 2007; Prior to joining Meritor, he was
President and Chief Executive Officer of General Motors Acceptance Corporation (“GMAC”) Commercial Finance (commercial
lending service) from 2001 to May 2006 and President and Chief Executive Officer of GMAC’s Business Credit division from 1999
to 2001. He joined GMAC as general auditor in 1997 from Deloitte & Touche, where he served as an audit partner.
Carl D. Anderson II, 50 - Senior Vice President and Chief Financial Officer since March 2019. Group Vice President,
Finance, March 2018 until March 2019; Vice President and Treasurer, February 2012 until March 2018; Assistant Treasurer,
August 2009 until February 2012; Director of Capital Markets, September 2006 until August 2009. Prior to joining Meritor,
Mr. Anderson was Senior Manager, Structured Finance, at GMAC from 2003 until 2006; Manager, Treasury, GMAC (2002-2003);
Manager, Leasing Group, GMAC, 2000 until 2002; Senior Analyst, Financial Planning & Analysis, GMAC, 1997-2000. He also held
various positions at First Chicago NBD Bank from 1992 until 1996.
April Miller Boise, 51 - Senior Vice President, Chief Legal Officer and Corporate Secretary since August 2016. Prior to
joining Meritor, Ms. Boise was Senior Vice President, General Counsel, Head of Global Mergers and Acquisitions and Corporate
Secretary at Avintiv, Inc. (formerly known as The Polymer Group). From 2011 until 2015, she was Vice President, General Counsel,
Corporate Secretary and Chief Privacy Officer at Veyance Technologies, Inc. (formerly known as Goodyear Engineered Products).
From 1999 to 2010, Ms. Boise was an attorney with Thompson Hine LLP, where she held positions of increasing responsibility,
including Managing Partner, Cleveland Office, Executive Committee Member and Hiring Partner, 2009-2010; Chair, Private Equity
Group, 2007-2010; Co-Founder and Chair, Women’s Initiative, 2006-2009; and Partner, Corporate Transactions and Securities,
2002-2010.
Timothy Heffron, 55 - Senior Vice President, Human Resources and Chief Information Officer since August 2013; Vice
President, Chief Information Officer and Shared Services from July 2011 until August 2013; Vice President of Shared Services
from June 2008 until July 2011; Prior to joining Meritor, Mr. Heffron was Executive Vice President and Chief Information Officer of
GMAC Commercial Finance from January 2002 until June 2008; Director of Reengineering for GMAC from December 1999 until
December 2001, Director of Global Information Technology Audit for General Motors Corporation from June 1999 until November
1999; Assistant General Auditor for GMAC from March 1998 until May 1999. Prior to that, Mr. Heffron spent nine years in public
accounting, most recently as an audit senior manager with Ernst & Young.
24
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 25
OPERATOR JOSHUAM
Chris Villavarayan, 49 - Senior Vice President and President, Global Truck since January 2018; Senior Vice President
and President, Americas from February 2014 until January 2018; Vice President of Global Manufacturing and Supply Chain
Management from June 2012 until February 2014; Managing Director of Meritor India and CEO of MHVSIL and Automotive
Axles Ltd. (joint venture between Meritor and Kalyani Group of India) from December 2009 until June 2012; General Manager
of European Operations and Worldwide Manufacturing Planning and Strategy from June 2007 until December 2009; Director of
Manufacturing Performance Plus from November 2006 until June 2007; Regional Manager of Continuous Improvement from July
2005 until November 2006; Industrialization Project Manager from September 2001 until July 2005; Site Manager of Meritor St.
Thomas, Ontario facility from June 2000 until September 2001.
Joseph Plomin, 57 - Senior Vice President and President, Aftermarket, Industrial and Trailer since March 2019; Senior
Vice President and President, Aftermarket & Trailer and Quality from January 2018 until March 2018; Vice President and President,
International from January 2014 until January 2018; Vice President of International from July 2013 until January 2014; Vice
President of Global Brakes from June 2012 until January 2013; Vice President of Truck North America and South America from
July 2011 until May 2012; Vice President of Commercial Vehicle Systems Truck from September 2007 until July 2011. Prior to
joining Meritor, Mr. Plomin held a variety of executive positions at Delco Remy International, including Senior Vice President of
Sales/Marketing/Product Line Management from October 2006 until September 2007; President of Electrical Aftermarket from
February 2006 until October 2006; General Manager/Senior Vice President of Heavy Duty/Industrial Division from June 2001 until
February 2006; and Senior Vice President of Sales and Marketing, Electrical Division from September 1998 until December 2000.
There are no family relationships, as defined in Item 401 of Regulation S-K, between any of the above executive officers and
any director, executive officer or person nominated to become a director or executive officer. No officer of Meritor was selected
pursuant to any arrangement or understanding between him or her and any person other than Meritor. All executive officers are
elected annually.
25
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 26
OPERATOR JOSHUAM
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Meritor’s common stock, par value $1 per share (“Common Stock”), is listed on the New York Stock Exchange (“NYSE”) and
trades under the symbol “MTOR.” On November 12, 2019, there were 9,875 shareholders of record of Meritor’s Common Stock.
Our revolving credit facility permits us to declare and pay up to $65 million of dividends in any fiscal year provided that no
default or unmatured default, as defined in the agreement, has occurred and is continuing at the date of declaration or payment.
Additionally, our indentures permit us to pay dividends under the following primary conditions:
• if a default on the notes, as defined in the indentures, has not occurred and is not continuing or shall not occur as a
consequence of the payment;
• if the interest coverage ratio, as defined in the indentures, is greater than 2.00 to 1.00 after giving effect to the dividend;
• if the cumulative amount of the dividends paid does not exceed certain cumulative cash and earnings measurements;
• if the dividends are less than $60 million per fiscal year (with a carryover to the next fiscal year of up to $60 million if
unused in the current fiscal year); and
• if after giving effect to the dividend, the total leverage ratio, as defined in the indenture, would not exceed 4.00 to 1.00.
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.
Issuer repurchases
The table below sets forth information with respect to purchases made by or on behalf of us of shares of our Common Stock
during the three months ended September 30, 2019:
Period
July 1- 31, 2019. . . . . . . . . . . .
August 1- 31, 2019 . . . . . . . . .
September 1- 30, 2019 . . . . . .
Total. . . . . . . . . . . . . . . . . . . . .
Total Number of
Shares Purchased
—
1,320,453
—
1,320,453
Average Price
Paid Per Share
$ —
$ 18.93
$ —
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
—
1,320,453
—
1,320,453
Maximum Approximate
Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs (1)
$250,000,000
$225,000,021
$225,000,021
(1)
On November 2, 2018, our Board of Directors authorized the repurchase of up to $200 million of our common stock and up
to $100 million aggregate principal amount of any of our debt securities (including convertible debt securities), in each case
from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance
with legal and regulatory requirements and our debt covenants. These authorizations superseded the prior July 2016
repurchase authorizations. On July 26, 2019, the Board of Directors authorized the repurchase of up to $250 million of our
common stock from time to time through open market purchases, privately negotiated transactions or otherwise, subject
to compliance with legal and regulatory requirements and our debt covenants. This authorization supersedes the remaining
authority under the prior November 2018 equity repurchase authorization.
26
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 27
OPERATOR JOSHUAM
The independent trustee of our 401(k) plans purchases shares in the open market to fund investments by employees in our
Common Stock, one of the investment options available under such plans, and any matching contributions in company stock we
provide under certain of such plans. In addition, our stock incentive plans permit payment of an option exercise price by means of
cashless exercise through a broker and permit the satisfaction of the minimum statutory tax obligations upon exercise of options
and the vesting of restricted stock units through stock withholding. However, the company does not believe such purchases or
transactions are issuer repurchases for the purposes of this Item 5 of this Report on Form 10-K. In addition, our stock incentive
plans also permit the satisfaction of tax obligations upon the vesting of restricted stock through stock withholding. There were no
shares withheld in fiscal year 2019.
Shareholder Return Performance Presentation
The line graph below compares the cumulative total shareholder return of the S&P 500, Meritor, Inc. and the peer group of
companies for the period from September 30, 2014 to September 30, 2019, assuming a fixed investment of $100 at the respective
closing prices on the last day of each fiscal year and reinvestment of cash dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Meritor, Inc, the S&P 500 Index, and Peer Group
$350
$300
$250
$200
$150
$100
$50
$0
9/14
9/15
9/16
9/17
9/18
9/19
Meritor, Inc.
S&P 500
Peer Group
*$100 invested on 9/30/14 in stock or index, including reinvestment of dividends.
Fiscal year ending September 30.
Copyright© 2019 Standard & Poor’s, a division of S&P Global. All rights reserved.
Meritor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Peer Group (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
9/14
100.00
100.00
100.00
9/15
97.97
99.39
89.13
9/16
102.58
114.72
104.90
9/17
239.72
136.07
143.55
9/18
178.43
160.44
123.51
9/19
170.51
167.27
134.51
(1)
The peer group consists of representative commercial vehicle suppliers of approximately comparable products to Meritor. The
peer group consists of Commercial Vehicle Group, Inc., Cummins Inc., Dana Incorporated, Haldex AB, Modine Manufacturing
Company, SAF-Holland SA, Stoneridge, Inc., and Wabco Holdings Inc.
The information included under the heading “Shareholder Return Performance Presentation” is not to be treated as “soliciting
material” or as “filed” with the SEC, and is not incorporated by reference into any filing by the company under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that is made on, before or after the date of filing of
this Annual Report on Form 10-K.
27
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 28
OPERATOR JOSHUAM
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.
SUMMARY OF OPERATIONS
Sales
Commercial Truck (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer (1) . . . . . . . . . . . . . . . . . . .
Intersegment Sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income Attributable to Noncontrolling Interests . . . . . . . . . . .
Net Income Attributable to Meritor, Inc.:
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . .
Income (loss) from Discontinued Operations . . . . . . . . . . . . . .
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BASIC EARNINGS (LOSS) PER SHARE
2019
$ 3,252
1,313
(177)
$ 4,388
$ 363
377
(5)
$ 290
1
$ 291
Year Ended September 30,
2017
(in millions, except per share amounts)
2016
2018
$ 3,172
1,176
(170)
$ 4,178
$ 292
278
(9)
$ 120
(3)
$ 117
$ 2,469
1,032
(154)
$ 3,347
$ 218
381
(4)
$ 325
(1)
$ 324
$ 2,309
1,027
(137)
$ 3,199
$ 224
155
(2)
$ 577
(4)
$ 573
2015
$ 2,594
1,069
(158)
$ 3,505
$ 213
67
(1)
$
$
65
(1)
64
Continuing Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.49
0.01
$ 3.50
$ 1.37
(0.03)
$ 1.34
$ 3.69
(0.01)
$ 3.68
$ 6.40
(0.04)
$ 6.36
$ 0.67
(0.01)
$ 0.66
DILUTED EARNINGS (LOSS) PER SHARE
Continuing Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.36
0.01
$ 3.37
$ 1.31
(0.03)
$ 1.28
$ 3.60
(0.01)
$ 3.59
$ 6.27
(0.04)
$ 6.23
$ 0.65
(0.01)
$ 0.64
FINANCIAL POSITION AT SEPTEMBER 30
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,815
41
902
$ 2,726
94
730
$ 2,782
288
750
$ 2,494
14
982
$ 2,195
15
1,036
(1)
(2)
Fiscal years 2018, 2017, 2016 and 2015 have been recast to reflect reportable segment changes.
Fiscal years 2018, 2017, 2016 and 2015 have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715).
28
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 29
OPERATOR JOSHUAM
Income (loss) from continuing operations attributable to Meritor, Inc. in the selected financial data presented above includes
the following items specific to the period of occurrence (in millions):
Pretax items:
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment charges, net of noncontrolling interests . . . . . . . . . . . .
Asbestos-related liability remeasurement . . . . . . . . . . . . . . . . . . . . . . . .
AxleTech transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos-related insurance settlements, net . . . . . . . . . . . . . . . . . . . . .
Impact of pension settlement losses and curtailment gain . . . . . . . . . . . .
Gain on sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal settlement charge related to joint venture . . . . . . . . . . . . . . . . . . .
Goodwill impairment charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplier litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating gains, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$ (8)
—
(10)
31
(6)
—
—
—
—
—
—
—
After tax items:
Tax valuation allowance reversal, net and other (1) . . . . . . . . . . . . . . . . .
U.S. tax reform impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
Year Ended September 30,
2016
2017
2018
$ (6)
(8)
(3)
(79)
—
43
(6)
—
—
—
—
—
7
(89)
$ (6)
(36)
(4)
(4)
—
13
—
243
(10)
—
—
—
68
—
$ (16)
—
—
(4)
—
30
—
—
—
—
6
—
454
—
2015
$ (16)
(25)
(2)
(1)
—
—
(59)
—
—
(15)
—
5
16
—
(1)
The fiscal year ended September 30, 2019 includes $3 million decrease in valuation allowances for certain U.S. state
jurisdictions. The fiscal year ended September 30, 2018 includes a $9 million reversal of a Brazil valuation allowance,
partially offset by a $2 million increase in valuation allowances for certain U.S. state jurisdictions. The fiscal year ended
September 30, 2017 includes non-cash income tax benefit (expense) of $52 million related to the partial reversal of
the U.S. valuation allowance, $15 million related to capital losses associated with the sale of an equity investment and
$1 million related to other correlated tax relief. The fiscal year ended September 30, 2016 includes non-cash income tax
benefit (expense) of $438 million related to the partial reversal of the U.S. valuation allowance, ($9) million related to the
establishment of a valuation allowance in Brazil and $25 million related to other correlated tax relief. The fiscal year ended
September 30, 2015 includes non-cash income tax benefit of $16 million related to the reversal of valuation allowances in
Germany, Italy, Mexico and Sweden.
29
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 30
OPERATOR JOSHUAM
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations.
Overview
Headquartered in Troy, Michigan, we are a premier global supplier of a broad range of integrated systems, modules and
components to OEMs and the aftermarket for the commercial vehicle, transportation and industrial sectors. We serve commercial
truck, trailer, military, bus and coach, construction, and other industrial OEMs and certain aftermarkets. Meritor common stock is
traded on the New York Stock Exchange under the ticker symbol MTOR.
Our sales for fiscal year 2019 were $4,388 million, an increase from $4,178 million in the prior year. The increase in sales
was driven by higher truck production, primarily in North America, and increased Aftermarket and Industrial volumes across North
America, partially offset by the strengthening of the U.S. dollar against most currencies. Sales were also favorably impacted by
revenue outperformance.
Net income attributable to Meritor for fiscal years 2019 and 2018 was $291 million and $117 million, respectively. In fiscal
year 2018, we incurred $89 million of tax expense related to the enactment of the Tax Cuts and Jobs Act (“U.S. tax reform”), that
did not repeat. In fiscal year 2019, we recognized $31 million of income related to remeasuring the Maremont asbestos liability.
Net income from continuing operations attributable to the company for fiscal years 2019 and 2018 was $290 million and
$120 million, respectively. Adjusted income from continuing operations attributable to the company for fiscal years 2019 and 2018
was $330 million and $276 million, respectively (see Non-GAAP Financial Measures below).
Adjusted EBITDA (see Non-GAAP Financial Measures below) for fiscal year 2019 was $520 million compared to $474 million
in fiscal year 2018. Our adjusted EBITDA margin (see Non-GAAP Financial Measures below) in fiscal year 2019 was 11.9 percent
compared to 11.3 percent in the same period a year ago. Higher adjusted EBITDA and adjusted EBITDA margin year over year
were driven primarily by conversion on higher revenue and the impact of Aftermarket pricing actions implemented earlier this year,
partially offset by higher material costs and the strengthening of the U.S. dollar against most currencies.
Cash flows provided by operating activities were $256 million in fiscal year 2019 compared to $251 million in the prior fiscal
year. Higher earnings in fiscal year 2019 were offset by the $48 million contribution of cash and repayment of a loan to fund the
Maremont 524(g) Trust following the confirmation of the Maremont plan of reorganization by the bankruptcy court (see Note 25 of
the Notes to Consolidated Financial Statements under Item 8. Financial Statements and Supplementary Data).
Equity Repurchase Authorization
On July 26, 2019, our Board of Directors authorized the repurchase of up to $250 million of our common stock from time
to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and
regulatory requirements and our debt covenants. This authorization supersedes the remaining authority under the prior November
2018 equity repurchase authorization. In fiscal year 2019, we repurchased 1.3 million shares of our common stock for $25 million
(including commission costs) under this repurchase authorization. On November 7, 2019, the Board of Directors increased the
amount of this repurchase authorization to $325 million.
On November 2, 2018, our Board of Directors authorized the repurchase of up to $200 million of our common stock from
time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and
regulatory requirements and our debt covenants. In fiscal year 2019, we repurchased 4 million shares of our common stock for
$71 million (including commission costs) under this repurchase authorization.
Acquisition of AxleTech Business
On July 26, 2019, we acquired 100 percent of the voting equity interest of the AxleTech group companies for approximately
$179 million in cash, subject to certain purchase price adjustments. The addition of AxleTech enhances our growth platform with
the addition of a complementary product portfolio that includes a full line of independent suspensions, axles, braking solutions and
drivetrain components across the off-highway, defense, specialty and aftermarket markets.
Reportable Segment Changes
On March 13, 2019, we realigned our operations resulting in a change to our operating and reportable segments. As of the
second quarter of fiscal year 2019, the reportable segments are (1) Commercial Truck and (2) Aftermarket, Industrial and Trailer.
Prior year reportable segment financial results have been recast for these changes.
30
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 31
OPERATOR JOSHUAM
Maremont Bankruptcy
In the first quarter of fiscal year 2019, Maremont and its three wholly-owned subsidiaries, Maremont Exhaust Products, Inc.,
AVM, Inc., and Former Ride Control Operating Company, Inc., began to solicit votes from asbestos claimants in favor of a Joint
Pre-Packaged Plan of Reorganization (the “Plan”). On January 18, 2019, the Plan was approved by voting asbestos claimants and,
on January 22, 2019, Maremont and its subsidiaries voluntarily filed cases under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) seeking to implement the Plan through the Chapter 11
cases. Among other things, the Plan was intended to permanently resolve all current and future asbestos claims related to
Maremont’s historical asbestos-related activities through the creation of a trust pursuant to Section 524(g) of the U.S. Bankruptcy
Code (the “524(g) Trust”). Meritor determined that the net amount of $51 million Maremont would be required to contribute to the
524(g) Trust according to the Plan represented Meritor’s best estimate of Maremont’s net asbestos liability. As a result, Meritor
recognized $31 million of income related to remeasuring the Maremont net asbestos liability based on the terms of the Plan.
As of January 22, 2019, Maremont and its subsidiaries were deconsolidated from the Consolidated Balance Sheet and the
results of Maremont’s operations were eliminated from the company’s consolidated results of operations as Maremont became
subject to the control of a court. Deconsolidation had an insignificant impact on the Consolidated Statement of Operations.
The Plan was confirmed by the U.S. Bankruptcy Court for the District of Delaware on May 17, 2019 and approved by the
United States District Court for the District of Delaware on June 27, 2019. On July 9, 2019, the company contributed $48 million,
consisting of cash and repayment of a loan to Maremont, and Maremont funded the 524(g) Trust with such cash and its other
assets, including its existing insurance policies. As a result, all current and future asbestos claims related to the Maremont’s
historical asbestos-related activities have been channeled to the 524(g) Trust, which will process and satisfy all such claims going
forward pursuant to its resolution and payment procedures.
Trends and Uncertainties
Industry Production Volumes
The following table reflects estimated on-highway commercial truck production volumes for selected original equipment (OE)
markets based on available sources and management’s estimates.
Estimated Commercial Truck production (in thousands):
North America, Heavy-Duty Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North America, Medium-Duty Trucks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North America, Trailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Western Europe, Heavy- and Medium-Duty Trucks . . . . . . . . . . . . . . . . . . . . . . .
South America, Heavy- and Medium-Duty Trucks. . . . . . . . . . . . . . . . . . . . . . . .
India, Heavy- and Medium-Duty Trucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2016
2017
2018
307
264
313
484
102
464
237
246
282
469
73
315
253
239
292
449
61
339
2019
359
288
335
485
109
410
2015
328
235
303
403
89
297
Across most regions, we are expecting production build to decrease in fiscal year 2020, as discussed below.
North America:
Production volumes in fiscal year 2019 increased from the production levels experienced in fiscal year 2018. We expect
fiscal 2020 Heavy-Duty Truck production volumes to decrease approximately 30 percent compared with the levels experienced in
fiscal year 2019.
Western Europe:
During fiscal year 2019, production volumes in Western Europe remained relatively consistent with the levels experienced
in fiscal year 2018. We expect fiscal year 2020 production volumes to be down modestly compared with the levels experienced
in fiscal year 2019.
31
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 32
OPERATOR JOSHUAM
South America:
During fiscal year 2019, production volumes in South America increased slightly from the levels experienced in fiscal year
2018. We expect fiscal year 2020 production volumes to increase slightly from the levels experienced in fiscal year 2019.
China:
During fiscal year 2019, production volumes in China decreased from the levels experienced in fiscal year 2018. We expect
fiscal year 2020 production volumes in China to decrease from the levels experienced in fiscal year 2019.
India:
During fiscal year 2019, production volumes in India decreased from the levels experienced in fiscal year 2018. We expect
fiscal year 2020 production volumes in India to decrease from the levels experienced in fiscal year 2019.
Industry-Wide Issues
Our business continues to address a number of challenging industry-wide issues, including the following:
• Uncertainty around the global market outlook;
• Volatility in price and availability of steel, components and other commodities;
• Potential for disruptions in the financial markets and their impact on the availability and cost of credit;
• Volatile energy and transportation costs;
• Impact of currency exchange rate volatility; and
• Consolidation and globalization of OEMs and their suppliers.
Other
Other significant factors that could affect our results and liquidity include:
• Significant contract awards or losses of existing contracts or failure to negotiate acceptable terms in contract renewals;
• Ability to successfully launch a significant number of new products, including potential product quality issues, and obtain
new business;
• Ability to manage possible adverse effects on our European operations, or financing arrangements related thereto,
following the United Kingdom’s decision to exit the European Union, or in the event one or more other countries exit the
European monetary union;
• Ability to further implement planned productivity, cost reduction, and other margin improvement initiatives;
• Ability to successfully execute and implement strategic initiatives;
• Ability to work with our customers to manage rapidly changing production volumes;
• Ability to recover, and timing of recovery of, steel price and other cost increases from our customers;
• Any unplanned extended shutdowns or production interruptions by us, our customers or our suppliers;
• A significant deterioration or slowdown in economic activity in the key markets in which we operate;
• Competitively driven price reductions to our customers;
• Potential price increases from our suppliers;
• Additional restructuring actions and the timing and recognition of restructuring charges, including any actions associated
with prolonged softness in markets in which we operate;
• Higher-than-planned warranty expenses, including the outcome of known or potential recall campaigns;
• Uncertainties of asbestos claim, environmental and other legal proceedings, the long-term solvency of our insurance
carriers, and the potential for higher-than-anticipated costs resulting from environmental liabilities, including those related
to site remediation;
32
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 33
OPERATOR JOSHUAM
• Restrictive government actions (such as restrictions on transfer of funds and trade protection measures, including import
and export duties, quotas and customs duties and tariffs); and
• Significant pension costs.
NON-GAAP FINANCIAL MEASURES
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”),
we have provided information regarding non-GAAP financial measures. These non-GAAP financial measures include adjusted
income (loss) from continuing operations attributable to the company, adjusted diluted earnings (loss) per share from continuing
operations, adjusted EBITDA, adjusted EBITDA margin, segment adjusted EBITDA, segment adjusted EBITDA margin, free cash
flow and net debt.
Adjusted income (loss) from continuing operations attributable to the company and adjusted diluted earnings (loss) per share
from continuing operations are defined as reported income (loss) from continuing operations and reported diluted earnings (loss)
per share from continuing operations before restructuring expenses, asset impairment charges, non-cash tax expense, including
the use of deferred tax assets in jurisdictions with net operating loss carry forwards or tax credits, and other special items as
determined by management. Adjusted EBITDA is defined as income (loss) from continuing operations before interest, income taxes,
depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring
expenses, asset impairment charges and other special items as determined by management. Adjusted EBITDA margin is defined
as adjusted EBITDA divided by consolidated sales from continuing operations. Segment adjusted EBITDA is defined as income
(loss) from continuing operations before interest expense, income taxes, depreciation and amortization, noncontrolling interests
in consolidated joint ventures, loss on sale of receivables, restructuring expense, asset impairment charges and other special
items as determined by management. Segment adjusted EBITDA excludes unallocated legacy and corporate expense (income),
net. Segment adjusted EBITDA margin is defined as segment adjusted EBITDA divided by consolidated sales from continuing
operations, either in the aggregate or by segment as applicable. Free cash flow is defined as cash flows provided by (used for)
operating activities less capital expenditures. Net debt is defined as total debt less cash and cash equivalents.
Management believes these non-GAAP financial measures are useful to both management and investors in their analysis
of the company’s financial position and results of operations. In particular, adjusted EBITDA, adjusted EBITDA margin, segment
adjusted EBITDA, segment adjusted EBITDA margin, adjusted income (loss) from continuing operations attributable to the company
and adjusted diluted earnings (loss) per share from continuing operations are meaningful measures of performance to investors
as they are commonly utilized to analyze financial performance in our industry, perform analytical comparisons, benchmark
performance between periods and measure our performance against externally communicated targets.
Free cash flow is used by investors and management to analyze our ability to service and repay debt and return value directly
to shareholders. Net debt over adjusted EBITDA is a specific financial measure in our current M2019 plan used to measure the
company’s leverage in order to assist management in its assessment of appropriate allocation of capital.
Management uses the aforementioned non-GAAP financial measures for planning and forecasting purposes, and segment
adjusted EBITDA is also used as the primary basis for the Chief Operating Decision Maker (“CODM”) to evaluate the performance
of each of our reportable segments.
Our Board of Directors uses adjusted EBITDA margin, free cash flow, adjusted diluted earnings (loss) per share from
continuing operations and net debt over adjusted EBITDA as key metrics to determine management’s performance under our
performance-based compensation plans.
Adjusted income (loss) from continuing operations attributable to the company, adjusted diluted earnings (loss) per share
from continuing operations, adjusted EBITDA, adjusted EBITDA margin, segment adjusted EBITDA and segment adjusted EBITDA
margin should not be considered a substitute for the reported results prepared in accordance with GAAP and should not be
considered as an alternative to net income as an indicator of our financial performance. Free cash flow should not be considered
a substitute for cash provided by (used for) operating activities, or other cash flow statement data prepared in accordance with
GAAP, or as a measure of financial position or liquidity. In addition, this non-GAAP cash flow measure does not reflect cash used
to repay debt or cash received from the divestitures of businesses or sales of other assets and thus does not reflect funds available
for investment or other discretionary uses. Net debt should not be considered a substitute for total debt as reported on the balance
sheet. These non-GAAP financial measures, as determined and presented by the company, may not be comparable to related or
similarly titled measures reported by other companies. Set forth below are reconciliations of these non-GAAP financial measures
to the most directly comparable financial measures calculated in accordance with GAAP.
33
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 34
OPERATOR JOSHUAM
Adjusted income from continuing operations attributable to the company and adjusted diluted earnings per share from
continuing operations are reconciled to income from continuing operations attributable to the company and diluted earnings per
share from continuing operations below (in millions, except per share amounts).
Income from continuing operations attributable to the company. . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment charges, net of noncontrolling interests (1) . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash tax expense (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax reform impacts (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax valuation allowance reversal, net and other (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefits) (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement loss (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AxleTech transaction costs (7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related items (8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted income from continuing operations attributable to the company. . . . . . . . . . .
Year Ended September 30,
2018
$ 120
6
8
3
—
36
89
(7)
(10)
6
—
25
$ 276
2017
$ 325
6
36
3
(243)
37
—
(68)
74
—
—
—
$ 170
2019
$ 290
8
—
10
—
51
(3)
(3)
2
—
6
(31)
$ 330
Diluted earnings per share from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of adjustments on diluted earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted diluted earnings per share from continuing operations. . . . . . . . . . . . . . . . . . . . . .
$ 3.36
0.46
$ 3.82
$ 1.31
1.72
$ 3.03
$ 3.60
(1.72)
$ 1.88
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
The year ended September 30, 2019 includes $9 million related to the impairment of the customer relationships intangible
asset and $1 million related to impairment of other assets.
Represents tax expense including the use of deferred tax assets in jurisdictions with net operating loss carry forwards or
tax credits.
The year ended September 30, 2019 includes a one time net charge of $9 million recorded for an election made that will
allow for future tax-fee repatriation of cash to the United States, $12 million of non-cash tax benefit related to the one time
deemed repatriation of accumulated foreign earnings. The year ended September 30, 2018 includes $57 million of non-cash
tax expense related to the revaluation of our deferred tax assets and liabilities as a result of the U.S. tax reform, $26 million
of non-cash tax expense related to the one-time deemed repatriation of accumulated foreign earnings and $6 million of
non-cash tax expense related to other adjustments.
The year ended September 30, 2019 includes a $3 million decrease in valuation allowances for certain U.S. state
jurisdictions. The year ended September 30, 2018 includes a $9 million reversal of a Brazil valuation allowance, partially
offset by a $2 million increase in valuation allowances for certain U.S. state jurisdictions. The year ended September 30,
2017 includes non-cash income tax benefit (expense) of $52 million related to the partial reversal of the U.S. valuation
allowance, $15 million related to capital losses associated with the sale of an equity investment and $1 million related to
other correlated tax relief.
The year ended September 30, 2019 includes $2 million of income tax benefits related to restructuring, $2 million of income
tax benefits related to asset impairment and $6 million income tax expense related to asbestos related items. The year ended
September 30, 2018 includes $2 million of income tax benefits related to the loss on debt extinguishment, $6 million of
asbestos related items, $1 million of restructuring and $1 million of asset impairment. The year ended September 30, 2017
includes $89 million of income tax expense related to the gain on sale of an equity investment, $14 million of income tax
benefit related to the loss on debt extinguishment and $1 million of income tax benefits related to other adjustments.
The year ended September 30, 2018 includes $6 million related to the U.K. pension settlement loss.
Represents transaction fees and inventory step-up amortization.
The year ended September 30, 2019 includes $31 million related to the remeasurement of the Maremont net asbestos
liability based on the Plan. The year ended September 30, 2018 includes $25 million related to the change in estimate
resulting from change in estimated forecast horizon and the 2018 asbestos insurance settlement.
34
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 35
OPERATOR JOSHUAM
Free cash flow is reconciled to cash flows provided by operating activities below (in millions).
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Free cash flow (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2019
2018
$ 251
$ 256
(104)
(103)
$ 147
$ 153
2017
$176
(95)
$ 81
(1)
The year ended September 30, 2019 includes a $48 million contribution of cash to fund the Maremont 524(g) Trust, as well
as $2 million of Maremont cash.
Adjusted EBITDA and segment adjusted EBITDA are reconciled to net income attributable to Meritor, Inc. below (in millions).
Net income attributable to Meritor, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax, attributable to Meritor, Inc. . . . . . . . . . . . . .
Income from continuing operations, net of tax, attributable to Meritor, Inc. . . . . . . . . . . .
Year Ended September 30,
2018
$ 117
3
$ 120
2017
$ 324
1
$ 325
2019
$ 291
(1)
$ 290
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AxleTech transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment charges, net of noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
—
82
87
8
(31)
6
—
6
10
5
$ 520
67
—
149
84
6
25
—
6
5
3
9
$ 474
119
(243)
52
75
6
—
—
—
5
4
4
$ 347
Adjusted EBITDA margin (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.9%
11.3%
10.4%
Unallocated legacy and corporate expense (income), net (2) . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
$ 517
13
$ 487
3
$ 350
Commercial Truck (3)
Segment adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA margin (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 327
$ 337
$ 224
10.1%
10.6%
9.1%
Aftermarket, Industrial and Trailer (3)
Segment adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA margin(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 190
$ 150
$ 126
14.5%
12.8%
12.2%
(1)
(2)
(3)
(4)
Adjusted EBITDA margin equals adjusted EBITDA divided by consolidated sales from continuing operations.
Unallocated legacy and corporate expense (income), net represents items that are not directly related to the company’s
business segments. These items primarily include asbestos-related charges and settlements, pension and retiree medical
costs associated with sold businesses, and other legacy costs for environmental and product liability.
Amounts for the years ended September 30, 2018 and 2017 have been recast to reflect reportable segment changes.
Segment adjusted EBITDA margin equals segment adjusted EBITDA divided by consolidated sales from continuing operations,
either in the aggregate or by segment as applicable.
35
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 36
OPERATOR JOSHUAM
Net debt is reconciled to total debt below (dollars in millions).
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
2019
$ 94
$ 41
730
902
824
943
(115)
(108)
$ 709
$ 835
September 30,
2018
2019
$474
$520
Net debt over adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.6
1.5
Non-Consolidated Joint Ventures
At September 30, 2019, our continuing operations included investments in joint ventures that are not majority owned or
controlled and are accounted for under the equity method of accounting. Our investments in non-consolidated joint ventures totaled
$110 million at September 30, 2019 and $102 million at September 30, 2018.
These strategic alliances provide for sales, product design, development and/or manufacturing in certain product and
geographic areas. Aggregate sales of our non-consolidated joint ventures were $1,231 million, $1,101 million and $1,156 million
in fiscal years 2019, 2018 and 2017, respectively.
Our equity in the earnings of affiliates was $31 million, $27 million and $48 million in fiscal years 2019, 2018 and 2017,
respectively. The decrease in equity in earnings of affiliates for fiscal year 2018 compared to fiscal year 2017 was primarily
attributable to Meritor WABCO earnings that were included in fiscal year 2017 results but not in fiscal year 2018. Our equity in
the earnings of Meritor WABCO was $27 million in fiscal year 2017. We received cash dividends from our affiliates of $23 million,
$17 million and $44 million in fiscal years 2019, 2018 and 2017, respectively. We received cash dividends from Meritor WABCO
of $36 million in fiscal year 2017, which includes a $8 million final partnership distribution received immediately prior to closing of
the sale transaction on October 1, 2017.
For more information about our non-consolidated joint ventures, see Note 15 of the Notes to Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data.
36
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 37
OPERATOR JOSHUAM
Results of Operations
Fiscal Year 2019 Compared to Fiscal Year 2018
Sales
The following table reflects total company and business segment sales for fiscal years 2019 and 2018 (dollars in millions).
The reconciliation is intended to reflect the trend in business segment sales and to illustrate the impact that changes in foreign
currency exchange rates, volumes and other factors had on sales. Business segment sales include intersegment sales.
2019
2018 (1)
Dollar
Change
%
Change
Dollar Change Due To
Volume/
Other
Currency
Sales:
Commercial Truck
North America . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South America . . . . . . . . . . . . . . . . . . . . . . . . . .
China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales. . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer
North America . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales. . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales. . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,769
659
248
153
197
84
$3,110
142
$3,252
$1,171
107
$1,278
35
$1,313
$4,388
$1,562
715
224
196
231
109
$3,037
135
$3,172
$1,020
121
$1,141
35
$1,176
$4,178
$ 207
(56)
24
(43)
(34)
(25)
$ 73
7
$ 80
$ 151
(14)
$ 137
—
$ 137
$ 210
13%
(8)%
11%
(22)%
(15)%
(23)%
2%
5%
3%
15%
(12)%
12%
—%
12%
5%
$ —
(38)
(25)
(10)
(12)
(2)
$ (87)
(12)
$ (99)
$ (3)
(6)
$ (9)
(6)
$ (15)
$ (96)
$207
(18)
49
(33)
(22)
(23)
$160
19
$179
$154
(8)
$146
6
$152
$306
(1)
Amounts for the year ended September 30, 2018 have been recast to reflect reportable segment changes.
Commercial Truck sales were $3,252 million in fiscal year 2019, up 3 percent from fiscal year 2018. The increase in sales
was driven primarily by higher truck production in North America and increased market share, partially offset by the strengthening
of the U.S. dollar against most currencies.
Aftermarket, Industrial and Trailer sales were $1,313 million in fiscal year 2019, up 12 percent from fiscal year 2018.
The increase in sales was driven primarily by increased Aftermarket and Industrial volumes across North America. The increase in
sales was also partially attributable to revenue from AxleTech, which we acquired in the fourth quarter of fiscal year 2019.
Cost of Sales and Gross Profit
Cost of sales primarily represents material, labor and overhead production costs associated with the company’s products
and production facilities. Cost of sales for fiscal year 2019 was $3,748 million compared to $3,553 million in the prior year,
representing a 5 percent increase, primarily driven by increased volumes. Total cost of sales was approximately 85.4 percent of
sales for fiscal year 2019 compared to approximately 85.0 percent for the prior fiscal year.
37
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 38
OPERATOR JOSHUAM
The following table summarizes significant factors contributing to the changes in costs of sales during fiscal year 2018
compared to the prior fiscal year (in millions):
Fiscal year ended September 30, 2018 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volumes, mix and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of
Sales
$3,553
286
(91)
$3,748
(1)
Amounts for the year ended September 30, 2018 have been recast for ASU 2017-07, Compensation Retirement Benefits
(Topic 715). For the year ended September 30, 2018, $29 million was reclassified out of Cost of goods sold and into
Non-operating income.
Changes in the components of cost of sales year over year are summarized as follows (in millions):
Higher material costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Higher labor and overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total change in costs of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change
in Cost
of Sales
$ 185
10
$ 195
Material costs represent the majority of our cost of sales and include raw materials, composed primarily of steel and
purchased components. Material costs increased by $185 million compared to the prior fiscal year primarily due to higher volumes
and higher steel prices.
Labor and overhead costs increased by $10 million compared to the prior fiscal year primarily due to higher volumes.
Gross margin for fiscal year 2019 was $640 million compared to $625 million in fiscal year 2018. Gross margin, as
a percentage of sales, was 14.6 percent and 15.0 percent for fiscal years 2019 and 2018, respectively. Gross margin as a
percentage of sales decreased primarily due to higher layered capacity costs driven by production levels, which more than offset
the impact of conversion on higher revenue.
Other Income Statement Items
Selling, general and administrative expenses (“SG&A”) for fiscal years 2019 and 2018 are summarized as follows
(dollars in millions):
SG&A
2019
Amount
% of sales
2018 (1)
Amount % of sales
Increase (Decrease)
Short- and long-term variable compensation . . . . . .
Loss on sale of receivables . . . . . . . . . . . . . . . . . . .
Asbestos-related liability remeasurement . . . . . . . . .
Asbestos-related expense, net of asbestos related
insurance recoveries. . . . . . . . . . . . . . . . . . . . . .
All other SG&A . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total SG&A expense (income) . . . . . . . . . . . . . . . . .
$ 54
6
(31)
—
227
$ 256
1.2%
0.1%
(0.7)%
—%
5.2%
5.8%
$ 60
5
79
(52)
221
$ 313
1.4%
0.1%
1.9%
(1.2)%
5.3%
7.5%
$
(6)
1
(110)
52
6
$ (57)
(0.2)pts
—pts
(2.6)pts
1.2pts
(0.1)pts
(1.7)pts
(1)
Amounts for the year ended September 30, 2018 have been recast for ASU 2017-07, Compensation Retirement Benefits
(Topic 715). For the year ended September 30, 2018, $4 million was reclassified out of SG&A and into Other income.
38
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 39
OPERATOR JOSHUAM
Asbestos-related liability remeasurement
In fiscal year 2019, we recognized $31 million related to remeasuring the Maremont asbestos liability based on the Plan in
the first quarter of fiscal year 2019 (see Note 25 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements
and Supplementary Data). In fiscal year 2018, we recorded a $79 million charge related to the change in estimated asbestos
liability resulting from the change in estimated forecast horizon for estimating pending and future asbestos claims (refer to Note 25
of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data).
Asbestos-related expense, net of asbestos related insurance recoveries
In the fourth quarter of fiscal 2018, we entered into a settlement agreement with an insurer associated with Rockwell
International Corporation (“Rockwell”) asbestos liabilities to resolve disputed coverage resulting from asbestos claims. As a result,
we recognized $31 million in probable recoveries of defense and indemnity costs related to that settlement agreement and from
the change in estimated asbestos liability resulting from the change in estimated forecast horizon (refer to Note 25 of the Notes to
Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data). For the full fiscal year 2018, because
we changed our estimated forecast horizon, we recognized an additional $32 million related to previous settlements with other
insurance companies for probable recoveries of defense and indemnity costs associated with asbestos liabilities resulting from the
change in estimate to the estimated forecast horizon (refer to Note 25 of the Notes to Consolidated Financial Statements in Item 8.
Financial Statements and Supplementary Data).
Restructuring costs were $8 million in fiscal year 2019, compared to $6 million in fiscal year 2018. In fiscal years 2019
and 2018, these costs primarily related to employee severance costs recognized by both segments.
Operating income for fiscal year 2019 was $363 million, compared to $292 million in fiscal year 2018. Key items affecting
income are discussed above.
Other income (expense), net for fiscal year 2019 was $40 million, compared to $26 million in fiscal year 2018. The
increase was driven primarily by higher pension and retiree medical income in the current year. Amounts for fiscal year 2018 have
been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715). For fiscal year 2018, $29 million of income and
$4 million of expense was reclassified out of Cost of sales and SG&A, respectively, and into Non-operating income.
Equity in earnings of affiliates was $31 million in fiscal year 2019, compared to $27 million in the prior year. The
increase was primarily attributable to higher earnings across all our joint ventures.
Interest expense, net was $57 million in fiscal year 2019, compared to $67 million in fiscal year 2018. The decrease in
interest expense was primarily attributable to the loss on debt extinguishment of $8 million recognized in the first quarter of fiscal
year 2018 that did not repeat.
Provision for income taxes was $82 million in fiscal year 2019, compared to $149 million in fiscal year 2018. Higher
tax expense in fiscal year 2018 was primarily driven by $57 million of non-cash tax expense related to the remeasurement of our
deferred tax attributes as a result of the U.S. tax reform and $26 million of non-cash tax expense related to the one-time deemed
repatriation of accumulated foreign earnings, which had no cash impact due to the use of foreign tax credits; partially offset by
stronger fiscal year 2019 earnings from non valuation allowance jurisdictions.
Income from continuing operations (before noncontrolling interests) was $295 million for fiscal year 2019, compared
to $129 million for fiscal year 2018. The reasons for the increase are discussed above.
Net income attributable to Meritor, Inc. was $291 million for fiscal year 2019, compared to $117 million for fiscal year
2018. Various factors affecting the increase in net income were previously discussed.
39
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 40
OPERATOR JOSHUAM
Segment Adjusted EBITDA and Segment Adjusted EBITDA Margins
The following table reflects segment adjusted EBITDA and segment adjusted EBITDA margins for fiscal years 2019 and
2018 (dollars in millions).
Commercial Truck. . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer . . . . . . . . . . . . . . .
Segment adjusted EBITDA . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA
2018 (1)
$ 337
150
$ 487
2019
$ 327
190
$ 517
Change
$(10)
40
$ 30
Segment adjusted EBITDA Margins
Change
2019
(0.5)pts
10.1%
1.7pts
14.5%
0.1pts
11.8%
2018 (1)
10.6%
12.8%
11.7%
(1)
Amounts for the year ended September 30, 2018 have been recast to reflect reportable segment changes.
Significant items impacting year-over-year segment adjusted EBITDA include the following (in millions):
Segment adjusted EBITDA–Year ended September 30, 2018 (1) . . . . . . . . . . . . . . . . . .
Volume, mix, performance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Higher earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lower short- and long-term variable compensation. . . . . . . . . . . . . . . . . . . . . . . . . .
Higher pension and retiree medical income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA – Year ended September 30, 2019 . . . . . . . . . . . . . . . . . . .
Commercial
Truck
$ 337
(19)
4
3
2
$ 327
Aftermarket,
Industrial
and Trailer
$ 150
34
—
4
2
$ 190
TOTAL
$ 487
15
4
7
4
$ 517
(1)
Amounts for the year ended September 30, 2018 have been recast to reflect reportable segment changes.
Commercial Truck Segment adjusted EBITDA was $327 million in fiscal year 2019, compared to $337 million in the
prior fiscal year. Segment adjusted EBITDA margin decreased to 10.1 percent in fiscal year 2019 from 10.6 percent in the prior
fiscal year. The decrease in segment adjusted EBITDA was driven primarily by higher net steel and layered capacity costs and the
strengthening of the U.S. dollar against most currencies, partially offset by conversion on higher revenue and continued material
performance. The decrease in segment adjusted EBITDA margin was driven primarily by higher steel and layered capacity costs.
Aftermarket, Industrial and Trailer Segment adjusted EBITDA was $190 million in fiscal year 2019, compared to $150
in the prior fiscal year. Segment adjusted EBITDA margin increased to 14.5 percent in fiscal year 2019 from 12.8 percent in
fiscal year 2018. The increase in segment adjusted EBITDA and segment adjusted EBITDA margin was driven primarily by higher
revenue, including pricing actions within our Aftermarket business.
40
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 41
OPERATOR JOSHUAM
Fiscal Year 2018 Compared to Fiscal Year 2017
Sales
The following table reflects total company and business segment sales for fiscal years 2018 and 2017 (dollars in millions).
The reconciliation is intended to reflect the trend in business segment sales and to illustrate the impact that changes in foreign
currency exchange rates, volumes and other factors had on sales. Business segment sales include intersegment sales.
2018 (1)
2017 (1)
Dollar
Change
%
Change
Dollar Change Due To
Volume/
Other
Currency
Sales:
Commercial Truck
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South America . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales . . . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales. . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales . . . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales. . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,562
715
224
196
231
109
$3,037
135
$3,172
$1,020
121
$1,141
35
$1,176
$4,178
$1,172
607
168
127
184
89
$2,347
122
$2,469
$ 891
109
$1,000
32
$1,032
$3,347
$390
108
56
69
47
20
$690
13
$703
$129
12
$141
3
$144
$831
33%
18%
33%
54%
26%
22%
29%
11%
28%
14%
11%
14%
9%
14%
25%
$ —
42
(18)
9
(3)
—
$ 30
7
$ 37
$ 2
8
$ 10
9
$ 19
$ 40
$390
66
74
60
50
20
$660
6
$666
$127
4
$131
(6)
$125
$791
(1)
Amounts for the years ended September 30, 2018 and September 30, 2017 have been recast to reflect reportable
segment changes.
Commercial Truck sales were $3,172 million in fiscal year 2018, up 28 percent from fiscal year 2017. The increase in sales
was driven primarily by higher production in all of our major markets, as well as market share increases and new business wins.
Aftermarket, Industrial and Trailer sales were $1,176 million in fiscal year 2018, up 14 percent from fiscal year 2017.
The increase in sales was driven primarily by higher volumes in our Industrial business and revenue from the Fabco business we
acquired in the fourth quarter of fiscal year 2017.
Cost of Sales and Gross Profit
Cost of sales primarily represents material, labor and overhead production costs associated with the company’s products
and production facilities. Cost of sales for fiscal year 2018 was $3,553 million compared to $2,850 million in the prior year,
representing a 25 percent increase, primarily driven by increased sales revenue. Total cost of sales was approximately 85.0 percent
of sales for fiscal year 2018 compared to approximately 85.2 percent for the prior fiscal year.
41
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 42
OPERATOR JOSHUAM
The following table summarizes significant factors contributing to the changes in costs of sales during fiscal year 2018
compared to the prior fiscal year (in millions):
Cost of
Sales
Fiscal year ended September 30, 2017 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,850
Volumes, mix and other, net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
683
20
Fiscal year ended September 30, 2018 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,553
(1)
Amounts for the years ended September 30, 2018 and September 30, 2017 have been recast for ASU 2017-07,
Compensation Retirement Benefits (Topic 715). For the years ended September 30, 2018 and 2017, $29 million and
$13 million were reclassified out of Cost of goods sold and into Non-operating income (expense), respectively.
Changes in the components of cost of sales year over year are summarized as follows (in millions):
Higher material costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Higher labor and overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total change in costs of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
Amount has been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715).
Change
in Cost
of Sales
$ 569
118
16
$ 703
Material costs represent the majority of our cost of sales and include raw materials, composed primarily of steel and
purchased components. Material costs increased by $569 million compared to the prior fiscal year primarily due to higher volumes.
Labor and overhead costs increased by $118 million compared to the prior fiscal year primarily due to higher volumes.
Gross margin for fiscal year 2018 was $625 million compared to $497 million in fiscal year 2017. Gross margin, as
a percentage of sales, was 15.0 percent and 14.8 percent for fiscal years 2018 and 2017, respectively. Gross margin as a
percentage of sales increased due to the impacts of higher sales.
Other Income Statement Items
SG&A for fiscal years 2018 and 2017 are summarized as follows (dollars in millions):
2018 (1)
Amount
% of sales
2017 (1)
Amount % of sales
Increase (Decrease)
SG&A
Loss on sale of receivables . . . . . . . . . . . . . . . . . . .
Short- and long-term variable compensation . . . . . .
Asbestos-related liability remeasurement . . . . . . . . .
Asbestos-related expense, net of asbestos related
insurance recoveries. . . . . . . . . . . . . . . . . . . . . .
Legal settlement charge . . . . . . . . . . . . . . . . . . . . .
All other SG&A . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total SG&A expense (income) . . . . . . . . . . . . . . . . .
$
5
60
79
(52)
—
221
$ 313
0.1%
1.4%
1.9%
(1.2)%
—%
5.3%
7.5%
$
5
51
4
10
10
186
$ 266
—%
1.5%
0.1%
0.3%
0.3%
5.7%
7.9%
$ —
(9)
(75)
62
10
(35)
$(47)
0.1pts
(0.1)pts
1.8pts
(1.5)pts
(0.3)pts
(0.4)pts
(0.4)pts
(1)
Amounts for the years ended September 30, 2018 and September 30, 2017 have been recast for ASU 2017-07, Compensation
Retirement Benefits (Topic 715). For the years ended September 30, 2018 and 2017, $4 million and $2 million were
reclassified out of SG&A and into Other income (expense), respectively.
42
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 43
OPERATOR JOSHUAM
Asbestos-related liability remeasurement
In fiscal year 2018, we recorded a $79 million charge related to the change in estimate resulting from the change in
estimated forecast horizon for estimating pending and future asbestos claims (refer to Note 25 of the Notes to Consolidated
Financial Statements in Item 8. Financial Statements and Supplementary Data).
Asbestos-related expense, net of asbestos related insurance recoveries
In the fourth quarter of fiscal 2018, we entered into a settlement agreement with an insurer associated with Rockwell
International Corporation (“Rockwell”) asbestos liabilities to resolve disputed coverage resulting from asbestos claims. As a result,
we recognized $31 million in probable recoveries of defense and indemnity costs related to that settlement agreement and from the
change in estimate to the estimated forecast horizon (refer to Note 25 of the Notes to Consolidated Financial Statements in Item 8.
Financial Statements and Supplementary Data). For the full fiscal year 2018, because we changed our estimated forecast horizon,
we recognized an additional $32 million related to previous settlements with other insurance companies for probable recoveries
of defense and indemnity costs associated with asbestos liabilities resulting from the change in estimate to the estimated forecast
horizon (refer to Note 25 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary
Data). We recognized $13 million related to previous cash settlements with insurance companies for recoveries of defense and
indemnity costs associated with asbestos liabilities in fiscal year 2017.
Litigation Settlements
We recognized a $10 million charge for a legal settlement related to a dispute with a joint venture in the second quarter
of fiscal year 2017 (refer to Note 25 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and
Supplementary Data).
All other SG&A
All other SG&A, which represents normal selling, general and administrative expense, increased to support new programs
and growth initiatives, but decreased as a percentage of sales.
Restructuring costs were $6 million in fiscal years 2018 and 2017. In fiscal years 2018 and 2017, these costs primarily
related to employee severance costs recognized by our Aftermarket, Industrial and Trailer segment.
Other operating expense, net was $14 million in fiscal year 2018, compared to $7 million in fiscal year 2017. In fiscal
year 2018, these costs primarily related to environmental remediation. In fiscal year 2017, $4 million related to impairment charges
and $3 million related to environmental remediation costs. Of the $4 million of impairment charges, $3 million was the result of the
carrying value of a business, classified as held for sale, exceeding its fair value less costs to sell in fiscal year 2017.
Operating income for fiscal year 2018 was $292 million, compared to $218 million in fiscal year 2017. Key items affecting
income are discussed above.
Other income (expense), net for fiscal year 2018 was $26 million, compared to non-operating expense of $9 million in
fiscal year 2017. The increase was primarily driven by higher pension and retiree medical income in fiscal year 2018. Amounts for
fiscal years 2018 and 2017 have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715). For the year ended
September 30, 2018, $29 million of income and $4 million of expense was reclassified out of Cost of sales and SG&A, respectively,
and into Non-operating income. For the year ended September 30, 2017, $13 million of expense and $2 million of income was
reclassified out of Cost of sales and SG&A, respectively, and into Non-operating expense.
Gain on sale of equity investment of $243 million was recognized in fiscal year 2017 associated with the sale of our
50 percent ownership interest in Meritor WABCO in the fourth quarter of fiscal year 2017.
Equity in earnings of affiliates was $27 million in fiscal year 2018, compared to $48 million in the prior year. The
decrease in equity in earnings of affiliates was primarily driven by Meritor WABCO earnings that were included in fiscal year 2017
results but not in fiscal year 2018. This decrease was partially offset by improved earnings in our remaining joint ventures.
Interest expense, net was $67 million in fiscal year 2018, compared to $119 million in fiscal year 2017. In fiscal year
2018, we recognized an approximately $8 million loss on debt extinguishment, which is included in Interest expense, net, related
to the redemption of our 6.75 Percent Notes. The decrease in Interest expense, net was primarily attributable to the decrease in
fixed-rate debt as a result of capital markets transactions completed in the fourth quarter of fiscal year 2017 and the first quarter
43
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 44
OPERATOR JOSHUAM
of fiscal year 2018, which lowered our total average debt balance and associated weighted average interest rate, as well as the
benefits of cross-currency swaps entered into during the third quarter of fiscal year 2018. In the fourth quarter of fiscal year 2017,
we recognized approximately $5 million loss on debt extinguishment, related to the redemption of our 6.75 percent notes due
2021. In addition, we recognized approximately $23 million and $8 million losses on debt extinguishment related to the repurchase
of our 7.875 percent convertible senior notes due 2026 and 4.0 percent convertible senior notes due 2027, respectively, in the
fourth quarter of fiscal year 2017. The loss on debt extinguishment related to these repurchases is included in Interest expense,
net in the Consolidated Statement of Operations.
Provision for income taxes was $149 million in fiscal year 2018 compared to $52 million in fiscal year 2017. The year-
over-year increase in tax expense was primarily driven by $57 million of non-cash tax expense related to the remeasurement of our
deferred tax attributes as a result of the U.S. tax reform and $26 million of non-cash tax expense related to the one-time deemed
repatriation of accumulated foreign earnings, which had no cash impact due to the use of foreign tax credits. Also, a tax planning
strategy was implemented that resulted in a $4 million tax benefit from the reversal of a tax valuation allowance in Sweden.
Income from continuing operations (before noncontrolling interests) for fiscal year 2018 was $129 million compared to
$329 million in fiscal year 2017. The reasons for the decrease are discussed above.
Loss from discontinued operations, net of tax for fiscal year 2018 was $3 million compared to $1 million in the prior
year. The increase was primarily attributable to changes in estimates related to legal costs incurred in connection with a previously
divested business.
Net income attributable to noncontrolling interests was $9 million in fiscal year 2018 compared to $4 million in fiscal
year 2017. Noncontrolling interests represent our minority partners’ share of income or loss associated with our less than 100 percent-
owned consolidated subsidiaries. The increase was primarily attributable to higher production in these subsidiaries’ respective markets.
Net income attributable to Meritor, Inc. was $117 million for fiscal year 2018 compared to $324 million for fiscal year
2017. Various factors affecting the decrease in net income were previously discussed.
Segment Adjusted EBITDA and Segment Adjusted EBITDA Margins
The following table reflects segment adjusted EBITDA and segment adjusted EBITDA margins for fiscal years 2018 and 2017
(dollars in millions).
Commercial Truck. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer . . . . . . . . . . . . . . . .
Segment adjusted EBITDA . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA
2017 (1)
$224
126
$350
Change
$113
24
$137
2018 (1)
$337
150
$487
Segment adjusted EBITDA Margins
Change
2017 (1)
2018 (1)
1.5pts
9.1%
10.6%
0.6pts
12.2%
12.8%
1.2pts
10.5%
11.7%
(1)
Amounts for the years ended September 30, 2018 and September 30, 2017 have been recast to reflect reportable
segment changes.
Significant items impacting year-over-year segment adjusted EBITDA include the following (in millions):
Segment adjusted EBITDA–Year ended September 30, 2017 (1) . . . . . . . . . . . . . . . . .
Lower earnings from sale of interest in Meritor WABCO joint venture . . . . . . . . . . . .
Higher earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Higher short- and long-term variable compensation . . . . . . . . . . . . . . . . . . . . . . . .
2017 litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Higher pension and retiree medical income, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volume, mix, performance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA – Year ended September 30, 2018 (1) . . . . . . . . . . . . . . . .
Commercial
Truck
$224
(27)
6
(9)
10
13
120
$337
Aftermarket,
Industrial
and Trailer
$126
—
—
(3)
—
29
(2)
$150
TOTAL
$350
(27)
6
(12)
10
42
118
$487
(1)
Amounts for the years ended September 30, 2018 and September 30, 2017 have been recast to reflect reportable
segment changes.
44
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 45
OPERATOR JOSHUAM
Commercial Truck Segment adjusted EBITDA was $337 million in fiscal year 2018, compared to $224 million in the prior
fiscal year. Segment adjusted EBITDA margin increased to 10.6 percent in fiscal year 2018 compared to 9.1 percent in the prior
fiscal year. The increases in segment adjusted EBITDA and segment adjusted EBITDA margin were driven primarily by conversion
on higher revenue, the favorable impact of changes to retiree medical benefits and a one-time legal charge related to a dispute with
a joint venture in the prior year that did not repeat, partially offset by lower affiliate earnings arising from the sale of our interest in
the Meritor WABCO joint venture in the previous year and higher variable compensation.
Aftermarket, Industrial and Trailer Segment adjusted EBITDA was $150 million in fiscal year 2018, compared to
$126 million in the prior fiscal year. Segment adjusted EBITDA margin increased to 12.8 percent in fiscal year 2018 compared
to 12.2 percent in fiscal year 2017. The increases in both segment adjusted EBITDA and segment adjusted EBITDA margin were
driven by the favorable impact of changes to retiree medical benefits and conversion on higher sales, partially offset by higher
material and freight costs, primarily in our aftermarket business.
Cash Flows (in millions)
OPERATING CASH FLOWS
Year Ended September 30,
2019
2018
2017
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and retiree medical expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received from equity method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and retiree medical contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related liability remeasurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution to Maremont trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in off-balance sheet accounts receivable securitization and factoring . . . . . . . . . . . . .
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows provided by continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows used for discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 295
87
—
40
(37)
—
—
10
(31)
8
23
(16)
(31)
(48)
(5)
(14)
(18)
(7)
256
—
$ 256
$ 129
84
8
74
(31)
6
—
3
(27)
6
17
(21)
—
—
(8)
(113)
11
114
252
(1)
$ 251
$ 329
75
36
38
11
—
(243)
4
(48)
6
44
(38)
—
—
(15)
(70)
26
24
179
(3)
$ 176
45
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 46
OPERATOR JOSHUAM
Cash provided by operating activities for fiscal year 2019 was $256 million, compared to $251 million in fiscal year
2018 and $176 million in fiscal year 2017. The increase in cash flows provided by operating activities in fiscal year 2019 was due
to higher earnings in fiscal year 2019 and lower working capital investments that were offset by the $48 million contribution of
cash and repayment of a loan to fund the Maremont 524(g) Trust following the confirmation of the Plan. The increase in cash flows
provided by operating activities in fiscal year 2018, compared to fiscal year 2017 was primarily driven by conversion on higher
sales year over year.
Year Ended September 30,
2019
2018
2017
INVESTING CASH FLOWS
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of equity method investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for business acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for investment in Transportation Power, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investing cash flows provided by discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . .
$(103)
—
(168)
(6)
6
—
$(271)
$(104)
250
(35)
(6)
6
—
$ 111
$ (95)
—
(34)
—
—
2
$(127)
Cash used for investing activities was $271 million in fiscal year 2019, compared to cash provided by $111 million
in fiscal year 2018 and cash used for investing activities of $127 million in fiscal year 2017. The decrease in cash provided by
investing activities in fiscal year 2019 was driven by $168 million of cash paid for the acquisition of AxleTech, net of cash acquired,
in the fourth quarter of fiscal year 2019.
The increase in cash provided by investing activities in fiscal year 2018 compared to fiscal year 2017 was driven by
$250 million of proceeds received in the first quarter of fiscal year 2018 from the sale of our interest in Meritor WABCO in the
fourth quarter of fiscal year 2017, partially offset by cash used for the acquisition of substantially all of the assets of AA Gear &
Manufacturing, Inc. (“AAG”). Further, capital expenditures continue to increase as we invest in new product development to support
our revenue growth and operational performance initiatives. Capital expenditures were $103 million in fiscal year 2019, compared
to $104 million in fiscal year 2018 and $95 million in fiscal year 2017.
FINANCING CASH FLOWS
Repayment of notes and term loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from debt issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . .
Year September 30,
2019
2018
2017
$ — $ — $(408)
89
(43)
—
—
325
—
(103)
(181)
—
—
(12)
—
(13)
(5)
(122)
(229)
—
(100)
$(122)
$(329)
(38)
175
—
(24)
(4)
—
(2)
107
(96)
$ 11
Cash provided by financing activities was $11 million in fiscal year 2019, compared to cash used for of $329 million
in fiscal year 2018 and $122 million in fiscal year 2017. The decrease in cash used for financing activities in fiscal year 2019
compared to fiscal year 2018 was primarily related to a $175 million term loan facility utilized for our acquisition of AxleTech.
46
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 47
OPERATOR JOSHUAM
The increase in cash used for financing activities in fiscal year 2018 compared to fiscal year 2017 was primarily related to
proceeds from the issuance of the $325 million principal amount of our 3.25 percent convertible senior notes due 2037 (the “3.25
Percent Convertible Notes”) in fiscal year 2017 that did not repeat in fiscal year 2018 and the redemption of our 6.75 percent notes
due 2021 (the “6.75 Percent Notes”) in the first quarter of fiscal year 2018. We paid $185 million in fiscal year 2018 to redeem
$175 million principal amount of our 6.75 Percent Notes (see Note 18 of the Notes to Consolidated Financial Statements in Item
8. Financial Statements and Supplementary Data). The increase in cash used for financing activities in fiscal year 2018 was also
driven by the repurchase of 4.5 million shares of our common stock for $100 million (including commission costs) pursuant to the
July 2016 equity repurchase authorization (see Note 20 of the Notes to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data) and a reduction in outstanding borrowings against our securitization facility.
In fiscal year 2017, cash was provided by financing activities through the issuance of $325 million principal amount of the
3.25 Percent Convertible Notes and outstanding borrowings against our securitization facility of $89 million. The net proceeds
from the offering of the 3.25 Percent Convertible Notes were used, together with cash on hand, to repurchase portions of our
outstanding 7.875 percent convertible senior notes due 2026 (the “7.875 Percent Convertible Notes”) and our 4.0 Percent
Convertible Notes. In fiscal year 2017, we spent approximately $272 million on the repurchase of $117 million principal amount
of the 7.875 Percent Convertible Notes (see Note 18 of the Notes to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data) and approximately $139 million on the repurchase of $119 million principal amount of the
4.0 Percent Convertible Notes (see Note 18 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and
Supplementary Data). In addition, we spent approximately $105 million on the redemption of $100 million principal amount of the
6.75 Percent Notes in fiscal year 2017.
Contractual Obligations
As of September 30, 2019, we are contractually obligated to make payments as follows (in millions):
Total debt (1) . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases. . . . . . . . . . . . . . . . . . . . . .
Interest payments on long-term debt . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 989
98
—
$1,087
2020
$ 10
18
—
$ 28
2021
$ 11
15
—
$ 26
2022
$ 19
14
—
$ 33
2023
$ 28
13
—
$ 41
2024 (2)
$573
13
—
$586
Thereafter (3)
$348
25
—
$373
(1)
(2)
(3)
Total debt excludes unamortized discount on convertible notes of $34 million, unamortized issuance costs of $12 million,
and original issuance discount of an insignificant amount.
Includes the 6.25 percent senior notes, which contain a call feature that allows for early redemption
Includes the 3.25 Percent Convertible Notes and 7.875 Percent Convertible Notes, which contain a put and call feature
that allows for earlier redemption beginning in 2025 and 2020, respectively (refer to Note 18 of the Notes to Consolidated
Financial Statements in Item 8. Financial Statements and Supplementary Data).
We also sponsor defined benefit pension plans that cover certain of our U.S. employees and certain non-U.S. employees. Our
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 our retirement pension plans of approximately $6 million in fiscal year 2020.
We also sponsor retirement medical plans that cover certain of our U.S. and non-U.S. employees and retirees, including
certain employees of divested businesses, and provide for medical payments to eligible employees and dependents upon retirement.
Management expects gross retiree medical plan benefit payments of approximately $11 million, $9 million, $8 million, $6 million
and $5 million in fiscal years 2020, 2021, 2022, 2023 and 2024, respectively, before consideration of any Part D reimbursement
from the U.S. government.
Contractual obligations identified in the table above do not include liabilities associated with uncertain tax positions of $46
million due to the high degree of uncertainty regarding the future cash outflows associated with these amounts. For additional
discussion of uncertain tax positions, refer to Note 24 of the Notes to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data.
47
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 48
OPERATOR JOSHUAM
Liquidity
Our outstanding debt, net of discounts and unamortized debt issuance costs where applicable, is summarized below (in
millions). For a detailed discussion of terms and conditions related to this debt, see Note 18 of the Notes to Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data.
Fixed-rate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed-rate convertible notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized discount on convertible notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2019
$ 444
342
175
(34)
16
$ 943
2018
$ 444
364
—
(37)
53
$ 824
Overview — Our principal operating and capital requirements are for working capital needs, capital expenditure
requirements, debt service requirements, funding of pension and retiree medical costs, restructuring and product development
programs. We expect fiscal year 2020 capital expenditures to be approximately $120 million.
We generally fund our operating and capital needs with cash on hand, cash flow from operations, our various accounts
receivable securitization and factoring arrangements and availability under our revolving credit facility. Cash in excess of local
operating needs is generally used to reduce amounts outstanding, if any, under our revolving credit facility or U.S. accounts
receivable securitization program. Our ability to access additional capital in the long term will depend on availability of capital
markets and pricing on commercially reasonable terms as well as our credit profile at the time we are seeking funds. We continuously
evaluate our capital structure to ensure the most appropriate and optimal structure and may, from time to time, retire, repurchase,
exchange or redeem outstanding indebtedness or common equity, issue new equity or debt securities or enter into new financing
arrangements if conditions warrant.
In December 2017, we filed a shelf registration statement with the Securities and Exchange Commission, registering an
indeterminate amount of debt and/or equity securities that we may offer in one or more offerings on terms to be determined at the
time of sale.
We believe our current financing arrangements provide us with the financial flexibility required to maintain our operations and
fund future growth, including actions required to improve our market share and further diversify our global operations, through the
term of our revolving credit facility, which matures in June 2024.
Sources of liquidity as of September 30, 2019, in addition to cash on hand, are as follows (in millions):
On-balance sheet arrangements:
Revolving credit facility (1) . . . . . . . . . . . . . . . . . . . . . . . . .
Committed U.S. accounts receivable securitization (2). . . . .
Total on-balance sheet arrangements . . . . . . . . . . . . . .
Off-balance sheet arrangements: (2)
Committed Swedish Factoring Facility (3) . . . . . . . . . . . . . .
Committed U.S. Factoring Facility (3) . . . . . . . . . . . . . . . . .
Uncommitted U.K. Factoring Facility. . . . . . . . . . . . . . . . . .
Uncommitted Italy Factoring Facility. . . . . . . . . . . . . . . . . .
Other uncommitted factoring facilities (4) . . . . . . . . . . . . . .
Total off-balance sheet arrangements . . . . . . . . . . . . . .
Total available sources . . . . . . . . . . . . . . . . . . . . . . . .
Total
Facility
Size
$ 625
115
740
$ 169
75
27
33
N/A
304
$1,044
Utilized as of
9/30/19
Readily
Available as of
9/30/19
$ —
13
13
$119
58
6
23
20
226
$239
$625
101
726
$ —
—
—
—
N/A
—
$726
Current Expiration
June 2024 (1)
December 2022
March 2020
February 2023
February 2022
June 2022
None
(1)
The availability under the revolving credit facility is subject to a collateral test and a priority debt-to-EBITDA ratio covenant.
The facility will expire in November 2023 if the outstanding amount of the 6.25 percent notes due 2024 is greater than
$75 million at that time.
48
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 49
OPERATOR JOSHUAM
(2)
(3)
(4)
Availability subject to adequate eligible accounts receivable available for sale.
Actual amounts may exceed bank’s commitment at bank’s discretion.
There is no explicit facility size under the factoring agreement, but the counterparty approves the purchase of receivable
tranches at its discretion.
Cash and Liquidity Needs — At September 30, 2019, we had $108 million in cash and cash equivalents, of which
$48 million was held in jurisdictions outside of the U.S. that, if repatriated, could result in withholding taxes. We plan to repatriate
approximately $39 million of this cash for which we’ve recorded an immaterial deferred tax liability for the related withholding taxes.
In addition, we plan to utilize ongoing cash flow from domestic operations and external borrowings, to meet our liquidity needs in
the U.S.
Our availability under the revolving credit facility is subject to a priority debt-to-EBITDA ratio covenant, as defined in the credit
agreement, which may limit our borrowings under such agreement as of each quarter end. As long as we are in compliance with
this covenant as of the quarter end, we have full availability under the revolving credit facility every other day during the quarter.
Our future liquidity is subject to a number of factors, including access to adequate funding under our revolving credit facility,
access to other borrowing arrangements such as factoring or securitization facilities, vehicle production schedules and customer
demand. Even taking into account these and other factors, management expects to have sufficient liquidity to fund our operating
requirements through the term of our revolving credit facility. At September 30, 2019, we were in compliance with this covenant
under our credit agreement.
Equity Repurchase Authorization — On July 21, 2016, our Board of Directors authorized the repurchase of up to
$100 million of our common stock from time to time through open market purchases, privately negotiated transactions or otherwise,
until September 30, 2019, subject to compliance with legal and regulatory requirements and our debt covenants. During the
second quarter of fiscal year 2018, we repurchased 1.4 million shares of our common stock for $33 million (including commission
costs) pursuant to this authorization. During the third quarter of fiscal year 2018, we repurchased 1.4 million shares of our common
stock for $30 million (including commission costs) pursuant to this authorization. During the fourth quarter of fiscal year 2018, we
repurchased 1.7 million shares of our common stock for $37 million (including commission costs) pursuant to this authorization.
The repurchases under this authorization were complete as of September 30, 2018.
On November 2, 2018, our Board of Directors authorized the repurchase of up to $200 million of our common stock
from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with
legal and regulatory requirements and our debt covenants. This authorization superseded the prior July 2016 equity repurchase
authorization. In the first quarter of fiscal year 2019, we repurchased 3.0 million shares of common stock for $50 million (including
commission costs) pursuant to this repurchase authorization. In the third quarter of fiscal year 2019, we repurchased 1.0 million
shares of common stock for $21 million (including commission costs) pursuant to this authorization.
On July 26, 2019, our Board of Directors authorized the repurchase of up to $250 million of our common stock from time
to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and
regulatory requirements and our debt covenants. This authorization supersedes the remaining authority under the prior November
2018 equity repurchase authorization described above. In the fourth quarter of fiscal year 2019, we repurchased 1.3 million shares
of our common stock for $25 million (including commission costs). The amount remaining available for repurchases under this
repurchase authorization was $225 million as of September 30, 2019. On November 7, 2019, the Board of Directors increased the
amount of this repurchase authorization to $325 million.
Debt Repurchase Authorization — On July 21, 2016, our Board of Directors authorized the repurchase of up to
$150 million aggregate principal amount of any of our debt securities (including convertible debt securities) from time to time
through open market purchases, privately negotiated transactions or otherwise, until September 30, 2019, subject to compliance
with legal and regulatory requirements and our debt covenants. The amount remaining available for repurchases under this
authorization was $50 million as of September 30, 2018.
On November 2, 2018, our Board of Directors authorized the repurchase of up to $100 million aggregate principal amount
of any of our debt securities (including convertible debt securities) from time to time through open market purchases, privately
negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and our debt covenants. This
authorization supersedes the prior July 2016 debt repurchase authorization. The amount remaining available for repurchases under
this repurchase authorization was $76 million as of September 30, 2019.
49
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 50
OPERATOR JOSHUAM
Redemption of 6.75 Percent Notes — On September 28, 2017, we redeemed $100 million of the outstanding
$275 million aggregate principal amount of our 6.75 Percent Notes at a price of $1,033.75 per $1,000 of principal amount, plus
accrued and unpaid interest. As a result, a loss on debt extinguishment of $5 million was recorded in the Consolidated Statement
of Operations within Interest expense, net during fiscal year 2017. The redemption was made pursuant to the July 2016 debt
repurchase authorization (see Note 20 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and
Supplemental Data).
On November 2, 2017, we redeemed the remaining $175 million aggregate principal amount outstanding of the
6.75 Percent Notes at a price of $1,033.75 per $1,000 of principal amount, plus accrued and unpaid interest. As a result, a
loss on debt extinguishment of $8 million was recorded in the Consolidated Statement of Operations within Interest expense,
net. The redemption was made pursuant to a special authorization from the Board of Directors in connection with the sale of
Meritor WABCO.
Redemption of 4.0 Percent Notes — On February 15, 2019, we redeemed $19 million of the outstanding $24 million
aggregate principal amount outstanding of the 4.0 Percent Convertible Notes at a price of 100 percent of the accreted principal
amount, plus accrued and unpaid interest. On June 7, 2019, we redeemed the remaining $5 million aggregate principal amount
outstanding of the 4.0 Percent Convertible Notes at a price equal to 100 percent of the accreted principal amount, plus accrued
and unpaid interest. The 4.0 Percent Convertible Notes were classified as current as of September 30, 2018 as the securities were
redeemable at the option of the holder on February 15, 2019, at a repurchase price in cash equal to 100 percent of the accreted
principal amount of the securities to be repurchased plus accrued and unpaid interest.
Revolving Credit Facility — On June 7, 2019, we amended and restated our revolving credit facility. Pursuant to the
revolving credit agreement, as amended, we have a $625 million revolving credit facility and a $175 million term loan facility,
which was utilized for our acquisition of AxleTech, that mature in June 2024 (with a springing maturity in November 2023 if the
outstanding amount of the 6.25 Percent Notes is greater than $75 million).
The availability under the revolving credit facility is subject to a financial covenant based on the ratio of our priority debt
(consisting principally of amounts outstanding under the revolving credit facility, U.S. accounts receivable securitization and
factoring programs, and third-party non-working capital foreign debt) to EBITDA. We are required to maintain a total priority
debt-to-EBITDA ratio, as defined in the agreement, of 2.25 to 1.00 or less as of the last day of each fiscal quarter throughout the
term of the agreement. At September 30, 2019, we were in compliance with this covenant under the revolving credit facility with
a ratio of approximately 0.5x for the priority debt-to-EBITDA ratio covenant.
Borrowings under the revolving credit facility are subject to interest based on quoted LIBOR rates plus a margin and a
commitment fee on undrawn amounts, both of which are based upon our current corporate credit rating or our total leverage ratio,
as defined in the agreement. At September 30, 2019, the margin over LIBOR rate was 200 basis points, and the commitment fee
was 30 basis points. Overnight revolving credit loans are at the prime rate plus a margin of 100 basis points.
Certain of our subsidiaries, as defined in the revolving credit agreement, irrevocably and unconditionally guarantee amounts
outstanding under the revolving credit facility. Similar subsidiary guarantees are provided for the benefit of the holders of the
publicly-held notes outstanding under our indentures (see Note 29 of the Notes to the Consolidated Financial Statements in Item
8. Financial Statements and Supplemental Data).
No borrowings were outstanding under the revolving credit facility as of September 30, 2019 and September 30, 2018.
The amended and extended revolving credit facility includes $100 million of availability for the issuance of letters of credit. As of
September 30, 2019 and September 30, 2018, there were no letters of credit outstanding under the revolving credit facility.
U.S. Securitization Program — As of September 30, 2018, the U.S. accounts receivable securitization facility size was
$100 million. On September 16, 2019, we entered into an amendment that increased the size of the facility to $115 million and
extended its expiration date to December 2022. The maximum permitted priority debt-to-EBITDA ratio as of the last day of each
fiscal quarter under the facility is 2.25 to 1.00. This program is provided by PNC Bank, National Association, as Administrator and
Purchaser, and the other Purchasers and Purchaser Agents party to the agreement from time to time (participating lenders). Under
this program, we have the ability to sell an undivided percentage ownership interest in substantially all of our trade receivables
(excluding the receivables due from AB Volvo and subsidiaries eligible for sale under the U.S. accounts receivable factoring facility)
of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (“ARC”), a wholly-owned, special purpose subsidiary. ARC
funds these purchases with borrowings from participating lenders under a loan agreement. This program also includes a letter
of credit facility pursuant to which ARC may request the issuance of letters of credit for our U.S. subsidiaries (originators) or
50
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 51
OPERATOR JOSHUAM
their designees, which when issued will constitute a utilization of the facility for the amount of letters of credit issued. Amounts
outstanding under this agreement are collateralized by eligible receivables purchased by ARC and are reported as short-term debt
in the Consolidated Balance Sheet. As of September 30, 2019, $9 million was outstanding under this program, and $4 million
was outstanding under related letters of credit. As of September 30, 2018, $46 million was outstanding under this program, and
$11 million was outstanding under related letters of credit. This securitization program contains a cross default to our revolving
credit facility. As of September 30, 2019, we were in compliance with all covenants under our credit agreement (see Note 18 of the
Notes to the Consolidated Financial Statements). At certain times during any given month, we may sell eligible accounts receivable
under this program to fund intra-month working capital needs. In such months, we would then typically utilize the cash received
from our customers throughout the month to repay the borrowings under the program. Accordingly, during any given month, we
may borrow under this program in amounts exceeding the amounts shown as outstanding at fiscal year ends.
Capital Leases — We had $7 million of outstanding capital lease arrangements as of September 30, 2019 and 2018.
Other — One of our consolidated joint ventures in China participates in a bills of exchange program to settle its obligations
with its trade suppliers. These programs are common in China and generally require the participation of local banks. Under
these programs, our joint venture issues notes payable through the participating banks to its trade suppliers. If the issued notes
payable remain unpaid on their respective due dates, this could constitute an event of default under our revolving credit facility if
the defaulted amount exceeds $35 million per bank. As of September 30, 2019 and 2018, we had $30 million and $22 million,
respectively, outstanding under this program at more than one bank.
Credit Ratings — At November 11, 2019, our Standard & Poor’s corporate credit rating and senior unsecured credit rating
were BB and BB-, respectively, and our Moody’s Investors Service corporate credit rating and senior unsecured credit rating are
Ba3 and B1, respectively. Any lowering of our credit ratings could increase our cost of future borrowings and could reduce our
access to capital markets and result in lower trading prices for our securities.
Off-Balance Sheet Arrangements
Accounts Receivable Factoring Arrangements — We participate in accounts receivable factoring programs with total
amounts utilized at September 30, 2019 of $226 million, of which $177 million was attributable to committed factoring facilities
involving the sale of AB Volvo accounts receivables. The remaining amount of $49 million was related to factoring by certain of our
European subsidiaries under uncommitted factoring facilities with financial institutions. The receivables under all of these programs
are sold at face value and are excluded from the Consolidated Balance Sheet. Total facility size, utilized amounts, readily available
amounts and expiration dates for each of these programs are shown in the table above under Liquidity.
The Swedish facility is backed by 364-day liquidity commitment from Nordea Bank, which was renewed through January 10,
2020. Commitments under all of our factoring facilities are subject to standard terms and conditions for these types of arrangements
(including, in case of the U.K. and Italy commitments, a sole discretion clause whereby the bank retains the right to not purchase
receivables, which has not been invoked since the inception of the respective programs).
Letter of Credit Facilities — On February 21, 2014, we amended and restated our letter of credit facility with Citicorp
USA, Inc., as administrative agent and issuing bank, and the other lenders party thereto. Under the terms of this amended credit
agreement, which expired in March 2019, we had the right to obtain the issuance, renewal, extension and increase of letters of
credit up to an aggregate availability of $25 million. This facility contained covenants and events of default generally similar to those
existing in our public debt indentures. There were $1 million of letters of credit outstanding under this facility at September 30,
2018. On March 20, 2019, we allowed this facility to expire. The letters of credit previously provided under this facility were
replaced with letters of credit issued under our U.S. accounts receivable securitization facility with PNC Bank. There were $8 million
of letters of credit outstanding through other letter of credit facilities as of September 30, 2019 and 2018.
Contingencies
Contingencies related to environmental, asbestos and other matters are discussed in Note 25 of the Notes to Consolidated
Financial Statements in Item 8. Financial Statements and Supplementary Data.
51
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 52
OPERATOR JOSHUAM
Critical Accounting Policies
Critical accounting policies are those that are most important to the portrayal of our 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 — Our defined benefit pension plans and retirement medical plans are accounted for on an actuarial basis,
which requires the selection of various assumptions, including the mortality of participants. Our pension obligations are determined
annually and were measured as of September 30, 2019 and 2018.
The mortality assumptions for participants in our U.S. plans incorporates future mortality improvements from tables published
by the Society of Actuaries (“SOA”). We periodically review the mortality experience of our U.S. plans’ participants against these
assumptions. We reviewed the new SOA mortality and mortality improvement tables and utilized our actuary to conduct a study
based on our plan participants.
The U.S. plans include a qualified and non-qualified pension plan. In fiscal years 2019 and 2018, the only significant non-
U.S. plan is located in the U.K. The following are the significant assumptions used in the measurement of the projected benefit
obligation (“PBO”) and net periodic pension expense:
Assumptions as of September 30:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed return on plan assets
3.10%
1.80%
(beginning of the year) (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
7.75%
6.00%
4.30%
7.75%
2.90%
6.00%
2019
2018
U.S.
U.K.
U.S.
U.K.
(1)
The assumed return on plan assets for fiscal year 2020 is 7.75 percent for the U.S. plan and 5.75 percent for the U.K. plan.
The discount rate is used to calculate the present value of the PBO at the balance sheet date and net periodic pension
expense for the subsequent fiscal year. The rate used reflects a rate of return on high-quality fixed income investments that match
the duration of expected benefit payments. Generally we use a portfolio of long-term corporate AA/Aa bonds that match the
duration of the expected benefit payments, except for our U.K. pension plan which uses an annualized yield curve to establish the
discount rate for this assumption.
The assumed return on plan assets is used to determine net periodic pension expense. The rate of return assumptions
are based on projected long-term market returns for the various asset classes in which the plans are invested, weighted by the
target asset allocations. An incremental amount for diversification, rebalancing and active management, where appropriate, is
included in the rate of return assumption. The return assumptions are reviewed annually.
These assumptions reflect our historical experience and our best judgments regarding future expectations. 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 2019, are shown below (in millions):
Effect on All Plans – September 30, 2019
Increase
(Decrease)
in Pension
Expense
Increase
(Decrease)
in PBO
Percentage
Point Change
Assumption:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed return on plan assets . . . . . . . . . . . . . . . . .
-0.5 pts
+0.5 pts
-1.0 pts
+1.0 pts
$ 120
(107)
N/A (1)
N/A (1)
$ —
—
14
(14)
(1)
Not Applicable
52
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 53
OPERATOR JOSHUAM
Accounting guidance applicable to pensions does not require immediate recognition of the effects of a deviation between
actual and assumed experience and the revision of an estimate. This approach allows the favorable and unfavorable effects
that fall within an acceptable range to be netted and disclosed as an unrecognized gain or loss in the footnotes. Based on the
September 30, 2019 and 2018 measurement dates, we had an unrecognized loss of $806 million and $699 million, respectively. A
portion of this loss is amortized into earnings each fiscal year. Unrecognized losses for the U.S. and U.K. plans are being amortized
into net periodic pension expense over the average life expectancy of the inactive participants of approximately 16 years and
26 years, respectively.
In recognition of the long-term nature of the liabilities of the pension plans, we have targeted an asset allocation strategy
designed to promote asset growth while maintaining an acceptable level of risk over the long term. Asset-liability studies are
performed periodically to validate the continued appropriateness of these asset allocation targets. The asset allocation ranges for
the U.S. plan are 20–50 percent equity investments, 30–60 percent fixed income investments and 10–25 percent alternative
investments. Alternative investments include private equity, real estate, hedge funds and partnership interests. The target asset
allocation ranges for the non-U.S. plans are 15–35 percent equity investments, 30–60 percent fixed income investments,
0–10 percent real estate and 10–30 percent alternative investments. The asset class mix and the percentage of securities in any
asset class or market may vary as the risk/return characteristics of either individual market or asset classes vary over time.
The investment strategies for the pension plans are designed to achieve an appropriate diversification of investments as
well as safety and security of the principal invested. Assets invested are allocated to certain global sub-asset categories within
prescribed ranges in order to promote international diversification across security type, issuer type, investment style, industry group,
and economic sector. Assets of the plans are both actively and passively managed. Policy limits are placed on the percentage of
plan assets that can be invested in a security of any single issuer and minimum credit quality standards are established for debt
securities. Meritor securities did not comprise any of the value of our worldwide pension assets as of September 30, 2019.
Based on current assumptions, the fiscal year 2020 net pension income is estimated to be $21 million.
Retiree Medical — We have retirement medical plans that cover certain of our U.S. and non-U.S. employees and provide
for medical payments to eligible employees and dependents upon retirement. Our retiree medical obligations were measured as of
September 30, 2019 and September 30, 2018.
The following are the significant assumptions used in the measurement of the accumulated postretirement benefit
obligation (APBO):
Assumptions as of September 30:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care cost trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ultimate health care trend rate. . . . . . . . . . . . . . . . . . . . . . . . .
Year ultimate rate is reached . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
2.98%
6.36%
4.69%
2028
4.05%
6.18%
4.63%
2024
The discount rate is the rate used to calculate the present value of the APBO. The rate is determined based on high-quality
fixed income investments that match the duration of expected benefit payments. We used the corporate AA/Aa bond rate for
this assumption.
The health care cost trend rate represents our expected annual rates of change in the cost of health care benefits. Our
projection for fiscal year 2020 is 6.36 percent. For measurement purposes, the annual increase in health care costs was assumed
to decrease gradually to 4.69 percent by fiscal year 2028 and remain at that level thereafter.
53
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 54
OPERATOR JOSHUAM
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):
Effect on total of service and interest cost
1% Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1% Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ —
—
—
2019
2018
Effect on APBO
1% Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1% Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
(4)
4
(4)
Based on current assumptions, fiscal year 2020 retiree medical income is estimated to be approximately $20 million.
Product Warranties — Our business segments record estimated product warranty costs at the time of shipment of
products to customers. Liabilities for product recall campaigns are recorded at the time our obligation is known and can be
reasonably estimated. Product warranties, including recall campaigns, not expected to be paid within one year are recorded as a
non-current liability.
Significant factors and information used by management when estimating product warranty liabilities include:
• Past claims experience;
• Sales history;
• Product manufacturing and industry developments; and
• Recoveries from third parties, where applicable.
Asbestos — Rockwell — ArvinMeritor, Inc. (“AM”), a predecessor of Meritor, along with many other companies, has
been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos used in certain components of
Rockwell products many years ago. Liability for these claims was transferred at the time of the spin-off of the automotive business
from Rockwell in 1997. Rockwell had approximately 1,400 pending active asbestos claims in lawsuits that name AM, together with
many other companies, as defendants at September 30, 2019 and 2018.
A significant portion of the claims 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
likely never identify any of Rockwell’s products. Historically, AM has been dismissed from the vast majority of similar claims filed in
the past with no payment to claimants. For those claimants who do show that they worked with Rockwell’s products, management
nevertheless believes it has meritorious defenses, in substantial part due to the integrity of the products involved and the lack of
any impairing medical condition on the part of many claimants.
Pending and Future Claims: We engaged a third-party advisor with extensive experience in assessing asbestos-related
liabilities to conduct a study to estimate its potential undiscounted liability for pending and future asbestos-related claims as of
September 30, 2018. On a continual basis, management monitors the underlying claims data and experience, for the purpose of
assessing the appropriateness of the assumptions used to estimate the liability. The increase in the estimated liability from the prior
year study at both the low end and high end reflects a change in the forecast horizon utilized to estimate future claims, excluding
legal costs and any potential recovery from insurance carriers. Previously, our pending and future claims estimates were based on
a ten-year forecast period. In fiscal year 2018, we moved to a penultimate horizon for estimating our pending and future claims
estimates. The penultimate horizon is defined as the second-to-last day of claims estimated to occur. The longer horizon estimate is
now considered reasonable based on factors including our recent history and experience, the disciplined management of asbestos
related litigation, an observance of trends indicating diminished volatility and greater consistency in the company’s observable
claims data, the maturity of the asbestos litigation overall and experience in recent insurance negotiations.
As of September 30, 2019, the estimated probable range of equally likely possibilities of our obligation for asbestos-related
claims over the next 40 years is $91 million to $181 million. Based on the information contained in the actuarial study, and all other
available information considered, management concluded that no amount within the range of potential liability was more likely than
any other and, therefore, recorded the low end of the range. We recognized a liability for pending and future claims of $91 million
as of September 30, 2019 compared to a liability of $103 million as of September 30, 2018. The ultimate cost of resolving pending
and future claims is estimated based on the history of claims and expenses for plaintiffs represented by law firms in jurisdictions
with an established history with Rockwell.
54
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
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PAGE NO. 55
OPERATOR JOSHUAM
Recoveries: Rockwell has insurance coverage that management believes covers indemnity and defense costs, over and above
self-insurance retentions, for a significant portion of these claims. In 2004, we initiated litigation against certain of these carriers to
enforce the insurance policies. During the fourth quarter of fiscal year 2016, we executed settlement agreements with two of these
carriers, thereby resolving the litigation against those particular carriers. Pursuant to the terms of one of those settlement agreements,
in the fourth quarter of fiscal year 2016 we received $32 million in cash from an insurer, of which $10 million was recognized as a
reduction in asbestos expense, and $22 million was recorded as a liability to the insurance carrier as it is required to be returned to the
carrier if additional asbestos liability is not ultimately incurred. During fiscal years 2018 and 2017, Rockwell recognized an additional
$12 million and $10 million, respectively of the cash settlement proceeds as a reduction in asbestos expense. During the fourth quarter
of fiscal year 2018, we entered into a settlement agreement to resolve additional disputed coverage resulting from asbestos claims.
On September 15, 2018, we received $3 million in cash and recorded a $28 million insurance receivable related to this settlement.
The insurance receivables for Rockwell’s asbestos-related liabilities totaled $61 million and $68 million as of September 30, 2019 and
2018, respectively. Included in the September 30, 2018 amount is an increase to previous settlement receivables resulting from the
extended forecast horizon which led to a balance of $40 million for those previous settlement receivables as of September 30, 2018
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 and recoveries for asbestos-related
claims are subject to considerable uncertainty because such liabilities and recoveries are influenced by variables that are difficult
to predict. The future litigation environment for Rockwell could change significantly from its past experience, due, for example,
to changes in the mix of claims filed against Rockwell in terms of plaintiffs’ law firm, jurisdiction and disease; legislative or
regulatory developments; our approach to defending claims; or payments to plaintiffs from other defendants. Estimated recoveries
are influenced by coverage issues among insurers and the continuing solvency of various insurance companies. If the assumptions
with respect to the estimation period, 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 Rockwell asbestos-related claims, and the effect on us, could differ materially
from current estimates and, therefore, could have a material impact on our financial condition and results of operations.
Assumptions: The following assumptions were made by us after consultation with consultants and are included in the study:
• Pending and future claims were estimated for a 41-year period ending in fiscal year 2059;
• The litigation environment remains consistent throughout the forecast horizon;
• On a per claim basis, defense and indemnity costs for pending and future claims will be at the level consistent with our
recent experience;
Goodwill — Goodwill is reviewed for impairment annually or more frequently if certain indicators arise. If business conditions
or other factors cause the operating results and cash flows of a reporting unit to decline, we may be required to record impairment
charges for goodwill at that time.
We have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads
us to determine that it is more likely than not that the fair value of each of our reporting units is less than its respective carrying
amount. If after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value
of the reporting unit is less than its carrying amount, then a subsequent quantitative, one-step impairment test is unnecessary. If
we conclude otherwise, then we are required to test goodwill for impairment under a subsequent process. We may elect to forgo
this assessment and proceed directly to the quantitative, one-step process.
The quantitative impairment test consists of a comparison of the fair value of a reporting unit with its carrying amount.
Estimates of fair value are primarily determined by using discounted cash flows and market multiples on earnings. If the carrying
amount of a reporting unit exceeds its fair value, an impairment charge based on that difference will be recorded. The impairment
charge will be limited to the amount of goodwill allocated to that reporting unit.
The impairment review is highly judgmental and involves the use of significant estimates and assumptions. These estimates
and assumptions have a significant impact on the amount of any impairment charge recorded. Discounted cash flow methods are
dependent upon assumptions of future sales trends, market conditions and cash flows of each reporting unit over several years.
Actual cash flows in the future may differ significantly from those previously forecasted.
55
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
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PAGE NO. 56
OPERATOR JOSHUAM
Realignment of Reporting Units
As discussed in Note 26 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary
Data, we realigned our operations in the second quarter of fiscal year 2019, resulting in a change to our reportable segments. As
a result of the change in reportable segments, our reporting units changed. The Commercial Truck segment contains one reporting
unit. The Aftermarket, Industrial and Trailer segment contains five reporting units. Goodwill was reassigned to the new reporting
units using a relative fair value allocation.
Acquisition of AxleTech Business
On July 26, 2019, we acquired 100 percent of the voting equity interest of the AxleTech group companies for approximately
$179 million in cash, subject to certain purchase price adjustments. We funded the acquisition with the term loan under our credit
agreement (see Note 18 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary
Data). We recorded a provisional amount of goodwill of $61 million for the excess of consideration paid over the fair value of the
individual assets acquired and liabilities assumed, excluding identifiable intangible assets. The addition of AxleTech enhances
our growth platform with the addition of a complementary product portfolio that includes a full line of independent suspensions,
axles, braking solutions and drivetrain components across the off-highway, defense, specialty and aftermarket markets. AxleTech
operates within the Aftermarket, Industrial and Trailer segment.
Acquisition of AA Gear & Manufacturing, Inc. Business
On April 30, 2018, we acquired substantially all of the assets of AAG for a cash purchase price of approximately
$35 million. The AAG acquisition was accounted for as a business combination. We recorded goodwill in the amount of
$12 million for the excess of consideration paid over the fair value of the individual assets acquired and liabilities assumed,
excluding identifiable intangible assets. This recorded goodwill consists largely of the synergies and economies of scale expected
from combining our operations. All of the goodwill was assigned to the Aftermarket, Industrial and Trailer reportable segment. All
goodwill recognized is expected to be deductible for income tax purposes over the next 15 years.
Acquisition of Fabco Holdings, Inc. Business
On August 31, 2017, for a cash purchase price of $34 million, we acquired certain assets, including the product portfolio and
related technologies, of Fabco Holdings, Inc. (“Fabco”) and its subsidiaries and assumed certain liabilities. The Fabco acquisition
was accounted for as a business combination. As a result, we recorded goodwill in the amount of $20 million for the excess of
consideration paid over the fair value of the individual assets acquired and liabilities assumed, excluding identifiable intangible
assets. This recorded goodwill consists largely of the synergies and economies of scale expected from combining our operations.
All of the goodwill was assigned to the Aftermarket, Industrial and Trailer reportable segment.
For fiscal year 2019, the fair value of all of our reporting units exceeded their carrying values.
Impairment of Long-Lived Assets — 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 a long-lived asset group is not recoverable, based on undiscounted cash flows over the remaining useful life of the primary
asset of the group, and the long-lived asset group’s carrying value exceeds the fair value. If business conditions or other factors
cause the operating results and cash flows to decline, we may be required to record impairment charges at that time. Long-lived
assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell. Significant judgments and
estimates used by management when evaluating long-lived assets for impairment include:
• An assessment as to whether an adverse event or circumstance has triggered the need for an impairment review;
• Undiscounted future cash flows generated by the asset; and
• Probability and estimated future cash flows associated with alternative courses of action that are being considered to
recover the carrying amount of a long-lived asset.
During fiscal year 2019, we determined that we had an impairment trigger related to the AAG business, and by performing
the recoverability test, we concluded that the undiscounted future cash flows could not recover the net assets of the business. We
then determined that the carrying value of the business exceeded its fair value. As a result, an impairment charge of $9 million
was recorded within other operating expense, net. Earlier in fiscal year 2019, an unrelated $1 million of other long-lived asset
impairment charges were recorded.
56
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JOB NUMBER 365806(1)
REVISION 2
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TYPE
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PAGE NO. 57
OPERATOR JOSHUAM
During fiscal year 2017, we determined the carrying value of a business held for sale exceeded the fair value less costs to
sell. As a result, an impairment charge of $3 million was recorded within other operating expense, net. During fiscal year 2017, an
additional $1 million of other long-lived asset impairment charges were recorded.
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. If it is more
likely than not that the deferred tax asset will be realized, no valuation allowance is recorded. Management’s judgment is required
in determining the provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against
the 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 judgments, estimates and factors considered by management in its determination of
the probability of the realization of deferred tax assets include:
• Historical operating results;
• Expectations of future earnings;
• Tax planning strategies; and
• The extended period of time over which retirement medical and pension liabilities will be paid.
In prior years, we established valuation allowances against the net deferred tax assets of its 100%-owned subsidiaries in
France, Germany, Brazil, the U.K. and certain other countries. In evaluating our ability to recover these net deferred tax assets,
we utilized a consistent approach which considers its historical operating results, including an assessment of the degree to which
any gains or losses are driven by items that are unusual in nature and tax planning strategies. In addition, we reviewed changes in
near-term market conditions and other factors that impact future operating results.
During the fourth quarter of fiscal year 2018, as a result of sustained profitability in Brazil evidenced by strong earnings history,
future forecasted income, and additional positive evidence, we determined it was more likely than not we would be able to realize the
deferred tax assets in Brazil. Accordingly, we reversed the valuation allowance, resulting in a non-cash income tax benefit of $9 million.
As of September 30, 2019, we continue to maintain the valuation allowances in France, Germany, the U.K. and certain other
jurisdictions, as we believe the negative evidence continues to outweigh the positive evidence that it will be able to recover these
net deferred tax assets. If, in the future, we generate taxable income on a sustained basis, our conclusion regarding the need for
valuation allowances in these jurisdictions could change.
The expiration periods for deferred tax assets related to net operating losses and tax credit carryforwards as of September 30,
2019 are included below (in millions). Also included are the associated valuation allowances on these deferred tax assets (in millions).
Net Operating Losses and Tax Credit Carryforwards . . . . . . .
Valuation Allowances on these Deferred Tax Assets . . . . . . .
2020-2024
$14
$ 5
Fiscal Year Expiration Periods
2035-2039
$ 11
$ —
Indefinite
$ 175
$ 172
2025-2034
$30
$11
Total
$ 230
$ 188
On December 22, 2017, the U.S. government enacted the U.S. tax reform. The U.S. tax reform made broad and complex
changes to the U.S. tax code that affected our fiscal year ended September 30, 2018, including, but not limited to, reducing
the U.S. federal corporate tax rate from 35 percent to 21 percent and requiring a one-time transition tax on deemed repatriated
earnings of foreign subsidiaries.
The SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of
the U.S. tax reform. SAB 118 provides a measurement period that should not extend beyond one year from the U.S. tax reform
enactment date for companies to complete the accounting under ASC 740. We completed our accounting for the enactment date
income tax effects of U.S. tax reform as of December 31, 2018. As reflected in the September 30, 2019 financial statements, the
results of this accounting were a reduction to the estimated tax expense at September 30, 2018 from $89 million to $87 million
for the refinement of the U.S. tax reform items.
Additionally, we have accounted for the tax impacts related to the Global Intangible Low Tax Income (“GILTI”), Base Erosion
Anti Abuse Tax (“BEAT”) and Foreign Derived Intangible Income (“FDII”) regimes as well as all other provisions of the U.S. tax
reform that are effective in fiscal year 2019. We have elected to treat GILTI as a period cost and, therefore, have not recognized
deferred taxes for basis differences that may reverse as GILTI tax in future periods.
New Accounting Pronouncements — New Accounting Pronouncements are discussed in Note 2 of the Notes to
Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data.
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JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
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OPERATOR JOSHUAM
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain global market risks, including foreign currency exchange risk and interest rate risk associated
with our debt.
As a result of our substantial international operations, we are exposed to foreign currency risks that arise from our normal
business operations, including in connection with our transactions that are denominated in foreign currencies. In addition, we
translate sales and financial results denominated in foreign currencies into U.S. dollars for purposes of our Consolidated Financial
Statements. As a result, appreciation of the U.S. dollar against these foreign currencies generally will have a negative impact on our
reported revenues and operating income while depreciation of the U.S. dollar against these foreign currencies will generally have
a positive effect on reported revenues and operating income. For fiscal year 2019, our reported financial results were adversely
affected by appreciation of the U.S. dollar against foreign currencies. For fiscal year 2018, our reported financial results benefited
from depreciation of the U.S. dollar against foreign currencies.
We use foreign currency forward contracts to minimize the earnings exposures arising from foreign currency exchange
risk on foreign currency purchases and sales. Gains and losses on the underlying foreign currency exposures are partially offset
with gains and losses on the foreign currency forward contracts. Under this cash flow hedging program, we designate the foreign
currency contracts as cash flow hedges of underlying foreign currency forecasted purchases and sales. Changes in the fair value
of these contracts are recorded in Accumulated other comprehensive loss in the Consolidated Statement of Shareholders’ Equity
and is recognized in operating income when the underlying forecasted transaction impacts earnings. These contracts generally
mature within 18 months.
We use foreign currency option contracts to mitigate foreign currency exposure on expected future Indian Rupee-
denominated purchases. In the fourth quarter of fiscal year 2016, we entered into a new series of foreign currency option contracts
with expiration dates from the start of the first quarter of fiscal year 2017 through the end of fiscal year 2018. In the third quarter
of fiscal year 2017, we monetized our outstanding foreign currency option contracts and, in the third and fourth quarters of fiscal
year 2017, entered into a new series of foreign currency option contracts with expiration dates in fiscal year 2018 and fiscal year
2019. In the third quarter of fiscal year 2018, we entered into a new series of foreign currency option contracts with expiration
dates in fiscal year 2020. Changes in fair value associated with these contracts are recorded in cost of sales in the Consolidated
Statements of Operations.
We use foreign currency option contracts to mitigate foreign currency exposure on expected future South Korean won-
denominated purchases. In the first quarter of fiscal year 2018, we entered into a new series of foreign currency option contracts
with expiration dates from the start of the third quarter of fiscal year 2018 through the end of fiscal year 2018. In the fourth quarter
of fiscal year 2018, we entered into a new series of foreign currency option contracts with expiration dates from the start of the
first quarter of fiscal year 2019 through the end of fiscal year 2019. In the third quarter of fiscal year 2019, we entered into a
new series of foreign currency option contracts with expiration dates from the fourth quarter of fiscal year 2019 through the third
quarter of fiscal year 2020. Changes in fair value associated with these contracts are recorded in cost of sales in the Consolidated
Statements of Operations.
We use foreign currency option contracts to mitigate foreign currency exposure on expected future Brazilian real-denominated
purchases. In the third quarter of fiscal year 2018, we entered into a new series of foreign currency option contracts with expiration
dates from the start of the fourth quarter of fiscal year 2018 through the end of fiscal year 2019. In the fourth quarter of fiscal year
2018, we entered into a new series of foreign currency option contracts with expiration dates from the last two quarters of fiscal
year 2019 through the first two quarters of fiscal year 2020. Changes in fair value associated with these contracts are recorded in
cost of sales in the Consolidated Statements of Operations.
In the first quarter of fiscal year 2016, due to the risk of volatility of the euro as compared to the U.S. dollar, we entered into a
series of foreign currency option contracts that did not qualify for hedge accounting but were expected to mitigate foreign currency
translation exposure of euro earnings to U.S. dollars. In the third and fourth quarters of fiscal year 2017, we entered into a new
series of foreign currency option contracts with expiration dates in fiscal year 2017 and fiscal year 2018. In the second and third
quarters of fiscal year 2019, we entered into a new series of foreign currency option contracts with expiration dates in the third
and fourth quarters of fiscal year 2019. In the fourth quarter of fiscal year 2019, we entered into a new series of foreign currency
option contracts with expiration dates in the first and second quarters of fiscal year 2020. Changes in fair value associated with
these contracts were recorded in other income, net, in the Consolidated Statement of Operations.
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REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
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PAGE NO. 59
OPERATOR JOSHUAM
In the first quarter of fiscal year 2016, due to the risk of volatility of the Swedish krona as compared to the U.S. dollar, we
entered into a series of foreign currency option contracts that did not qualify for hedge accounting but were expected to mitigate
foreign currency translation exposure of Swedish krona earnings to U.S. dollars. In the fourth quarter of fiscal year 2017, we entered
into a new series of foreign currency option contracts with expiration dates in fiscal year 2018. In the second and third quarters
of fiscal year 2019, we entered into a new series of foreign currency option contracts with expiration dates in the third and fourth
quarters of fiscal year 2019. Changes in fair value associated with these contracts were recorded in other income, net, in the
Consolidated Statements of Operations.
We use cross-currency swap contracts to hedge a portion of our net investment in a foreign subsidiary against volatility in
foreign exchange rates. These derivative instruments are designated and qualify as hedges of net investments in foreign operations.
Settlements and changes in fair values of the instruments are recognized in foreign currency translation adjustments, a component
of other comprehensive loss on the Consolidated Statement of Comprehensive Income, to offset the changes in the values of the
net investments being hedged.
In the third quarter of fiscal year 2018, we entered into multiple cross-currency swaps. These swaps hedged a portion of
the net investment in a certain European subsidiary against volatility in the euro/U.S. dollar foreign exchange rate. In the third
quarter of fiscal year 2019, we unwound these cross-currency swaps and received proceeds of $19 million, $2 million of which
related to net accrued interest receivable. We also entered into multiple new cross-currency swaps with a combined notional
amount of $225 million. These swaps hedge a portion of the net investment in a certain European subsidiary against volatility in
the euro/U.S. dollar foreign exchange rate. They mature in October 2022.
Interest rate risk relates to the gain/increase or loss/decrease we could incur in our debt balances and interest expense
associated with changes in interest rates. To manage this risk, we enter into interest rate swaps from time to time to economically
convert portions of our fixed-rate debt into floating rate exposure, ensuring that the sensitivity of the economic value of debt falls
within our corporate risk tolerances. It is our policy not to enter into derivative instruments for speculative purposes, and therefore,
we hold no derivative instruments for trading purposes.
Included below is a sensitivity analysis to measure the potential gain (loss) in the fair value of financial instruments with
exposure to market risk (in millions). The model assumes a 10% hypothetical change (increase or decrease) in exchange rates and
instantaneous, parallel shifts of 50 basis points in interest rates.
Market Risk
Foreign Currency Sensitivity:
Assuming a
10% Increase
in Rates
Assuming a
10% Decrease
in Rates
Increase /
(Decrease)
In
Forward contracts in USD (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward contracts in Euro (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency denominated debt (2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency option contracts in USD. . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency option contracts in Euro. . . . . . . . . . . . . . . . . . . . . . . . . .
Cross-currency swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.7
(4.2)
0.5
1.5
(0.3)
(25.1)
(1.7)
4.2
(0.5)
0.1
4.2
25.1
Fair Value
Fair Value
Fair Value
Fair Value
Fair Value
Fair Value
Interest Rate Sensitivity:
Debt - fixed rate (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt - variable rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assuming a 50
BPS Increase
in Rates
$(31.7)
(0.9)
Assuming a 50
BPS Decrease
in Rates
$ 31.3
0.9
Increase /
(Decrease)
In
Fair Value
Cash Flow
(1)
(2)
(3)
Includes only the risk related to the derivative instruments and does not include the risk related to the underlying exposure.
The analysis assumes overall derivative instruments and debt levels remain unchanged for each hypothetical scenario.
At September 30, 2019, the fair value of outstanding foreign currency denominated debt was $4.9 million. A 10% decrease
in quoted currency exchange rates would result in a decrease of $0.5 million in foreign currency denominated debt. At
September 30, 2019, a 10% increase in quoted currency exchange rates would result in an increase of $0.5 million in
foreign currency denominated debt.
At September 30, 2019, the fair value of outstanding debt was $1,013 million. A 50 basis points decrease in quoted interest
rates would result in an increase of $31.3 million in the fair value of fixed rate debt. A 50 basis points increase in quoted
interest rates would result in a decrease of $31.7 million in the fair value of fixed rate debt.
59
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JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
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PAGE NO. 60
OPERATOR JOSHUAM
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Meritor, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Meritor, Inc. and subsidiaries (the “Company”) as of
September 29, 2019 and September 30, 2018, the related consolidated statements of operations, comprehensive income, equity
(deficit), and cash flows, for each of the three years in the period ended September 29, 2019, and the related notes (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of September 29, 2019 and September 30, 2018, and the results of its operations and its cash flows
for each of the three years in the period ended September 29, 2019, in conformity with accounting principles generally accepted
in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of September 29, 2019, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated November 13, 2019, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Contingencies - Asbestos-related reserves - Rockwell - Refer to Note 25 to the financial statements
Critical Audit Matter Description
Reserves related to these claims consist of the projected indemnity and defense costs of pending and future asbestos-related
claims. The Company engaged a third-party advisor with extensive experience in assessing asbestos-related liabilities to conduct
a study to estimate its potential undiscounted liability for pending and future asbestos-related claims. As of September 29, 2019,
the estimated probable range of equally likely possibilities of the Company’s obligation for asbestos-related claims over the next
40 years is $91 million to $181 million. Based on the information contained in the actuarial study, and all other available information
considered, management concluded that no amount within the range of potential liability was more likely than any other and,
therefore, recorded the low end of the range. The Company recognized a liability for pending and future claims of $91 million as
of September 29, 2019.
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OPERATOR JOSHUAM
We identified asbestos-related reserves for Rockwell as a critical audit matter because estimating projected indemnity and defense
costs of pending and future asbestos-related claims involves significant estimation by management due to variables that are
difficult to predict and the range of possible outcomes. This required a high degree of auditor judgment and an increased extent of
effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate whether the asbestos
related reserves were appropriately recorded as of September 29, 2019.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the asbestos-related reserves for Rockwell included the following, among others:
• We tested the effectiveness of controls related to asbestos-related reserves, including management’s controls over estimating
projected indemnity and defense costs of pending and future asbestos-related claims.
• We assessed the qualifications, experience, and objectivity of management’s third-party advisor.
• We tested the underlying data that served as the basis for the actuarial analysis, including historical claims, to test the inputs to
the actuarial estimate for completeness and accuracy.
• We compared management’s prior-year projected indemnity and defense costs of pending and future asbestos-related claims
to actuals incurred during the current year to identify potential bias in the determination of the reserve, as well as to assess
management’s ability to estimate the reserve.
• With the assistance of our actuarial specialists that have experience in the area of asbestos-related reserves, we assessed
the reasonableness of the valuation methodology, significant assumptions, and the range of probable outcomes estimated
by management.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
November 13, 2019
We have served as the Company’s auditor since 1996.
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OPERATOR JOSHUAM
MERITOR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
Sales � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cost of sales� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
GROSS MARGIN� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Selling, general and administrative� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Restructuring costs� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other operating expense, net� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
OPERATING INCOME � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other income (expense), net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gain on sale of equity investment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Equity in earnings of affiliates � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest expense, net� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
INCOME BEFORE INCOME TAXES � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Provision for income taxes� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
INCOME FROM CONTINUING OPERATIONS � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax � � � � � � � � � � � � � � � � �
NET INCOME � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Less: Net income attributable to noncontrolling interests � � � � � � � � � � � � � � � � � � � � � � � �
NET INCOME ATTRIBUTABLE TO MERITOR, INC�� � � � � � � � � � � � � � � � � � � � � � � � � � � � �
NET INCOME ATTRIBUTABLE TO MERITOR, INC�
Net income from continuing operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income (loss) from discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net income� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
BASIC EARNINGS (LOSS) PER SHARE
Continuing operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Basic earnings per share� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Diluted earnings per share� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Basic average common shares outstanding � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Diluted average common shares outstanding � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Year Ended September 30,
2018
$ 4,178
(3,553)
625
(313)
(6)
(14)
292
26
—
27
(67)
278
(149)
129
(3)
126
(9)
$ 117
2017
$ 3,347
(2,850)
497
(266)
(6)
(7)
218
(9)
243
48
(119)
381
(52)
329
(1)
328
(4)
324
2019
$ 4,388
(3,748)
640
(256)
(8)
(13)
363
40
—
31
(57)
377
(82)
295
1
296
(5)
$ 291
$
$ 290
1
$ 291
$ 3�49
0�01
$ 3�50
$ 3�36
0�01
$ 3�37
83�2
86�3
$ 120
(3)
$ 117
$ 1�37
(0�03)
$ 1�34
$ 1�31
(0�03)
$ 1�28
87�5
91�2
$
$
325
(1)
324
$ 3�69
(0�01)
$ 3�68
$ 3�60
(0�01)
$ 3�59
88�0
90�2
See Notes to Consolidated Financial Statements. Prior periods have been recast, see Note 2.
62
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 63
OPERATOR JOSHUAM
MERITOR, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In millions)
Net income� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other comprehensive income:
Foreign currency translation adjustments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Pension and other postretirement benefit related adjustments (net of tax of $22, $6 and
$147 for the year ended September 30, 2019, 2018 and 2017, respectively)� � � � � � � � � �
Unrealized gain (loss) on cash flow hedges� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total comprehensive income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Less: Comprehensive income attributable to noncontrolling interest� � � � � � � � � � � � � � � � �
Comprehensive income attributable to Meritor, Inc�� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Year Ended September 30,
2017
2018
$ 328
$126
2019
$296
(18)
(51)
25
(96)
(2)
180
(4)
$176
24
4
103
(7)
$ 96
240
(1)
592
(4)
$ 588
See Notes to Consolidated Financial Statements.
63
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 64
OPERATOR JOSHUAM
MERITOR, INC.
CONSOLIDATED BALANCE SHEET
(In millions)
September 30,
2019
2018
CURRENT ASSETS:
ASSETS
Cash and cash equivalents � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Receivables, trade and other, net� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Inventories � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL CURRENT ASSETS � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
NET PROPERTY � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
GOODWILL� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
OTHER ASSETS � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL ASSETS � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
CURRENT LIABILITIES:
LIABILITIES, MEZZANINE EQUITY AND EQUITY
Short-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accounts and notes payable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL CURRENT LIABILITIES � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
LONG-TERM DEBT � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
RETIREMENT BENEFITS � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
OTHER LIABILITIES� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL LIABILITIES � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$ 108
551
526
31
1,216
515
478
606
$ 2,815
$
41
610
285
936
902
336
226
2,400
$ 115
588
477
46
1,226
483
421
596
$ 2,726
$
94
700
290
1,084
730
262
332
2,408
COMMITMENTS AND CONTINGENCIES (NOTE 25)
MEZZANINE EQUITY
Convertible debt with cash settlement � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
—
1
EQUITY:
Common stock (September 30, 2019 and 2018, 104�1 and 102�2 shares issued and 81�4 and
84�9 shares outstanding, respectively)� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Additional paid-in capital� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Retained earnings� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Treasury stock, at cost (September 30, 2019 and September 30, 2018, 22�7 and
17�3 shares, respectively) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accumulated other comprehensive loss � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total equity attributable to Meritor, Inc � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Noncontrolling interests� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL EQUITY � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
104
803
491
(332)
(681)
385
30
415
$ 2,815
102
787
200
(236)
(566)
287
30
317
$ 2,726
See Notes to Consolidated Financial Statements.
64
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 65
OPERATOR JOSHUAM
MERITOR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
Year Ended September 30,
2018
2019
2017
OPERATING ACTIVITIES
CASH PROVIDED BY OPERATING ACTIVITIES (see Note 28) � � � � � � � � � � � � � � � � � � � � � � � �
$ 256
$ 251
$ 176
INVESTING ACTIVITIES
Capital expenditures � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Proceeds from sale of equity method investment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cash paid for business acquisitions, net of cash acquired � � � � � � � � � � � � � � � � � � � � � � � � � �
Cash paid for investment in Transportation Power, Inc� � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other investing activities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net investing cash flows provided by (used for) continuing operations � � � � � � � � � � � � � � �
Net investing cash flows provided by discontinued operations � � � � � � � � � � � � � � � � � � � � � � �
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES� � � � � � � � � � � � � � � � � � � � � � � � � �
FINANCING ACTIVITIES
Securitization � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Proceeds from debt issuances� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Term loan borrowings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Redemption of notes� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Repayment of notes and term loan� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred issuance costs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Debt issuance costs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other financing activities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net change in debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Repurchase of common stock � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES � � � � � � � � � � � � � � � � � � � � � � � � �
EFFECT OF CHANGES IN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
CHANGE IN CASH AND CASH EQUIVALENTS� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR � � � � � � � � � � � � � � � � � � � � � � � � � � �
CASH AND CASH EQUIVALENTS AT END OF YEAR � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(103)
—
(168)
(6)
6
(271)
—
(271)
(38)
—
175
(24)
—
(4)
—
(2)
107
(96)
11
(3)
(7)
115
$ 108
(104)
250
(35)
(6)
6
111
—
111
(43)
—
—
(181)
—
—
—
(5)
(229)
(100)
(329)
(6)
27
88
$ 115
(95)
—
(34)
—
—
(129)
2
(127)
89
325
—
(103)
(408)
—
(12)
(13)
(122)
—
(122)
1
(72)
160
$ 88
See Notes to Consolidated Financial Statements.
65
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 66
OPERATOR JOSHUAM
MERITOR, INC.
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
(In millions)
Accumulated
Other
Comprehensive
Loss
Total Equity
(Deficit) Attributable
to Meritor, Inc.
Non-
controlling
Interests
Total
$ 317
180
—
18
(96)
(4)
$ 415
$ 295
103
—
20
(100)
1
(2)
—
$ 317
$(186)
592
—
(156)
41
19
(1)
2
(2)
(2)
(12)
$ 295
$30
4
—
—
—
(4)
$30
$27
7
—
—
—
—
(2)
(2)
$30
$25
4
—
—
—
—
—
—
—
(2)
—
$27
Beginning balance at September 30, 2018 � � � �
Comprehensive income (loss) � � � � � � � � � � � � � �
Vesting of restricted stock� � � � � � � � � � � � � � � � �
Equity based compensation expense� � � � � � � � �
Repurchase of common stock � � � � � � � � � � � � � �
Non-controlling interest dividends � � � � � � � � � � �
Ending balance at September 30, 2019 � � � � � � �
Beginning balance at September 30, 2017� � � � �
Comprehensive income (loss) � � � � � � � � � � � � � �
Vesting of restricted stock� � � � � � � � � � � � � � � � �
Equity based compensation expense� � � � � � � � �
Repurchase of common stock � � � � � � � � � � � � � �
Convertible securities with cash settlement � � � �
Non-controlling interest dividends � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Ending balance at September 30, 2018 � � � � � � �
Beginning balance at September 30, 2016 � � � �
Comprehensive income (loss) � � � � � � � � � � � � � �
Vesting of restricted stock� � � � � � � � � � � � � � � � �
Repurchase of convertible notes � � � � � � � � � � � �
Issuance of convertible notes � � � � � � � � � � � � � �
Equity based compensation expense� � � � � � � � �
Debt issuance costs � � � � � � � � � � � � � � � � � � � � �
Stock option exercises � � � � � � � � � � � � � � � � � � �
Convertible securities with cash settlement � � � �
Non-controlling interest dividends � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Common
Stock
Additional
Paid-in
Capital
$102
$ 787
—
2
—
—
—
—
(2)
18
—
—
$104
$101
$ 803
$ 765
—
1
—
—
—
—
—
$102
$ 99
—
2
—
—
—
—
—
—
—
—
—
(1)
20
—
1
—
2
$ 787
$ 876
—
(2)
(156)
41
19
(1)
2
(2)
—
(12)
Retained
Earnings
(Accumulated
Deficit)
$ 200
291
—
—
—
—
$ 491
$ 83
117
—
—
—
—
—
—
$ 200
$(241)
324
—
—
—
—
—
—
—
—
—
Treasury
Stock
$(236)
—
—
—
(96)
—
$(332)
$(136)
—
—
—
(100)
—
—
—
$(236)
$(136)
—
—
—
—
—
—
—
—
—
—
$(566)
(115)
—
—
—
—
$(681)
$(545)
(21)
—
—
—
—
—
—
$(566)
$(809)
264
—
—
—
—
—
—
—
—
—
$ 287
176
—
18
(96)
—
$ 385
$ 268
96
—
20
(100)
1
—
2
$ 287
$(211)
588
—
(156)
41
19
(1)
2
(2)
—
(12)
Ending balance at September 30, 2017 � � � � � � �
$101
$ 765
$ 83
$(136)
$(545)
$ 268
See Notes to Consolidated Financial Statements.
66
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 67
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION
Meritor, Inc. (the “company” or “Meritor”), headquartered in Troy, Michigan, is a premier global supplier of a broad range
of integrated systems, modules and components to original equipment manufacturers (“OEMs”) and the aftermarket for the
commercial vehicle, transportation and industrial sectors. The company serves commercial truck, trailer, military, bus and coach,
construction and other industrial OEMs and certain aftermarkets. The Consolidated Financial Statements are those of the company
and its consolidated subsidiaries.
The company’s fiscal year ends on the Sunday nearest September 30. The 2019, 2018 and 2017 fiscal years ended
on September 29, 2019, September 30, 2018 and October 1, 2017, respectively. All year and quarter references relate to the
company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, September 30 is used consistently
throughout this report to represent the fiscal year end.
2.
SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of
America (GAAP) requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses
and related disclosures. Actual results could differ from these estimates. Significant estimates and assumptions were used to
review goodwill and other long-lived assets for impairment (see Notes 7 and 13), environmental liabilities (see Notes 16 and 17),
product warranty liabilities (see Note 16), long-term incentive compensation plan obligations (see Note 21), retiree medical and
pension obligations (see Notes 22 and 23), income taxes (see Note 24), and contingencies including asbestos (see Note 25).
Concentration of Credit Risk
In the normal course of business, the company provides credit to customers. The company limits its credit risk by performing
ongoing credit evaluations of its customers and maintaining reserves for potential credit losses and through accounts receivable
factoring programs. The company’s accounts receivables are generally due from medium- and heavy-duty truck OEMs, specialty
vehicle manufacturers, aftermarket customers, and trailer producers. The company’s ten largest customers accounted for
77 percent, 75 percent and 74 percent of sales in fiscal years 2019, 2018 and 2017, respectively. Sales to the company’s top
three customers were 54 percent, 52 percent and 49 percent of total sales in fiscal years 2019, 2018 and 2017, respectively. At
September 30, 2019 and 2018, 26 percent and 23 percent of the company’s trade accounts receivable were from the company’s
three largest customers.
Consolidation and Joint Ventures
The Consolidated Financial Statements include the accounts of the company and those subsidiaries in which the company
has control. All intercompany balances and transactions are eliminated in consolidation. The results of operations of controlled
subsidiaries are included in the Consolidated Financial Statements and are offset by a related noncontrolling interest recorded for
the noncontrolling partners’ ownership. Investments in affiliates that are not controlled are reported using the equity method of
accounting (see Note 15).
Foreign Currency
Local currencies are generally considered the functional currencies for operations 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 in the Consolidated Balance Sheet. Income and expense
items are translated at average rates of exchange during the year.
67
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 68
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Impairment of Long-Lived Assets
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 a long-lived asset group is not recoverable,
based on undiscounted cash flows over the remaining useful life of the primary asset of the group, and the long lived asset group’s
carrying value exceeds the fair value.
Long-lived assets held for sale are recorded at the lower of their carrying amount or estimated fair value less cost to sell.
Allowance for Doubtful Accounts
An allowance for uncollectible trade receivables is recorded when accounts are deemed uncollectible based on consideration
of write-off history, aging analysis, and any specific, known troubled accounts.
Earnings per Share
Basic earnings (loss) per share is calculated using the weighted average number of shares outstanding during each period.
The diluted earnings (loss) per share calculation includes the impact of restricted shares, restricted share units, performance share
units, and convertible securities, if applicable.
A reconciliation of basic average common shares outstanding to diluted average common shares outstanding is as follows
(in millions):
Basic average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of restricted shares, restricted share units and performance share units . . . . . .
Impact of convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2017
2018
2019
88.0
87.5
83.2
1.7
2.8
2.2
0.5
0.9
0.9
90.2
91.2
86.3
In November 2018, the Board of Directors approved a grant of performance share units to all executives eligible to participate
in the company’s long-term incentive plan. Each performance share unit represents the right to receive one share of common
stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance
share unit was $16.50, which was the company’s share price on the grant date of December 1, 2018. The Board of Directors also
approved a grant of 0.4 million restricted share units to these executives. The restricted share units vest at the earlier of three years
from the date of grant or upon termination of employment with the company under certain circumstances. The fair value of each
restricted share unit was $16.50, which was the company’s share price on the grant date of December 1, 2018.
The actual number of performance share units that will vest depends upon the company’s performance relative to the
established performance metrics for the three-year performance period of October 1, 2018 to September 30, 2021, measured at
the end of the performance period. The number of performance share units that vest will depend on adjusted EBITDA margin and
adjusted diluted earnings per share from continuing operations at the following weights: 50% associated with achieving an adjusted
EBITDA margin target and 50% associated with achieving an adjusted diluted earnings per share from continuing operations
target. The number of performance share units that vest will be between 0% and 200% of the grant date amount of 0.5 million
performance share units.
In November 2017, the Board of Directors approved a grant of performance share units to all executives eligible to participate
in the long-term incentive plan. Each performance share unit represents the right to receive one share of common stock or its cash
equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was
$24.79, which was the company’s share price on the grant date of December 1, 2017. The Board of Directors also approved a
grant of 0.3 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the
date of grant or upon termination of employment with the company under certain circumstances. The fair value of each restricted
share unit was $24.79, which was the company’s share price on the grant date of December 1, 2017.
68
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 69
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The actual number of performance share units that will vest depends upon the company’s performance relative to the
established performance metrics for the three-year performance period of October 1, 2017 to September 30, 2020, measured at
the end of the performance period. The number of performance share units that vest will depend on adjusted EBITDA margin and
adjusted diluted earnings per share from continuing operations at the following weights: 50% associated with achieving an adjusted
EBITDA margin target and 50% associated with achieving an adjusted diluted earnings per share from continuing operations
target. The number of performance share units that vest will be between 0% and 200% of the grant date amount of 0.3 million
performance share units.
In November 2016, the Board of Directors approved a grant of performance share units to all executives eligible to participate
in the long-term incentive plan. Each performance share unit represents the right to receive one share of common stock or its cash
equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was
$12.77, which was the company’s share price on the grant date of December 1, 2016. The Board of Directors also approved a
grant of 0.5 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the
date of grant or upon termination of employment with the company under certain circumstances. The fair value of each restricted
share unit was $12.77, which was the company’s share price on the grant date of December 1, 2016.
The actual number of performance share units that vested depended upon the company’s performance relative to the
established M2019 goals for the three-year performance period of October 1, 2016 to September 30, 2019, which was measured
at the end of the performance period.
For the years ended September 30, 2019, 2018 and 2017, the dilutive impact of previously issued restricted shares,
restricted share units, and performance share units was 2.2 million, 2.8 million and 1.7 million, respectively. For the years ended
September 30, 2019, 2018 and 2017, compensation cost related to restricted shares, restricted share units, performance share
units and stock options was $18 million, $20 million and $19 million, respectively.
For the fiscal years ended 2019, 2018 and 2017, 0.9 million, 0.9 million and 0.5 million shares, respectively, were included in
the computation of diluted earnings per share because the average stock price exceeded the conversion price for the 7.875 percent
convertible notes due 2026.
Other
Other significant accounting policies are included in the related notes, specifically, goodwill (Note 7), inventories (Note 11),
property and depreciation (Note 13), capitalized software (Note 14), product warranties (Note 16), financial instruments (Note 19),
equity based compensation (Note 21), retirement medical plans (Note 22), retirement pension plans (Note 23), income taxes (Note
24) and environmental and asbestos-related liabilities (Note 25).
Accounting standards implemented during fiscal year 2019
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers, followed by various related amendments (ASU 2016-08, ASU 2016-10, ASU 2016-
11, ASU 2016-12, ASU 2016-20, ASU 2017-05, ASU 2017-06, ASU 2017-13, and ASU 2017-14) collectively referred to as
“Topic 606”, which requires companies to recognize revenue when a customer obtains control rather than when companies have
transferred substantially all risks and rewards of a good or service and requires additional disclosure about the nature, amount,
timing and uncertainty of revenue and cash flows arising from customer contracts. The company adopted Topic 606 in the first
quarter of the fiscal year beginning October 1, 2018. As a result, the company has changed its accounting policy for revenue
recognition as detailed below.
69
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 70
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The company applied Topic 606 using the modified retrospective approach (i.e., by recognizing the cumulative effect of
initially applying Topic 606 as an adjustment to the opening balance of equity at October 1, 2018). Therefore, the comparative
information for periods prior to our adoption date has not been adjusted and continues to be reported under Topic 605. There was
no adjustment to the opening balance of equity at October 1, 2018 as there was no significant impact to previously recorded revenue
or expense. The guidance has been applied to all existing contracts at the date of initial application. The adoption of Topic 606
had an immaterial impact on our Consolidated Balance Sheet, Consolidated Statement of Operations, and Consolidated Statement
of Cash Flows but did require enhanced disclosures to meet the new disclosure requirements; those enhanced disclosures are
included in Note 6.
In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The guidance requires entities to only include the
service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together
with other employee compensation costs). The other components of net benefit cost, including amortization of prior service
cost/credit, are to be included in a separate line item(s) outside of any sub-total of operating income. ASU 2017-07 also provides
guidance that only the service cost component of net benefit cost is eligible for capitalization. The revisions in this amendment are
to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension
cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost
component of net periodic pension cost and net periodic postretirement benefit in assets. The company adopted this standard in
the first quarter of fiscal year 2019. Amounts previously reflected in Operating Income were reclassified to Other income (expense)
in accordance with the provisions of ASU 2017-07. For fiscal years 2018 and 2017, the non-service cost components of the net
periodic pension and OPEB income were $25 million of income and $11 million of expense respectively, and are presented in
other income. We used the practical expedient for retrospective presentation of the fiscal years 2018 and 2017 other expense
components in this disclosure.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in this ASU result from the
FASB’s standing project to address suggestions on the Accounting Standards Codification (“ASC”) and to make other incremental
improvements to GAAP. The amendments include changes to clarify the ASC or correct unintended application of guidance that is
not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.
Some of the amendments in this ASU were effective upon issuance. Others have transition guidance with effective dates for
annual periods beginning after December 15, 2018, for public business entities, or are conforming amendments that have been
made to recently issued guidance that is not yet effective that may require application of the transition and effective date guidance
in the original ASU.
The company adopted certain amendments in this ASU in the first quarter of fiscal year 2019. Those certain amendments
had effective dates for annual periods beginning after December 15, 2017, for public business entities. The amendments that were
adopted in the first quarter of fiscal year 2019 did not have a material impact on the company’s Consolidated Financial Statements.
The company plans to implement the remaining amendments beginning October 1, 2019 and is currently evaluating the potential
impact on its Consolidated Financial Statements.
70
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 71
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The company also adopted the following ASUs during fiscal year 2019, none of which had a material impact on the
Consolidated Financial Statements or financial statement disclosures:
ASU
2016-01
Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities
Effective Date
October 1, 2018
2016-15
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
October 1, 2018
Payments (a consensus of the Emerging Issues Task Force)
2016-16
2016-18
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB
Emerging Issues Task Force)
2017-01
2017-09
2018-03
Business Combinations (Topic 805): Clarifying the Definition of a Business
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
Technical Corrections and Improvements to Financial Instruments—Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities
2018-04
Investments—Debt Securities (Topic 320) and Regulated Operations (Topic 980):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 117 and SEC Release No. 33-9273 (SEC Update)
October 1, 2018
October 1, 2018
October 1, 2018
October 1, 2018
October 1, 2018
October 1, 2018
Accounting standards to be implemented
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update will require lessees to recognize a right-of-
use asset and lease liability for substantially all leases. The standard is required to be adopted by public business entities in fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The company plans to
implement this standard in the first quarter of the fiscal year beginning October 1, 2019, and is currently assessing the potential impact of
this guidance on its accounting policies and its Consolidated Financial Statements. The company plans to implement this standard using
the additional and optional transition method as provided by ASU 2018-11. Please see discussion of ASU 2018-11 below.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. The ASU introduces an approach based on expected losses to estimate credit losses on certain
types of financial instruments, including accounts receivable. The ASU also modifies the impairment model for available-for-sale
debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their
origination. The amendments in this update are required to be adopted by public business entities in fiscal years beginning after
December 15, 2019, including interim periods within those fiscal years. The company is currently evaluating the potential impact
of this guidance on its accounting policies and its Consolidated Financial Statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The
guidance in ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of
2017 (“U.S. tax reform”) from accumulated other comprehensive income into retained earnings. ASU 2018-02 is effective for fiscal
years beginning after December 15, 2018, with early adoption permitted. The company is currently evaluating the potential impact
of this new guidance on its Consolidated Financial Statements.
In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842. The amendments in this ASU affect
narrow aspects of the guidance issued in ASU 2016-02, Leases (Topic 842), which is not yet effective. The effective date and transition
requirements for this ASU are the same as those for ASU 2016-02 as described above. Therefore, the company plans to implement this
standard in the first quarter of the fiscal year beginning October 1, 2019 in connection with its planned implementation of ASU 2016-02
and is currently assessing the potential impact of this new guidance on its accounting policies and its Consolidated Financial Statements.
In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The amendments in this ASU
affect the guidance issued in ASU 2016-02, Leases (Topic 842), which is not yet effective. The amendments provide entities
with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity
71
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 72
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance
of retained earnings in the period of adoption. The amendments also provide lessors with a practical expedient to not separate
nonlease components from the associated lease component and, instead, to account for those components as a single component
in certain circumstances. The effective date for this ASU are the same as those for ASU 2016-02 as described above. Therefore,
the company plans to implement this standard in the first quarter of the fiscal year beginning October 1, 2019 in connection
with its planned implementation of ASU 2016-02 and is currently assessing the potential impact of this new guidance on its
accounting policies and its Consolidated Financial Statements. Based on the company’s lease portfolio, the company currently
anticipates recognizing a lease liability and related right-of-use asset on its balance sheet between $75 million and $95 million,
with an immaterial impact on it’s income statement compared to the current lease accounting model. Additionally, the company is
implementing an enterprise-wide lease management system to assist in the accounting and evaluating additional changes to it’s
processes and internal controls to ensure the company meets the standard’s reporting and disclosure requirements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes
to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU add, modify, and eliminate certain
disclosure requirements on fair value measurements in Topic 820. The amendments in this update are effective for all entities for
fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Certain amendments should be
applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. Others should
be applied retrospectively. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures
upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The company is currently
evaluating the potential impact of this new guidance on its Consolidated Financial Statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this ASU affect a variety
of Topics in the Codification (ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of
Financial Assets and Financial Liabilities; ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments; and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities).
For the amendments in this ASU that are applicable to ASU 2016-01, which the company has adopted and did not have
a material impact on the Consolidated Financial Statements, the effective date is the first quarter of fiscal year 2021 with early
adoption permitted. For the amendments in this ASU that are applicable to ASU 2016-13, which the company has not yet adopted,
the effective date is the first quarter of fiscal year 2021. For the amendments in this ASU that are applicable to ASU 2017-12, which
the company has adopted, the effective date is the first quarter of fiscal year 2020 with early adoption permitted. The company has
not yet adopted any of these amendments and is currently evaluating the potential impact of this new guidance on its Consolidated
Financial Statements.
3.
DISCONTINUED OPERATIONS
Results of the discontinued operations are summarized as follows (in millions):
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
1
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Income (loss) before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit from income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
$ 1
Income (loss) from discontinued operations attributable to Meritor, Inc. . . . . . . . . . . .
Year Ended September 30,
2019
2017
2018
$— $— $—
—
(2)
(1)
(2)
(1)
(4)
—
1
$ (1)
$ (3)
Loss from discontinued operations attributable to the company for the twelve months ended September 30, 2018 was
primarily related to changes in estimates related to legal costs incurred in connection with a previously divested business.
72
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 73
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
4.
ACQUISITIONS AND DIVESTITURE
Acquisition of AxleTech Business
On July 26, 2019, the company acquired 100 percent of the voting equity interest of the AxleTech group companies
for approximately $179 million in cash, subject to certain purchase price adjustments. The company funded the acquisition
with the term loan under the revolving credit agreement (see Note 18). The AxleTech acquisition was accounted for as a
business combination.
The addition of AxleTech enhances Meritor’s growth platform with the addition of a complementary product portfolio that
includes a full line of independent suspensions, axles, braking solutions and drivetrain components across the off-highway, defense,
specialty and aftermarket markets. AxleTech operates within Meritor’s Aftermarket, Industrial and Trailer segment.
Pro forma financial information of the company is presented in the following table for the years ended September 30, 2019
and 2018 as if the AxleTech acquisition had occurred on October 1, 2017. The pro forma financial information is unaudited and
is provided for informational purposes only and does not purport to be indicative of the results which would have actually been
attained had the acquisition occurred on October 1, 2017 (in millions).
Pro Forma Combined
Year Ended
September 30,
2019
2018
(Unaudited)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Meritor, Inc. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,590
$ 360
$ 4,413
$ 121
(1)
Fiscal year 2019 includes the sale of EV Systems
Actual amounts of revenue and earnings included in the consolidated financial statements for the year ended September 30,
2019 were not material.
The purchase price was allocated on a provisional basis as of July 26, 2019. Assets acquired and liabilities assumed were
recorded at estimated fair values based on management’s estimates, available information, and reasonable and supportable
assumptions. Additionally, the Company is utilizing a third-party to assist with certain estimates of fair values. The provisional
purchase price allocation, which is subject to change and may be subsequently adjusted to reflect final valuation results and other
adjustments, is shown below (in millions).
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets acquired and liabilities assumed
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identifiable net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill resulting from the acquisition of AxleTech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 26, 2019
$ 179
11
37
70
46
9
26
(33)
(48)
118
61
$ 179
73
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 74
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The company recorded provisional goodwill in the amount of $61 million for the excess of consideration paid over the
fair value of the individual assets acquired and liabilities assumed. This recorded goodwill consists largely of the synergies and
economies of scale expected from combining the operations of the company and AxleTech. All of the goodwill was provisionally
assigned to the Aftermarket, Industrial and Trailer reportable segment. The assignment of goodwill to reporting units is not
complete. The company incurred acquisition related costs of $6 million as of September 30, 2019, which were recorded as
incurred and have been classified as selling, general, and administrative expenses in the Consolidated Statement of Operations for
the year ended September 30, 2019.
Acquisition of AAG Business
On April 30, 2018, the company acquired substantially all of the assets of AA Gear & Manufacturing, Inc. (“AAG”) for a
cash purchase price of approximately $35 million and the assumption of certain liabilities. AAG provides low-to-medium volume
batch manufacturing for complex gear and shaft applications, as well as quick-turnaround prototyping solutions and emergency
plant support. The AAG acquisition was accounted for as a business combination. Of the $35 million, $11 million was recorded
in various tangible assets acquired and liabilities assumed, and $12 million related to amortizable intangibles and $12 million of
goodwill were recorded.
Acquisition of Fabco Business
On August 31, 2017, the company acquired certain assets of Fabco Holdings, Inc. (“FABCO”), including the product portfolio
and related technologies, for a cash purchase price of $34 million and the assumption of certain liabilities. The Fabco acquisition
was accounted for as a business combination.
As of September, 30, 2018, the company finalized all measurement period adjustments related to the Fabco acquisition.
Since completion of initial estimates in the fourth quarter of fiscal year 2017, the company recorded a net $1 million measurement
period adjustment to decrease the fair value of identifiable net assets acquired in the Fabco transaction, resulting in a corresponding
$1 million increase to goodwill. These adjustment were made to reflect additional available information and updated valuation
results, which included valuation of trademarks, technology and customer relationships. All goodwill resulting from the Fabco
acquisition was assigned to the Aftermarket, Industrial and Trailer reportable segment (see Note 7).
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets acquired and liabilities assumed . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . .
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable net assets acquired . . . . . . . . . . . . . . . . . . . .
Goodwill resulting from the acquisition of Fabco . . . . . . . . . . . .
As of
September 30,
2017
$ 34
Estimated Fair Value
Measurement
Period
Adjustments
$—
As of
September 30,
2018
$ 34
5
13
9
—
(6)
(6)
15
19
$ 34
—
(1)
(2)
3
—
(1)
(1)
1
$—
5
12
7
3
(6)
(7)
14
20
$ 34
74
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 75
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Sale of Ownership Interest in Meritor WABCO JV
In the fourth quarter of fiscal year 2017, Meritor, Inc. closed on the sale of its interest in Meritor WABCO Vehicle Control
Systems (“Meritor WABCO”) to a subsidiary of its joint venture partner, WABCO Holdings Inc. The total purchase price for the sale
was $250 million. The Company also received a final partnership distribution of $8 million in the fourth quarter of fiscal year 2017,
immediately prior to closing.
The company remained the exclusive distributor of a certain range of WABCO Holdings Inc.’s aftermarket products in the
United States and Canada and the non-exclusive distributor in Mexico for a period of up to 10 years following the completion
of the transaction. The purchase agreement included a provision regarding certain future options of the parties to terminate, at
certain points during the first three and a half years, the distribution arrangement at an exercise price of between $225 million
and $265 million based on the earnings of the business. On September 13, 2019, Meritor exercised its option to terminate the
distribution arrangement with WABCO, based on a WABCO change in control triggering event, in exchange for a payment of
between $225 million and $265 million, based on the earnings of the business through the closing date. This transaction is
expected to close in fiscal year 2020.
5.
ASSETS AND LIABILITIES HELD FOR SALE
As of September 30, 2019, there were $1 million of assets held for sale, all within the Aftermarket, Industrial and Trailer
reporting segment. The company expects to sell the assets within one year. In fiscal year 2018, management approved plans to sell
$2 million of property in various locations, of which $1 million was within the Aftermarket, Industrial and Trailer reporting segment
and $1 million was within corporate locations. The assets met the criteria for presentation as held for sale as of September 30,
2019 and 2018.
Meritor Huayang Vehicle Braking Company Ltd.
During the first quarter of fiscal year 2017, management approved a plan to sell Meritor Huayang Vehicle Braking Company
Ltd. within the Commercial Truck reporting segment. The company expected to sell the business within one year from management’s
approval of the plan. The business and its associated assets and liabilities met the criteria for presentation as held for sale as of
September 30, 2017.
Assets and liabilities held for sale are measured at the lower of the carrying value or fair value less costs to sell. Upon meeting
the held for sale criteria, the company determined the carrying value of the business exceeded the fair value less costs to sell.
As a result, an impairment charge of $3 million was recorded within other operating expense, net in the company’s Consolidated
Statement of Operations during fiscal year 2017.
On February 7, 2018, Meritor completed the sale of its equity interest in Meritor Huayang Vehicle Braking Company Ltd. All
assets and liabilities of the business were transferred at closing.
6.
REVENUE
Revenue is measured based on the consideration to which the company expects to be entitled, and is presented net of any
estimates of customer sales allowances, incentives, rebates, and returns. The company recognizes revenue when it satisfies a
performance obligation by transferring control over a product or service to a customer.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing
transaction, that are collected by the company from a customer, are excluded from revenue.
Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are
accounted for as a fulfillment cost, as opposed to a distinct performance obligation, and are included in cost of sales.
Nature of goods and services
The following is a description of principal activities - separated by reportable segments - from which the company generates
its revenue.
75
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 76
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Commercial Truck segment supplies drivetrain systems and components, including axles, drivelines and braking and
suspension systems, primarily for medium- and heavy-duty trucks and other applications in North America, South America, Europe
and Asia Pacific. This segment also includes the company’s aftermarket businesses in Asia Pacific and South America.
The Aftermarket, Industrial and Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement
parts to commercial vehicle and industrial aftermarket customers, primarily in North America and Europe. In addition, this segment
supplies drivetrain systems and certain components, including axles, drivelines, brakes and suspension systems for military,
construction, bus and coach, fire and emergency and other applications in North America and Europe. It also supplies a variety of
undercarriage products and systems for trailer applications in North America.
Although the company may enter into long-term supply arrangements with its major customers, the prices and volumes are
not fixed over the term of the arrangements and a contract does not exist under the scope of Topic 606 until prices and volumes
are known. As such, individual customer releases or purchase orders represent the contract with the customer.
The company accounts for individual products and services separately if they are distinct (i.e., if a product or service is
separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily
available to the customer). The company has identified certain performance obligations related to brake pad fitting and axle dressing
where it is acting as an agent and, therefore, recognizes revenue on a net basis for satisfaction of those performance obligations.
The company recognizes revenue for the sale of goods at the point in time when the customer takes control of the goods. As
such, revenue is recognized upon shipment of product and transfer of ownership to the customer. The amount of revenue recognized
is based on the purchase order price and adjusted for variable consideration (i.e., customer sales allowances, incentives, rebates,
and returns). Provisions for customer sales allowances, incentives, rebates, and returns are recorded as a reduction of sales at the
time of revenue recognition based primarily on historical experience. The company’s payment terms with customers are customary
and vary by customer and geography but typically range from 30 to 90 days.
The company provides warranties on some of its products. The company records estimated product warranty costs at the
time of shipment of products to customers (see Notes 16 and Note 17).
Disaggregation of revenue
In the following tables, revenue is disaggregated for each of our reportable segments by primary geographical market for
the year ended September 30, 2019.
Primary Geographical Market
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia-Pacific. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
Twelve Months Ended September 30, 2019
Commercial
Truck
$1,569
—
200
1,769
276
218
155
10
659
248
153
197
84
$3,110
Aftermarket,
Industrial
and Trailer
$1,053
69
49
1,171
—
16
10
81
107
—
—
—
—
$1,278
Total
$2,622
69
249
2,940
276
234
165
91
766
248
153
197
84
$4,388
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 77
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contract balances
As of September 30, 2019 and September 30, 2018, Trade receivables, net, which are included in Receivables, trade and
other, net, on the Consolidated Balance Sheet, were $517 million and $566 million, respectively.
For the year ended September 30, 2019, the company had no material bad-debt expense and there were no material contract
assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheet as of September 30, 2019.
Contract costs
The company applies the practical expedient provided in Topic 606 and recognizes the incremental costs of obtaining
contracts as an expense when incurred if the amortization period of the assets that the company otherwise would have recognized
is one year or less. The costs which are not capitalized are included in cost of sales.
7.
GOODWILL
In accordance with ASC Topic 350-20, “Intangibles – Goodwill and Other”, goodwill is reviewed for impairment annually
during the fourth quarter of the fiscal year or more frequently if certain indicators arise. If business conditions or other factors cause
the operating results and cash flows of a reporting unit to decline, the company may be required to record impairment charges for
goodwill at that time. The company tests goodwill for impairment at a level of reporting referred to as a reporting unit, which is an
operating segment or one level below an operating segment (referred to as a component). A component of an operating segment
is a reporting unit if the component constitutes a business for which discrete financial information is available and segment
management regularly reviews the operating results of that component. When two or more components of an operating segment
have similar economic characteristics, the components are aggregated and deemed a single reporting unit. An operating segment
is deemed to be a reporting unit if all of its components are similar, if none of its components are a reporting unit, or if the segment
comprises only a single component.
Annual Impairment Analysis
ASC Topic 350 allows entities to perform an initial qualitative evaluation to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. The results of this qualitative assessment determine whether it is
necessary to perform the quantitative impairment test. As allowed by the revised guidance, the company has elected to bypass the
qualitative assessment for fiscal year 2019 and proceed directly to the quantitative impairment test.
Excluding the qualitative evaluation discussed above, the quantitative goodwill impairment review is a comparison of the fair
value of a reporting unit with its carrying amount. Estimates of fair value are primarily determined by using discounted cash flows
and market multiples on earnings. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge based on
that difference will be recorded. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.
The impairment review is highly judgmental and involves the use of significant estimates and assumptions. These estimates
and assumptions have a significant impact on the amount of any impairment charge recorded. Discounted cash flow methods are
dependent upon assumptions of future sales trends, market conditions and cash flows of each reporting unit over several years.
Actual cash flows in the future may differ significantly from those previously forecasted.
For fiscal year 2019, the fair value of all of the company’s reporting units exceeded their carrying values.
Realignment of Reporting Units
As discussed in Note 26, the company realigned its operations in the second quarter of fiscal year 2019, resulting in
a change to its reportable segments. The company’s reporting units did not change as a result of the change in reportable
segments. The Commercial Truck segment contains one reporting unit. The Aftermarket, Industrial and Trailer segment contains
five reporting units.
77
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 78
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquisition of AxleTech Business
On July 26, 2019, the company acquired 100 percent of the voting equity interest of the AxleTech group companies for
approximately $179 million in cash, subject to certain purchase price adjustments. The AxleTech acquisition was accounted for as
a business combination. The company recorded a provisional amount of goodwill of $61 million for the excess of consideration paid
over the fair value of the individual assets acquired and liabilities assumed, excluding identifiable intangible assets. This recorded
goodwill consists largely of the synergies and economies of scale from combining the operations of the company and AxleTech. All
of the goodwill was assigned to the Aftermarket, Industrial and Trailer reportable segment.
Acquisition of AA Gear & Manufacturing, Inc. Business
On April 30, 2018, the company acquired substantially all of the assets of AAG for a cash purchase price of approximately
$35 million and the assumption of certain liabilities. The AAG acquisition was accounted for as a business combination. The
company recorded goodwill in the amount of $12 million for the excess of consideration paid over the fair value of the individual
assets acquired and liabilities assumed. This recorded goodwill consists largely of the synergies and economies of scale expected
from combining the operations of the company and AAG. All of the goodwill was assigned to the Aftermarket, Industrial and Trailer
reportable segment. All goodwill recognized is expected to be deductible for income tax purposes over the next 15 years.
Acquisition of Fabco Holdings, Inc. Business
On August 31, 2017, the company acquired certain assets of Fabco, including its product portfolio and related technologies,
for a cash purchase price of $34 million and the assumption of certain liabilities. The Fabco acquisition was accounted for as a
business combination. As a result, we recorded goodwill in the amount of $20 million for the excess of consideration paid over
the fair value of the individual assets acquired and liabilities assumed. This recorded goodwill consists largely of the synergies and
economies of scale expected from combining the operations of the company and Fabco. All of the goodwill was assigned to the
Aftermarket, Industrial and Trailer reportable segment.
A summary of the changes in the carrying value of goodwill is presented below (in millions):
Goodwill (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2017 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment due to sale of a business (1) . . . . . . . . . . . . . . . . . . . . . . .
Fabco measurement period adjustment (1). . . . . . . . . . . . . . . . . . . . . .
Goodwill acquired from acquisition (1) . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2018 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AAG measurement period adjustment (see Note 4) . . . . . . . . . . . . . . . .
Goodwill acquired from acquisition (see Note 4) . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
Truck
$ 269
—
269
(1)
—
—
(2)
266
—
—
(5)
$ 261
Aftermarket,
Industrial
and Trailer
$ 160
(15)
145
—
1
9
—
155
3
61
(2)
$ 217
Total
$429
(15)
414
(1)
1
9
(2)
421
3
61
(7)
$478
(1)
Amounts have been recast to reflect reportable segment changes (see Note 26).
8.
RESTRUCTURING COSTS
At September 30, 2019 and 2018, $8 million and $4 million, respectively, of restructuring reserves primarily related to
unpaid employee termination benefits remained in the Consolidated Balance Sheet.
78
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 79
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes changes in restructuring reserves (in millions):
Balance at September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Activity during the period:
Charges to continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments – continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Activity during the period:
Charges to continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments – continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Activity during the period:
Charges to continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments – continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring reserves, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: non-current restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves – current, at September 30, 2019. . . . . . . . . . . . . . . . . . . . . . . .
Employee
Termination
Benefits
$ 15
Plant
Shutdown
& Other
$ 1
5
(14)
(1)
5
6
(7)
4
8
(5)
1
8
—
$ 8
1
(1)
—
1
—
(1)
—
—
—
—
—
—
$—
Total
$ 16
6
(15)
(1)
6
6
(8)
4
8
(5)
1
8
—
$ 8
Restructuring costs attributable to the company’s business segments during fiscal years 2019, 2018 and 2017 are as
follows (in millions):
Fiscal year 2019:
Commercial
Truck
Aftermarket,
Industrial
and Trailer
Corporate
Total
Global Restructuring Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AxleTech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year 2018 (1):
Segment Realignment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year 2017 (1):
Aftermarket actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4
—
(1)
$ 3
—
1
$ 1
—
2
$ 2
$ 3
3
(1)
$ 5
3
1
$ 4
4
—
$ 4
$ —
—
—
$ —
—
1
$ 1
—
—
$ —
$ 7
3
(2)
$ 8
3
3
$ 6
4
2
$ 6
(1)
Fiscal years 2018 and 2017 have been recast to reflect reportable segment changes.
Global Restructuring Programs: On September 27, 2019, the company approved and began executing a restructuring plan
to reduce salaried and hourly headcount globally. This restructuring plan is intended to reduce labor costs in response to an
anticipated decline in most global truck and trailer market volumes. With this restructuring plan, the company expects to incur
approximately $20 million in employee severance costs in the aggregate across both of its reportable segments. During the fourth
79
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 80
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
quarter of fiscal year 2019, the company incurred $4 million in restructuring costs in the Commercial Truck segment and $3 million
in the Aftermarket, Industrial and Trailer segment. Restructuring actions associated with this plan are expected to be substantially
complete by the end of the first quarter of fiscal year 2020.
AxleTech: On July 29, 2019, shortly after acquiring AxleTech, the company approved a restructuring plan related to the integration
of the business. This restructuring plan is intended to realize certain targeted synergies, primarily from the elimination of cost overlap.
With this restructuring plan, the company expects to incur $11 million of total costs in the Aftermarket, Industrial and Trailer segment with
approximately $7 million related to employee severance charges and approximately $4 million related to asset impairment. During the
fourth quarter of fiscal year 2019, the company recorded $3 million of severance related restructuring costs in the Aftermarket, Industrial
and Trailer segment. Restructuring associated with severance actions is expected to be substantially completed during fiscal year 2020.
Segment Realignment Program: On March 12, 2018, the company announced a realignment of operations to further drive
long-term strategic objectives while also assigning new responsibilities as part of its commitment to leadership development. As a
part of this program, the company approved various labor restructuring actions in the Aftermarket, Industrial and Trailer segment.
The company recorded $3 million of restructuring costs during fiscal year 2018, in connection with this program. These actions
were substantially complete as of fiscal year 2018.
Other Restructuring Actions: During fiscal year 2018, the company recorded restructuring costs of $3 million primarily
associated with labor reduction programs in the Commercial Truck segment and Aftermarket, Industrial and Trailer segment.
Fiscals 2017 & 2016 Aftermarket Actions: During the third quarter of fiscal year 2016, the company approved various
restructuring plans in the North American and European Aftermarket businesses. The company recorded $5 million of restructuring
costs during the third quarter of fiscal year 2016 and $4 million of restructuring costs during fiscal year 2017. Restructuring actions
associated with these plans were substantially complete as of September 30, 2017.
9.
ACCOUNTS RECEIVABLE FACTORING AND SECURITIZATION
The company has a U.S. accounts receivable securitization facility with PNC Bank and participates in various accounts
receivable factoring programs, primarily with Nordea Bank for trade receivables from AB Volvo as follows (in millions):
Current Expiration
Total Facility Size
as of 9/30/19
EUR
USD
Utilized as of
9/30/19
Utilized as of
9/30/18
EUR
USD
EUR
USD
On-balance sheet arrangement:
Committed U.S. accounts receivable
securitization (1) . . . . . . . . . . . . . . . . . . . . . . . . .
Total on-balance sheet arrangement: (1) . . . . . . .
December 2022
N/A $ 115
N/A $ 115
N/A
N/A
$ 13
$ 13
N/A
N/A
$ 57
$ 57
Off-balance sheet arrangements:
Committed Swedish factoring facility (2)(3). . . . . . . .
Committed U.S. factoring facility (2). . . . . . . . . . . . .
Uncommitted U.K. factoring facility . . . . . . . . . . . . .
Uncommitted Italy factoring facility . . . . . . . . . . . . .
Other uncommitted factoring facilities (4) . . . . . . . . .
Total off-balance sheet arrangements . . . . . . . . .
March 2020
February 2023
February 2022
June 2022
None
€ 155 $ 169 € 109
N/A
75
6
27
21
33
18
N/A
€ 210 € 304 € 154
N/A
25
30
N/A
$ 119 € 136
45
8
24
11
$ 226 € 224
58
6
23
20
$ 158
53
9
28
12
$ 260
(1)
(2)
(3)
(4)
Availability subject to adequate eligible accounts receivable available for sale. The utilized amount includes $4 million and
$11 million of letters of credit as of September 30, 2019 and September 30, 2018, respectively.
Actual amounts may exceed the bank’s commitment at the bank’s discretion.
The facility is backed by a 364-day liquidity commitment from Nordea Bank which extends through January 10, 2020.
There is no explicit facility size under the factoring agreement, but the counterparty approves the purchase of receivable
tranches at its discretion.
80
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 81
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On-balance sheet arrangement
U.S. Securitization Facility: As of September 30, 2018, the U.S. accounts receivables securitization facility with PNC bank
had a facility size of $100 million. On September 16, 2019, the company entered into an amendment that increased the size of
the facility to $115 million and extended its expiration date to December 2022. The maximum permitted priority debt-to-EBITDA
ratio as of the last day of each fiscal quarter under the facility is 2.25 to 1.00. This program is provided by PNC Bank, National
Association, as Administrator and Purchaser, and the other Purchasers and Purchaser Agents party to the agreement from time
to time (participating lenders). Under this program, the company has the ability to sell an undivided percentage ownership interest
in substantially all of its trade receivables (excluding the receivables due from AB Volvo and subsidiaries eligible for sale under
the U.S. accounts receivable factoring facility) of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation (“ARC”), a
wholly-owned, special purpose subsidiary. ARC funds these purchases with borrowings from participating lenders under a loan
agreement. This program also includes a letter of credit facility pursuant to which ARC may request the issuance of letters of
credit issued for the company’s U.S. subsidiaries (originators) or their designees, which when issued will constitute a utilization
of the facility for the amount of letters of credit issued. Amounts outstanding under this agreement are collateralized by eligible
receivables purchased by ARC and are reported as short-term debt in the Consolidated Balance Sheet. As of September 30, 2019,
$9 million was outstanding under this program, and $4 million was outstanding under related letters of credit. As of September
30, 2018, $46 million was outstanding under this program, and $11 million was outstanding under related letters of credit. This
securitization program contains a cross-default to the revolving credit facility. At certain times during any given month, the company
may sell eligible accounts receivable under this program to fund intra-month working capital needs. In such months, the company
would then typically utilize the cash received from customers throughout the month to repay the borrowings under the program.
Accordingly, during any given month, the company may borrow under this program in amounts exceeding the amounts shown as
outstanding at fiscal year ends.
Off-balance sheet arrangements
Total costs associated with all of the off-balance sheet arrangements described above were $6 million in fiscal year 2019
and $5 million in both fiscal years 2018 and 2017, and are included in selling, general and administrative expenses in the
Consolidated Statement of Operations.
10. OTHER OPERATING EXPENSE, NET
Other operating expense, net for fiscal year 2019 primarily relates to asset impairment. In fiscal years 2018 and 2017, this
primarily relates to environmental remediation costs incurred by the company (see Note 25).
11.
INVENTORIES
Inventories are stated at the lower of cost (using FIFO or average methods) or market (determined on the basis of estimated
realizable values) and are summarized as follows (in millions):
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials, parts and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
2019
$170
$153
41
39
266
334
$477
$526
81
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 82
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
12. OTHER CURRENT ASSETS
Other current assets are summarized as follows (in millions):
Asbestos-related recoveries (see Note 25) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Prepaid and other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2018
2019
$ 16
$ 6
30
25
$ 46
$ 31
13. 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 improvements are capitalized, and disposed or replaced property is written off�
Maintenance and repairs are charged to expense in the period they are incurred� Company-owned tooling is classified as property
and depreciated over the shorter of its expected life or the life of the production contract, generally not to exceed three years�
In accordance with the FASB guidance on property, plant and equipment, the company reviews the carrying value of
long-lived assets, excluding goodwill, to be held and used, for impairment whenever events or changes in circumstances indicate
a possible impairment� An impairment loss is recognized when a long-lived asset’s carrying value is not recoverable and exceeds
estimated fair value�
Net property is summarized as follows (in millions):
September 30,
2019
2018
Property at cost:
Land and land improvements� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Buildings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Machinery and equipment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Company-owned tooling � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Construction in progress � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Less: accumulated depreciation� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net property� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$
31
224
935
136
74
1,400
(885)
$ 515
$
29
228
914
130
81
1,382
(899)
$ 483
82
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 83
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
14. OTHER ASSETS
Other assets are summarized as follows (in millions):
Investments in non-consolidated joint ventures (see Note 15) � � � � � � � � � � � � � � � � � � � � � � � � � �
Asbestos-related recoveries (see Note 25) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Unamortized revolver debt issuance costs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Capitalized software costs, net (1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred income tax assets (see Note 24) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Assets for uncertain tax positions (see Note 24) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Prepaid pension costs (see Note 23) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Intangible assets (2) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other assets� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2018
2019
$102
$110
76
55
7
7
26
20
140
122
53
55
152
149
18
50
22
38
$596
$606
(1)
(2)
In accordance with FASB ASC Topic 350-40, 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 estimated economic
useful life of the software�
Primarily relates to customer relationships� As of September 30, 2019, the gross carrying value was $56 million and
the accumulated amortization was $6 million� As of September 30, 2018, the gross carrying value was $22 million and
the accumulated amortization was $4 million� The weighted average amortization periods for customer relationships is
approximately 15 years�
The company holds a variable interest in a joint venture that is a variable interest entity (“VIE”) accounted for under the
equity method of accounting� The joint venture manufactures components for commercial vehicle applications primarily on behalf
of the company� The variable interest relates to a supply arrangement between the company and the joint venture whereby the
company supplies certain components to the joint venture on a cost-plus basis� The company is not the primary beneficiary of the
joint venture, as the joint venture partner has shared or absolute control over key manufacturing operations, labor relationships,
financing activities and certain other functions of the joint venture� Therefore, the company does not consolidate the joint
venture� At September 30, 2019 and September 30, 2018, the company’s investment in the joint venture was $69 million and
$63 million, respectively�
AAG Business
During fiscal year 2019, the company determined it had an impairment trigger related to its AAG business, and by performing
the recoverability test, the company concluded that the undiscounted future cash flows could not recover the net assets of the
business� The company then determined that the carrying value of the business exceeded its fair value� As a result, an impairment
charge of $9 million was recorded within Other operating expense, net in the Aftermarket, Industrial and Trailer reportable segment�
Earlier in fiscal year 2019, an unrelated $1 million of other long-lived asset impairment charges were recorded�
83
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 84
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
TransPower
Meritor completed $3 million strategic investments in Transportation Power, Inc� (“TransPower”) in each of the first and third
quarters of fiscal year 2019� Investments of $3 million in TransPower were also made in each of the first and third quarters of
fiscal year 2018� The company holds a variable interest in TransPower, a VIE� TransPower develops electrical drive solutions and
supplies integrated drive systems, full electric truck solutions and energy-storage subsystems to major manufacturers of trucks,
school buses, refuse vehicles and terminal tractors� The company is not the primary beneficiary of TransPower, as other owners
have control over the significant activities of TransPower, including the development of intellectual property and manufacturing�
Therefore, the company does not consolidate TransPower� At September 30, 2019 and 2018, the company’s investment in
TransPower was $12 million and $6 million, respectively, representing the company’s maximum exposure to loss�
15.
INVESTMENTS IN NON-CONSOLIDATED JOINT VENTURES
The company’s non-consolidated joint ventures and related direct ownership interest are as follows:
Master Sistemas Automotivos Ltda� (Commercial Truck) � � � � � � � � � � � � � � � � � � � � � � � � �
Sistemas Automotrices de Mexico S�A� de C�V� (Commercial Truck) � � � � � � � � � � � � � � � � �
Ege Fren Sanayii ve Ticaret A�S� (Commercial Truck)� � � � � � � � � � � � � � � � � � � � � � � � � � � �
Automotive Axles Limited (Commercial Truck)� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
The company’s investments in non-consolidated joint ventures are as follows (in millions):
September 30,
2018
2017
49% 49%
50% 50%
49% 49%
36% 36%
2019
49%
50%
49%
36%
Commercial Truck� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Aftermarket, Industrial and Trailer � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total investments in non-consolidated joint ventures� � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2019
$110
—
$110
2018 (1)
$102
—
$102
(1)
Amounts for the year ended September 30, 2018 have been recast to reflect reportable segment changes�
The company’s equity in earnings of non-consolidated joint ventures is as follows (in millions):
Year Ended
September 30,
2019
Commercial Truck� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$ 31
Aftermarket, Industrial and Trailer � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � —
$ 31
Total equity in earnings of affiliates � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2018 (1)
$ 27
—
$ 27
(1)
Amounts for the year ended September 30, 2018 have been recast to reflect reportable segment changes�
84
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 85
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The summarized financial information presented below represents the combined accounts of the company’s non-consolidated
joint ventures related to its continuing operations (in millions):
Current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Non-current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2018
2019
$390
$427
163
211
$553
$638
Current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Non-current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total liabilities� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$305
109
$414
$282
66
$348
Sales � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gross profit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net income� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Year Ended
September 30,
2018
$1,101
154
59
2019
$1,231
147
63
2017
$1,156
200
101
Dividends received from the company’s non-consolidated joint ventures were $23 million in fiscal year 2019, $17 million in
fiscal year 2018 and $44 million in fiscal year 2017� Dividends from Meritor WABCO were $36 million in fiscal year 2017, which
includes a $8 million final partnership distribution received immediately prior to closing of the sale transaction on October 1, 2017�
The company had sales to its non-consolidated joint ventures of approximately $9 million, $7 million and $2 million in fiscal
years 2019, 2018 and 2017, respectively� These sales exclude sales of $193 million, $196 million and $138 million in fiscal years
2019, 2018 and 2017, respectively, to a joint venture in the company’s Commercial Truck segment, which are eliminated as the
company purchases these components back after value add provided by the joint venture� The company had purchases from its
non-consolidated joint ventures of approximately $940 million, $843 million and $787 million in fiscal years 2019, 2018 and
2017, respectively� Additionally, the company leases space and provides certain administrative and technical services to various
non-consolidated joint ventures� The company collected $12 million, $11 million and $6 million for such leases and services during
fiscal years 2019, 2018 and 2017, respectively�
Amounts due from the company’s non-consolidated joint ventures were $34 million and $43 million at September 30, 2019
and 2018, respectively, and are included in Receivables, trade and other, net in the Consolidated Balance Sheet� Amounts due to
the company’s non-consolidated joint ventures were $80 million and $110 million at September 30, 2019 and 2018, respectively,
and are included in Accounts payable in the Consolidated Balance Sheet�
The fair value of the company’s investment in its Automotive Axles Limited joint venture was approximately $75 million
and $91 million at September 30, 2019 and 2018, respectively, based on quoted market prices as this joint venture is listed and
publicly traded on the Bombay Stock Exchange in India�
85
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 86
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
16. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows (in millions):
Compensation and benefits � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Taxes other than income taxes� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accrued interest � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Product warranties � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Environmental reserves (see Note 25) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Restructuring (see Note 8)� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Asbestos-related liabilities (see Note 25) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Indemnity obligations (see Note 25) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2018
2019
$122
$125
27
24
25
14
11
11
19
18
8
3
3
8
18
9
1
1
56
72
$290
$285
The company records estimated product warranty costs at the time of shipment of products to customers� Warranty reserves
are primarily based on factors that 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 probable
and can be reasonably estimated� Policy repair actions to maintain customer relationships are recorded as other liabilities at the
time an obligation is probable and can be reasonably estimated� Product warranties, including recall campaigns, not expected to
be paid within one year are recorded as a non-current liability�
A summary of the changes in product warranties is as follows (in millions):
Total product warranties – beginning of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accruals for product warranties � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Payments� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Change in estimates and other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total product warranties – end of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Less: non-current product warranties (see Note 17) � � � � � � � � � � � � � � � � � � � � � � � � � �
Product warranties – current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2018
$ 45
22
(16)
3
54
(35)
$ 19
2017
$ 44
14
(17)
4
45
(27)
$ 18
2019
$ 54
23
(20)
(7)
50
(32)
$ 18
86
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 87
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
17. OTHER LIABILITIES
Other liabilities are summarized as follows (in millions):
Asbestos-related liabilities (see Note 25) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Restructuring (see Note 8)� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred income tax liabilities (see Note 24) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Liabilities for uncertain tax positions (see Note 24) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Product warranties (see Note 16) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Environmental (see Note 25) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Indemnity obligations (see Note 25) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2018
2019
$ 193
$ 82
1
—
16
15
48
46
35
32
9
12
9
7
21
32
$ 332
$ 226
18. LONG-TERM DEBT
Long-Term Debt, net of discounts where applicable, is summarized as follows (in millions):
3�25 percent convertible notes due 2037 (1)(3) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
4�0 percent convertible notes due 2027 (1)(4) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
7�875 percent convertible notes due 2026 (1)(5) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Term loan� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
6�25 percent notes due 2024 (2)(6) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Capital lease obligation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Borrowings and securitization � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Unamortized discount on convertible notes (7) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Subtotal � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Less: current maturities� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Long-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2019
$ 319
—
23
175
444
7
9
(34)
943
(41)
$ 902
2018
$ 318
24
22
—
444
7
46
(37)
824
(94)
$ 730
(1)
(2)
(3)
(4)
(5)
(6)
The 3�25 percent, 4�0 percent and 7�875 percent convertible notes contain a put and call feature, which allows for earlier
redemption beginning in 2025, 2019 and 2020, respectively�
The 6�25 percent notes contain a call option, which allows for early redemption by Meritor�
The 3�25 percent convertible notes due 2037 are presented net of $6 million and $7 million unamortized issuance costs as
of September 30, 2019 and September 30, 2018, respectively�
The 4�0 percent convertible notes due 2027 are presented net of unamortized issuance costs of an insignificant amount as
of September 30, 2018�
The 7�875 percent convertible notes due 2026 are presented net of unamortized issuance costs of an insignificant amount
as of September 30, 2019 and September 30, 2018, and an insignificant amount and $1 million original issuance discount
as of September 30, 2019 and September 30, 2018, respectively�
The 6�25 percent notes due 2024 are presented net of $6 million unamortized issuance costs as of September 30, 2019
and September 30, 2018�
(7)
The carrying amount of the equity component related to convertible debt�
87
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 88
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Repurchase of Debt Securities
On February 15, 2019, the company redeemed $19 million aggregate principal amount outstanding of the company’s
4�0 percent convertible notes due 2027 (the “4�0 Percent Convertible Notes”) at a price of 100 percent of the accreted principal
amount, plus accrued and unpaid interest� On June 7, 2019, the company redeemed the remaining $5 million aggregate principal
amount outstanding of the 4�0 Percent Convertible Notes at a price equal to 100 percent of the accreted principal amount, plus
accrued and unpaid interest�
On September 28, 2017, the company redeemed $100 million of the $275 million aggregate principal amount outstanding
of the company’s 6�75 percent notes due 2021 (the “6�75 Percent Notes”) at a price of $1,033�75 per $1,000 of principal amount,
plus accrued and unpaid interest� As a result, a loss on debt extinguishment of $5 million was recorded in the Consolidated
Statement of Operations within Interest expense, net� The redemption was made under the company’s July 2016 debt repurchase
authorization (see Note 20)� On November 2, 2017, the company redeemed the remaining $175 million aggregate principal amount
outstanding of the company’s 6�75 Percent Notes at a price of $1,033�75 per $1,000 of principal amount, plus accrued and unpaid
interest� The redemption resulted in a loss on debt extinguishment of approximately $8 million� The loss on debt extinguishment
is included in Interest expense, net in the Consolidated Statement of Operations� The redemption was made pursuant to a special
authorization from the Board of Directors in connection with the sale of the company’s interest in Meritor WABCO in the fourth
quarter of fiscal year 2017�
The company used the net proceeds, after issuance costs and discounts, of approximately $317 million from the offering
of the 3�25 percent convertible notes due 2037 (the “3�25 Percent Convertible Notes”) to acquire portions of its outstanding
7�875 percent convertible notes due 2026 (the “7�875 Percent Convertible Notes”) and its 4�0 Percent Convertible Notes in
transactions that settled concurrently with the closing of the 3�25 Percent Convertible Note offering on September 22, 2017� In
total, the company repurchased $117 million of the $140 million principal amount of its 7�875 Percent Convertible Notes and
$119 million of the $143 million principal amount of its 4�0 Percent Convertible Notes� The 7�875 Percent Convertible Notes and
4�0 Percent Convertible Notes were repurchased at premiums equal to 130 percent and 16 percent, respectively, above their
principal amount� These repurchases were accounted for as extinguishments of debt, and accordingly the company recognized
a loss on debt extinguishment of $31 million in the aggregate ($23 million with respect to the 7�875 Percent Convertible Notes
and $8 million with respect to the 4�0 Percent Convertible Notes)� The loss on extinguishment was recorded in the Consolidated
Statement of Operations within Interest expense, net during fiscal year 2017�
Current Classification of 7.875 Percent Convertible Notes
The 7�875 Percent Convertible Notes were classified as current as of September 30, 2019 as the holders are entitled to
convert all or a portion of their 7�875 Percent Convertible Notes at any time beginning October 1, 2019 and prior to the close
of business on December 31, 2019 at a rate of 83�3333 shares of common stock per $1,000 principal amount at maturity of
the 7�875 Percent Convertible Notes (representing a conversion price of approximately $12�00 per share)� The 7�875 Percent
Convertible Notes are convertible as the closing price of shares of the company’s common stock for at least 20 trading days during
the 30 consecutive trading-day period ending on September 30, 2019 was greater than 120 percent of the $12�00 conversion
price associated with the 7�875 Percent Convertible Notes�
The 7�875 Percent Convertible Notes were classified as current as of September 30, 2018 as the holders were entitled
to convert all or a portion of their 7�875 Percent Convertible Notes at any time beginning October 1, 2018 and prior to the close
of business on December 31, 2018 at a rate of 83�3333 shares of common stock per $1,000 principal amount at maturity of
the 7�875 Percent Convertible Notes (representing a conversion price of approximately $12�00 per share)� The 7�875 Percent
Convertible Notes are convertible as the closing price of shares of the company’s common stock for at least 20 trading days during
the 30 consecutive trading-day period ending on September 28, 2018 was greater than 120 percent of the $12�00 conversion
price associated with the 7�875 Percent Convertible Notes�
88
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 89
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The 7�875 Percent Convertible Notes surrendered for conversion, if any, would be settled in cash up to the principal amount
at maturity of the 7�875 Percent Convertible Notes and cash, stock or a combination of cash and stock, at the company’s election,
for the remainder of the conversion value of the 7�875 Percent Convertible Notes in excess of the principal amount at maturity
and cash in lieu of any fractional shares, subject to and in accordance with the provisions of the indenture that governs the
7�875 Percent Convertible Notes�
As a result of the 7�875 Percent Convertible Notes becoming currently convertible for cash up to the principal amount of
$23 million at the holder’s option, $1 million of permanent equity was reclassified as mezzanine equity as of September 30, 2018�
Revolving Credit Facility
On June 7, 2019, the company amended and restated its revolving credit facility� Pursuant to the revolving credit agreement,
as amended, the company has a $625 million revolving credit facility and a $175 million term loan facility, which was utilized for
the company’s acquisition of AxleTech, that mature in June 2024 (with a springing maturity in November 2023 if the outstanding
amount of the 6�25 percent notes due 2024 is greater than $75 million at that time)� The availability under this facility is dependent
upon various factors, including performance against certain financial covenants as highlighted below�
The availability under the revolving credit facility is subject to a financial covenant based on the ratio of the company’s priority
debt (consisting principally of amounts outstanding under the revolving credit facility, the U�S� accounts receivable securitization
and factoring programs, and third-party non-working capital foreign debt) to EBITDA� The company is required to maintain a
total priority-debt-to-EBITDA ratio, as defined in the agreement, of 2�25 to 1�00 or less as of the last day of each fiscal quarter
throughout the term of the agreement�
Borrowings under the revolving credit facility are subject to interest based on quoted LIBOR rates plus a margin and a
commitment fee on undrawn amounts, both of which are based upon the company’s current corporate credit rating� At September 30,
2019, the margin over LIBOR rate was 200 basis points, and the commitment fee was 30 basis points� Overnight revolving credit
loans are at the prime rate plus a margin of 100 basis points�
Certain of the company’s subsidiaries, as defined in the revolving credit agreement, irrevocably and unconditionally guarantee
amounts outstanding under the revolving credit facility� Similar subsidiary guarantees are provided for the benefit of the holders of
the publicly held notes outstanding under the company’s indentures (see Note 29)�
No borrowings were outstanding under the revolving credit facility at September 30, 2019 and September 30, 2018�
The amended and extended revolving credit facility includes $100 million of availability for the issuance of letters of credit� At
September 30, 2019 and September 30, 2018, there were no letters of credit outstanding under the revolving credit facility�
Debt Securities
In December 2017, the company filed a shelf registration statement with the SEC, registering an indeterminate amount of
debt and/or equity securities that the company may offer in one or more offerings on terms to be determined at the time of sale� The
December 2017 shelf registration statement superseded and replaced the shelf registration statement filed in December 2014,
as amended�
3.25 Percent Convertible Notes
On September 22, 2017, the company issued $325 million principal amount of the 3�25 Percent Convertible Notes� The
3�25 Percent Convertible Notes were sold in an underwritten offering to qualified institutional buyers in a private placement exempt
from the registration requirements of the Securities Act of 1933, as amended� The 3�25 Percent Convertible Notes were issued in
minimum denominations of $1,000 principal amount per note and multiples of $1,000 in excess thereof� Net proceeds received by
the company, after issuance costs and discounts, were approximately $317 million�
89
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 90
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The company pays 3�25 percent cash interest per year on the principal amount of the 3�25 Percent Convertible Notes,
payable semi-annually in arrears on April 15 and October 15 of each year, beginning April 15, 2018, to holders of record at the
close of business on the preceding April 1 or October 1, respectively� Interest accrues on the principal amount of the 3�25 Percent
Convertible Notes from and including the date the 3�25 Percent Convertible Notes were issued or from and including the last date
in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date�
The 3�25 Percent Convertible Notes are fully and unconditionally guaranteed on a senior unsecured basis by the company’s
wholly-owned subsidiaries that guarantee the company’s amended and restated revolving credit facility� The 3�25 Percent
Convertible Notes are the company’s senior unsecured obligations and rank equally in right of payment with all of the company’s
existing and future senior unsecured indebtedness and effectively junior to any of the company’s existing and future secured
indebtedness, to the extent of the value of the assets securing such indebtedness� The guarantee by each subsidiary guarantor will
rank equally with existing and future senior unsecured indebtedness of such subsidiary and effectively junior to all of the existing
and future secured indebtedness of such subsidiary, to the extent of the value of the assets securing such indebtedness�
The 3�25 Percent Convertible Notes will be convertible into cash up to the principal amount of the 3�25 Percent Convertible
Notes surrendered for conversion and the company will pay or deliver, as the case may be, cash, shares of the company’s common
stock or a combination of cash and shares of the company’s common stock, at the company’s election, in respect of the remainder,
if any, of the company’s conversion obligation in excess of the principal amount of the notes being converted� The initial conversion
rate, subject to adjustment, is 25�0474 shares of common stock per $1,000 principal amount of the 3�25 Percent Convertible
Notes (which represents an initial conversion price of $39�92 per share)� Holders may convert their notes, at their option, only
under the following circumstances prior to the close of business on the business day immediately preceding July 15, 2037, other
than during the period from and including July 15, 2025 to the close of business on the business day immediately preceding
October 15, 2025:
• during any calendar quarter after the calendar quarter ending on December 31, 2017, if the closing sale price of the
company’s common stock for 20 or more trading days (whether or not consecutive) during a period of 30 consecutive
trading days ending on and including the last trading day of the immediately preceding calendar quarter equals or exceeds
130 percent of the applicable conversion price on each applicable trading day;
• during the five business day period after any five consecutive trading day period in which the trading price per $1,000
principal amount of the 3�25 Percent Convertible Notes for each trading day during such five consecutive trading day
period was less than 98 percent of the product of the closing price of the company’s common stock and the conversion
rate on each such trading day;
• if the company calls any of the 3�25 Percent Convertible Notes for redemption, at any time from the delivery of the
redemption notice through the close of business on the scheduled trading day immediately preceding the redemption
date; or
• upon the occurrence of specified corporate transactions�
During the period from and including July 15, 2025 to the close of business on the business day immediately preceding
October 15, 2025, and on or after July 15, 2037 until the close of business on the business day immediately preceding the maturity
date, holders may convert 3�25 Percent Convertible Notes at any time, regardless of the foregoing circumstances�
On or after October 15, 2025, but prior to July 15, 2037, the company may redeem the 3�25 Percent Convertible Notes
at the company’s option, in whole or in part, at a redemption price in cash equal to 100 percent of the principal amount of the
3�25 Percent Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date� Further,
holders may require the company to purchase all or a portion of their 3�25 Percent Convertible Notes at a purchase price in cash
equal to 100 percent of the principal amount of the 3�25 Percent Convertible Notes to be purchased, plus accrued and unpaid
interest to, but excluding, the repurchase date, on October 15, 2025 or upon certain fundamental changes� The maximum number
of shares of common stock into which the 3�25 Percent Convertible Notes are convertible is approximately 8 million shares�
90
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 91
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounting guidance requires that cash-settled convertible debt, such as the 3�25 Percent Convertible Notes, be separated
into debt and equity components at issuance and a value be assigned to each� The value assigned to the debt component is the
estimated fair value, as of the issuance date, of a similar bond without the conversion feature� The difference between the bond
cash proceeds and this estimated fair value, representing the value assigned to the equity component, is recorded as a debt
discount� The company measures the debt component at fair value by utilizing a discounted cash flow model� This model utilizes
observable inputs such as contractual repayment terms, benchmark forward yield curves, yield curves and quoted market prices of
its own nonconvertible debt� The yield curves are acquired from an independent source that is widely used in the financial industry
and reviewed internally by personnel with appropriate expertise in valuation methodologies�
6.25 Percent Notes
On February 13, 2014, the company completed a public offering of debt securities consisting of the issuance of $225 million
principal amount of 10-year, 6�25 percent notes due 2024 (the “Initial 6�25 Percent Notes”)� The offering and sale were made pursuant
to the company’s February 2012 shelf registration statement� The Initial 6�25 Percent Notes were issued under the company’s
indenture dated as of April 1, 1998, as supplemented� The Initial 6�25 Percent Notes were issued at 100 percent of their principal
amount� The proceeds from the sale of the Initial 6�25 Percent Notes were $225 million and, together with cash on hand, were
primarily used to repurchase $250 million principal amount of the company’s previously outstanding 10�625 percent notes due 2018�
On June 11, 2015, the company completed a public offering of an additional $225 million aggregate principal amount of
6�25 percent notes due 2024 (the “Additional 6�25 Percent Notes”) in an underwritten public offering pursuant to the company’s
December 2014 shelf registration statement� The proceeds from the sale of the Additional 6�25 Percent Notes were used to
replenish available cash used to pay $179 million, including premium and fees, to repurchase $110 million principal amount at
maturity of the company’s 7�875 Percent Convertible Notes� The company used the remaining net proceeds to purchase an annuity
to satisfy its obligations under the Canadian and German pension plans for its employees and for general corporate purposes� The
Additional 6�25 Percent Notes constitute a further issuance of, and are fungible with, the $225 million aggregate principal amount
of Initial 6�25 Percent Notes that the company issued on February 13, 2014 and form a single series with the Initial 6�25 Percent
Notes (collectively, the “6�25 Percent Notes”)� The Additional 6�25 Percent Notes have terms identical to the Initial 6�25 Percent
Notes, other than issue date and offering price, and have the same CUSIP number as the Initial 6�25 Percent Notes� Upon
completion of the offering, the aggregate principal amount of outstanding 6�25 Percent Notes was $450 million�
The 6�25 Percent Notes bear interest at a fixed rate of 6�25 percent per annum� The company pays interest on the
6�25 Percent Notes semi-annually in arrears on February 15 and August 15 of each year� The 6�25 Percent Notes constitute senior
unsecured obligations of the company and rank equally in right of payment with existing and future senior unsecured indebtedness
and effectively junior to existing and future secured indebtedness� The 6�25 Percent Notes are guaranteed on a senior unsecured
basis by each of the company’s subsidiaries from time to time guaranteeing its senior secured credit facility� The guarantees rank
equally with existing and future senior unsecured indebtedness of the guarantors and will be effectively subordinated to all of the
existing and future secured indebtedness of the guarantors, to the extent of the value of the assets securing such indebtedness�
Prior to February 15, 2019, the company could redeem, at its option, from time to time, the 6�25 Percent Notes, in whole
or in part, at a redemption price equal to 100 percent of the principal amount of the 6�25 Percent Notes to be redeemed, plus an
applicable make-whole premium (as defined in the indenture under which the 6�25 Percent Notes were issued) and any accrued
and unpaid interest� On or after February 15, 2019, the company may redeem, at its option, from time to time, the 6�25 Percent
Notes, in whole or in part, at the redemption prices (expressed as percentages of the principal amount of the 6�25 Percent Notes
to be redeemed) set forth below, plus accrued and unpaid interest, if any, if redeemed during the 12-month period beginning on
February 15 of the years indicated below:
Year
2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2020 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2021 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2022 and thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Redemption Price
103�125%
102�083%
101�042%
100�000%
91
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 92
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If a Change of Control (as defined in the indenture under which the 6�25 Percent Notes were issued) occurs, unless the
company has exercised its right to redeem the 6�25 Percent Notes, each holder of 6�25 Percent Notes may require the company
to repurchase some or all of such holder’s 6�25 Percent Notes at a purchase price equal to 101 percent of the principal amount of
the 6�25 Percent Notes to be repurchased, plus accrued and unpaid interest, if any�
6.75 Percent Notes
On May 31, 2013, the company completed an offering of debt securities consisting of the issuance of $275 million principal
amount of the 6�75 Percent Notes� The offering and sale were made pursuant to the company’s February 2012 shelf registration
statement� The 6�75 Percent Notes were issued under the company’s indenture dated as of April 1, 1998, as supplemented� The
6�75 Percent Notes were issued at 100 percent of their principal amount� The proceeds from the sale of the 6�75 Percent Notes
were $275 million and were primarily used to complete a cash tender offer for $167 million of the 8�125 percent notes due 2015�
The 6�75 Percent Notes bore interest at a fixed rate of 6�75 percent per annum� The company paid interest on the 6�75 Percent
Notes semi-annually in arrears on June 15 and December 15 of each year� The 6�75 Percent Notes constituted senior unsecured
obligations of the company and ranked equally in right of payment with existing and future senior unsecured indebtedness and
effectively junior to existing and future secured indebtedness to the extent of the security therefor� The 6�75 Percent Notes were
guaranteed on a senior unsecured basis by each of the company’s subsidiaries from time to time guaranteeing its senior secured
credit facility� The guarantees ranked equally with existing and future senior unsecured indebtedness of the guarantors and were
effectively subordinated to all of the existing and future secured indebtedness of the guarantors, to the extent of the value of the
assets securing such indebtedness�
Prior to June 15, 2016, the company could redeem, at its option, from time to time, the 6�75 Percent Notes, in whole or
in part, at a redemption price equal to 100 percent of the principal amount of the 6�75 Percent Notes to be redeemed plus an
applicable make-whole premium (as defined in the indenture under which the 6�75 Percent Notes were issued) and any accrued
and unpaid interest� On or after June 15, 2016, the company could redeem, at its option, from time to time, the 6�75 Percent
Notes, in whole or in part, at the redemption prices (expressed as percentages of the principal amount of the 6�75 Percent Notes
to be redeemed) set forth below, plus accrued and unpaid interest, if any, had they been redeemed during the 12-month period
beginning on June 15 of the years indicated below:
Year
2016 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2017 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2018 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2019 and thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Redemption Price
105�063%
103�375%
101�688%
100�000%
Prior to June 15, 2016, the company could also redeem, at its option, from time to time, up to 35 percent of the aggregate
principal amount of the 6�75 Percent Notes with the net cash proceeds of one or more public sales of the company’s common
stock at a redemption price equal to 106�75 percent of the principal amount, plus accrued and unpaid interest, if any, so long as at
least 65 percent of the aggregate principal amount of 6�75 Percent Notes originally issued remained outstanding after each such
redemption and notice of any such redemption was mailed within 90 days after any such sale of common stock�
If a Change of Control (as defined in the indenture under which the 6�75 Percent Notes were issued) occurred, unless the
company had exercised its right to redeem the 6�75 Percent Notes, each holder of 6�75 Percent Notes could have required the
company to repurchase some or all of such holder’s 6�75 Percent Notes at a purchase price equal to 101 percent of the principal
amount of the 6�75 Percent Notes to be repurchased, plus accrued and unpaid interest, if any�
As of September 30, 2018, the 6�75 Percent Notes were fully redeemed� As of September 30, 2017, $173 million principal
amount of the 6�75 Percent Notes remained outstanding�
92
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 93
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7.875 Percent Convertible Notes
In December 2012, the company issued $250 million principal amount of 7�875 Percent Convertible Notes� The 7�875 Percent
Convertible Notes were sold by the company to qualified institutional buyers in a private placement exempt from the registration
requirements of the Securities Act of 1933, as amended� The 7�875 Percent Convertible Notes have an initial principal amount of
$900 per note and will accrete to $1,000 per note on December 1, 2020 at an effective interest rate of 10�9 percent� Net proceeds
received by the company, after issuance costs and discounts, were approximately $220 million�
The company pays 7�875 percent cash interest on the principal amount of the 7�875 Percent Convertible Notes semi-
annually in arrears on June 1 and December 1 of each year to holders of record at the close of business on the preceding May 15
and November 15, respectively, and at maturity to the holders that present the 7�875 Percent Convertible Notes for payment�
Interest accrues on the principal amount thereof from and including the date the 7�875 Percent Convertible Notes were issued or
from and including the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding,
the next interest payment date�
The 7�875 Percent Convertible Notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of the
company’s subsidiaries� The 7�875 Percent Convertible Notes are senior unsecured obligations and rank equally in right of payment
with all of the company’s existing and future senior unsecured indebtedness and are junior to any of the company’s existing and
future secured indebtedness�
The 7�875 Percent Convertible Notes will be convertible into cash up to the principal amount at maturity of the 7�875 Percent
Convertible Note surrendered for conversion and, if applicable, shares of the company’s common stock (subject to a conversion
share cap as described below), based on an initial conversion rate, subject to adjustment, equivalent to 83�3333 shares per
$1,000 principal amount at maturity of 7�875 Percent Convertible Notes (which represents an initial conversion price of $12�00 per
share), only under the following circumstances:
• prior to June 1, 2025, during any calendar quarter after the calendar quarter ending December 31, 2012, if the closing
sale price of the company’s common stock for 20 or more trading days in a period of 30 consecutive trading days ending
on the last trading day of the immediately preceding calendar quarter exceeds 120 percent of the applicable conversion
price in effect on the last trading day of the immediately preceding calendar quarter;
• prior to June 1, 2025, during the five business day period after any five consecutive trading day period in which the trading
price per $1,000 principal amount at maturity of 7�875 Percent Convertible Notes was equal to or less than 97 percent
of the conversion value of the 7�875 Percent Convertible Notes on each trading day during such five consecutive trading
day period;
• prior to June 1, 2025, if the company has called the 7�875 Percent Convertible Notes for redemption;
• prior to June 1, 2025, upon the occurrence of specified corporate transactions; or
• at any time on or after June 1, 2025�
On or after December 1, 2020, the company may redeem the 7�875 Percent Convertible Notes at its option, in whole or
in part, at a redemption price in cash equal to 100 percent of the principal amount at maturity of the 7�875 Percent Convertible
Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date� Further, holders may require the
company to purchase all or a portion of their 7�875 Percent Convertible Notes at a purchase price in cash equal to 100 percent
of the principal amount at maturity of the 7�875 Percent Convertible Notes to be purchased, plus accrued and unpaid interest,
on December 1, 2020 or upon certain fundamental changes� The maximum number of shares of common stock into which the
7�875 Percent Convertible Notes are convertible is approximately 2 million shares�
The company used the net proceeds of approximately $220 million from the offering of the 7�875 Percent Convertible Notes
(after discounts and issuance costs) and additional cash to acquire a portion of its outstanding 4�625 Percent Convertible Notes in
transactions that settled concurrently with the closing of the 7�875 Percent Convertible Note offering� Approximately $245 million
of $300 million principal amount of the 4�625 Percent Convertible Notes were repurchased for an aggregate purchase price of
approximately $236 million (including accrued interest)�
93
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 94
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounting guidance requires that cash-settled convertible debt, such as the 7�875 Percent Convertible Notes, be separated
into debt and equity components at issuance and a value be assigned to each� The value assigned to the debt component is the
estimated fair value, as of the issuance date, of a similar bond without the conversion feature� The difference between the bond
cash proceeds and this estimated fair value, representing the value assigned to the equity component, is recorded as a debt
discount� The company measures the debt component at fair value by utilizing a discounted cash flow model� This model utilizes
observable inputs such as contractual repayment terms, benchmark forward yield curves, yield curves and quoted market prices of
its own nonconvertible debt� The yield curves are acquired from an independent source that is widely used in the financial industry
and reviewed internally by personnel with appropriate expertise in valuation methodologies�
Approximately $23 million principal amount of the 7�875 Percent Convertible Notes remained outstanding as of September 30,
2019 and September 30, 2018�
4.0 Percent Convertible Notes
In February 2007, the company issued $200 million principal amount of 4�0 Percent Convertible Notes� The 4�0 Percent
Convertible Notes bore cash interest at a rate of 4�0 percent per annum from the date of issuance through February 15, 2019,
payable semi-annually in arrears on February 15 and August 15 of each year� After February 15, 2019, the principal amount of the
notes was subject to accretion at a rate that provided holders with an aggregate annual yield to maturity of 4�0 percent�
The 4�0 Percent Convertible Notes were convertible into shares of the company’s common stock at an initial conversion
rate, subject to adjustment, equivalent to 37�4111 shares of common stock per $1,000 initial principal amount of notes, which
represented an initial conversion price of approximately $26�73 per share� If converted, the accreted principal amount would be
settled in cash and the remainder of the company’s conversion obligation, if any, in excess of such accreted principal amount
would be settled in cash, shares of common stock, or a combination thereof, at the company’s election� Holders could convert their
4�0 Percent Convertible Notes at any time on or after February 15, 2025� The maximum number of shares of common stock into
which the 4�0 Percent Convertible notes were convertible was approximately 1 million shares�
Prior to February 15, 2025, holders could convert their notes only under the following circumstances:
• during any calendar quarter, if the closing sale price of the company’s common stock for 20 or more trading days in
a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter
exceeded 120 percent of the applicable conversion price;
• during the five business day period after any five consecutive trading day period in which the average trading price per
$1,000 initial principal amount of notes was equal to or less than 97 percent of the average conversion value of the notes
during such five consecutive trading day period;
• upon the occurrence of specified corporate transactions; or
• if the notes were called by the company for redemption�
94
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 95
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On or after February 15, 2019, the company could redeem the 4�0 Percent Convertible Notes, in whole or in part, for cash
at a redemption price equal to 100 percent of the accreted principal amount, plus any accrued and unpaid interest� On each of
February 15, 2019 and 2022, or upon certain fundamental changes, holders may require the company to purchase all or a portion
of their 4�0 Percent Convertible Notes at a purchase price in cash equal to 100 percent of the accreted principal amount, plus any
accrued and unpaid interest�
The 4�0 Percent Convertible Notes were fully and unconditionally guaranteed by certain subsidiaries of the company that
currently guaranteed the company’s obligations under its senior secured credit facility and other publicly held notes (see Revolving
Credit Facility above)�
As of September 30, 2019, the 4�0 Percent Notes were fully redeemed� Approximately $24 million principal amount of the
4�0 Percent Convertible Notes remained outstanding as of September 30, 2018�
Accounting guidance requires that cash-settled convertible debt, such as the 4�0 Percent Convertible Notes, be separated
into debt and equity components at issuance and a value be assigned to each� The value assigned to the debt component is the
estimated fair value, as of the issuance date, of a similar bond without the conversion feature� The difference between the bond
cash proceeds and this estimated fair value, representing the value assigned to the equity component, is recorded as a debt
discount� The company measures the debt component at fair value by utilizing a discounted cash flow model� This model utilizes
observable inputs such as contractual repayment terms, benchmark forward yield curves, yield curves and quoted market prices of
its own nonconvertible debt� The yield curves are acquired from an independent source that is widely used in the financial industry
and reviewed internally by personnel with appropriate expertise in valuation methodologies�
The following table summarizes the principal amounts and related unamortized discount on all convertible notes (in millions):
Principal amount of convertible notes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Unamortized discount on convertible notes and issuance costs � � � � � � � � � � � � �
Net carrying value� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
The following table summarizes other information related to the convertible notes:
September 30,
2019
$348
(40)
$308
September 30,
2018
$372
(45)
$327
Total amortization period for debt discount (in years): � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Remaining amortization period for debt discount (in years): � � � � � � � � � � � � � � � � � � � � � � � � � �
Effective interest rates on convertible notes: � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
The following table summarizes interest costs recognized on convertible notes (in millions):
Convertible Notes
3.25%
7.875%
8
8
6
1
5�6%
10�9%
Year Ended
September 30,
2018
$ 17
2
—
$ 19
2019
$ 17
2
—
$ 19
2017
$ 17
8
31
$ 56
Contractual interest coupon� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of debt discount � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Repurchase of convertible notes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
95
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 96
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Debt Maturities
As of September 30, 2019, the company is contractually obligated to make payments as follows (in millions):
Total debt (1) � � � � � � � � � � � � � � � � � � �
Total
$989
2020
$10
2021
$11
2022
$19
2023
$28
2024 (2)
$573
Thereafter (3)
$348
(1)
(2)
(3)
Total debt excludes unamortized discount on convertible notes of $34 million, unamortized issuance costs of $12 million, and original
issuance discount of an insignificant amount�
Includes the 6�25 Percent Notes, which contains a call feature that allows for early redemption
Includes the 3�25 Percent Convertible Notes and 7�875 Percent Convertible Notes, which contain a put and call feature that
allows for earlier redemption beginning in 2025 and 2020, respectively�
Capital Leases
The company had $7 million of outstanding capital lease arrangements as of September 30, 2019 and 2018�
As of September 30, 2019, the future minimum lease payments for noncancelable capital leases with initial terms in excess
of one year were as follows:
Capital lease obligation � � � � � � � � � � � � � � � � � � �
Less: amounts representing interest� � � � � � � � � �
Principal on capital lease� � � � � � � � � � � � � � � �
Total
$ 8
(1)
$ 7
2020
$ 2
(1)
$ 1
2021
$ 3
—
$ 3
2022
$ 2
—
$ 2
2023
$ 1
—
$ 1
2024
$—
—
$—
Thereafter
$—
—
$—
Letter of Credit Facilities
On February 21, 2014, the company entered into an arrangement to amend and restate the letter of credit facility with
Citicorp USA, Inc�, as administrative agent and issuing bank, and the other lenders party thereto� Under the terms of this amended
credit agreement, which expired in March 2019, the company had the right to obtain the issuance, renewal, extension and increase
of letters of credit up to an aggregate availability of $25 million� This facility contained covenants and events of default generally
similar to those existing in the company’s public debt indentures� There were $1 million of letters of credit outstanding under this
facility at September 30, 2018� On March 20, 2019, the company allowed this facility to expire� The letters of credit previously
provided under this facility were replaced with letters of credit issued under the company’s U�S� accounts receivables securitization
facility with PNC Bank� The company had $12 million and $19 million of letters of credit outstanding through other letter of credit
facilities as of September 30, 2019 and 2018, respectively�
Other
One of the company’s consolidated joint ventures in China participates in a bills of exchange program to settle its obligations
with its trade suppliers� These programs are common in China and generally require the participation of local banks� Under
these programs, the company’s joint venture issues notes payable through the participating banks to its trade suppliers� If the
issued notes payable remain unpaid on their respective due dates, this could constitute an event of default under the company’s
revolving credit facility if the unpaid amount exceeds $35 million per bank� As of September 30, 2019 and 2018, the company had
$30 million and $22 million, respectively, outstanding under this program at more than one bank�
Operating Leases
The company has various operating leasing arrangements� Future minimum lease payments under these operating leases
are $18 million in 2020, $15 million in 2021, $14 million in 2022, $13 million in 2023, $13 million in 2024 and $25 million
thereafter�
96
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 97
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
19. FINANCIAL INSTRUMENTS
The company’s financial instruments include cash and cash equivalents, short-term debt, long-term debt, and foreign
exchange forward and options contracts� The company uses derivatives for hedging and non-trading purposes in order to manage
its foreign exchange rate exposures�
Foreign Exchange Contracts
As a result of the company’s substantial international operations, it is exposed to foreign currency risks that arise from
normal business operations, including in connection with transactions that are denominated in foreign currencies� In addition, the
company translates sales and financial results denominated in foreign currencies into U�S� dollars for purposes of its Consolidated
Financial Statements� As a result, appreciation of the U�S� dollar against these foreign currencies generally will have a negative
impact on reported revenues and operating income, while depreciation of the U�S� dollar against these foreign currencies will
generally have a positive effect on reported revenues and operating income�
The company has a foreign currency cash flow hedging program to reduce the company’s exposure to changes in exchange
rates on foreign currency purchases and sales� The company uses foreign currency forward contracts to manage the company’s
exposures arising from foreign currency exchange risk� Gains and losses on the underlying foreign currency exposures are partially
offset with gains and losses on the foreign currency forward contracts� Under this foreign currency cash flow hedging program, the
company has designated the foreign exchange contracts as cash flow hedges of underlying forecasted foreign currency purchases
and sales� Changes in the fair value of these contracts are recorded in accumulated other comprehensive income (AOCI) in the
Consolidated Balance Sheet and are recognized in operating income when the underlying forecasted transaction impacts earnings�
The terms of these contracts generally require the company to place cash on deposit as collateral if the fair value of these contracts
represents a liability for the company and exceeds the collateral threshold� The fair values of the foreign exchange derivative
instruments and any related collateral cash deposits are presented on a net basis as the derivative contracts are subject to master
netting arrangements�
At September 30, 2019, 2018 and 2017, the notional amount of the company’s foreign exchange contracts outstanding
under its foreign currency cash flow hedging program was $110 million, $154 million, and $126 million, respectively� The company
classifies the cash flows associated with these contracts in cash flows from operating activities in the Consolidated Statement of
Cash Flows� This is consistent with the classification of the cash flows associated with the underlying hedged item�
From time to time the company hedges against foreign currency exposure related to translations to U�S� dollars of financial
results denominated in foreign currencies� Changes in fair value associated with these contracts are recorded in other income
(expense), net, in the Consolidated Statement of Operations� The company also uses option contracts to mitigate foreign currency
exposure on expected future foreign currency-denominated purchases� Changes in fair value associated with these contracts are
recorded in cost of sales in the Consolidated Statement of Operations�
The following table summarizes the impact of the company’s derivatives instruments on comprehensive income for fiscal
years ended September 30 (in millions):
Location of
Gain (Loss)
2019
2018
2017
Derivatives designated as hedging instruments:
Amount of gain (loss) recognized in AOCI � � � � � � � � � � � � � � � � � � � �
Amount of gain (loss) reclassified from AOCI into income � � � � � � � �
AOCI
Cost of Sales
$ 19
4
$ 3
(1)
$ (1)
1
Derivatives not designated as hedging instruments:
Amount of gain (loss) recognized in income � � � � � � � � � � � � � � � � � �
Derivatives not designated as hedging instruments:
Amount of gain (loss) recognized in income � � � � � � � � � � � � � � � � � �
Cost of Sales
Other Income
(expense)
—
1
(2)
2
1
—
97
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 98
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
Fair Value
Fair values of financial instruments are summarized as follows (in millions):
Cash and cash equivalents � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Short-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Long-term debt� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign exchange forward contracts (other assets) � � � � � � � � � � � � � � � �
Cross-currency swap (others assets) � � � � � � � � � � � � � � � � � � � � � � � � � �
Cross-currency swaps (other liabilities)� � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2019
September 30,
2018
Carrying
Value
$108
41
902
—
10
5
Fair
Value
$108
60
953
—
10
5
Carrying
Value
$115
94
730
2
6
—
Fair
Value
$115
116
776
2
6
—
Cash and cash equivalents — All highly liquid investments purchased with an original maturity of three months or less are
considered to be cash equivalents� The carrying value approximates fair value because of the short maturity of these instruments�
Short- and long-term debt — Fair values are based on transaction prices at public exchange for publicly traded debt�
For debt instruments that are not publicly traded, fair values are based on interest rates that would be currently available to the
company for issuance of similar types of debt instruments with similar terms and remaining maturities�
Foreign exchange forward contracts — The company uses foreign exchange forward purchase and sale contracts with terms
of 18 months or less to hedge its exposure to changes in foreign currency exchange rates� The fair value of foreign exchange
forward contracts is based on a model which incorporates observable inputs including quoted spot rates, forward exchange
rates and discounted future expected cash flows utilizing market interest rates with similar quality and maturity characteristics�
For derivative instruments that are designated and qualify as cash flow hedges, changes in the fair value of the contracts are
recorded in AOCI in the Consolidated Statement of Shareholders’ Equity and is recognized in operating income when the underlying
forecasted transaction impacts earnings�
Foreign currency option contracts — The company uses option contracts to mitigate foreign exchange exposure on expected
future Indian Rupee-denominated purchases� As of September 30, 2019 and September 30, 2018, the notional amount of the
company’s Indian rupee foreign exchange contracts outstanding was $92 million and $180 million, respectively� The company did
not elect hedge accounting for these derivatives� Changes in fair value associated with these contracts are recorded in cost of sales
in the Consolidated Statement of Operations�
The company uses option contracts to mitigate foreign exchange exposure on expected future South Korean
won-denominated purchases� As of September 30, 2019 and September 30, 2018, the notional amount of the company’s
South Korean won foreign exchange option contracts outstanding was $47 million and $41 million, respectively� The company did
not elect hedge accounting for these derivatives� Changes in fair value associated with these contracts are recorded in cost of sales
in the Consolidated Statement of Operations�
The company uses foreign currency option contracts to mitigate foreign currency exposure on expected future Brazilian
real-denominated purchases� As of September 30, 2019, there were no Brazilian real foreign exchange option contracts
outstanding� As of September 30, 2018, the notional amount of the company’s Brazilian real foreign exchange option contracts
outstanding was $16 million� The company did not elect hedge accounting for these derivatives� Changes in fair value associated
with these contracts are recorded in cost of sales in the Consolidated Statement of Operations�
98
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 99
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The company uses option contracts to mitigate the risk of volatility in the translation of euro earnings to U�S� dollars� As of
September 30, 2019, the notional amount of the company’s euro foreign exchange option contracts outstanding was $28 million� As
of September 30, 2018, there were no euro foreign exchange option contracts outstanding� These option contracts did not qualify
for a hedge accounting election� Changes in fair value associated with these contracts are recorded in the Consolidated Statement
of Operations in other income, net�
The fair value of foreign exchange option contracts is based on third-party proprietary models, which incorporate inputs at
varying unobservable weights of quoted spot rates, market volatility, forward rates and time utilizing market instruments with similar
quality and maturity characteristics�
Cross-currency swap contracts — The company uses cross-currency swap contracts to hedge a portion of its net investment
in a foreign subsidiary against volatility in foreign exchange rates� These derivative instruments are designated and qualify as
hedges of net investments in foreign operations using the spot method to assess effectiveness� Settlements and changes in fair
values of the instruments are recognized in foreign currency translation adjustments, a component of other comprehensive income
(loss) on the Consolidated Statement of Comprehensive Income (Loss), to offset the changes in the values of the net investments
being hedged�
In the third quarter of fiscal year 2018, the company entered into multiple cross-currency swaps with a combined
notional amount of $225 million, which mature in May 2021� As of September 30, 2018, the notional amount of the company’s
cross-currency swap contracts outstanding was $225 million� These swaps hedged a portion of the net investment in a certain
European subsidiary against volatility in the euro/U�S� dollar foreign exchange rate�
In the third quarter of fiscal year 2019, the company unwound the cross-currency swaps and received proceeds
of $19 million, $2 million of which related to net accrued interest receivable� The company also entered into new multiple
cross-currency swaps with a combined notional amount of $225 million, with maturities in October 2022� As of September 30,
2019, the notional amount of the company’s cross-currency swap was $225 million� These swaps hedged a portion of the net
investment in a certain European subsidiary against volatility in the euro/U�S� dollar foreign exchange rate�
The fair value of cross-currency swap contracts is based on a model which incorporates observable inputs, including quoted
spot rates, forward exchange rates and discounted future expected cash flows, utilizing market interest rates with similar quality
and maturity characteristics�
The following table reflects the offsetting of derivative assets and liabilities (in millions):
September 30, 2019
September 30, 2018
Gross
Amounts
Recognized
Gross
Amounts
Offset
Net
Amounts
Reported
Gross
Amounts
Recognized
Gross
Amounts
Offset
Net
Amounts
Reported
Derivative Asset
Foreign exchange forward contract � � � � � � � � �
Cross-currency swaps � � � � � � � � � � � � � � � � � �
Derivative Liabilities
Foreign exchange forward contract � � � � � � � � �
Cross-currency swaps � � � � � � � � � � � � � � � � � �
—
—
—
—
—
10
—
5
2
6
—
—
—
—
—
—
2
6
—
—
—
10
—
5
99
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 100
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value
The current FASB guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value� The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical instruments (Level 1)
and the lowest priority to unobservable inputs (Level 3)� The three levels of the fair value hierarchy are described below:
• Level 1 inputs use quoted prices in active markets for identical instruments�
• Level 2 inputs use other inputs that are observable, either directly or indirectly� These Level 2 inputs include quoted prices
for similar instruments in active markets and other inputs such as interest rates and yield curves that are observable at
commonly quoted intervals�
• Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market
activity for the related instrument�
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value
measurements in their entirety are categorized based on the lowest priority level input that is significant to the valuation� The
company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers
factors specific to each asset or liability�
Fair value of financial instruments by the valuation hierarchy at September 30, 2019 is as follows (in millions):
Cash and cash equivalents � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign exchange forward contracts (asset) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign exchange forward contracts (liability) � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign currency option/collar contracts (other assets) � � � � � � � � � � � � � � � � � � � � � �
Cross-currency swaps (other assets) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cross-currency swaps (other liabilities)� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Level 1
$108
—
—
—
—
—
Level 2
$—
—
—
—
10
5
Fair value of financial instruments by the valuation hierarchy at September 30, 2018 is as follows (in millions):
Cash and cash equivalents � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign exchange forward contracts (asset) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign exchange forward contracts (liability) � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign currency option/collar contracts (other assets) � � � � � � � � � � � � � � � � � � � � � �
Cross-currency swap (other assets) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Level 1
$115
—
—
—
—
Level 2
$—
2
—
—
6
Level 3
$—
—
—
—
—
—
Level 3
$—
—
—
—
—
100
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 101
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tables below provide a reconciliation of changes in fair value of the Level 3 financial assets and liabilities measured at fair
value in the Consolidated Balance Sheet for the twelve months ended September 30, 2019 and September 30, 2018, respectively�
No transfers of assets between any of the Levels occurred during these periods�
Twelve months ended September 30, 2019 (in millions)
Fair Value as of September 30, 2018� � � � � � � � � � � � � � � � � � � �
Total unrealized gains (losses):
Included in other income � � � � � � � � � � � � � � � � � � � � � � � � � � �
Included in cost of sales � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total realized gains (losses):
Included in other income � � � � � � � � � � � � � � � � � � � � � � � � � � �
Included in cost of sales � � � � � � � � � � � � � � � � � � � � � � � � � � �
Purchases, issuances, sales and settlements:
Purchases � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Settlements � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Transfer in and / or out of Level 3 (1) � � � � � � � � � � � � � � � � � � � �
Reclass between short-term and long-term � � � � � � � � � � � � � � �
Fair Value as of September 30, 2019� � � � � � � � � � � � � � � � � � � �
(1)
Transfers as of the last day of the reporting period
Twelve months ended September 30, 2018 (in millions)
Fair Value as of September 30, 2017� � � � � � � � � � � � � � � � � � � �
Total unrealized gains (losses):
Included in other income � � � � � � � � � � � � � � � � � � � � � � � � � � �
Included in cost of sales � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total realized gains (losses):
Included in other income � � � � � � � � � � � � � � � � � � � � � � � � � � �
Included in cost of sales � � � � � � � � � � � � � � � � � � � � � � � � � � �
Purchases, issuances, sales and settlements:
Purchases � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Settlements � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Transfer in and / or out of Level 3 (1) � � � � � � � � � � � � � � � � � � � �
Reclass between short-term and long-term � � � � � � � � � � � � � � �
Fair Value as of September 30, 2018� � � � � � � � � � � � � � � � � � � �
(1)
Transfers as of the last day of the reporting period
Short-term foreign
currency option
contracts (asset)
$—
Long-term foreign
currency option
contracts (asset)
$—
(1)
1
1
—
—
(1)
—
—
$—
—
—
—
—
—
—
—
—
$—
Short-term foreign
currency option/
collar contracts
(asset)
$ 2
Long-term foreign
currency option/
collar contracts
(asset)
$ 1
—
(1)
1
—
—
(2)
—
—
$—
—
(1)
—
—
—
—
—
—
$—
Total
$—
(1)
1
1
—
—
(1)
—
—
$—
Total
$ 3
—
(2)
1
—
—
(2)
—
—
$—
101
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 102
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
20. SHAREHOLDERS’ EQUITY
There were no dividends declared or paid by the company in fiscal years 2019, 2018 or 2017. The payment of cash dividends
and the amount of any dividend are subject to review and change at the discretion of the company’s Board of Directors.
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 2 million shares are designated as Series A Junior Participating Preferred
Stock (“Junior Preferred Stock”). No shares of Preferred Stock or Junior Preferred Stock have been issued.
In the first quarter of fiscal year 2018, the company filed a shelf registration statement with the SEC, registering an
indeterminate amount of debt and/or equity securities that may be offered in one or more offerings on terms to be determined at
the time of sale.
The company has reserved approximately 13 million shares of common stock in connection with its 2010 Long-Term
Incentive Plan, as amended (“LTIP”) for grants of non-qualified stock options, incentive stock options, stock appreciation rights,
restricted stock, performance shares, restricted share units and stock awards to key employees and directors. At September 30,
2019, there were 2.9 million shares available for future grants under the LTIP.
Repurchase Authorizations
On July 26, 2019, the Board of Directors authorized the repurchase of up to $250 million of the company’s common stock
from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal
and regulatory requirements and the company’s debt covenants. This authorization supersedes the remaining authority under
the prior November 2018 equity repurchase authorization described below. During fiscal year 2019, the company repurchased
1.3 million shares of common stock for $25 million (including commission costs) pursuant to the common stock repurchase
authorization. As of September 30, 2019, the amount remaining available for repurchases was $225 million under this common
stock repurchase authorization. On November 7, 2019, the Board of Directors increased the amount of this repurchase authorization
to $325 million.
On November 2, 2018, the Board of Directors authorized the repurchase of up to $200 million of the company’s common
stock and up to $100 million aggregate principal amount of any of the company’s debt securities (including convertible debt
securities), in each case from time to time through open market purchases, privately negotiated transactions or otherwise, subject
to compliance with legal and regulatory requirements and the company’s debt covenants. During fiscal year 2019, the company
repurchased 4.0 million shares of common stock for $71 million (including commission costs) pursuant to the common stock
repurchase authorization. As of September 30, 2019, the amount remaining available for debt repurchases was $76 million under
the debt repurchase authorization. This authorization superseded the remaining authority under the prior July 2016 repurchase
authorizations.
On July 21, 2016, the Board of Directors authorized the repurchase of up to $100 million of the company’s common stock
and up to $150 million aggregate principal amount of any of the company’s debt securities (including convertible debt securities),
in each case from time to time through open market purchases, privately negotiated transactions or otherwise, until September 30,
2019, subject to compliance with legal and regulatory requirements and the company’s debt covenants.
During fiscal year 2018, the company repurchased 4.5 million shares of common stock for $100 million (including
commission costs), pursuant to the July 2016 common stock repurchase authorization. The repurchase program under the
July 2016 authorization was complete as of September 30, 2018. The amount remaining available for repurchases under the debt
repurchase authorization was $50 million as of September 30, 2018. There was an insignificant amount of common stock and
$100 million in debt security repurchases that were made under these authorizations during fiscal year 2017.
102
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 103
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accumulated Other Comprehensive Income (AOCI)
The components of AOCI as reported in the Consolidated Balance Sheet and Statement of Equity (Deficit), and the changes
in AOCI by components, net of tax, are as follows (in millions):
Foreign
Currency
Translation
Employee
Benefit
Related
Adjustments
Unrealized
Income
(Loss) on
cash flow
hedges
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassification . . . . . .
Amounts reclassified from accumulated other
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income (loss) . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . .
$ (90)
(17)
—
$ (17)
$(107)
$(476)
(100)
4
$ (96)
$(572)
$—
2
(4)
$ (2)
$ (2)
Details about Accumulated Other Comprehensive Income Components
Employee Benefit Related Adjustment
Amortization of prior service costs. . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . .
Total reclassifications for the period . . . . . . . . . . . . . . . . . . . . . . .
Amount
Reclassified from
Accumulated Other
Comprehensive
Income
$(35)
39
4
—
$ 4
$ 4
Affected Line Item
in the Consolidated
Statement of
Operations
(a)
(a)
Total before tax
Tax (benefit) expense
Net of tax
Net of tax
Total
$(566)
(115)
—
$(115)
$(681)
(a)
These accumulated other comprehensive income components are included in the computation of net periodic pension and
retiree medical expense (see Notes 22 and 23 for additional details), which is recorded in other income (expense), net.
Foreign
Currency
Translation
Employee
Benefit
Related
Adjustments
Unrealized
Income
(Loss) on
cash flow
hedges
Balance at September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassification . . . . . .
Amounts reclassified from accumulated other
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income (loss) . . . . . . . . .
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . .
$ (41)
(49)
—
$ (49)
$ (90)
$(500)
$ (4)
8
16
$ 24
$(476)
3
1
$ 4
$—
Total
$(545)
(38)
17
$ (21)
$(566)
103
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 104
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
Details about Accumulated Other Comprehensive Income Components
Employee Benefit Related Adjustment
Amortization of prior service costs. . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . .
Recognized prior service costs and actuarial losses due
to settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total reclassifications for the period . . . . . . . . . . . . . . . . . . . . . . .
Amount
Reclassified from
Accumulated Other
Comprehensive
Income
Affected Line Item
in the Consolidated
Statement of
Operations
$(35)
$ 46
6
17
(1)
$ 16
$ 16
(a)
(a)
(a)
Total before tax
Tax (benefit) expense
Net of tax
Net of tax
(a)
These accumulated other comprehensive income components are included in the computation of net periodic pension and
retiree medical expense (see Notes 22 and 23 for additional details), which is recorded in other income (expense), net.
Foreign
Currency
Translation
Employee
Benefit
Related
Adjustments
Unrealized
Income
(Loss) on
cash flow
hedges
Balance at September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . .
$ (66)
Other comprehensive income (loss) before reclassification . . . . . .
Amounts reclassified from accumulated other
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income (loss) . . . . . . . . .
Balance at September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . .
25
—
$ 25
$ (41)
$(740)
200
40
$ 240
$(500)
$ (3)
(1)
—
$ (1)
$ (4)
Details about Accumulated Other Comprehensive Income Components
Employee Benefit Related Adjustment
Amortization of prior service costs. . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . .
Total reclassifications for the period . . . . . . . . . . . . . . . . . . . . . . .
Amount
Reclassified from
Accumulated Other
Comprehensive
Income
$ (5)
45
40
(12)
$ 28
$ 28
Affected Line Item
in the Consolidated
Statement of
Operations
(a)
(a)
Total before tax
Tax (benefit) expense
Net of tax
Net of tax
Total
$(809)
224
40
$ 264
$(545)
(a)
These accumulated other comprehensive income components are included in the computation of net periodic pension and
retiree medical expense (see Notes 22 and 23 for additional details), which is recorded in other income (expense), net.
104
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 105
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
21. EQUITY BASED COMPENSATION
Stock Options
Under the company’s incentive plans, stock options are typically granted at prices equal to the fair value on the grant date
and have a maximum term of 10 years. Stock options generally vest over a three-year period from the grant date. There were
0.2 million stock options that were exercised in fiscal year 2017. No stock options were granted or exercised during fiscal year
2018. No stock options were granted in fiscal year 2017. There were no stock options outstanding as of September 30, 2019 and
September 30, 2018.
Stock-based compensation is measured at the grant date based on the fair value of the award and is generally recognized
as expense ratably on a straight-line basis over the requisite service period, which is generally the vesting period of the respective
award. No compensation cost is ultimately recognized for awards for which employees do not render the requisite service and that
are forfeited.
Compensation expense is recognized for the non-vested portion of previously issued stock options. No compensation
expense associated with the expensing of stock options was recognized in fiscal years 2019, 2018 or 2017.
Restricted Stock and Restricted Share Units
The company has granted shares of restricted stock and restricted share units to certain employees and non-employee
members of the Board of Directors in accordance with the existing plans. The company measures the grant date fair value of these
stock-based awards at the market price of the company’s common stock as of the date of the grant. Employee awards typically
vest at the end of three years and are subject to continued employment by the employee. Compensation cost associated with
stock-based awards is recognized ratably over the vesting period. Cash dividends on the restricted stock, if any, are reinvested in
additional shares of common stock during the vesting period.
The following is a rollforward of the company’s non-vested restricted stock and restricted share units as of September 30,
2019, and the activity during fiscal year 2019 is summarized as follows (shares in thousands):
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
1,464
523
(563)
(104)
1,320
Weighted-Average
Grant-Date Fair
Value
$14.59
17.24
9.78
16.86
17.55
In fiscal years 2019, 2018 and 2017, the company granted 0.5 million, 0.4 million, and 0.6 million shares of restricted
stock and restricted share units, respectively. The grant date weighted average fair value of these restricted share units was
$17.24, $24.93 and $13.29 for shares of restricted stock and restricted share units granted in fiscal years 2019, 2018 and 2017,
respectively. The number of non-vested restricted shares and restricted share units as of September 30, 2019 was 1.3 million. The
per share weighted average fair value of these non-vested shares was $17.55.
As of September 30, 2019, there was $7 million of total unrecognized compensation costs related to non-vested restricted
shares and restricted share units. These costs are expected to be recognized over a weighted average period of 1.69 years. Total
compensation expense recognized for restricted stock and restricted share units was $8 million, $8 million and $7 million in fiscal
years 2019, 2018 and 2017, respectively.
105
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 106
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Performance Share Units
The company has granted performance share units to all executives eligible to participate in the LTIP. The company measures
the grant date fair value of these units-based awards at the market price of the company’s common stock as of the date of the
grant. Compensation cost associated with these stock-based awards is recognized ratably over the vesting period.
In November 2018, the Board of Directors approved a grant of performance share units to all executives eligible to participate
in the LTIP. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon
achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $16.50, which
was the company’s share price on the grant date of December 1, 2018. The Board of Directors also approved a grant of 0.4 million
restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon
termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $16.50,
which was the company’s share price on the grant date of December 1, 2018.
The actual number of performance share units that will vest depends upon the company’s performance relative to the
established performance metrics for the three-year performance period of October 1, 2018 to September 30, 2021, measured at
the end of the performance period. The number of performance share units that vest will depend on adjusted EBITDA margin and
adjusted diluted earnings per share from continuing operations at the following weights: 50% associated with achieving an adjusted
EBITDA margin target and 50% associated with achieving an adjusted diluted earnings per share from continuing operations
target. The number of performance share units that vest will be between 0% and 200% of the grant date amount of 0.5 million
performance share units.
In November 2017, the Board of Directors approved a grant of performance share units to all executives eligible to participate
in the LTIP. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon
achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $24.79, which
was the company’s share price on the grant date of December 1, 2017. The Board of Directors also approved a grant of 0.3 million
restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon
termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $24.79,
which was the company’s share price on the grant date of December 1, 2017.
The actual number of performance share units that will vest depends upon the company’s performance relative to the
established performance metrics for the three-year performance period of October 1, 2017 to September 30, 2020, measured at
the end of the performance period. The actual number of performance share units that will vest will depend on adjusted EBITDA
margin and adjusted diluted earnings per share from continuing operations at the following weights: 50% associated with achieving
an adjusted EBITDA margin target and 50% associated with achieving an adjusted diluted earnings per share from continuing
operations target. The number of performance share units that vest will be between 0% and 200% of the grant date amount of
0.3 million performance share units.
In November 2016, the Board of Directors approved a grant of performance share units to all executives eligible to participate
in the LTIP. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon
achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $12.77, which
was the company’s share price on the grant date of December 1, 2016. The Board of Directors also approved a grant of 0.5 million
restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon
termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $12.77,
which was the company’s share price on the grant date of December 1, 2016.
The actual number of performance share units that vested depended upon the company’s performance relative to the
established M2019 goals for the three-year performance period of October 1, 2016 to September 30, 2019, which was measured
at the end of the performance period.
106
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 107
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a rollforward of the company’s non-vested performance share units as of September 30, 2019, and the
activity during fiscal year 2019 is summarized as follows (shares in thousands):
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
1,612
1,172
(1,305)
(154)
1,325
Weighted-Average
Grant-Date Fair
Value
$14.18
13.39
10.23
16.75
17.08
There were 1.2 million performance share units granted during fiscal 2019 which includes the performance achievement
of 0.6 million performance share units related to the fiscal year 2016 to 2018 LTIP cycle. There were 1.3 million of non-vested
performance shares as of September 30, 2019. The per share weighted average fair value of the performance share units was
$17.08 as of September 30, 2019.
For the years ended September 30, 2019, 2018 and 2017, compensation cost recognized related to the performance
share units was $10 million, $14 million and $14 million, respectively. As of September 30, 2019, there were $9 million of total
unrecognized compensation costs related to non-vested performance share unit equity compensation arrangements. These costs
are expected to be recognized over a weighted average period of 1.69 years.
22. RETIREMENT MEDICAL PLANS
The company has retirement medical plans that cover certain of its U.S. and non-U.S. employees, including certain employees
of divested businesses, and provide for medical payments to eligible employees and dependents upon retirement. These plans
are unfunded.
On September 8, 2017, the company determined to modify the benefits provided to certain former union employee retirees.
Under these modifications, which may be amended at the company’s discretion at any time, the company expects to provide
(i) each retiree over the age of 65 with a defined contribution of $4,000 annually and (ii) each retiree under the age of 65 with a
level of benefits generally equivalent to those currently provided to the company’s active employees, in each case and as currently
contemplated, for a period of seven years. These benefit modifications generated a $315 million prior service credit in September
2017, which will be amortized over the retirees’ average life expectancy, which is currently estimated to be 9 years.
On September 23, 2019, the Company notified certain medical plan participants that it will amend the benefits provided to
these former union employee retirees. Under these modifications, which may be amended at the company’s discretion at any time,
the company reduced the defined contribution to $3,000 in 2020, decreasing by $600 each year thereafter until 2024. These
benefit modifications generated a $15 million prior service credit in September 2019, which will be amortized over the retirees’
average life expectancy, which is currently estimated to be 9 years.
The mortality assumptions for participants in the company’s U.S. plans incorporates future mortality improvements from
tables published by the Society of Actuaries (“SOA”). The company reviewed the new SOA mortality and mortality improvement
tables and utilized an actuary to conduct a study based on the company’s plan participants. The company determined that the best
representation of the plans’ mortality is to utilize the new SOA mortality and mortality improvement tables as the reference table
for credibility-weighted mortality rates, blended with company-specific mortality based on the study conducted by the actuary. The
company considers improvement scales released annually by the SOA.
107
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 108
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The company’s retiree medical obligations were measured as of September 30, 2019, 2018, and 2017. The following are the
assumptions used in the measurement of the accumulated postretirement benefit obligation (“APBO”) and retiree medical expense:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health care cost trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ultimate health care trend rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ultimate rate is reached . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2.98%
6.36%
4.69%
2028
2018
4.05%
6.18%
4.63%
2024
2017
3.32%
6.52%
4.65%
2024
The assumptions noted above are used to calculate the APBO for each fiscal year end and retiree medical expense for the
subsequent fiscal year.
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 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 company’s projection for fiscal year 2020 health care cost trend rate is 6.36 percent.
The APBO as of the September 30, 2019 and 2018 measurement dates are summarized as follows (in millions):
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees eligible to retire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$ 67
—
$ 67
2018
$ 86
—
$ 86
The following reconciles the change in APBO and the amounts included in the Consolidated Balance Sheet for years ended
September 30, 2019 and 2018, respectively (in millions):
APBO — beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency rate changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APBO — end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retiree medical liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$ 86
3
4
(15)
—
(11)
67
$ 67
2018
$ 104
3
(5)
—
(1)
(15)
86
$ 86
(1)
Net of subsidies and rebates available under Employer Group Waiver Plan (“EGWP”).
Actuarial losses(gains) relate to changes in the discount rate and other actuarial assumptions. In accordance with
ASC Topic 715, “Compensation – Retirement Benefits”, 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 lifetime of inactive participants of
approximately 9 years.
108
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 109
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The retiree medical liability is included in the Consolidated Balance Sheet as follows (in millions):
Current — included in compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term — included in retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retiree medical liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
2019
$ 13
$11
73
56
$ 86
$67
The following table summarizes the amounts included in AOCL net of tax related to retiree medical liabilities as of
September 30, 2019 and 2018 and changes recognized in Other Comprehensive Income (Loss) net of tax for the years ended
September 30, 2019 and 2018.
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized prior service costs due to plan amendment . . . . . . . . . . . . . .
Amortization for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial gain for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net
Actuarial
Loss
$ 76
4
—
(15)
5
$ 70
$ 92
(5)
(17)
6
$ 76
Prior
Service
Cost
(Benefit)
$(178)
—
(15)
35
(7)
$(165)
$(203)
—
35
(10)
$(178)
Total
$(102)
4
(15)
20
(2)
$ (95)
$(111)
(5)
18
(4)
$(102)
The net actuarial loss and prior service benefit that are estimated to be amortized from AOCL into net periodic retiree medical
income in fiscal year 2020 are $14 million and $36 million, respectively.
The components of retiree medical expense for the years ended September 30 are as follows (in millions):
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of:
2017
2018
2019
$ — $ — $—
14
3
3
Prior service benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retiree medical (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35)
15
$(17 )
(35)
17
$(15 )
(5)
15
$ 24
109
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 110
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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):
Effect on total service and interest cost
2019
2018
1% Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1% Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $ —
—
—
Effect on APBO
1% Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1% Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
(4)
4
(4)
The company expects future benefit payments as follows (in millions):
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2025 – 2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross
Benefit
Payments
$11
9
8
6
5
14
Gross
Receipts (1)
$—
—
—
—
—
1
(1)
Consists of subsidies and rebates available under EGWP.
23. RETIREMENT PENSION PLANS
The company sponsors defined benefit pension plans that cover certain of its U.S. and 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.
The mortality assumptions for participants in the company’s U.S. plans incorporates future mortality improvements from
tables published by the SOA. The company reviewed the new SOA mortality and mortality improvement tables and utilized an
actuary to conduct a study based on the company’s plan participants. The company determined that the best representation of the
plans’ mortality is to utilize the new SOA mortality and mortality improvement tables as the reference table for credibility-weighted
mortality rates, blended with company specific mortality based on the study conducted by the actuary.
On August 1, 2010, the company amended its defined benefit pension plan in the United Kingdom to cease the accrual of
future benefits for all of its active plan participants. Subsequent to the freeze date, the company began making contributions to its
defined contribution savings plan on behalf of the affected employees. The amount of the savings plan contribution is based on a
percentage of the employees’ pay. These changes did not affect then-current retirees. The company began recording the impact
of the plan freeze in the fourth quarter of fiscal year 2010. Subsequent to the plan freeze, accumulated actuarial losses are being
amortized into net periodic pension expense over the average life expectancy of inactive plan participants of approximately 26 years
rather than over their remaining average service life.
The U.K. pension program provides participants with the election to receive a lump-sum settlement of their remaining
pension benefit that, if accepted, would settle the company’s obligation to them. The company recognized a $6 million settlement
loss during the fourth quarter of fiscal year 2018 associated with these payouts.
110
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 111
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In April 2007, the company announced a freeze of its defined benefit pension plan for salaried and non-represented
employees in the United States, effective January 1, 2008. The change affected approximately 3,800 employees including certain
employees who continued to accrue benefits for an additional transition period, ending June 30, 2011. After these freeze dates,
the company started making additional contributions to its defined contribution savings plan on behalf of the affected employees.
The amount of the savings plan contribution is based on a percentage of the employees’ pay, with the contribution percentage
increasing as a function of employees’ age. These changes do not affect plan participants who had retired prior to the freeze dates
or represented employees. Accumulated actuarial losses are being amortized into net periodic pension expense over the average
life expectancy of inactive plan participants of approximately 16 years.
In June 2013, the company amended its U.S. Retirement Plan to allow all terminated vested participants with an accrued
benefit of $5,000 or less to receive a full lump-sum distribution of their benefit. The lump-sum amounts were rolled into individual
retirement accounts for those participants that had an accrued benefit of $1,000 to $5,000 who did not make an affirmative
election to receive their benefits. For those participants with an accrued benefit of less than $1,000, the benefits were automatically
distributed to the participant.
Effective October 2014, the company amended the U.S. Retirement Plan to include an additional distribution option in the
form of a lump sum benefit from the plan. The majority of plan members are eligible for this distribution option following termination
or when making their retirement payment election. The lump sum benefit equals the present value of a member’s vested accrued
benefit paid in one lump sum payment.
The company’s pension obligations are measured as of September 30, 2019, 2018 and 2017. The U.S. plans include
qualified and non-qualified pension plans. The company’s only significant remaining non-U.S. plan is located in the United Kingdom.
The following are the significant assumptions used in the measurement of the projected benefit obligation (“PBO”) and net
periodic pension expense:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed return on plan assets (beginning of the year) . . . . . .
2019
3.10% — 3.15%
7.75%
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed return on plan assets (beginning of the year) . . . . . .
2019
1.80%
6.00%
U.S. Plans
2018
4.30%
7.75%
U.K. Plan
2018
2.90%
6.00%
2017
3.70% — 3.75%
7.75%
2017
2.80%
6.00%
The discount rate is used to calculate the present value of the PBO at the balance sheet date and net periodic pension
expense for the subsequent fiscal year. The rate used reflects a rate of return on high-quality fixed income investments that match
the duration of expected benefit payments. Generally, the company uses a portfolio of long-term corporate AA/Aa bonds that match
the duration of the expected benefit payments, except for the company’s U.K. pension plan which uses an annualized yield curve,
to establish the discount rate for this assumption.
The assumed return on plan assets is used to determine net periodic pension expense. The rate of return assumptions are
based on projected long-term market returns for the various asset classes in which the plans are invested, weighted by the target
asset allocations. An incremental amount for active plan asset management and diversification, where appropriate, is included in
the rate of return assumption. The return assumption is reviewed annually.
The rate of compensation increase represents the long-term assumption for expected increases to salaries for pay-related
plans. The accompanying disclosures include pension obligations associated with businesses classified as discontinued operations.
111
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 112
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reconciles the change in the PBO, the change in plan assets and amounts included in the Consolidated
Balance Sheet for the years ended September 30, 2019 and 2018, respectively (in millions):
PBO — beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency rate changes. . . . . . . . . . . . . . . . . . . . .
PBO — end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in plan assets
Fair value of assets — beginning of year . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency rate changes. . . . . . . . . . . . . . . . . . . . .
Fair value of assets — end of year . . . . . . . . . . . . . . . . . . .
Funded status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.
$ 922
37
122
—
—
—
(75)
—
$ 1,006
$ 744
67
5
—
(75)
—
$ 741
$ (265)
2019
Non-U.S.
$ 554
16
111
8
1
(3)
(30)
(36)
$ 621
$ 702
139
—
(3)
(30)
(44)
$ 764
$ 143
Total
$ 1,476
53
233
8
1
(3)
(105)
(36)
$ 1,627
$ 1,446
206
5
(3)
(105)
(44)
$ 1,505
$ (122)
U.S.
$ 1,036
38
(70)
—
—
—
(82)
—
$ 922
$ 821
—
5
—
(82)
—
$ 744
$ (178)
2018
Non-U.S.
$ 599
16
(9)
—
—
(18)
(19)
(15)
$ 554
$ 730
32
1
(22)
(19)
(20)
$ 702
$ 148
Total
$ 1,635
54
(79)
—
—
(18)
(101)
(15)
$ 1,476
$ 1,551
32
6
(22)
(101)
(20)
$ 1,446
(30)
$
Amounts included in the Consolidated Balance Sheet at September 30, 2019 and 2018 are comprised of the following
(in millions):
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement benefits-non-current . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . .
2019
Non-U.S.
U.S.
$ — $149
—
(6)
$143
(5)
(260)
$(265)
Total
$ 149
(5)
(266)
$(122)
2018
Non-U.S.
U.S.
$ — $152
—
(4)
$148
(5)
(173)
$(178)
Total
$ 152
(5)
(177)
$ (30)
112
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 113
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables summarize the amounts included in AOCL net of tax related to pension liabilities as of September 30,
2019 and 2018 and changes recognized in Other Comprehensive Income (Loss) net of tax for the year ended September 30, 2019.
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Actuarial Loss
Non-U.S.
$184
20
(4)
—
$200
Total
$578
133
(24)
(20)
$667
U.S.
$394
113
(20)
(20)
$467
Balance at September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial gain for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$418
(11)
(23)
10
—
$394
$193
3
(6)
—
(6)
$184
$611
(8)
(29)
10
(6)
$578
The company estimates that $32 million of net actuarial losses will be amortized from AOCL into net periodic pension expense
during fiscal year 2020. The non-current portion of the pension liability is included in Retirement Benefits in the Consolidated
Balance Sheet as follows (in millions):
Pension liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retiree medical liability — long term (see Note 22). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2019
2018
$266 $177
73
12
$336 $262
56
14
In accordance with FASB guidance, the PBO, accumulated benefit obligation (“ABO”) and fair value of plan assets are
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):
PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ABO. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan Assets . . . . . . . . . . . . . . . . . . . . . .
ABO
Exceeds
Assets
$ 1,012
1,012
741
2019
Assets
Exceed
ABO
$ 615
615
764
ABO
Exceeds
Assets
$ 926
926
744
Total
$1,627
1,627
1,505
2018
Assets
Exceed
ABO
$ 550
550
702
Total
$1,476
1,476
1,446
113
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 114
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of net periodic pension expense are as follows (in millions):
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of —
2019
2017
2018
$ — $ — $ —
53
54
(96)
(99)
53
(97)
Actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic pension income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
—
$(20)
29
6
$(10)
30
—
$(13)
Disclosures on investment policies and strategies, categories of plan assets, fair value measurements of plan assets, and
significant concentrations of risk are included below.
Investment Policy and Strategy
The company’s primary investment objective for its pension plan assets is to generate a total investment return sufficient
to meet present and future benefit payments while minimizing the company’s cash contributions over the life of the plans. In
order to accomplish this objective, the company maintains target allocations to identify and manage exposures. The target asset
allocation ranges for the U.S. plan are 20–50 percent equity investments, 30–60 percent fixed income investments and 10–25
percent alternative investments. Alternative investments include private equities, real estate, hedge funds, diversified growth
funds, and partnership interests. The target asset allocation ranges for the non-U.S. plans are 15–35 percent equity investments,
30–60 percent fixed income investments, 0–10 percent real estate and 10–30 percent alternative investments.
Investment strategies and policies for the company’s pension plan assets reflect a balance of risk-reducing and return-
seeking considerations. The objective of minimizing the volatility of assets relative to liabilities is addressed primarily through
asset diversification. Assets are broadly diversified across several asset classes to achieve risk-adjusted returns that accomplish
this objective.
The majority of pension plan assets are externally managed through active managers. Managers are only permitted to invest
within established asset classes and follow the strategies for which they have been appointed. The company uses investment
guidelines and reviews asset returns and investment decisions made by the managers to ensure that they are in accordance with
the company’s strategies.
Concentration of Risk
The company seeks to mitigate risks relative to performance of the plan assets. Assets are invested in various classes
with different risk and return characteristics in order to ensure that they are sufficient to pay benefits. The company’s investment
strategies incorporate a return-seeking approach through equity and alternative investments, while seeking to minimize the volatility
of the plans’ assets relative to its liabilities through investments in fixed income securities. The significant areas of risk related to
these strategies include equity, interest rate, and operating risk.
A portion of plan assets is allocated to equity and alternative investments that are expected, over time, to earn higher returns.
Within this return-seeking portfolio, asset diversification is utilized to reduce uncompensated risk.
Plan assets are also allocated to fixed income investments, which seek to minimize interest rate risk volatility relative to
pension liabilities. The fixed income portfolio partially matches the long-dated nature of the pension liabilities reducing interest
rate risk. Interest rate decreases generally increase the value of fixed income assets, partially offsetting the related increase in the
liabilities, while interest rate increases generally result in a decline in the value of fixed income assets while reducing the present
value of the liabilities.
114
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 115
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Operating risks consist of the risks of inadequate diversification and weak controls. The company has established policies
and procedures in order to mitigate this risk by monitoring investment manager performance, reviewing periodic compliance
information, and ensuring that the plans’ managers invest in accordance with the company’s investment strategies.
Fair Value of Investments
The current FASB guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1) and
the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
• Level 1 inputs use quoted prices in active markets for identical assets that the Plan has the ability to access.
• Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted
prices for similar assets in active markets and other inputs such as interest rates and yield curves that are observable at
commonly quoted intervals.
• Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market
activity for the related asset.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value
measurements in their entirety are categorized based on the lowest priority level input that is significant to the valuation. The
company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers
factors specific to each asset or liability.
Following are descriptions, valuation methodologies and other information related to plan assets.
Cash and cash equivalents: The fair value of cash and cash equivalents is valued at cost.
Equity Securities: The overall equity category includes common and preferred stocks issued by U.S. and international
companies as well as equity funds that invest in these instruments. All investments generally allow near-term (within 90 days
of the measurement date) liquidity and are held in issues that are actively traded to facilitate transactions at minimum cost. The
aggregate equity portfolio is diversified to avoid exposure to any investment strategy, single economic sector, industry group, or
individual security.
The fair value of equity securities is determined by either direct or indirect quoted market prices. When the value of assets
held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market
prices on regulated financial exchanges.
Most of the equity investments allow daily redemptions, with some providing monthly liquidity or requiring a 30-day notice.
Fixed Income Securities: The overall fixed income category includes U.S. dollar-denominated and international marketable
bonds and convertible debt securities as well as fixed income funds that invest in these instruments. All assets generally allow near-
term liquidity and are held in issues which are actively traded to facilitate transactions at minimum cost. The aggregate fixed income
portfolio is diversified to avoid exposure to any investment strategy, maturity, issuer or credit quality.
The fair value of fixed income securities is determined by either direct or indirect quoted market prices. When the value of
assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted
market prices on regulated financial exchanges.
U.S. fixed income securities typically offer daily liquidity, with only one investment allowing quarterly redemptions. International
and emerging fixed income investment vehicles generally provide daily liquidity.
Commingled Funds: The fair value of commingled funds is determined by a custodian. The custodian obtains valuations from
underlying fund managers based on market quotes for the most liquid assets and alternative methods for assets that do not have
sufficient trading activity to derive prices. The company and custodian review the methods used by the underlying managers to
value the assets.
115
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 116
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Real Estate: Real estate provides an indirect investment into a diversified and multi-sector portfolio of property assets. The
fair value of real estate investments is valued by the fund managers. The fund managers value the real estate investments via
independent third-party appraisals on a periodic basis. Assumptions used to revalue the properties are updated every quarter. For
the component of the real estate portfolio under development, the investments are carried at cost, which approximates fair value,
until they are completed and valued by a third-party appraiser.
Due to the long-term nature of real estate investments, liquidity is provided on a quarterly basis.
Futures Contracts: The plan enters into futures contracts in the normal course of its investing activities to manage market
risk and to achieve overall investment portfolio objectives. The credit risk associated with these contracts is minimal as they are
traded on organized exchanges and settled daily. The fair value of futures contracts is determined by direct quoted market prices.
Cash margin for these futures contracts is included in Cash and Cash Equivalents in the leveling table.
Alternatives/Partnerships/Private Equity: This category includes investments in private equity and hedge funds. Such
investments may be made directly or through pooled funds, including fund of funds structures. The fair market value of the
company’s interest in partnerships and private equity is valued by the fund managers. The valuation is based on the net present
value of observable inputs (dividends, cash flows, earnings, etc.), which are discounted at applicable discount rates. The company
and custodian review the methods used by the underlying managers to value the assets.
Most of these investments offer quarterly redemption opportunities. Some partnerships and private equity investments, due
to the nature of their investment strategy and underlying holdings, offer less frequent liquidity. When available, liquidity events are
closely evaluated.
The valuation methods described above may produce a fair value calculation that may not be indicative of net realizable value
or reflective of future fair values. Furthermore, while the company believes its valuation methods are appropriate and consistent
with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
116
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 117
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of plan assets at September 30, 2019 by asset category is as follows (in millions):
U.S. Plans
Asset Category
Equity investments
U.S. – Large cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. – Small cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investments measured at net asset value (1). . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments
U.S. fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emerging fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partnerships fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments measured at net asset value (1) . . . . . . . . . . . . . . . . . . . .
Total fixed income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternatives – Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternatives – Partnerships measured at net asset value (1) . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. Plans
Asset Category
Equity investments
International equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments
Other fixed income investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments measured at net asset value (1) . . . . . . . . . . . . . . . . . . . .
Total fixed income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commingled funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative investments measured at net asset value (1) . . . . . . . . . . . . . . . . . . . . . .
Real estate measured at net asset value (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
Level 1
Level 2
Level 3
Total
$ 38
15
—
21
—
$ 74
$
3
—
12
—
$ 15
—
—
—
$ 89
$ —
—
—
—
—
$ —
$233
16
—
—
$249
—
—
39
$288
$ — $ 38
15
—
19
19
—
21
— 154
$247
$ 19
—
—
—
$ — $236
16
12
27
$ — $291
86
78
39
$741
86
—
—
$105
2019
Level 1
Level 2
Level 3
Total
$170
$170
$
$
6
—
6
—
—
—
—
$176
$ —
$ —
$222
—
$222
3
—
—
12
$237
$ — $170
$ — $170
$ — $228
— 189
$ — $417
—
3
— 124
38
—
12
—
$ — $764
(1)
In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share
(or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented
in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of
financial position.
117
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 118
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of plan assets at September 30, 2018 by asset category is as follows (in millions):
U.S. Plans
Asset Category
Equity investments
U.S. – Large cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. – Small cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investments measured at net asset value (1). . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments
U.S. fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emerging fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partnerships fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments measured at net asset value (1) . . . . . . . . . . . . . . . . . . . .
Total fixed income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternatives – Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternatives – Partnerships measured at net asset value (1) . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. Plans
Asset Category
Equity investments
International equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments
Other fixed income investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments measured at net asset value (1) . . . . . . . . . . . . . . . . . . . .
Total fixed income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commingled funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative investments measured at net asset value (1) . . . . . . . . . . . . . . . . . . . . . .
Real estate measured at net asset value (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
Level 1
Level 2
Level 3
Total
$ 51
24
—
29
—
$104
$
1
—
13
—
$ 14
—
—
—
$118
$ —
—
—
—
—
$ —
$164
20
—
—
$184
—
—
32
$216
$ — $ 51
24
—
17
17
—
29
— 191
$312
$ 17
—
—
—
$ — $165
20
13
34
$ — $232
83
85
32
$744
83
—
—
$100
2018
Level 1
Level 2
Level 3
Total
$171
$171
$
$
5
—
5
—
—
—
—
$176
$ —
$ —
$145
—
$145
5
—
—
4
$154
$ — $171
$ — $171
$ — $150
— 194
$ — $344
—
5
— 137
41
—
4
—
$ — $702
(1)
In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share
(or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented
in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of
financial position.
118
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 119
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unfunded Commitment
As of September 30, 2019, the U.S. plan had $13 million of unfunded investment commitments related to plan assets. The
majority of this amount is attributed to partnership investments that the plan will invest in gradually over the course of several years.
Non-U.S. plans currently do not have any unfunded commitments.
The following table summarizes the changes in Level 3 pension plan assets measured at fair value on a recurring basis for
the year ended September 30, 2019 (in millions):
U.S. Plans
2019
Fair Value at
October 1,
2018
Return on Plan Assets:
Attributable to
Assets Held at
September 30, 2019
Purchases
Settlements
Net
Transfers
Into (Out of)
Level 3
Fair Value at
September 30,
2019
Asset Category
Private equity . . . . . . . . . . . . . .
Alternatives –
Partnerships. . . . . . . . . . . . .
Total Level 3 fair value. . . . . . . .
$ 17
83
$100
$ 2
4
$ 6
$ —
—
$ —
$ —
(1)
$ (1)
$ —
—
$ —
$ 19
86
$ 105
The following table summarizes the changes in Level 3 pension plan assets measured at fair value on a recurring basis for
the year ended September 30, 2018 (in millions):
U.S. Plans
2018
Fair Value at
October 1,
2017
Return on Plan Assets:
Attributable to
Assets Held at
September 30, 2018
Purchases
Settlements
Net
Transfers
Into (Out of)
Level 3
Fair Value at
September 30,
2018
Asset Category
Private equity . . . . . . . . . . . . . .
Alternatives –
Partnerships. . . . . . . . . . . . .
Total Level 3 fair value. . . . . . . .
$ 19
77
$ 96
$ (3)
6
$ 3
$ 1
—
$ 1
$ —
—
$ —
$—
—
$—
$ 17
83
$100
Information about the expected cash flows for the U.S. and non-U.S. pension plans is as follows (in millions):
Expected employer contributions:
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected benefit payments:
Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2025-2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.
Non U.S.
Total
$
5
$
1
$
6
71
70
70
67
67
308
30
30
30
30
30
152
101
100
100
97
97
460
The company also sponsors certain defined contribution savings plans for eligible employees. Expense related to these
plans, including company matching contributions, was $21 million, $21 million and $18 million for fiscal years 2019, 2018 and
2017, respectively.
119
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 120
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
24.
INCOME TAXES
The income tax provisions were calculated based upon the following components of income before income taxes (in millions):
U.S. income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$194
183
$377
2018
$ 85
193
$278
2017
$252
129
$381
The components of the provision (benefit) for income taxes are summarized as follows (in millions):
2019
2018
2017
Current tax expense:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax expense (benefit):
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1
40
1
42
34
6
—
40
$ 82
$ 24
51
—
75
76
(5)
3
74
$149
$
1
11
2
14
28
9
1
38
$ 52
The deferred tax expense or benefit represents tax effects of current year deductions or items of income that will be recognized
in future periods for tax purposes. The fiscal year 2018 deferred income tax expense in the U.S. was primarily attributable to the
revaluation of deferred tax assets for the new effective tax rate and the utilization of the foreign tax credit related to the transition
tax. The deferred income tax expense in the U.S. in fiscal year 2017 was primarily attributable to the tax effect of the gain on sale
of equity investment, partially offset by the additional reversal of a valuation allowance.
120
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 121
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net deferred income tax assets (liabilities) included in the Consolidated Balance Sheet consist of the tax effects of temporary
differences related to the following (in millions):
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued product warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos and environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued retiree healthcare benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement pension plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss and credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes - asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on undistributed income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt basis difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes - liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
2019
$ 15
$ 19
11
11
6
7
8
8
28
8
21
16
41
59
10
7
278
230
19
18
437
383
(236)
(207)
$ 201
$ 176
$ (14)
$ (10)
(54)
(51)
(9)
(8)
$ (77)
$ (69)
$ 124
$ 107
Net deferred income tax assets (liabilities) are included in the Consolidated Balance Sheet as follows (in millions):
Other assets (see Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities (see Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income taxes — asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
2019
$140
$122
(16)
(15)
$124
$107
Valuation Allowances
In prior years, the company established valuation allowances against the net deferred tax assets of its 100%-owned
subsidiaries in France, Germany, Brazil, the U.K. and certain other countries. In evaluating its ability to recover these net deferred
tax assets, the company utilizes a consistent approach which considers its historical operating results, including an assessment of
the degree to which any gains or losses are driven by items that are unusual in nature and tax planning strategies. In addition, the
company reviews changes in near-term market conditions and other factors that impact future operating results.
During the fourth quarter of fiscal year 2018, as a result of sustained profitability in Brazil evidenced by strong earnings
history, future forecasted income, and additional positive evidence, the company determined it was more likely then not it would be
able to realize the deferred tax assets in Brazil. Accordingly, the company reversed the valuation allowance, resulting in a non-cash
income tax benefit of $9 million.
As of September 30, 2019, the company continues to maintain the valuation allowances in France, Germany, the U.K. and
certain other jurisdictions, as the company believes the negative evidence continues to outweigh the positive evidence that it will
be able to recover these net deferred tax assets. If, in the future, the company generates taxable income on a sustained basis, its
conclusion regarding the need for valuation allowances in these jurisdictions could change.
121
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 122
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The expiration periods for deferred tax assets related to net operating losses and tax credit carryforwards as of
September 30, 2019 are included below (in millions). Also included are the associated valuation allowances on these deferred tax
assets (in millions).
Net Operating Losses and Tax Credit Carryforwards . . . . . . . . . . . . . .
Valuation Allowances on these Deferred Tax Assets . . . . . . . . . . . . . .
Fiscal Year Expiration Periods
2020-2024
$14
$ 5
2025-2034
$30
$11
2035-2039
$11
$—
Indefinite
$175
$172
Total
$230
$188
Realization of deferred tax assets representing net operating loss and tax credit carryforwards for which a valuation allowance
has not been provided is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that such deferred tax assets will be realized. The amount
of the deferred tax assets considered realizable, however, could be reduced in the near term if the company is unable to generate
sufficient future taxable income during the carryforward period.
The company’s provision (benefit) for income taxes was different from the provision for income taxes calculated at the U.S.
statutory rate for the reasons set forth below (in millions):
Expense for income taxes at statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign income taxed at rates other than statutory . . . . . . . . . . . . . . . . . . . . . . .
Legislative changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joint venture equity income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correlated tax relief. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax impact on non-U.S. earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of capital loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$ 79
3
11
1
(6)
—
—
16
(11)
(7)
—
(4)
$ 82
2018
$ 68
2
4
126
(6)
—
4
8
(9)
(40)
(1)
(7)
$ 149
2017
$133
14
(9)
—
(7)
(7)
8
10
(14)
(56)
(15)
(5)
$ 52
On December 22, 2017, the U.S. government enacted the U.S. tax reform. The U.S. tax reform made broad and complex
changes to the U.S. tax code that affected the company’s fiscal year ended September 30, 2018, including, but not limited to,
reducing the U.S. federal corporate tax rate from 35 percent to 21 percent and requiring a one-time transition tax on deemed
repatriated earnings of foreign subsidiaries.
The SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of
the U.S. tax reform. SAB 118 provides a measurement period that should not extend beyond one year from the U.S. tax reform
enactment date for companies to complete the accounting under ASC 740. The company completed their accounting for the
enactment date income tax effects of U.S. tax reform as of December 31, 2018. As reflected in the September 30, 2019 financial
statements, the results of this accounting were a reduction to the estimated tax expense at September 30, 2018 from $89 million
to $87 million for the refinement of the U.S. tax reform items.
At September 30, 2019, $1,163 million of non-U.S. earnings are considered indefinitely reinvested in operations outside
the U.S., for which deferred taxes have not been provided. Quantification of the deferred tax liability, if any, associated with
permanently reinvested earnings is not practicable.
122
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 123
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Additionally, the company has accounted for the tax impacts related to the Global Intangible Low Tax Income (“GILTI”), Base
Erosion Anti Abuse Tax (“BEAT”) and Foreign Derived Intangible Income (“FDII”) regimes as well as all other provisions of the U.S.
tax reform that are effective in fiscal year 2019. The company has elected to treat GILTI as a period cost and, therefore, has not
recognized deferred taxes for basis differences that may reverse as GILTI tax in future periods.
The total amount of gross unrecognized tax benefits the company recorded in accordance with ASC Topic 740 as of
September 30, 2019 was $276 million, of which $230 million represents the amount that, if recognized, would favorably affect the
effective income tax rate in future periods.
A reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period is as follows
(in millions):
Balance at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to tax positions recorded during the current year . . . . . . . . . . . . . . . . .
Additions to tax positions recorded during the prior year . . . . . . . . . . . . . . . . . . .
Reductions to tax position recorded in prior years. . . . . . . . . . . . . . . . . . . . . . . .
Reductions to tax positions due to lapse of statutory limits . . . . . . . . . . . . . . . . .
Translation, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$261
11
9
—
(4)
(1)
$276
2018
$269
—
—
(6)
(1)
(1)
$261
2017
$243
—
26
—
(2)
2
$269
The company’s continuing practice is to recognize interest and penalties on uncertain tax positions in the provision for
income taxes in the Consolidated Statement of Operations. At September 30, 2019 and 2018, the company recorded assets of
$12 million and $13 million, respectively, of interest on uncertain tax positions in the Consolidated Balance Sheet. In addition,
penalties of $1 million were recorded as of September 30, 2019 and 2018. The income tax expense related to interest was
$1 million and income tax benefit of $4 million and $5 million for the fiscal years ended September 30, 2019, 2018 and 2017,
respectively. The income tax benefit related to penalties was immaterial in fiscal years ended September 30, 2019, 2018 and 2017.
The company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the
world. The company’s Canadian federal income tax returns for fiscal years 2015 and 2016 are currently under audit. The company’s
German subsidiary is currently under audit for fiscal years 2008 through 2013. The company’s Indian subsidiary is currently under
audit for fiscal years 2015 and 2016. The company’s U.K. subsidiaries are under audit for fiscal years 2015 and 2016. In addition,
the company is under audit in various state tax jurisdictions for various years. It is reasonably possible that audit settlements, the
conclusion of current examinations or the expiration of the statute of limitations in several jurisdictions could change the company’s
unrecognized tax benefits during the next twelve months. It is not possible to reasonably estimate the expected change to the total
amount of unrecognized tax benefit in the next twelve months.
In addition to the audits listed above, the company has open tax years primarily from 2001-2018 with various significant
taxing jurisdictions, including the U.S., Brazil, Canada, China, Italy, Mexico, Sweden and the U.K. These open years contain matters
that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or
inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The company has recorded a
tax benefit only for those positions that meet the more-likely-than-not standard.
123
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 124
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
25. 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 operations of the company.
The process of estimating environmental liabilities is complex and dependent upon evolving physical and scientific data at the sites,
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 they are considered to be probable 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, the
company records a liability for the total probable and estimable costs of remediation before consideration of recovery from insurers
or other third parties.
The company has been designated as a potentially responsible party at ten Superfund sites, excluding sites as to which
the company’s records disclose no involvement or as to which the company’s 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,
2019 to be approximately $24 million, of which $11 million is probable and recorded as a liability. Included in reasonably possible
amounts are estimates for certain remediation actions that may be required if current actions are deemed inadequate by the
regulators. Environmental remediation costs recorded with respect to the Superfund were $2 million in fiscal year 2019, $12 million
in fiscal year 2018 and were not substantial in 2017.
In addition to the Superfund sites, various other lawsuits, claims and proceedings have been asserted against the company,
alleging violations of federal, state and local environmental protection requirements, or seeking remediation of alleged environmental
impairments, principally at previously disposed-of properties. For these matters, management has estimated the total reasonably
possible costs the company could incur at September 30, 2019 to be approximately $14 million, of which $4 million is probable
and recorded as a liability. During fiscal years 2019, 2018 and 2017, the company recorded environmental remediation costs of
$2 million, $2 million and $3 million, respectively, with respect to these matters, resulting from revised estimates to remediate
these sites.
Included in the company’s environmental liabilities are costs for on-going operation, maintenance and monitoring at
environmental sites in which remediation has been put into place. This liability is discounted using discount rates in the range
of 2.25 to 3.00 percent and is approximately $13 million at September 30, 2019. The undiscounted estimate of these costs is
approximately $15 million.
The following are the components of the Superfund and non-Superfund environmental reserves (in millions):
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Superfund
Sites
$12
(3)
2
$11
Non-Superfund
Sites
$ 5
(3)
2
$ 4
Total
$17
(6)
4
$15
There were $3 million, $12 million, and $3 million of environmental remediation costs recognized in other operating expense
in the Consolidated Statement of Operations in fiscal years 2019, 2018 and 2017, respectively.
Environmental reserves are included in Other Current Liabilities (see Note 16) and Other Liabilities (see Note 17) in the
Consolidated Balance Sheet.
124
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 125
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, discovery of new contamination and other factors that make it difficult to predict actual costs accurately.
However, based on management’s assessment, after consulting with outside advisors that specialize in environmental matters, 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 effect on the company’s business, financial
condition or results of operations. In addition, in future periods, new laws and regulations, changes in remediation plans, advances
in technology and additional information about the ultimate clean-up remedies could significantly change the company’s estimates.
Management cannot assess the possible effect of compliance with future requirements.
In April 2016, the company was served with several complaints filed against the company and other defendants in the
United States District Court for the Northern District of Mississippi. The complaints were amended in July 2016. These complaints
allege damages, including diminution of property value, concealment/fraud and emotional distress resulting from alleged
environmental pollution in and around a neighborhood in Grenada, Mississippi. Rockwell owned and operated a facility near the
neighborhood from 1965 to 1985. The company filed answers to the complaints in July 2016. In May 2017, the company was
served with a complaint filed against the company and other defendants by the Mississippi Attorney General in the Chancery
Court of Grenada County, Mississippi. The complaint alleged that operations at the above-referenced Grenada facility caused
contamination of off-site groundwater and surface waters. Subsequently, the company removed this action to the United States
District Court for the Northern District of Mississippi. However, plaintiffs’ motion to remand the case to the Chancery Court was
granted in March 2018. In April, May and July 2018, the company was served with additional property damage, personal injury
and wrongful death lawsuits naming the company and others as defendants, which were brought by current and former residents of
the same neighborhood. The company has reached settlements with some but not all of the plaintiffs, and continues to vigorously
defend itself while continuing settlement discussions in the unresolved matters. The company recorded an accrual in the second
quarter of fiscal year 2019.
Asbestos
Maremont Corporation (“Maremont”), a subsidiary of Meritor, manufactured friction products containing asbestos from
1953 through 1977, when it sold its friction product business. Arvin Industries, Inc., a predecessor of the company, acquired
Maremont in 1986.
In the first quarter of fiscal year 2019, Maremont and its three wholly-owned subsidiaries, Maremont Exhaust Products, Inc.,
AVM, Inc., and Former Ride Control Operating Company, Inc., began to solicit votes from asbestos claimants in favor of a Joint
Pre-Packaged Plan of Reorganization (the “Plan”). On January 18, 2019, the Plan was approved by voting asbestos claimants and,
on January 22, 2019, Maremont and its subsidiaries voluntarily filed cases under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) seeking to implement the Plan through the Chapter 11
cases. Among other things, the Plan was intended to permanently resolve all current and future asbestos claims related to
Maremont’s historical asbestos-related activities through the creation of a trust pursuant to Section 524(g) of the U.S. Bankruptcy
Code (the “524(g) Trust”). Meritor determined that the net amount of $51 million Maremont would be required to contribute to the
524(g) Trust according to the Plan represented Meritor’s best estimate of Maremont’s net asbestos liability. As a result, Meritor
recognized $31 million of income related to remeasuring the Maremont net asbestos liability based on the terms of the Plan.
As of January 22, 2019, Maremont and its subsidiaries were deconsolidated from the Consolidated Balance Sheet and the
results of Maremont’s operations were eliminated from the company’s consolidated results of operations as Maremont became
subject to the control of a court. Deconsolidation had an insignificant impact on the Consolidated Statement of Operations.
The Plan was confirmed by the U.S. Bankruptcy Court for the District of Delaware on May 17, 2019 and approved by the
United States District Court for the District of Delaware on June 27, 2019. On July 9, 2019, the company contributed $48 million,
consisting of cash and repayment of a loan to Maremont, and Maremont funded the 524(g) Trust with such cash and its other
assets, including its existing insurance policies. As a result, all current and future asbestos claims related to the Maremont’s
historical asbestos-related activities have been channeled to the 524(g) Trust, which will process and satisfy all such claims going
forward pursuant to its resolution and payment procedures.
125
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 126
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pending and Future Claims as of September 2018: Previously, Maremont engaged a third-party advisor with extensive
experience in assessing asbestos-related liabilities to conduct a study to estimate its potential undiscounted liability for pending and
future asbestos-related claims. Management continuously monitored the underlying claims data and experience for the purpose of
assessing the appropriateness of the assumptions used to estimate the liability.
As of September 30, 2018, the estimated range of equally likely possibilities of Maremont’s obligation for asbestos-related
claims over the next 41 years was $107 million to $195 million. Based on the information contained in the actuarial study, and all
other available information considered, Maremont concluded that no amount within the range of potential liability was more likely
than any other and, therefore, recorded a liability at the low end of the range. Maremont recognized a liability for pending and future
claims over the next 41 years of $107 million as of September 30, 2018.
Recoveries as of September 2018: Maremont had historically had insurance that reimburses a meaningful portion of the
costs incurred defending against asbestos-related claims. The expected insurance receivable related to future asbestos-related
liabilities was $24 million as of September 30, 2018.
Rockwell — ArvinMeritor, Inc. (“AM”), a predecessor of Meritor, along with many other companies, has also been named
as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos used in certain components of Rockwell
products many years ago. Liability for these claims was transferred at the time of the spin-off of the automotive business from
Rockwell in 1997. Rockwell had approximately 1,400 pending active asbestos claims in lawsuits that name AM, as a defendant at
September 30, 2019 and 2018.
A significant portion of the claims 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
likely never identify any of Rockwell’s products. Historically, AM has been dismissed from the vast majority of similar claims filed in
the past with no payment to claimants. For those claimants who do show that they worked with Rockwell’s products, management
nevertheless believes it has meritorious defenses, in substantial part due to the integrity of the products involved and the lack of
any impairing medical condition on the part of many claimants.
Pending and Future Claims: The company engaged a third-party advisor with extensive experience in assessing asbestos-
related liabilities to conduct a study to estimate its potential undiscounted liability for pending and future asbestos-related claims as
of September 30, 2019. On a continual basis, management monitors the underlying claims data and experience, for the purpose
of assessing the appropriateness of the assumptions used to estimate the liability.
As of September 30, 2019, the estimated probable range of equally likely possibilities of the company’s obligation for
asbestos-related claims over the next 40 years is $91 million to $181 million. Based on the information contained in the actuarial
study, and all other available information considered, management concluded that no amount within the range of potential liability
was more likely than any other and, therefore, recorded the low end of the range. The company recognized a liability for pending
and future claims of $91 million as of September 30, 2019 and $103 million as of September 30, 2018. The ultimate cost of
resolving pending and future claims is estimated based on the history of claims and expenses for plaintiffs represented by law firms
in jurisdictions with an established history with Rockwell.
Recoveries: Rockwell has insurance coverage that management believes covers indemnity and defense costs, over and
above self-insurance retentions, for a significant portion of these claims. In 2004, the company initiated litigation against certain
of these carriers to enforce the insurance policies. During the fourth quarter of fiscal year 2016, the company executed settlement
agreements with two of these carriers, thereby resolving the litigation against those particular carriers. Pursuant to the terms of
one of those settlement agreements, in the fourth quarter of fiscal year 2016 the company received $32 million in cash from an
insurer, of which $10 million was recognized as a reduction in asbestos expense, and $22 million was recorded as a liability to
the insurance carrier as it is required to be returned to the carrier if additional asbestos liability is not ultimately incurred. During
fiscal years 2018 and 2017, Rockwell recognized an additional $12 million and $10 million, respectively of the cash settlement
proceeds as a reduction in asbestos expense. Pursuant to the terms of a second settlement agreement, in the fourth quarter of
fiscal year 2016 the company recorded a $12 million receivable to reflect expected reimbursement of future defense and indemnity
payments under a coverage-in-place arrangement with that insurer. During the fourth quarter of fiscal year 2018, the company
126
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 127
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
entered into a settlement agreement to resolve additional disputed coverage resulting from asbestos claims. On September 15,
2018, the company received $3 million in cash and $28 million recorded as an insurance receivable related to this settlement.
The insurance receivables for Rockwell’s asbestos-related liabilities totaled $61 million and $68 million as of September 30,
2019 and 2018, respectively. Included in the September 30, 2018 amount is an increase to previous settlement receivables
resulting from the extended forecast horizon which led to a balance of $40 million for those previous settlement receivables as of
September 30, 2018.
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 and recoveries for asbestos-related
claims are subject to considerable uncertainty because such liabilities and recoveries are influenced by variables that are difficult
to predict. The future litigation environment for Rockwell could change significantly from its past experience, due, for example, to
changes in the mix of claims filed against Rockwell in terms of plaintiffs’ law firm, jurisdiction and disease; legislative or regulatory
developments; the company’s approach to defending claims; or payments to plaintiffs from other defendants. Estimated recoveries
are influenced by coverage issues among insurers and the continuing solvency of various insurance companies. If the assumptions
with respect to the estimation period, 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 Rockwell asbestos-related claims, and the effect on the company, could differ
materially from current estimates and, therefore, could have a material impact on the company’s financial condition and results
of operations.
The Rockwell legacy asbestos-related reserves and corresponding asbestos-related recoveries are summarized as follows
(in millions):
Pending and future claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billed but unpaid claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos-related liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos-related insurance recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2018
2019
$ 103
$ 91
2
2
$ 105
$ 93
$ 68
$ 61
Assumptions: The following assumptions were made by the company after consultation with consultants and are included
in the study:
• Pending and future claims were estimated for a 40 year period ending in fiscal year 2059;
• The litigation environment remains consistent throughout the forecast horizon;
• On a per claim basis, defense and indemnity costs for pending and future claims will be at the level consistent with the
company’s recent experience.
Indemnification
The company has agreed to indemnify others 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 company is not aware of any other claims or other information that would give rise to material payments under
such indemnities.
127
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 128
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other
In addition, various lawsuits, claims and proceedings, other than those specifically disclosed in the Consolidated Financial
Statements, 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, warranty or recall claims, intellectual property, safety and health, contract and
employment matters. Although the outcome of other 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 effect on the company’s business, financial condition, results of operations or cash flows.
26. BUSINESS SEGMENT INFORMATION
The company defines its operating segments as components of its business where separate financial information is available
and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The company’s Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer.
In the second quarter of fiscal year 2019, the company realigned its operations resulting in a change to its operating
and reportable segments. As of the second quarter of fiscal year 2019, the reportable segments are (1) Commercial Truck and
(2) Aftermarket, Industrial and Trailer. Prior year reportable segment financial results have been recast for these changes.
The company has two reportable segments at September 30, 2019, as follows:
• The Commercial Truck segment supplies drivetrain systems and components, including axles, drivelines and braking
and suspension systems, primarily for medium- and heavy-duty trucks and other applications in North America, South
America, Europe and Asia Pacific. This segment also includes the company’s aftermarket businesses in Asia Pacific and
South America.
• The Aftermarket, Industrial and Trailer segment supplies axles, brakes, drivelines, suspension parts and other
replacement parts to commercial vehicle and industrial aftermarket customers, primarily in North America and Europe.
In addition, this segment supplies drivetrain systems and certain components, including axles, drivelines, brakes and
suspension systems for military, construction, bus and coach, fire and emergency and other applications in North America
and Europe. It also supplies a variety of undercarriage products and systems for trailer applications in North America.
Segment adjusted EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes,
depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring
expense, asset impairment charges and other special items as determined by management. Segment adjusted EBITDA excludes
unallocated legacy and corporate income (expense), net. The company uses segment adjusted EBITDA as the primary basis for the
CODM to evaluate the performance of each of its reportable segments.
The accounting policies of the segments are the same as those applied in the Consolidated Financial Statements, except for
the use of segment adjusted EBITDA. The company may allocate certain common costs, primarily corporate functions, between
the segments differently than the company would for stand alone financial information prepared in accordance with GAAP. These
allocated costs include expenses for shared services such as information technology, finance, communications, legal and human
resources. The company does not allocate interest expense and certain legacy and other corporate costs not directly associated
with the segment.
128
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 129
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Segment information is summarized as follows (in millions):
Commercial
Truck
Aftermarket,
Industrial and
Trailer
Fiscal year 2019 Sales:
External Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year 2018 Sales (1):
External Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year 2017 Sales (1):
External Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,110
142
$ 3,252
$ 3,037
135
$ 3,172
$ 2,347
122
$ 2,469
$ 1,278
35
$ 1,313
$ 1,141
35
$ 1,176
$ 1,000
32
$ 1,032
Elims
Total
$ — $ 4,388
—
$ 4,388
(177)
$(177)
$ — $ 4,178
—
$ 4,178
(170)
$(170)
$ — $ 3,347
—
$ 3,347
(154)
$(154)
(1)
Fiscal years 2018 and 2017 have been recast to reflect reportable segment changes.
Segment adjusted EBITDA:
Commercial Truck. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated legacy and corporate income (expense), net (1) . . . . . . . . . . . . . . .
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AxleTech transactions costs (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related items (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement loss (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations attributable to Meritor, Inc. . . . . . . . . . . . . .
2019
$ 327
190
517
3)
(57)
—
(82)
(87)
(6)
(8)
(6)
31
—
(10)
(5)
$ 290
2018 (2)
$ 337
150
487
(13)
(67)
—
(149)
(84)
(5)
(6)
—
(25)
(6)
(3)
(9)
$ 120
2017 (2)
$ 224
126
350
(3)
(119)
243
(52)
(75)
(5)
(6)
—
—
—
(4)
(4)
$ 325
(1)
(2)
(3)
(4)
Unallocated legacy and corporate income (expense), net represents items that are not directly related to the company’s
business segments. These items primarily include asbestos-related charges and settlements, pension and retiree medical
costs associated with sold businesses, and other legacy costs for environmental and product liability.
Fiscal years 2018 and 2017 have been recast to reflect reportable segment changes.
Represents transaction fees.
The year ended September 30, 2019 includes $31 million related to the remeasurement of the Maremont net asbestos
liability based on the Plan. The year ended September 30, 2018 includes $25 million related to the change in estimate
resulting from change in estimated forecast horizon and an asbestos insurance settlement.
(5)
The year ended September 30, 2018 includes $6 million related to the U.K. pension settlement loss.
129
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 130
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Depreciation and Amortization:
Commercial Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures:
Commercial Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment Assets:
Commercial Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket, Industrial and Trailer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accounts receivable sold under off-balance sheet
factoring programs (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
68
19
87
$
$
$
2019
82
21
$ 103
2018 (1)
68
$
16
84
$
2018 (1)
83
$
21
$ 104
September 30,
2019
$1,659
815
2,474
567
2018 (2)
$1,764
589
2,353
633
(226)
$2,815
(260)
$2,726
2017 (1)
$64
11
$75
2017 (1)
$79
16
$95
(1)
(2)
(3)
(4)
Fiscal years 2018 and 2017 have been recast to reflect reportable segment changes.
Amounts as of September 30, 2018 have been recast to reflect reportable segment changes, including the reallocation
of goodwill.
Corporate assets consist primarily of cash, deferred income taxes and prepaid pension costs.
At September 30, 2019 and September 30, 2018, segments assets include $226 million and $260 million, respectively,
of accounts receivable sold under off-balance sheet accounts receivable factoring programs (see Note 9). These sold
receivables are included in segment assets as the CODM reviews segment assets inclusive of these balances.
130
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 131
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia-Pacific. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$ 2,622
69
249
2,940
276
234
165
91
766
248
153
197
84
$ 4,388
Assets by Geographic Area:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia-Pacific. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
$ 2,289
72
221
2,582
311
243
179
103
836
224
196
231
109
$ 4,178
2019
$ 1,504
39
197
1,740
130
81
241
173
625
187
124
84
55
$ 2,815
2017
$ 1,761
69
234
2,064
273
210
149
83
715
168
127
184
89
$ 3,347
2018
$ 1,350
36
224
1,610
138
86
263
171
658
161
123
100
74
$ 2,726
Sales to AB Volvo represented approximately 22 percent, 23 percent and 22 percent of the company’s sales in fiscal
years 2019, 2018 and 2017, respectively. Sales to Daimler AG represented approximately 19 percent, 17 percent and 17 percent
of the company’s sales in fiscal years 2019, 2018 and 2017, respectively. Sales to PACCAR represented approximately 13
percent, 12 percent and 10 percent of the company’s sales in fiscal years 2019, 2018 and 2017, respectively. Sales to Navistar
represented approximately 10 percent, 9 percent and 9 percent of the company’s sales in fiscal years 2019, 2018 and 2017,
respectively. No other customer comprised 10 percent or more of the company’s total sales in any of the three fiscal years ended
September 30, 2019.
131
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 132
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
27. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a condensed summary of the company’s unaudited quarterly results of continuing operations for fiscal
years 2019 and 2018. Per share amounts are based on the weighted average shares outstanding for that quarter. 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.
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income from continuing operations attributable to Meritor, Inc. . . . .
Net income attributable to Meritor, Inc.. . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share from continuing operations. . . . . . . . . . . . . . .
Diluted earnings per share from continuing operations . . . . . . . . . . . . .
First
$ 1,038
(897)
141
(21)
92
90
90
$ 1.06
$ 1.03
Fourth
2019 Fiscal Quarters (Unaudited)
Third
Second
(In millions, except share related data)
$ 1,166
(987)
179
(21)
89
85
86
$ 1.02
$ 0.99
$ 1,156
(982)
174
(27)
74
73
72
$ 0.88
$ 0.85
$ 1,028
(882)
146
(13)
41
42
43
$ 0.51
$ 0.50
2019
$ 4,388
(3,748)
640
(82)
296
290
291
$ 3.49
$ 3.36
The company recognized restructuring income and costs in its continuing operations during fiscal year 2019 as follows: an
insignificant amount in the first quarter, $1 million of income in the second quarter, $1 million of income in the third quarter and $10
million of restructuring costs in the fourth quarter (see Note 8). During the first quarter of fiscal year 2019 a $31 million adjustment
was made relating to the remeasurement of the Maremont asbestos liability based on the Plan. The year ended September 30,
2019 includes $12 million of non-cash tax benefit related to the one-time deemed repatriation of accumulated foreign earnings
and a one-time net charge of $9 million recorded for an election made that will allow for a future tax-free repatriation of cash to
the United States.
$ 1,066
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 903
(895)
(771)
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
171
132
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(22)
(83)
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
(34)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
(35)
Net income (loss) from continuing operations attributable to Meritor, Inc. . . .
Net income (loss) attributable to Meritor, Inc. . . . . . . . . . . . . . . . . . . . . .
57
(36)
Basic earnings (loss) per share from continuing operations . . . . . . . . . . . $ (0.40) $ 0.64
Diluted earnings (loss) per share from continuing operations . . . . . . . . . . $ (0.40) $ 0.63
First
Fourth
Second
2018 Fiscal Quarters (Unaudited) (1)
Third
(In millions, except share related data)
$ 1,129
(959)
170
(26)
67
66
64
$ 0.76
$ 0.73
$ 1,080
(928)
152
(18)
33
32
32
$ 0.37
$ 0.36
2018
$ 4,178
(3,553)
625
(149)
126
120
117
$ 1.37
$ 1.31
(1)
Amounts for the 2018 fiscal quarters have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715).
The company recognized restructuring costs in its continuing operations during fiscal year 2018 as follows: $2 million in
the first quarter, $1 million in the second quarter, $3 million in the third quarter and no restructuring costs in the fourth quarter
(see Note 8). During the fourth quarter of fiscal year 2018, the company recognized a $6 million loss associated with the UK
pension settlement. During the fourth quarter of fiscal year 2018, the company recognized $25 million net expense, related to the
change in estimate resulting from change in estimated forecast horizon and an asbestos insurance settlement. The year ended
132
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 133
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
September 30, 2018 includes $57 million of non-cash tax expense related to the revaluation of the company’s deferred tax assets
and liabilities as a result of the U.S. tax reform, $26 million of non-cash tax expense related to the one-time deemed repatriation
of accumulated foreign earnings and $6 million of non-cash tax expense related to other adjustments. During the fourth quarter
of fiscal year 2018, the company recognized a $9 million reversal of a Brazil valuation allowance, partially offset by a $2 million
increase in valuation allowances for certain U.S. state jurisdictions.
28. OPERATING CASH FLOWS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION
2019
Year Ended September 30,
2018
(in millions)
2017
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to income from continuing operations to arrive at cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and retiree medical expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related liability remeasurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution to Maremont trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity method investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received from equity method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and retiree medical contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in off-balance sheet receivable securitization and factoring programs . . . . . . . . . .
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, foreign
currency adjustments and discontinued operations:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating cash flows provided by continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating cash flows used for discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 296
1
295
$ 126
(3)
129
$ 328
(1)
329
87
40
8
—
10
(31)
18
—
(37)
—
(31)
(48)
—
23
(16)
(5)
(18)
84
74
6
8
3
(27)
20
(1)
(31)
6
—
—
—
17
(21)
(8)
11
75
38
6
36
4
(48)
19
1
11
—
—
—
(243)
44
(38)
(15)
26
80
9
(103)
(3)
(22)
256
—
$ 256
(98)
(112)
97
36
59
252
(1)
$ 251
(160)
(43)
133
16
(12)
179
(3)
$ 176
133
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 134
OPERATOR JOSHUAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MERITOR, INC.
2019
September 30,
2018
(In millions)
2017
Balance sheet data:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3
$
4
$
5
Statement of operations data:
Maintenance and repairs expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research, development and engineering expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statement of cash flows data:
Interest payments, net of receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payments, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash investing activities - capital asset additions from capital leases . . . . . . . . . . . . . .
55
75
76
19
4
(61)
41
64
—
52
73
74
18
3
(70)
49
33
4
46
69
67
14
3
(122)
75
22
—
29. SUPPLEMENTAL PARENT AND GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Article 3-10 of Regulation S-X (S-X Rule 3-10) requires that separate financial information for issuers and guarantors of
registered securities be filed in certain circumstances. Certain of the company’s 100% owned subsidiaries, as defined in the credit
agreement (the “Guarantors”) irrevocably and unconditionally guarantee amounts outstanding under the senior secured revolving
credit facility on a joint and several basis. Similar subsidiary guarantees were provided for the benefit of the holders of the publicly-
held notes outstanding under the company’s indentures (see Note 18).
Schedule I of Article 5-04 of Regulation S-X (S-X Rule 5-04) requires that condensed financial information of the registrant
(“Parent”) be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of
the end of the most recently completed fiscal year. As of September 30, 2019, net assets of certain subsidiaries in China and India
and certain unconsolidated subsidiaries that are restricted by law from transfer by cash dividends, loans or advances to Meritor, Inc
did not exceed 25 percent of the consolidated net assets of Meritor, Inc. As of September 30, 2019 the amount of the net assets
restricted from transfer by law was $73 million.
In lieu of providing separate audited financial statements for the Parent and Guarantors, the company has included the
accompanying Condensed Consolidating Financial Statements as permitted by S-X Rules 3-10 and 5-04. These Condensed
Consolidating Financial Statements are presented on the equity method. Under this method, the investments in subsidiaries are
recorded at cost and adjusted for the parent’s share of the subsidiary’s cumulative results of operations, capital contributions and
distribution and other equity changes. The Guarantor subsidiaries are combined in the Condensed Consolidating Financial Statements.
134
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 135
OPERATOR JOSHUAM
MERITOR, INC.
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
Consolidated
$ 4,388
—
4,388
(3,748)
640
(256)
(8)
(13)
363
40
31
(57)
377
(82)
—
295
1
296
(5)
291
$
Parent
Fiscal Year Ended September 30, 2019
Non-Guarantors
Elims
Guarantors
Sales
External
Subsidiaries
Total sales
Cost of sales
GROSS MARGIN
Selling, general and administrative
Restructuring costs
Other operating expense, net
OPERATING INCOME (LOSS)
Other income (expense), net
Equity in earnings of affiliates
Interest income (expense), net
INCOME (LOSS) BEFORE INCOME TAXES
Benefit (provision) for income taxes
Equity income from continuing operations
of subsidiaries
INCOME FROM CONTINUING OPERATIONS
LOSS FROM DISCONTINUED OPERATIONS, net of tax
NET INCOME
Less: Net income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO MERITOR, INC
$ — $ 2,621
110
2,731
(2,298)
433
(127)
(6)
(10)
290
36
21
47
394
(84)
—
—
(65)
(65)
(92)
—
(3)
(160)
50
—
(130)
(240)
53
477
290
1
291
—
$ 291
108
418
—
418
—
418
$
$ 1,767
201
1,968
(1,696)
272
(37)
(2)
—
233
(46)
10
26
223
(51)
—
172
—
172
(5)
167
$
$ —
(311)
(311)
311
—
—
—
—
—
—
—
—
—
—
(585)
(585)
—
(585)
—
$(585)
135
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 136
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In millions)
Fiscal Year Ended September 30, 2019
Net income
Other comprehensive income, net of tax
Total comprehensive income
Less: Comprehensive income attributable to
Parent
$ 291
(115)
176
Guarantors
$418
(62)
356
Non-Guarantors
$172
(64)
108
noncontrolling interests
Comprehensive income attributable to Meritor, Inc
—
$ 176
—
$356
(4)
$104
Elims
$(585)
125
(460)
—
$(460)
Consolidated
$ 296
(116)
180
(4)
$ 176
136
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 137
OPERATOR JOSHUAM
MERITOR, INC.
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
Consolidated
$ 4,178
—
4,178
(3,553)
625
(313)
(6)
(14)
292
26
27
(67)
278
(149)
—
129
(3)
126
(9)
117
$
Parent
Fiscal Year Ended September 30, 2018 (1)
Non-Guarantors
Elims
Guarantors
Sales
External
Subsidiaries
Total sales
Cost of sales
GROSS MARGIN
Selling, general and administrative
Restructuring costs
Other operating expense, net
OPERATING INCOME (LOSS)
Other income (expense), net
Equity in earnings of affiliates
Interest income (expense), net
INCOME (LOSS) BEFORE INCOME TAXES
Benefit (provision) for income taxes
Equity income from continuing operations
$ — $ 2,290
143
2,433
(2,037)
396
(104)
(3)
(1)
288
17
19
29
353
(81)
—
—
(74)
(74)
(91)
(1)
(14)
(180)
77
—
(118)
(221)
(2)
of subsidiaries
343
INCOME FROM CONTINUING OPERATIONS
LOSS FROM DISCONTINUED OPERATIONS, net of tax
NET INCOME
Less: Net income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO MERITOR, INC
120
(3)
117
—
$ 117
88
360
(1)
359
—
359
$
$ 1,888
219
2,107
(1,804)
303
(118)
(2)
1
184
(68)
8
22
146
(66)
—
80
(1)
79
(9)
70
$
$ —
(362)
(362)
362
—
—
—
—
—
—
—
—
—
—
(431)
(431)
2
(429)
—
$(429)
(1)
Prior period has been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715)
137
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 138
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In millions)
Fiscal Year Ended September 30, 2018 (1)
Net income
Other comprehensive income, net of tax
Total comprehensive income
Less: Comprehensive income attributable to
Parent
$117
(21)
96
Guarantors
$359
(42)
317
Non-Guarantors
$ 79
(41)
38
noncontrolling interests
Comprehensive income attributable to Meritor, Inc
—
$ 96
—
$317
(7)
$ 31
Elims
$(429)
81
(348)
—
$(348)
Consolidated
$126
(23)
103
(7)
$ 96
(1)
Prior period has been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715)
138
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 139
OPERATOR JOSHUAM
MERITOR, INC.
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In millions)
Consolidated
$ 3,347
—
3,347
(2,850)
497
(266)
(6)
(7)
218
(9)
243
48
(119)
381
(52)
—
329
(1)
328
(4)
324
$
Parent
Fiscal Year Ended September 30, 2017 (1)
Non-Guarantors
Elims
Guarantors
Sales
External
Subsidiaries
Total sales
Cost of sales
GROSS MARGIN
Selling, general and administrative
Restructuring costs
Other operating expense, net
OPERATING INCOME (LOSS)
Other income (expense), net
Gain on sale of equity investment
Equity in earnings of affiliates
Interest income (expense), net
INCOME (LOSS) BEFORE INCOME TAXES
Benefit (provision) for income taxes
Equity income from continuing operations
of subsidiaries
INCOME FROM CONTINUING OPERATIONS
LOSS FROM DISCONTINUED OPERATIONS, net of tax
NET INCOME
Less: Net income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO MERITOR, INC
$ — $ 1,762
123
1,885
(1,583)
302
(100)
(2)
(1)
199
(11)
243
42
35
508
(126)
—
—
(37)
(37)
(82)
2
(3)
(120)
14
—
—
(168)
(274)
96
503
325
(1)
324
—
$ 324
114
496
(1)
495
—
$ 495
$
$
1,585
149
1,734
(1,502)
232
(84)
(6)
(3)
139
(12)
—
6
14
147
(22)
—
125
(1)
124
(4)
120
$ —
(272)
(272)
272
—
—
—
—
—
—
—
—
—
—
—
(617)
(617)
2
(615)
—
$(615)
(1)
Prior period has been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715)
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OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In millions)
Net income
Other comprehensive income, net of tax
Total comprehensive income
Less: Comprehensive income attributable to
Parent
$324
264
588
Fiscal Year Ended September 30, 2017 (1)
Non-Guarantors
$124
23
147
Elims
$(615)
(44)
(659)
Guarantors
$495
21
516
Consolidated
$328
264
592
noncontrolling interests
Comprehensive income attributable to Meritor, Inc
—
$588
—
$516
(4)
$143
—
$(659)
(4)
$588
(1)
Prior period has been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715)
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OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)
Parent
Guarantors
September 30, 2019
Non-Guarantors
Elims
Consolidated
CURRENT ASSETS
Cash and cash equivalents
Receivables, trade and other, net
Inventories
Other current assets
TOTAL CURRENT ASSETS
NET PROPERTY
GOODWILL
OTHER ASSETS
INVESTMENTS IN SUBSIDIARIES
TOTAL ASSETS
CURRENT LIABILITIES
Short-term debt
Accounts and notes payable
Other current liabilities
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT
RETIREMENT BENEFITS
INTERCOMPANY PAYABLE (RECEIVABLE)
OTHER LIABILITIES
MEZZANINE EQUITY
EQUITY ATTRIBUTABLE TO MERITOR, INC
NONCONTROLLING INTERESTS
TOTAL LIABILITIES, MEZZANINE
$
4
3
—
6
13
21
—
170
4,432
$4,636
$
32
53
77
162
898
312
2,833
46
—
385
—
$
4
92
292
10
398
260
337
225
899
$ 2,119
$ —
283
109
392
—
1
(3,005)
112
—
4,619
—
$ 100
456
234
15
805
234
141
211
—
$1,391
$
9
274
99
382
4
23
172
68
—
712
30
$ —
—
—
—
—
—
—
—
(5,331)
$(5,331)
$ —
—
—
—
—
—
—
—
—
(5,331)
—
$ 108
551
526
31
1,216
515
478
606
—
$2,815
$
41
610
285
936
902
336
—
226
—
385
30
EQUITY AND EQUITY
$4,636
$ 2,119
$1,391
$(5,331)
$2,815
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PAGE NO. 142
OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
(In millions)
Parent
Guarantors
September 30, 2018
Non-Guarantors
Elims
Consolidated
CURRENT ASSETS
Cash and cash equivalents
Receivables, trade and other, net
Inventories
Other current assets
TOTAL CURRENT ASSETS
NET PROPERTY
GOODWILL
OTHER ASSETS
INVESTMENTS IN SUBSIDIARIES
TOTAL ASSETS
CURRENT LIABILITIES
Short-term debt
Accounts and notes payable
Other current liabilities
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT
RETIREMENT BENEFITS
INTERCOMPANY PAYABLE (RECEIVABLE)
OTHER LIABILITIES
MEZZANINE EQUITY
EQUITY ATTRIBUTABLE TO MERITOR, INC
NONCONTROLLING INTERESTS
TOTAL LIABILITIES, MEZZANINE
$
24
2
—
6
32
24
—
179
3,583
$3,818
$
47
64
77
188
726
241
2,325
50
1
287
—
$
6
62
242
12
322
241
250
182
855
$ 1,850
$ —
297
71
368
—
—
(2,640)
124
—
3,998
—
$
85
524
235
28
872
218
171
235
—
$1,496
$
47
339
142
528
4
21
315
158
—
440
30
$ —
—
—
—
—
—
—
—
(4,438)
$(4,438)
$ —
—
—
—
—
—
—
—
—
(4,438)
—
$ 115
588
477
46
1,226
483
421
596
—
$2,726
$
94
700
290
1,084
730
262
—
332
1
287
30
EQUITY AND EQUITY
$3,818
$ 1,850
$1,496
$(4,438)
$2,726
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OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
Fiscal Year Ended September 30, 2019
Non-Guarantors
$116
Elims
$—
Guarantors
$ 49
Consolidated
$ 256
(103)
(6)
(168)
6
(271)
(38)
(24)
175
—
(96)
(4)
(2)
11
(49)
—
—
—
(49)
(38)
—
—
(11)
—
—
—
(49)
—
—
—
—
—
—
—
—
—
—
—
—
—
(3)
15
85
$100
—
—
—
$—
(3)
(7)
115
$ 108
(50)
—
—
—
(50)
—
—
—
—
—
—
(1)
(1)
—
(2)
6
$ 4
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Cash paid for investment in
Transportation Power, Inc
Cash paid for business acquisitions,
net of cash acquired
Other investing activities
CASH (USED FOR) INVESTING ACTIVITIES
FINANCING ACTIVITIES
Securitization
Redemption of notes
Term loan borrowings
Intercompany advances
Repurchase of common stock
Deferred issuance costs
Other financing activities
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
EFFECT OF CHANGES IN CURRENCY EXCHANGE RATES
ON CASH AND CASH EQUIVALENTS
CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
Parent
$ 91
(4)
(6)
(168)
6
(172)
—
(24)
175
11
(96)
(4)
(1)
61
—
(20)
24
4
$
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OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Cash paid for business acquisitions,
net of cash acquired
Cash paid for investment in Transportation Power, Inc
Proceeds from sale of equity method investment
Other investing activities
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
FINANCING ACTIVITIES
Securitization
Redemption of notes
Repurchase of common stock
Other financing activities
Intercompany advances
CASH USED FOR FINANCING ACTIVITIES
EFFECT OF CHANGES IN CURRENCY EXCHANGE RATES ON
CASH AND CASH EQUIVALENTS
CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
Parent
$ 59
(10)
(35)
(6)
250
4
203
—
(181)
(100)
(2)
35
(248)
Fiscal Year Ended September 30, 2018
Non-Guarantors
$ 137
Elims
$—
Guarantors
$ 55
(49)
—
—
—
—
(49)
—
—
—
(3)
—
(3)
(45)
—
—
—
2
(43)
(43)
—
—
—
(35)
(78)
—
—
—
—
—
—
—
—
—
—
—
Consolidated
$ 251
(104)
(35)
(6)
250
6
111
(43)
(181)
(100)
(5)
—
(329)
—
14
10
$ 24
—
3
3
$ 6
(6)
10
75
$ 85
—
—
—
$—
(6)
27
88
$ 115
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OPERATOR JOSHUAM
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In millions)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Cash paid for business acquisitions, net of cash acquired
Net investing cash flows provided by
discontinued operations
CASH USED FOR INVESTING ACTIVITIES
FINANCING ACTIVITIES
Securitization
Proceeds from debt issuance
Redemption of notes
Repayment of notes and term loan
Other financing activities
Debt issuance costs
Intercompany advances
CASH USED FOR FINANCING ACTIVITIES
EFFECT OF CHANGES IN CURRENCY EXCHANGE RATES ON
CASH AND CASH EQUIVALENTS
CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
Parent
$ 33
(9)
—
—
(9)
—
325
(103)
(408)
(1)
(12)
95
(104)
Fiscal Year Ended September 30, 2017
Non-Guarantors
$ 58
Guarantors
$ 85
Elims
$ —
Consolidated
$ 176
(51)
(32)
2
(81)
—
—
—
—
(3)
—
—
(3)
(35)
(2)
—
(37)
89
—
—
—
(9)
—
(95)
(15)
—
—
—
—
—
—
—
—
—
—
—
—
(95)
(34)
2
(127)
89
325
(103)
(408)
(13)
(12)
—
(122)
—
(80)
90
$ 10
—
1
2
$ 3
1
7
68
$ 75
—
—
—
$ —
1
(72)
160
$ 88
Basis of Presentation
Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP
have been condensed or omitted pursuant to the rules and regulations of the SEC As of September 30, 2019 and 2018, Parent-only
obligations included $315 million and $248 million, respectively, of pension and retiree medical benefits (see Notes 22 and 23) All
debt is debt of the Parent other than $13 million and $51 million at September 30, 2019 and 2018, respectively, (see Note 18) and
is primarily related to capital lease obligations and lines of credit Cash dividends paid to the parent by subsidiaries and investments
accounted for by the equity method were $29 million, $29 million and $1 million for 2019, 2018, and 2017, respectively
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
As required by Rules 13a-15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), management, with the participation of the chief executive officer (CEO) and chief financial officer (CFO), evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2019 Based upon that
evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective to ensure that information
required to be disclosed in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management,
including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the
company, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act Our internal control system is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of the company’s financial statements for
external purposes in accordance with accounting principles generally accepted in the United States of America
All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect
misstatements Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Our management, with the participation of the CEO and CFO, assessed the effectiveness of the company’s internal
control over financial reporting as of September 30, 2019 This evaluation was based on the criteria for effective internal control
over financial reporting established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) Based on management’s assessment and the criteria set forth by COSO, we
assessed that the internal control over financial reporting was effective as of September 30, 2019
In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment
of internal control over financial reporting for the first fiscal year in which the acquisition occurred Our management’s evaluation
of internal control over financial reporting excluded the internal control activities of AxleTech, which we acquired on July 26, 2019,
as discussed in Note 4 of the Notes to Consolidated Financial Statements in Item 8 Financial Statements and Supplementary Data.
Total revenues subject to AxleTech’s internal control over financial reporting were not material to the company for the fiscal year
ended September 30, 2019 Total assets subject to AxleTech’s internal control over financial reporting represented approximately
9 percent of the company’s consolidated total assets for the fiscal year ended September 30, 2019 We will include AxleTech in
our assessment of the effectiveness of internal control over financial reporting by fiscal year end 2020
The independent registered public accounting firm of Deloitte & Touche LLP, as auditors of the Consolidated Balance Sheets
of Meritor as of September 30, 2019 and the related Consolidated Statements of Operations, Comprehensive Income, Cash Flows
and Equity for the year ended September 30, 2019, has issued an attestation report on Meritor’s internal control over financial
reporting, which is included herein
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required
by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during our most recently completed fiscal
quarter, and there has been no change in our internal control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Meritor, Inc
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Meritor, Inc and subsidiaries (the “Company”) as of
September 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of September 29, 2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by COSO
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended September 29, 2019, of the Company and our report
dated November 13, 2019 expressed an unqualified opinion on those financial statements
As described in Management Report on Internal Control over Financial Reporting, management excluded from its assessment
the internal control over financial reporting at AxleTech, which was acquired on July 26, 2019, and whose financial statements
constitute approximately 9% of total assets and less than 1% of revenues of the consolidated financial statement amounts as of
and for the year ended September 29, 2019 Accordingly, our audit did not include the internal control over financial reporting
at AxleTech
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on
Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides
a reasonable basis for our opinion
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
November 13, 2019
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Item 9B. Other Information.
None
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 10 regarding directors is incorporated by reference from the information under the caption
Election of Directors – Information as to Nominees for Director and Continuing Directors in Meritor’s definitive Proxy Statement for
its 2020 Annual Meeting (the “2020 Proxy Statement”), which is expected to be filed within 120 days after Meritor’s fiscal year
end The information required by Item 10 regarding executive officers is set forth in Item 4A of Part I of this Form 10-K The other
information required by Item 10, including regarding the audit committee, audit committee financial expert disclosure and our code
of ethics, is incorporated by reference from the information under the captions Code of Ethics, Board of Directors and Committees
and Director Qualifications and Nominating Procedures in the 2020 Proxy Statement Disclosure of delinquent Section 16 filers
pursuant to Item 405 of Regulation S-K will be contained in the 2020 Proxy Statement
Item 11. Executive Compensation.
See the information under the captions Director Compensation in Fiscal Year 2019, Executive Compensation and CEO Pay
Ratio in the 2020 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 2020
Proxy Statement
Securities Authorized for Issuance under Equity Compensation Plans
The number of stock options outstanding under our equity compensation plans, the weighted average exercise price of
outstanding options, and the number of securities remaining available for issuance, as of September 30, 2019, were as follows:
(column a)
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights (1)
—
(column b)
Weighted average
exercise price of
outstanding options,
warrants and rights
$ —
(column c)
Number of securities
remaining
available for future
issuance
under equity
compensation plans
(excluding securities
reflected in column a)
2,873,073
—
—
—
$ —
—
2,873,073
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by
security holders
Total
(1)
In addition to stock options, shares of common stock, restricted shares of common stock, restricted share units and
performance share units, all of which do not have an exercise price, have been awarded under the Company’s equity
compensation plans and were outstanding at September 30, 2019 The number of weighted average shares in column (a)
and the weighted average exercise price reported in column (b) does not take these awards into account
All of the equity compensation plans under which grants are outstanding as shown above were approved by
Meritor shareholders
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The following number of shares remained available for issuance under our equity compensation plans at September 30, 2018
Grants may be in the form of any of the listed type of awards
Plan
2010 Long-Term Incentive Plan*
Number of shares
2,873,073
Type of award
Stock options, stock appreciation rights, stock awards and other
stock-based awards
*
The 2010 Long-Term Incentive Plan was approved by the Company’s shareholders on January 28, 2010 At that time,
the 2007 Long-Term Incentive Plan and the 2004 Directors Stock Plan were terminated No further awards will be made
under those plans, and no stock awards will be made under the Incentive Compensation Plan On January 20, 2011,
January 23, 2014 and January 26, 2017, the Company’s shareholders approved amendments to the 2010 Long-Term
Incentive Plan to increase the maximum number of shares that may be granted under the plan Earlier equity compensation
plans were terminated on January 26, 2007, in connection with the approval of the 2007 Long-Term Incentive Plan by the
Company’s shareholders
Item 13. Certain Relationships and Related Transactions, and Director Independence.
See the information under the captions Board of Directors and Committees and Certain Relationships and Related Transactions
in the 2020 Proxy Statement
Item 14. Principal Accountant Fees and Services.
See the information under the caption Independent Accountants’ Fees in the 2020 Proxy Statement
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
(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):
Consolidated Statement of Operations, years ended September 30, 2019, 2018 and 2017
Consolidated Statement of Comprehensive Income, years ended September 30, 2019, 2018 and 2017
Consolidated Balance Sheet, September 30, 2019 and 2018
Consolidated Statement of Cash Flows, years ended September 30, 2019, 2018 and 2017
Consolidated Statement of Shareholders’ Equity, years ended September 30, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(2) Financial Statement Schedule for the years ended September 30, 2019, 2018 and 2017
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
Item 16. Form 10-K Summary.
None
(3) Exhibits
3-a
3-b-2
4-a**
4-b
4-b-1
4-b-2
4-b-3
Amended and Restated Articles of Incorporation of Meritor, filed as Exhibit 3-a to Meritor’s Annual Report on Form 10-K
for the fiscal year ended September 27, 2015, is incorporated herein by reference
Amended and Restated By-laws of Meritor effective July 29, 2019, filed as Exhibit 3-b-2 to Meritor’s Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 2019, is incorporated herein by reference
Description of Securities
Indenture, dated as of April 1, 1998, between Meritor and The Bank of New York Mellon Trust Company, NA (as
successor to BNY Midwest Trust Company as 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 herein by reference
First Supplemental Indenture, dated as of July 7, 2000, to the Indenture, dated as of April 1, 1998, between
Meritor and The Bank of New York Mellon Trust Company, NA (as successor to BNY Midwest Trust Company as
successor to The Chase Manhattan Bank), as trustee, filed as Exhibit 4-b-1 to Meritor’s Annual Report on Form 10-K
(File No 001-15983) for the fiscal year ended September 30, 2000, is incorporated herein by reference
Third Supplemental Indenture, dated as of June 23, 2006, to the Indenture, dated as of April 1, 1998, between
Meritor and The Bank of New York Mellon Trust Company, NA (as successor to BNY Midwest Trust Company as
successor to The Chase Manhattan Bank), as trustee (including Subsidiary Guaranty dated as of June 23, 2006), filed
as Exhibit 42 to Meritor’s Current Report on Form 8-K (File No 001-15983) filed on June 27, 2006, is incorporated
herein by reference
Sixth Supplemental Indenture, dated as of May 31, 2013, to the Indenture, dated as of April 1, 1998, between Meritor
and The Bank of New York Mellon Trust Company, NA (as successor to BNY Midwest Trust Company as successor
to The Chase Manhattan Bank), as trustee, filed as Exhibit 4 to Meritor’s Current Report on Form 8-K filed on May 31,
2013, is incorporated herein by reference
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4-b-4
4-c
4-d
4-e
10-a-1
10-a-2
*10-b
*10-b-1
*10-c
*10-c-1
*10-c-2
*10-c-3
*10-c-4
*10-d
*10-e
Seventh Supplemental Indenture, dated as of February 13, 2014, to the Indenture, dated as of April 1, 1998, between
Meritor and The Bank of New York Mellon Trust Company, NA (as successor to BNY Midwest Trust Company as
successor to The Chase Manhattan Bank), as trustee, filed as Exhibit 41 to Meritor’s Current Report on Form 8-K filed
on February 13, 2014, is incorporated herein by reference
Indenture, dated as of February 8, 2007, between Meritor and The Bank of New York Mellon Trust Company, NA
(as successor to The Bank of New York Trust Company, NA), as trustee (including the note and form of subsidiary
guaranty), filed as Exhibit 4-a to Meritor’s Quarterly Report on Form 10-Q (File No 001-15983) for the fiscal quarter
ended April 1, 2007, is incorporated herein by reference
Indenture, dated as of December 4, 2012, between Meritor and The Bank of New York Mellon Trust Company, NA,
as trustee (including form of the note and form of subsidiary guaranty), filed as Exhibit 41 to Meritor’s Current Report
on Form 8-K (File No 001-15983) filed on December 4, 2012, is incorporated herein by reference
Indenture, dated as of September 22, 2017, between Meritor and US Bank National Association, as trustee (including
form of the note and form of subsidiary guaranty), filed as Exhibit 4-a to Meritor’s Current Report on Form 8-K filed
on September 25, 2017, is incorporated herein by reference
Fourth Amendment and Restatement Agreement relating to Fourth Amended and Restated Credit Agreement, dated
as of June 7, 2019, among Meritor, ArvinMeritor Finance Ireland (“AFI”), the financial institutions party thereto and
JPMorgan Chase Bank, NA, as Administrative Agent, filed as Exhibit 10-a to Meritor’s Current Report on Form 8-K
filed on June 10, 2019, is incorporated herein by reference
Third Amended and Restated Pledge and Security Agreement, dated as of March 31, 2017, by and among Meritor, the
subsidiaries named therein, the financial institutions party thereto and JPMorgan Chase Bank, NA, as Administrative
Agent, filed as Exhibit 10-b to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2017, is
incorporated herein by reference
2004 Directors Stock Plan, filed as Exhibit 10-a to Meritor’s Quarterly Report on Form 10-Q (File No 001-15983) for
the fiscal quarter ended March 28, 2004, is incorporated herein by reference
Form of Restricted Stock Agreement under the 2004 Directors Stock Plan, filed as Exhibit 10-c-4 to Meritor’s
Annual Report on Form 10-K (File No 001-15983) for the fiscal year ended October 2, 2005, is incorporated herein
by reference
2010 Long-Term Incentive Plan, as amended and restated as of January 26, 2017, filed as Exhibit 10-c to Meritor’s
Annual Report on Form 10-K for the fiscal year ended October 1 2017, is incorporated herein by reference
Form of Restricted Stock Unit Agreement for Directors for grants on or after January 23, 2014 under 2010 Long-Term
Incentive Plan, as amended, filed as Exhibit 10-e-10 to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter
ended March 30, 2014, is incorporated herein by reference
Form of Restricted Stock Agreement for Directors for grants on or after on or after January 23, 2014 under 2010
Long-Term Incentive Plan, as amended, filed as Exhibit 10-e-11 to Meritor’s Quarterly Report on Form 10-Q for the
fiscal quarter ended March 30, 2014, is incorporated herein by reference
Form of Performance Share Unit Agreement for Employees for grants on or after December 1, 2015 under 2010 Long
Term Incentive Plan, as amended, filed as Exhibit 10-f-9 to Meritor’s Annual Report on Form 10-K for the fiscal year
ended September 27, 2015, is incorporated herein by reference
Form of Restricted Share Unit Agreement for Employees for grants on or after December 1, 2015 under 2010 Long
Term Incentive Plan, as amended, filed as Exhibit 10-f-10 to Meritor’s Annual Report on Form 10-K for the fiscal year
ended September 27, 2015, is incorporated herein by reference
Incentive Compensation Plan, as amended and restated, effective January 22, 2015, filed as Appendix A to Meritor’s
Definitive Proxy Statement for the 2015 Annual Meeting of Shareholders of Meritor, is incorporated herein by reference
Deferred Compensation Plan, filed as Exhibit 10-e-1 to Meritor’s Annual Report on Form 10-K (File No 001-15983)
for the fiscal year ended September 30, 1998, is incorporated herein by reference
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*10-f
*10-g
*10-g-1
*10-g-2
10-h
10-i
10-j
10-j-1
10-j-2
10-k
10-k-1
10-l
10-l-1
Form of Deferred Share Agreement, filed as Exhibit 10-a to Meritor’s Quarterly Report on Form 10-Q (File No 001-15983)
for the fiscal quarter ended January 2, 2005, is incorporated herein by reference
Non-Employee Director Retainer Deferral Policy, effective November 3, 2016, filed as Exhibit 10-j to Meritor’s Annual
Report on Form 10-K for the fiscal year ended October 2, 2016, is incorporated herein by reference
Form of Restricted Share Unit Agreement for Director Deferral Elections pursuant to the Non-Employee Director
Retainer Deferral Policy under the 2010 Long-Term Incentive Plan, as amended, filed as Exhibit 10-j-1 to Meritor’s
Annual Report on Form 10-K for the fiscal year ended October 2, 2016, is incorporated herein by reference
Form of Restricted Stock Agreement for Director Deferral Elections pursuant to the Non-Employee Director Retainer
Deferral Policy under the 2010 Long-Term Incentive Plan, as amended, filed as Exhibit 10-j-2 to Meritor’s Annual
Report on Form 10-K for the fiscal year ended October 2, 2016, is incorporated herein by reference
Receivables Purchase Agreement dated as of February 19, 2019, by and among Meritor Heavy Vehicle Braking
Systems (USA), LLC and Meritor Heavy Vehicle Systems, LLC, as sellers, and Nordea Bank AB, as purchaser, filed as
Exhibit 10-a to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019, is incorporated
herein by reference
Receivables Purchase Agreement dated as of March 22, 2017, by and among Meritor HVS AB, as seller, and Viking
Asset Purchaser No 7 IC, as purchaser, and Citicorp Trustee Company Limited, as programme trustee, filed as
Exhibit 10-c to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2017, is incorporated
herein by reference
Receivable Purchase Agreement dated February 2, 2012 between Meritor Heavy Vehicle Braking Systems (UK)
Limited, as seller, and Viking Asset Purchaser No 7 IC, as purchaser, and Citicorp Trustee Company Limited, as
programme trustee, filed as Exhibit 10-b to Meritor’s Quarterly Report on Form 10-Q (File No 001-15983) for the
fiscal quarter ended April 1, 2012, is incorporated herein by reference
Extension dated January 24, 2013 of Receivable Purchase Agreement dated February 2, 2012 between Meritor
Heavy Vehicle Braking Systems (UK) Limited, as seller, and Viking Asset Purchaser No 7 IC, as purchaser, and
Citicorp Trustee Company Limited, as programme trustee, filed as Exhibit 10-d to Meritor’s Quarterly Report on
Form 10-Q for the fiscal quarter ended December 30, 2012, is incorporated herein by reference
Extension dated January 23, 2018 of Receivable Purchase Agreement dated February 2, 2012 between Meritor
Heavy Vehicle Braking Systems (UK) Limited, as seller, and Viking Asset Purchaser No 7 IC, as purchaser, and
Citicorp Trustee Company Limited, as programme trustee, filed as Exhibit 10-c to Meritor’s Quarterly Report on
Form 10-Q for the fiscal quarter ended December 31, 2017, is incorporated herein by reference
Receivables Purchase Agreement dated June 18, 2012 between Meritor Heavy Vehicle Systems Cameri SPA,
as seller, and Nordea Bank AB (pbl), as purchaser, filed as Exhibit 10-d to the Quarterly Report on Form 10-Q
(File No 001-15983) for the fiscal quarter ended July 1, 2012, is incorporated herein by reference
Extension Letter dated June 8, 2017, from Meritor Heavy Vehicle Systems Cameri SPA to Nordea Bank AB (pbl), filed
as Exhibit 10-a to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2017, is incorporated
herein by reference
Receivables Purchase Agreement dated June 18, 2012 among ArvinMeritor Receivables Corporation, as seller,
Meritor, Inc, as initial servicer, the various Conduit Purchasers, Related Committed Purchasers, LC Participants and
Purchaser Agents from time to time party thereto, and PNC Bank, National Association, as issuers of Letters of Credit
and as Administrator, filed as Exhibit 10-b to the Quarterly Report on Form 10-Q (File No 001-15983) for the fiscal
quarter ended July 1, 2012, is incorporated herein by reference
First Amendment to Receivables Purchase Agreement dated as of December 14, 2012 among ArvinMeritor Receivables
Corporation, as seller, Meritor, Inc, as initial servicer, PNC Bank, National Association, as a Related Committed
Purchaser, as an LC Participant, as a Purchaser Agent, as LC Bank and as Administrator, and Market Street Funding,
LLC, as a Conduit Purchaser, filed as Exhibit 10-a to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter
ended December 30, 2012, is incorporated herein by reference
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10-l-2
10-l-3
10-l-4
10-l-5
10-l-6
10-l-7
10-l-8
10-l-9
Second Amendment to Receivables Purchase Agreement dated June 21, 2013 among ArvinMeritor Receivables
Corporation, as seller, Meritor, Inc, as initial servicer, PNC Bank, National Association, as a Related Committed
Purchaser, as an LC Participant, as a Purchaser Agent, as LC Bank and as Administrator, and Market Street Funding
LLC, as a Conduit Purchaser, filed as Exhibit 10 to Meritor’s Current Report on Form 8-K filed on June 21, 2013, is
incorporated herein by reference
Third Amendment to Receivables Purchase Agreement dated as of October 11, 2013 among ArvinMeritor Receivables
Corporation, as seller, Meritor, Inc, as servicer, PNC Bank, National Association, as a Related Committed Purchaser,
as an LC Participant, as a Purchaser Agent, as LC Bank, as Administrator and as Assignee, and Market Street Funding
LLC, as Conduit Purchaser and as Assignor, filed as Exhibit 10-m-16 to Meritor’s Annual Report on Form 10-K for the
fiscal year ended September 29, 2013 (the “2013 Form 10-K”), is incorporated herein by reference
Fourth Amendment to the Receivables Purchase Agreement dated as of October 15, 2014, by and among ArvinMeritor
Receivables Corporation, as Seller, Meritor, Inc, as Initial Servicer, and PNC Bank, National Association, as a Related
Committed Purchaser, as an LC Participant, as a Purchaser Agent, as LC Bank and as Administrator, filed as Exhibit 10
to Meritor’s Current Report on Form 8-K filed on October 20, 2014, is incorporated herein by reference
Fifth Amendment to the Receivables Purchase Agreement dated as of December 4, 2015, by and among ArvinMeritor
Receivables Corporation, as Seller, Meritor, Inc, as Initial Servicer, and PNC Bank, National Association, as a
Related Committed Purchaser, as an LC Participant, as a Purchaser Agent, as LC Bank and as Administrator, filed as
Exhibit 10-a to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 3, 2016, is incorporated
herein by reference
Sixth Amendment to the Receivables Purchase Agreement dated as of December 5, 2016, by and among ArvinMeritor
Receivables Corporation, as Seller, Meritor, Inc, as Initial Servicer, and PNC Bank, National Association, as a Related
Committed Purchaser, as an LC Participant, as a Purchaser Agent, as LC Bank and as Administrator, filed as
Exhibit 10-c to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 2017, is incorporated
herein by reference
Seventh Amendment to the Receivables Purchase Agreement dated as of June 22, 2017, by and among ArvinMeritor
Receivables Corporation, as Seller, Meritor, Inc, as Initial Servicer, and PNC Bank, National Association, as a Related
Committed Purchaser, as an LC Participant, as a Purchaser Agent, as LC Bank and as Administrator, filed as Exhibit
10-b to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2017, is incorporated herein
by reference
Eighth Amendment to the Receivables Purchase Agreement dated as of December 5, 2017, by and among
ArvinMeritor Receivables Corporation, as Seller, Meritor, Inc, as Initial Servicer, and PNC Bank, National Association,
as a Related Committed Purchaser, as an LC Participant, as a Purchaser Agent, as LC Bank and as Administrator,
filed as Exhibit 10-b to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2017, is
incorporated herein by reference
Ninth Amendment to the Receivables Purchase Agreement dated as of October 4, 2018, by and among ArvinMeritor
Receivables Corporation, as Seller, Meritor, Inc, as Initial Servicer, and PNC Bank, National Association, as a
Related Committed Purchaser, as an LC Participant, as a Purchaser Agent, as LC Bank and as Administrator, filed as
Exhibit 10-1-9 to Meritor’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, is incorporated
herein by reference
10-1-10**
Tenth Amendment to the Receivables Purchase Agreement dated as of September 16, 2019, by and among
ArvinMeritor Receivables Corporation, as Seller, Meritor, Inc, as Initial Servicer, and PNC Bank, National Association,
as a Related Committed Purchaser, as an LC Participant, as a Purchaser Agent, as LC Bank and as Administrator
10-m
Fourth Amended and Restated Purchase and Sale Agreement dated June 18, 2012 among Meritor Heavy Vehicle
Braking Systems (USA), LLC, and Meritor Heavy Vehicle Systems, LLC, as originators, Meritor, Inc, as initial servicer,
and ArvinMeritor Receivables Corporation, as buyer, filed as Exhibit 10-a to the Quarterly Report on Form 10-Q
(File No 001-15983) for the fiscal quarter ended July 1, 2012, is incorporated herein by reference
153
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10-m-1
Letter Agreement relating to Fourth Amended and Restated Receivables Purchase Agreement dated as of
December 14, 2012 among Meritor Heavy Vehicle Braking Systems (USA), LLC, Meritor Heavy Vehicle Systems,
LLC, ArvinMeritor Receivables Corporation, Meritor, Inc and PNC Bank, National Association, filed as Exhibit 10-b
to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 30, 2012, is incorporated herein
by reference
10-n
*10-o
*10-p
*10-q
*10-r
Purchase and Option Agreement dated September 15, 2017 among Meritor, WABCO Holdings Inc and the other
parties listed therein, filed as filed as Exhibit 10-a to Meritor’s Current Report on Form 8-K filed on September 18,
2017, is incorporated herein by reference
Agreement and Plan of Merger dated as of May 3, 2019 by and among Meritor, Inc, Janus Merger Sub, LLC,
CAX Parent, LLC, and Carlyle Equity Opportunity GP, LP, solely in its capacity as Holder Representative, filed as
Exhibit 10-a to Meritor’s Current Report on Form 8-K filed on May 8, 2019, is incorporated herein by reference
Amended and Restated Employment Letter between Meritor, Inc and Jeffrey A Craig dated April 29, 2015, filed
as Exhibit 10-a-2 to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2015, is
incorporated herein by reference
Form of Performance Share Agreement for grant from Meritor, Inc to Jeffrey Craig on December 1, 2013, filed as
Exhibit 10-zz to the 2013 Form 10-K, is incorporated herein by reference
Compensation Letter dated as of April 29, 2015 between Meritor, Inc and Jeffrey A Craig, filed as Exhibit 10-a-1
to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2015, is incorporated herein
by reference
*10-s**
Form of Employment Agreement
*10-t**
Schedule identifying agreements substantially identical to the Form of Employment Agreement constituting
Exhibit 10-s hereto
21**
List of Subsidiaries of Meritor, Inc
23-a**
Consent of April Miller Boise, Esq, Senior Vice President, Chief Legal Officer and Corporate Secretary
23-b**
Consent of Deloitte & Touche LLP, independent registered public accounting firm
24**
31-a**
31-b**
32-a**
32-b**
Power of Attorney authorizing certain persons to sign this Annual Report on Form 10-K on behalf of certain directors
and officers of Meritor
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act
Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 USC
Section 1350
Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 USC
Section 1350
101INS
XBRL INSTANCE DOCUMENT
101SCH
XBRL TAXONOMY EXTENSION SCHEMA
101PRE
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
101LAB
XBRL TAXONOMY EXTENSION LABEL LINKBASE
101CAL
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101DEF
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
*
**
Management contract or compensatory plan or arrangement
Filed herewith
154
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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
SIGNATURES
MERITOR, INC
By:
/s/ April Miller Boise
April Miller Boise
Senior Vice President,
Chief Legal Officer and Corporate Secretary
Date: November 13, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 13th day of
November, 2019 by the following persons on behalf of the registrant and in the capacities indicated
William R Newlin*
Chairman of the Board of Directors
Jan A Bertsch, Rodger L Boehm,
Rhonda L Brooks, Ivor J Evans, William J Lyons,
Thomas L Pajonas, Lloyd G Trotter*
Directors
Jay A Craig*
Carl D Anderson II*
Paul D Bialy*
* By:
/s/ April Miller Boise
April Miller Boise
Attorney-in-fact **
** By authority of powers of attorney filed herewith
Chief Executive Officer and President (Principal Executive
Officer) and Director
Senior Vice President, Chief Financial Officer (Principal
Financial Officer)
Vice President, Chief Accounting Officer (Principal
Accounting Officer)
155
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Board of Directors
William R. Newlin
Chairman
Meritor, Inc.
Jeffrey A. Craig
Chief Executive Officer
and President
Meritor, Inc.
Steven Beringhause
Jan A. Bertsch
Executive Vice President,
Chief Technology Officer
Sensata Technologies
Holding PLC
Retired Senior Vice President
and Chief Financial Officer
Owens-Illinois, Inc.
Rodger L. Boehm
Retired Senior Partner
McKinsey & Company, Inc.
Rhonda L. Brooks
President
R. Brooks Advisor
Ivor J. Evans
William J. Lyons
Former Executive Chairman,
Chief Executive Officer
and President
Meritor, Inc.
Retired Chief Financial Officer
CONSOL Energy Inc.
Thomas L. Pajonas
Lloyd G. Trotter
Retired Executive Vice President
and Chief Operating Officer
Flowserve Corporation
Managing Partner
GenNx360 Capital Partners
Meritor, Inc.
2 0 1 9 ANNUAL REPORT
JOB TITLE Meritor AR
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Executive Team
Jeffrey A. Craig
Chief Executive Officer
and President
Carl Anderson
Senior Vice President and
Chief Financial Officer
April Miller Boise
Senior Vice President,
Chief Legal Officer and
Corporate Secretary
Timothy J. Heffron
Senior Vice President,
Human Resources and
Chief Information Officer
Cheri L. Lantz
Vice President and
Chief Strategy Officer
Joseph A. Plomin
Krista L. Sohm
Senior Vice President
and President, Aftermarket
& Industrial and Trailer
Vice President and
Chief Marketing Officer
Chris Villavarayan
Senior Vice President and
President, Global Truck
Meritor, Inc.
2 0 1 9 ANNU AL REPORT
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Shareholder Information
Annual Meeting
The company’s annual meeting of shareholders will be held in
the Westin Hotel at the Detroit Metropolitan Airport on Thursday,
January 23, 2020. A notice of meeting and proxy material will be
made available to shareholders on or about December 13, 2019.
Independent Auditors
Deloitte & Touche LLP
200 Renaissance Center
Suite 3900
Detroit, Ml 48243-1300
Phone: (313) 396-3000
Meritor Headquarters
2135 West Maple Road
Troy, Ml 48084-7186
Phone: (248) 435-1000
Fax: (248) 435-0989
www.meritor.com
Board Communications
For questions or concerns with respect to internal controls, auditing and
accounting matters, you may contact the Audit Committee of the Board
of Directors at the following address:
Meritor Audit Committee
33717 Woodward Ave.
PMB 407
Birmingham, Ml 48009
Investor Relations
Security analysts and professional investors should contact:
Investor Relations
2135 West Maple Road
Troy, Ml 48084-7186
http://investors.meritor.com
Phone: (866) 463-6276 or (248) 435-1545
Fax: (248) 435-9404
E-mail: investor.relations@meritor.com
Copies of annual reports, Forms 10-K and 10-Q,
and other Meritor publications can be obtained at
http://investors.meritor.com or by calling
(866) 463-6276 or (248) 435-1545.
For other questions or concerns, you may contact the Board of Directors
at the following address:
New York Stock Exchange
Common Stock (Symbol: MTOR)
Meritor Board of Directors
33717 Woodward Ave.
PMB 335
Birmingham, Ml 48009
Corporate Media Relations
Members of the media should contact:
Media Relations
Phone: (248) 435-7115
Direct Stock Purchase Plan
Computershare administers the Computershare CIP for Meritor
shareholders, under which current shareholders may make optional
cash investments in additional shares of Meritor common stock.
The program also allows cash investments in Meritor common
stock by first-time investors, with a $500 minimum initial investment.
Shareholders may also sell their shares through the Computershare CIP.
Plan material and enrollment is available by visiting
www.computershare.com/investor or by contacting
Computershare at the following numbers:
United States & Canada: (866) 517-4570
International Inquiries: (201) 680-6578
Hearing Impaired (TDD): (800) 952-9245
Meritor, Inc.
2 0 1 9 ANNUAL REPORT
Shareholder Services
Communications about share ownership, book-entry accounts,
transfer requirements, changes of address, lost stock certificates
and account status should be directed via United States Postal
Service to:
Computershare, Inc.
P.O. Box 505000
Louisville, KY 40233
Transfer Agent and Registrar
Overnight deliveries or Express Mail services should be
addressed to:
Computershare, Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
United States & Canada: (866) 517-4570
International Inquiries: (201) 680-6578
Hearing Impaired (TDD): (800) 952-9245
Hearing Impaired (TDD) foreign shareholder: (781) 575-4592
www.computershare.com/investor
CEO Certification
On February 7, 2019, Meritor’s Chief Executive Officer (CEO)
provided to the New York Stock Exchange the annual CEO
certification stating that Meritor is in compliance with the New York
Stock Exchange’s corporate governance listing standards.
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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,”
“will” and similar expressions. Actual results may differ materially from those projected as a result of
certain risks and uncertainties, including but not limited to reliance on major OEM customers and
possible negative outcomes from contract negotiations with our major customers, including failure to
negotiate acceptable terms in contract renewal negotiations and our ability to obtain new customers;
the outcome of actual and potential product liability, warranty and recall claims; our ability to successfully
manage rapidly changing volumes in the commercial truck markets and work with our customers to
manage demand expectations in view of rapid changes in production levels; global economic and
market cycles and conditions; availability and sharply rising costs of raw materials, including steel,
and our ability to manage or recover such costs; our ability to manage possible adverse effects on
European markets or our European operations, or financing arrangements related thereto following
the United Kingdom’s decision to exit the European Union or, in the event one or more other countries
exit the European monetary union; risks inherent in operating abroad (including foreign currency
exchange rates, restrictive government actions regarding trade, implications of foreign regulations
relating to pensions and potential disruption of production and supply due to terrorist attacks or acts
of aggression); risks related to our joint ventures; rising costs of pension benefits; the ability to achieve
the expected benefits of strategic initiatives and restructuring actions; our ability to successfully integrate
the products and technologies of Fabco Holdings, Inc., AA Gear Mfg., Inc. and Axle Tech and future
results of such acquisitions, including their generation of revenue and their being accretive; the demand
for commercial and specialty vehicles for which we supply products; whether our liquidity will be affected
by declining vehicle production in the future; OEM program delays; demand for and market acceptance
of new and existing products; successful development and launch of new products; labor relations of
our company, our suppliers and customers, including potential disruptions in supply of parts to our
facilities or demand for our products due to work stoppages; the financial condition of our suppliers
and customers, including potential bankruptcies; possible adverse effects of any future suspension of
normal trade credit terms by our suppliers; potential impairment of long-lived assets, including goodwill;
potential adjustment of the value of deferred tax assets; competitive product and pricing pressures; the
amount of our debt; our ability to continue to comply with covenants in our financing agreements; our
ability to access capital markets; credit ratings of our debt; the outcome of existing and any future
legal proceedings, including any proceedings or related liabilities with respect to environmental,
asbestos-related, or other matters; possible changes in accounting rules; and other substantial costs,
risks and uncertainties, including but not limited to those detailed herein and from time to time in other
filings of the company with the SEC. 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.
Meritor, Inc.
2 0 1 9 ANNU AL REPORT
JOB TITLE Meritor AR
JOB NUMBER 365806(1)
REVISION 2
SERIAL <12345678> DATE / TIME Thursday, November 21, 2019
TYPE
Clean
PAGE NO. 160
OPERATOR JOSHUAM
M
eritor, Inc. is a leading global supplier of drivetrain, mobility, braking and aftermarket
solutions for commercial vehicle and industrial markets.
With more than a 100-year legacy of providing innovative products that offer superior
performance, efficiency and reliability, the company serves commercial truck, trailer,
off-highway, defense, specialty and aftermarket customers around the world.
Meritor is based in Troy, Mich., United States, and is made up of approximately 9,100
diverse employees who apply their knowledge and skills in manufacturing facilities,
engineering centers, joint ventures, distribution centers and global offices in 19 countries.
Meritor’s common stock is traded on the New York Stock Exchange under the ticker
symbol MTOR.
For important information, visit the company’s website at meritor.com.
Meritor, Inc.
2135 West Maple Road
Troy, Ml 48084 USA
(248) 435-1000
www.meritor.com
© Copyright 2019
Meritor, Inc.
Litho in USA
Issued 12-19