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 more than 7,000
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 2020
Meritor, Inc.
Litho in USA
Issued 12-20
2020 Annual Report Cautionary Statement
This Annual Report on Form 10-K contains statements relating to future results of the company
(including certain outlooks, 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 the duration and severity of
the COVID-19 pandemic and its effects on public health, the global economy, financial markets and
operations; 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., AxleTech and Transportation Power, Inc. 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 2 0 AN NUAL REPORT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the Fiscal Year Ended September 27, 2020
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
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, 2020 (the last
business day of the most recently completed second fiscal quarter) was approximately $1,024,560,711
72,311,617 shares of the registrant’s Common Stock, par value $1 per share, were outstanding on November 11, 2020.
Certain information contained in the definitive Proxy Statement for the Annual Meeting of Shareholders of the registrant to be held on January 28, 2021
is incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
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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.
Information About Our Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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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Item 1. Business.
Overview
PART I
Meritor, Inc., 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, drivelines, brakes, and suspension systems. 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 2020 were
approximately $3 billion. Our ten largest customers accounted for approximately 69 percent of fiscal year 2020 sales from
continuing operations. Sales from operations outside North America accounted for approximately 35 percent of total sales from
continuing operations in fiscal year 2020. 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 $0.7 billion in fiscal
year 2020.
Our fiscal year ends on the Sunday nearest to September 30. Fiscal year 2020 ended on September 27, 2020, fiscal year
2019 ended on September 29, 2019, and fiscal year 2018 ended on September 30, 2018. 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. It also supplies a variety of undercarriage products and systems for trailer
applications in North America. This segment includes our aftermarket businesses in Asia Pacific and South America.
• The Aftermarket and Industrial 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.
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.
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Our business continues to address a number of challenging industry-wide issues including the following:
• Uncertainty regarding the duration and severity of the COVID-19 pandemic and its effects on public health, the global
economy, financial markets and operations, including additional expense related to enhancing safety measures for
our employees;
• Uncertainty around the global market outlook;
• Volatility in price and availability of steel, components, transportation costs and other commodities, including energy;
• Potential for disruptions in the financial markets and their impact on the availability and cost of credit;
• Impact of currency exchange rate volatility; and
• Consolidation and globalization of OEMs and their suppliers.
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 execute and implement strategic initiatives, including the ability to launch a significant number of
new products, potential product quality issues, and obtain new business;
• 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;
• Ability to further implement planned productivity, cost reduction and other margin improvement initiatives;
• Ability to work with our customers to manage rapidly changing production volumes, including in the event of production
interruptions affecting us, our customers or our suppliers;
• Competitively driven price reductions to our customers or 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).
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.
Launch of M2022 Plan
With the completion of our M2019 plan, we have now launched our M2022 Plan, The financial targets we established for
our M2022 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)
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(see Non-GAAP Financial Measures in Item 7)
To achieve these aggressive targets, we are focused on four main areas:
• Drive Innovation
• Protect and Grow
• Exceed Customer Expectations
• Enable the Business
Drive Innovation
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. During the M2022 cycle, we have targeted the introduction of five new advanced technology products. Our introduction
of the Blue Horizon technology brand formalizes our portfolio of advanced solutions for medium and heavy commercial vehicles.
With our long history of technical innovation, the product pipeline we expect to bring to market has the potential to transform the
value we deliver to customers. Our Blue Horizon brand represents a product portfolio that offers advanced efficiency, connectivity
and electric solutions for our customers. It leverages our legacy as a proven partner, yet opens up new possibilities as we evolve.
As the demand for efficiency continues to accelerate, we have developed, or are in the process of developing, several new
products including:
• Dis-engageable tandem drive axle that provides the efficiency of a 6x2 with traction of 6x4
• Air disc brake positive pad retraction that eliminates drag for increased fuel economy and pad life
• Super-fast ratios that enable slower revolutions per minute (“RPM”) at cruise speed for highway use (every 100 RPM
reduced at speed translates to approximately 1% better fuel efficiency)
• Composite drivelines made of carbon fiber mesh with an overlay of fiberglass that can save up to 100 pounds or
45 kilograms over a standard driveline offering more cargo capacity and lessening the overall weight of the vehicle
• Advanced lube management system that uses electronics and pneumatics to manage critical axle components
We also believe connectivity offers many benefits to end users, vehicle manufacturers and Tier 1 suppliers like us. Similar to
the increase in demand for smart home devices, our engineers are finding more areas where we can transform our offerings into
smart products. The two main areas we are exploring include:
• Real time information to monitor and record product performance for various duty cycles
• Intelligent maintenance that provides sensors to notify of system health, required maintenance and overall
vehicle efficiency
We are developing an electronic lube level monitoring device that eliminates the need for certain maintenance procedures
saving time and money. For tire inflation, we are using sensors and related electronics that increase safety and improve efficiency
via optimized tire pressure. And as manufacturers explore platooning, pairing and autonomous driving, knowing what is happening
within the vehicle’s braking system is especially critical. The systems we are developing build upon our current pad wear sensor
system and will monitor overall brake health, allowing strategic maintenance decisions as well as safer overall operation.
Meritor’s expanding range of next-generation technologies includes comprehensive solutions for standard axles,
remote-mount configurations and fully electric powertrain systems which furthers our goal of becoming the electric drivetrain
supplier of choice. Our 14Xe™ ePowertrain is based on the proven 14X axle design which maintains existing axle mounting
hardware for ease of OEM integration. The modular system enables the interchangeability of key components, including electric
motors, transmissions, gearing, brakes, wheel ends and housings. The 14Xe™ is designed for scalability and can be adapted to
fit various powertrain needs based on the vehicle application and duty cycle. This year, we announced an expansion of our electric
drivetrain solutions by introducing the 12Xe™ powertrain for Class 4, 5, 6 and 7 applications and the 17Xe™ powertrain for
heavy-duty 4x2 and 6x2 trucks.
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This 14Xe™ ePowertrain is already receiving acclaims in the automotive industry. This year, we were recognized
as a PACEpilot Honoree by Automotive News for our solutions to power Class 4 through 8 trucks and buses with electric
powertrains instead of diesel-based systems, in addition to Diesel Progress’ Achievement of the Year and Electric Application of
the Year awards.
To help us achieve our objectives in this important area, in fiscal year 2020 we acquired all outstanding common shares
of Transportation Power, Inc. this year, a California-based company that supplies integrated drive systems, full electric truck
solutions and energy-storage subsystems to major manufacturers of trucks, school buses, refuse vehicles and terminal tractors.
Transportation Power has focused exclusively on developing electric drive solutions since its inception in 2010. With this acquisition,
we advance our M2022 plan priorities through increased investment in next-generation technologies.
Representing the first Class 8 production contract for electric drivetrains in the industry, we secured an agreement with
PACCAR to be its non-exclusive supplier of ePowertrains for its Kenworth T680 and Peterbilt 579 and 520 battery-electric vehicles.
We will be the initial launch partner and primary supplier for the integration of functional battery-electric systems on these refuse
and heavy-duty chassis. Production is targeted to begin in 2021. We believe we will be the first supplier to begin production of
electric powertrains for Class 8 electric vehicles, and we anticipate additional production contracts in 2021.
Protect and Grow
We know that despite changes and volatility in global market conditions, it is important that we generate profitable top-line
growth. We designed the M2022 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 expect to broaden our relationships with our global strategic customers, earn the business of new customers, increase
aftermarket share in core product areas, expand our gear manufacturing, and enter near adjacent markets that we believe will be
a good match with our core competencies.
We achieved major milestones in fiscal year 2020 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 our Blue Horizon™ powertrain solutions, we are establishing Meritor as a leader in transformative technologies for the
commercial vehicle industry.
We have a clear view toward maintaining our leading market positions with best-in-class products and services. This year,
we introduced new products, including our single piston air disc brake and a range of high efficiency axles which includes a
vocational axle that is the first of its type in decades.
We also signed a long-term agreement with Daimler. This contract that extends our relationship through 2027 and places
Meritor in standard position for air disc brakes on the Freightliner Cascadia through 2025. Also in our core businesses, we have
new contracts for on-highway and trailer axles, and a new award with Iveco Defence for a military application that will be deployed
by the Dutch Department of Defense. Our operations in Australia were honored this year with Supplier of the Year awards from
PACCAR and Penske, and our Aftermarket business celebrated production of the 100 millionth remanufactured brake shoe – a
benchmark no other company has matched to date.
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 our 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, and we
will publish an updated report later this year.
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 brakes made by other brake manufacturer. We believe
our 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. This brake, which was recognized by Heavy Duty Trucking magazine as a Top 20 Product, will launch for trailers
first, then trucks, in fiscal year 2021. With this brake, we are in standard position on Daimler’s Freightliner Cascadia through 2025.
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We designed the EX+ LS air disc brake to meet fleet 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. Approximately
9 million of our 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 lifecycle 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.
Exceed Customer Expectations
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 M2022 plan, we set an overall quality target of less than 20 parts per million (“PPM”). In fiscal year 2020, Meritor
achieved a quality score of 36 PPM. We believe this level of quality further differentiates us in the commercial vehicle industry.
Also this fiscal year, five of our facilities and three of our joint venture facilities received the Daimler Master of Quality Award. We
also received Daimler’s Supplier Award for outstanding performance in quality. During a peak North America commercial vehicle
market in 2019, we supplied Daimler with 1.3 million axles, brakes and drivelines, all with a low defect rate based on PPM. We were
honored to be recognized by Daimler, which has a global reputation for delivering quality products to its customers.
In fiscal year 2020, we also continued our excellent OE delivery performance this year at 99 percent. Despite the impact of
the COVID-19 pandemic globally and the challenges it created for the entire supply chain, we maintained a very high delivery rate.
Our customers rely on us for this level of delivery performance and it differentiates us from our peers.
We will maintain our focus on driving down operating costs through material cost-reduction and labor and burden
improvements with a target achievement of 2 percent improvement per year. We 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.
Enable the Business
COVID-19 Pandemic
There has never been a time in our company’s history when we were required to cease production at the vast majority of
our manufacturing plants within days of each other as was required this year in response to the COVID-19 pandemic. To do this
efficiently and safely required a great deal of collaboration and teamwork. These are the characteristics that Meritor employees are
known for and were exemplified during this process.
The global impact of the COVID-19 pandemic was significant but when we were allowed to reopen our facilities, we took
every action possible to protect our employees while still serving our role as an important part of the supply chain in maintaining
the flow of commercial vehicle original equipment and aftermarket products, as well as products required for the manufacturing of
specialty and defense vehicles.
We developed a Safe Start plan to protect our employees. It outlined specific policies that were audited at each of our
sites including preventative measures in entry and common areas, heat mapping to identify areas that required modifications,
personal protective equipment (PPE), wellness checks, visual indicators and the addition of social distance coaches. Safety is our
first priority and we will take all necessary precautions to safeguard our employees – in each of our manufacturing plants, labs,
distribution centers and offices. To ensure that we followed best practices across the industry, our general auditor assumed the
additional role of Chief Safety Compliance Officer.
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Every day, 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 M2022 plan is to achieve a case rate of less than 0.55. In fiscal year
2020, we achieved an overall total recordable case rate of 0.57 injuries per 200,000 hours worked, compared to 0.59 in the prior
year. More than 50 percent of our facilities reported no recordable workplace injuries during fiscal year 2020.
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. For managers,
we offer eLearning modules and courses that address important areas for advancement including accountability, delegation, and
providing and receiving feedback. For certain director-level employees, we offer Leadership Edge - a 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 offer 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.
Another objective in this area is to drive inclusiveness. We want to be leaders in this area. Executives facilitated focus groups
this year with diverse employees and identified themes from those discussions that provided opportunities for improvement. Those
themes were related to promotion and advancement, recruiting, and anti-discrimination. As a result, we are making the job posting
process more transparent and ensuring that all internal applicants who are not selected for new positions receive feedback. We are
also making changes to our hiring and recruitment practices with the intent to remove any bias from the resume-screening process
and we are increasing the level of management oversight on hiring decisions. Longer term, we will refresh our unconscious bias
training, develop a diversity mentor program, and explore fast-track programs for employees to ensure that we are retaining diverse
talent and providing aggressive career tracks.
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.
The following chart sets forth, for each of the fiscal years 2020, 2019 and 2018, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
September 30,
2019
73%
25%
2%
100%
2020
70%
25%
5%
100%
2018
74%
24%
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.
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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.
Electric Vehicle and Other Products
We supply electric drive systems that include an electric motor and inverter, power electronics, battery pack, electrified
accessories, and all associated software and controls for terminal tractors and medium and heavy-duty trucks and buses.
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 69 percent of our total sales in fiscal year 2020. Sales to
customers that accounted for 10 percent or more of our total sales in fiscal year 2020 included AB Volvo, Daimler AG and PACCAR,
representing approximately 21 percent, 17 percent and 12 percent, respectively. No other customer accounted for 10 percent or
more of our total sales in fiscal year 2020.
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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.
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.
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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.
Acquisitions and divestitures are discussed in Note 3 of the Notes to the Consolidated Financial Statements under Item 8.
Financial Statements and Supplementary Data.
Restructuring actions are discussed in Note 7 of the Notes to the Consolidated Financial Statements under Item 8. Financial
Statements and Supplementary Data.
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, 2020, 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
Aggregate sales of our non-consolidated joint ventures were $696 million, $1,231 million and $1,101 million in fiscal years
2020, 2019 and 2018, respectively.
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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 12 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 $74 million in fiscal
year 2020, $75 million in fiscal year 2019 and $73 million in fiscal year 2018 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 15 of the Notes to Consolidated Financial Statements under Item 8.
Financial Statements and Supplementary Data below.
Employees
At September 30, 2020, we had approximately 8,600 employees composed of approximately 7,200 hourly and salaried
employees, 780 employees from our joint ventures, and 620 other employees. At September 30, 2020, 68 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 employees.
We believe that our ability to compete in the global market depends on the engagement of every one of our employees, and
that a high-performing team is critical to the level of performance we want to achieve. By maintaining relationships with leading
universities, we are able to identify and recruit top talent. In order to attract the best candidates, we offer market competitive
compensation and benefits around the globe, annual incentive programs for salaried and hourly employees, long-term incentive
programs for executives and health and wellness benefits. To retain top talent, we encourage professional development through
internal and external training opportunities, in addition to a leadership fundamentals program for managers, the Leadership Edge
program for high potential leaders and the Summit for senior level leaders.
To ensure we provide a rich experience for our employees, we measure organizational culture and engagement to build on
the competencies that are important for our future success. We routinely engage independent third parties to conduct cultural
and employee engagement surveys. These include corporate culture assessments, as well as real-time feedback on employee
engagement and a holistic approach survey on employee well-being focused on physical, emotional, social and financial health.
In addition, we aim to diversify our workforce because we recognize the value of engaging different opinions and backgrounds
in a global company. We are committed to recruiting, developing and retaining a high-performing and diverse workforce. We are
in the process of initiating a mentoring program for diverse employees, implementing various recruitment initiatives, refreshing
mandatory unconscious bias training, targeting efforts to attract qualified women and underrepresented minorities for positions
at all levels of the company and employee led resource groups, including the African American Resource Group, the Women’s
Employee Resource Group and the LGBT Resource Group.
Environmental Matters
Environmental matters are discussed in Note 22 of the Notes to Consolidated Financial Statements under Item 8. Financial
Statements and Supplementary Data.
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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 impact 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 our 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 outlooks,
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 the duration and severity of the COVID-19 pandemic and its
effects on public health, the global economy, financial markets and operations; 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
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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., AxleTech and Transportation Power, Inc. 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.
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.
Industry and Operational Risks
The ongoing coronavirus pandemic is having, and is expected to continue to have, an adverse effect on our business.
In March 2020 the World Health Organization declared a global health pandemic related to the outbreak of a novel coronavirus.
The COVID-19 pandemic is adversely affecting, and could adversely affect public health, the global economy and financial markets,
as well as our industry, operations, workforce, supply chains and distribution systems throughout 2021. We have experienced,
and expect to continue to experience, unpredictable reductions in demand for certain of our products, as well as the potential
for restrictions on our ability to operate. In response to the COVID-19 pandemic, government health officials have recommended
and mandated at times precautions to mitigate the spread of the virus, including shelter-in-place orders, prohibitions on public
gatherings, travel restrictions and other similar measures. As a result, we and certain of our customers and suppliers temporarily
closed select manufacturing locations during the second half of fiscal year 2020. It is currently unclear if further closures may be
necessary in the future. Our results will be adversely impacted by any such closures and other actions taken to contain the spread
or mitigate the impact of the COVID-19 pandemic. There is uncertainty around the duration and breadth of the COVID-19 pandemic,
and as a result the ultimate impact on our business, financial condition or operating results cannot be reasonably estimated at this
time. The situation is rapidly evolving and additional impacts, which we are unable to predict or plan for, including expenses related
to subsequent commercial or employment related litigation, may arise.
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 demand for our products recovers from the effects of the COVID-19 pandemic and any price increases in raw materials 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.
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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 2020, sales to customers that accounted for 10 percent or more of our total sales included AB Volvo,
Daimler AG and PACCAR, which represented approximately 21 percent, 17 percent and 12 percent, respectively. No other customer
accounted for 10 percent or more of our total sales in fiscal year 2020.
The amount 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
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).
The downturn in the global economy is having, and is expected to continue to have, an adverse effect on our results
of operations, financial condition and cash flows.
The COVID-19 pandemic has led to a significant downturn in the global economy, which is adversely affecting, and is
expected to continue to adversely affect during fiscal year 2021, our results of operations, financial condition and cash flows.
There is uncertainty around the duration and breadth of the COVID-19 pandemic, and as a result the ultimate impact on our
business, financial condition or operating results cannot be reasonably estimated at this time. In addition, past recessions have
had a significant adverse impact on our business, customers and suppliers. Our cash and liquidity needs are impacted by the
level, variability and timing of our customers’ worldwide vehicle production and other factors outside of our control. If the global
economy experiences another significant decline in the future, our results of operations, financial condition and cash flow would
be materially adversely affected.
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.
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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 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 cash flows from
operations, we would look to our cash balances and 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, could have an adverse effect on our liquidity if we were unable to find alternative
sources of liquidity.
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
standards, 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 and Industrial 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.
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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.
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.
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 conditions 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.
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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 2020, approximately 41 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;
• 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
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assets into our existing business and to achieve any projected synergies. There is also no assurance that the total costs associated
with any current or future restructuring will not exceed our estimates, or that we will be able to achieve the intended benefits of
these restructurings.
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.
Financial Risks
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 10, 2020, 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, reduce our access to capital markets
and result in lower trading prices for our securities.
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 businesses would be negatively impacted, which could result in further restructuring,
insolvency 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.
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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, including covenants in our senior secured revolving 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 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 comply with 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.
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.
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
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U.S. dollar against these foreign currencies will generally have a positive effect on reported revenues and operating income. For
fiscal year 2018, 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. For
fiscal year 2020, our reported financial results were adversely affected by appreciation of the U.S. dollar against foreign currencies.
Environmental, Asbestos, Tax and Other Regulatory Risks
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 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 U.S. and foreign federal, state and local 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.
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
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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 FASB ASC Topic 740., “Income Taxes” (“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.
Our unrecognized tax benefits recorded in accordance with ASC Topic 740 could significantly change.
ASC Topic 740, 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.”
Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, limit 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 Sections 382 or 383 were to occur, our ability to utilize
tax attributes in the future may be limited.
Intellectual Property, Information Security and Pension Risks
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
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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.
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.
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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 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 us 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.
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 plans, we make certain assumptions as to economic and demographic factors, such as
discount rates and investment returns. If actual experience with these factors is worse than our assumptions, our obligations could
be larger than estimated which could in turn increase the amount of mandatory contributions to these plans in the coming years.
Our pension plans were overfunded by $40 million as of September 30, 2020.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
At September 30, 2020, 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 and Industrial . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing and
Distribution Facilities
22
13
—
35
Engineering Facilities, Sales
Offices, Warehouses and
Service Centers
8
7
4
19
These facilities had an aggregate floor space of approximately 10.9 million square feet, substantially all of which is in use. We
owned approximately 62 percent and leased approximately 38 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
15 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.
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A summary of floor space (in square feet) of these facilities at September 30, 2020 (including new space under construction)
is as follows:
Owned Facilities
Leased Facilities
Region
United States . . .
Canada . . . . . . .
Europe . . . . . . . .
Asia Pacific. . . . .
Latin America . . .
Total . . . . . . .
Commercial Truck
1,611,763
—
1,438,000
623,941
494,913
4,168,617
Aftermarket
and Industrial
1,807,790
—
320,441
—
—
2,128,231
Other
417,800
—
—
—
—
417,800
Commercial Truck
697,695
—
528,077
995,913
571,743
2,793,428
Aftermarket
and Industrial
1,097,016
40,517
98,109
71,673
33,356
1,340,671
Other
Total
— 5,632,064
40,517
—
2,392,488
7,861
— 1,691,527
— 1,100,012
10,856,608
7,861
Item 3. Legal Proceedings.
• See Note 22 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 and environmental proceedings,
which is incorporated herein by reference.
• In March 2016, two virtually identical complaints were filed against the 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 was composed of persons and entities that purchased or
leased a passenger vehicle during a specified time period and the second proposed class was composed of automobile
dealers. We accepted service of these complaints in July 2016 and settled both of these lawsuits for a total of $1 million.
A third complaint on behalf of a proposed class of direct purchasers was filed against the company and other defendants
in the same court in November 2016. We accepted service of this complaint in April 2017. We settled this lawsuit for
$1 million. In December 2017, we were served with a similar suit naming the company as a defendant on behalf of
a purported class of Canadian purchasers. The complaint was filed in Ontario, Canada. We were served with nearly
identical complaints in British Columbia, Canada in March 2018 and May 2019 and Quebec, Canada in March 2019. The
Quebec claims against the company were discontinued in February 2020. We settled the Ontario and British Columbia
claims for $0.1 million. 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. The public prosecutor issued a
legal opinion in favor of Meritor, and the Brazilian antitrust authority issued a binding ruling ending the investigation with
respect to Meritor.
• Various other lawsuits, claims and proceedings have been or may be instituted or asserted against the company or its
subsidiaries relating to the conduct of our business, including those pertaining to product liability, tax, warranty or recall
claims; intellectual property; safety and health; commercial 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.
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Item 4A. Information About Our Executive Officers.
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, 2020, are as follows:
Jeffrey A. Craig, 60 (Caucasian/White Male) - Chief Executive Officer and President since April 2015. Director of Meritor
since April 2015; President and Chief Operating Officer from June 2014 until April 2015; Senior Vice President and President
of 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, Mr. Craig 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, 51 (Caucasian/White Male) - Senior Vice President and Chief Financial Officer since March 2019. Group
Vice President of Finance from March 2018 until March 2019; Vice President and Treasurer from February 2012 until March 2018;
Assistant Treasurer from August 2009 until February 2012; Director of Capital Markets from September 2006 until August 2009.
Prior to joining Meritor, Mr. Anderson was Senior Manager of Structured Finance at GMAC from 2003 until 2006; Manager of
Treasury (GMAC) from 2002 to 2003; Manager of Leasing Group (GMAC) from 2000 until 2002; and Senior Analyst, Financial
Planning & Analysis (GMAC) from 1997 to 2000. He also held various positions at First Chicago NBD Bank from 1992 until 1996.
Hannah Lim-Johnson, 48 (Asian Female) - Senior Vice President, Chief Legal Officer and Corporate Secretary since
August 2020. Prior to joining Meritor, Ms. Lim-Johnson was Senior Vice President and Chief Legal Officer at Kelly Services from
September 2017 until March 2020; Deputy General Counsel, Chief Litigation Counsel and Assistant Corporate Secretary at Public
Service Enterprise Group (PSEG) from October 2016 until May 2017; Vice President, Chief Litigation and Chief Compliance Officer
at the ADT Corporation from November 2014 to September 2016 and Vice President and Chief Litigation Officer (ADT Corporation)
from June 2012 to November 2014; Senior Litigation Counsel at Tyco International from June 2007 until June 2012; Senior
Counsel at Weitz & Luxenberg, P.C. from May 2004 until June 2007; Deputy Attorney General at the Attorney General’s Office in
Trenton, New Jersey from August 1998 until May 2004; and Law Clerk to Honorable Randolph Michael Subryan from May 1997
until August 1998.
Timothy Heffron, 56 (Caucasian/White Male) - 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; and 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.
Chris Villavarayan, 50 (Indian/South Asian Male) - Executive Vice President and Chief Operating Officer since January
2020. Senior Vice President and President of Global Truck from January 2018 to January 2020; Senior Vice President and President
for 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; and Site Manager of Meritor St. Thomas, Ontario facility
from June 2000 until September 2001.
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.
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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 11, 2020, there were 9,441 shareholders of record of Meritor’s Common Stock.
Our senior secured 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 senior secured revolving credit facility, 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 indentures, 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, 2020:
Period
July 1- 31, 2020. . . . . . . . . . . .
August 1- 31, 2020 . . . . . . . . .
September 1- 30, 2020 . . . . . .
Total. . . . . . . . . . . . . . . . . . . . .
Total Number of
Shares Purchased
—
—
—
—
Average Price
Paid Per Share
$—
$—
$—
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
—
—
—
—
Maximum Approximate
Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs (1)(2)
$59,199,494
$59,199,494
$59,199,494
(1)
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 superseded the remaining authority
under the prior November 2018 equity repurchase authorization. On November 7, 2019, the Board of Directors increased the
amount of the repurchase authorization to $325 million.
(2)
On March 25, 2020, the company suspended activity under its share repurchase program as a result of uncertainties in the
global economy due to the COVID-19 pandemic.
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
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transactions are issuer repurchases for the purposes of this Item 5 of this Annual 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 2020.
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, 2015 to September 30, 2020, 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 a Peer Group
$300
$250
$200
$150
$100
$50
$0
9/15
9/16
9/17
9/18
9/19
9/20
Meritor, Inc.
S&P 500
Peer Group
*$100 invested on 9/30/15 in stock or index, including reinvestment of dividends.
Fiscal year ending September 30.
Copyright© 2020 Standard & Poor’s, a division of S&P Global. All rights reserved.
Meritor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Peer Group (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
9/15
100.00
100.00
100.00
9/16
104.70
115.43
120.09
9/17
244.68
136.91
166.20
9/18
182.13
161.43
145.37
9/19
174.04
168.30
156.93
9/20
196.99
193.80
196.03
(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, and Stoneridge, 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.
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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.
Year Ended September 30,
2020
2019
2018
2017
2016
(in millions, except per share amounts)
SUMMARY OF OPERATIONS
Sales
Commercial Truck (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket and Industrial (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.:
$2,190
981
(127)
$3,044
$ 332
326
(4)
Income from Continuing Operations . . . . . . . . . . . . . . . . . . . . .
Income (loss) from Discontinued Operations . . . . . . . . . . . . . . .
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 244
1
$ 245
$3,456
1,100
(168)
$4,388
$ 363
377
(5)
$ 290
1
$ 291
$3,325
1,024
(171)
$4,178
$ 292
278
(9)
$ 120
(3)
$ 117
$2,606
900
(159)
$3,347
$ 218
381
(4)
$ 325
(1)
$ 324
$2,465
886
(152)
$3,199
$ 224
155
(2)
$ 577
(4)
$ 573
BASIC EARNINGS (LOSS) PER SHARE
Continuing Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.30
0.01
$ 3.31
$ 3.49
0.01
$ 3.50
$ 1.37
(0.03)
$ 1.34
$ 3.69
(0.01)
$ 3.68
$ 6.40
(0.04)
$ 6.36
DILUTED EARNINGS (LOSS) PER SHARE
Continuing Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.23
0.01
$ 3.24
$ 3.36
0.01
$ 3.37
$ 1.31
(0.03)
$ 1.28
$ 3.60
(0.01)
$ 3.59
$ 6.27
(0.04)
$ 6.23
FINANCIAL POSITION AT SEPTEMBER 30
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,884
39
1,188
$2,815
41
902
$2,726
94
730
$2,782
288
750
$2,494
14
982
(1)
Fiscal years 2019, 2018, 2017 and 2016 have been recast to reflect reportable segment changes.
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Income 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):
Year Ended September 30,
2020
2019
2018
2017
2016
Pretax items:
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment charges, net of noncontrolling interests . . . . . . . . . . . . .
Asbestos-related liability remeasurement . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos-related insurance settlements, net . . . . . . . . . . . . . . . . . . . . . .
Impact of pension settlement losses and curtailment gain . . . . . . . . . . . . .
Gain on sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from WABCO distribution termination . . . . . . . . . . . . . . . . . . . . . .
Legal settlement charge related to joint venture . . . . . . . . . . . . . . . . . . . .
Supplier litigation settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (27)
—
(8)
—
(5)
—
—
—
265
—
—
After tax items:
Tax valuation allowance reversal, net and other (1) . . . . . . . . . . . . . . . . . .
U.S. tax reform impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
$ (8)
—
(10)
31
(6)
—
—
—
—
—
—
3
3
$ (6)
(8)
(3)
(79)
—
43
(6)
—
—
—
—
7
(89)
$ (6)
(36)
(4)
(4)
—
13
—
243
—
(10)
—
68
—
$ (16)
—
—
(4)
—
30
—
—
—
—
6
454
—
(1)
The fiscal year September 30, 2019 includes a $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.
28
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 29
OPERATOR JASMINEE
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.
COVID-19 Pandemic Update
In March 2020 the World Health Organization declared a global health pandemic related to the outbreak of a novel coronavirus.
The COVID-19 pandemic adversely affected our financial performance in the second, third and fourth quarters of fiscal year 2020
and could have an impact throughout fiscal year 2021. In response to the COVID-19 pandemic, government health officials have
recommended and mandated precautions to mitigate the spread of the virus, including shelter-in-place orders, prohibitions on
public gatherings and other similar measures. As a result, we and certain of our customers and suppliers temporarily closed select
manufacturing locations beginning late in the second quarter of fiscal year 2020, continuing into the third quarter of fiscal year
2020. As of May 31, 2020, all of our global facilities were back open and operating with limited production. Production volume
levels continued to increase through the fourth quarter of fiscal year 2020. Our salaried employees are primarily working remotely
until further notice. There is uncertainty around the duration and breadth of the COVID-19 pandemic, as well as the impact it will
have on our operations, supply chain and demand for our products. As a result, the ultimate impact on our business, financial
condition or operating results cannot be reasonably estimated at this time.
Employee Health and Safety
We established and executed a “Safe Start” plan for the reopening of plants, test labs, distribution centers and administrative
facilities. We intend to operate under these enhanced safety guidelines for the foreseeable future. To ensure consistent application
and compliance with these safety protocols, we have expanded the role of our Vice President and General Auditor to include
responsibilities as Chief Safety Compliance Officer.
Operations
We have complied with various shelter-in-place and similar government orders in various locations around the world, as
applicable. The impact of the COVID-19 pandemic led to suspended production in most of our global commercial truck manufacturing
facilities at some point during fiscal year 2020. Our operations in China were temporarily suspended in mid-January and resumed
production in mid-February while our other manufacturing facilities were suspended late in the second quarter and continued into
the third quarter. All of our facilities were fully operational at the end of fiscal year 2020.
As we serve the transportation, industrial and defense industries, we also continued to support customers who are actively
engaged in the COVID-19 pandemic response. Our Aftermarket business remained fully operational to maintain the supply of
critical replacement parts to the vital truck and trailer transportation network. Our Industrial businesses also remained operational
at varying levels to support the production of vehicles deemed critical, including defense, bus and coach, terminal tractor, fire
and rescue and off-highway applications. As the COVID-19 situation evolves, we will continue to monitor government and other
mandates to understand the potential impact on our operations.
Cost Reductions
In March 2020, we implemented a series of cost reduction measures to preserve our financial flexibility, including a reduction
to the base salary of each of our executive officers and salaried employees in the United States and Canada of between 40 percent
and 60 percent effective April 1 through April 30, 2020, a reduction between 20 percent and 60 percent effective May 1, 2020
through June 15, 2020 and a reduction between 10 percent and 20 percent effective July 16, 2020 through August 31, 2020.
Effective September 1, 2020, base pay for salaried employees was fully restored to pre-pandemic amounts. In March 2020, we
implemented a 60 percent reduction to the retainer fees paid to non-employee directors effective April 1, 2020 through June 30,
2020 and a 20 percent reduction from July 1, 2020 through August 31, 2020. Effective September 1, 2020, retainer fees paid
to non-employee directors were fully restored to pre-pandemic amounts. We also suspended certain employer-paid retirement
and pension contributions and modified certain retiree health benefits effective May 1, 2020. Additionally, on June 2, 2020, we
approved a restructuring plan to reduce headcount globally that affects approximately 8 percent of our global salaried positions,
as well as eliminated certain hourly roles. This restructuring plan is intended to reduce labor costs in response to an anticipated
29
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REVISION 2
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OPERATOR JASMINEE
decline in most global truck and trailer market volumes. With this restructuring plan, we expect to incur approximately $25 million
in employee severance costs across both of our reportable segments. Restructuring actions associated with this plan are expected
to be substantially complete by the end of fiscal year 2021. We will continue to evaluate further cost reduction measures as the
impact of the COVID-19 pandemic becomes clearer.
Special Incentive Plan
On June 10, 2020, we approved a special incentive plan to better align the compensation of our employees with the strategic
goals of the company for the remainder of fiscal year 2020 given the impacts of the ongoing COVID-19 pandemic. Awards under
the special incentive plan were also designed to give employees an opportunity, if certain performance targets were met, to recoup
lost salary stemming from the base pay reductions instituted by us in response to the pandemic, which were in effect through
August 31, 2020. The special incentive plan targets were based on liquidity and cost reduction targets.
Fiscal Year 2020 Results
Our sales for fiscal year 2020 were $3,044 million, a decrease from $4,388 million in the prior year. The decrease in sales
was driven by lower market volumes primarily due to decreased customer demand as a result of the COVID-19 pandemic.
Net income attributable to Meritor for fiscal years 2020 and 2019 was $245 million and $291 million, respectively. Lower
net income year over year was driven primarily by lower revenues as a result of significantly reduced market volumes due to the
COVID-19 pandemic, as well as higher restructuring costs related to actions taken in fiscal 2020. This decrease was partially
offset by $203 million of after tax income associated with the termination of the company’s distribution arrangement with WABCO
Holdings, Inc. (“WABCO”) in fiscal 2020.
Net income from continuing operations attributable to the company for fiscal years 2020 and 2019 was $244 million and
$290 million, respectively. Adjusted income from continuing operations attributable to the company for fiscal years 2020 and
2019 was $85 million and $330 million, respectively (see Non-GAAP Financial Measures below). The decreases in net income and
adjusted income from continuing operations attributable to the company year over year were driven primarily by lower revenues as
a result of reduced market volumes due to the COVID-19 pandemic.
Adjusted EBITDA (see Non-GAAP Financial Measures below) for fiscal year 2020 was $272 million compared to $520 million
in fiscal year 2019. Our adjusted EBITDA margin (see Non-GAAP Financial Measures below) in fiscal year 2020 was 8.9 percent
compared to 11.9 percent in the same period a year ago. The decreases in adjusted EBITDA and adjusted EBITDA margin year over
year were driven primarily by lower revenues as a result of reduced market volumes due to the COVID-19 pandemic. Cost reduction
actions executed primarily in the second half of fiscal year 2020 partially offset the impact from lower revenue.
Cash flows provided by operating activities were $265 million in fiscal year 2020 compared to $256 million in the prior
fiscal year. The increase in cash provided by operating activities was driven primarily by $265 million of cash received from the
termination of the distribution arrangement with WABCO in fiscal year 2020 and a one-time $48 million cash contribution and
loan repayment to fund the Maremont 524(g) Trust made in fiscal year 2019 (see Note 22 of the Notes to Consolidated Financial
Statements under Item 8. Financial Statements and Supplementary Data), which did not repeat, largely offset by lower fiscal year
2020 revenues as a result of significantly reduced market volumes primarily due to the impact of the COVID-19 pandemic.
Equity Repurchase Authorization
During fiscal year 2020, we repurchased 10.4 million shares of common stock for $241 million (including commission costs)
pursuant to the common stock repurchase authorization described in the Liquidity section below. As of September 30, 2020, the
amount remaining available for repurchases was $59 million under this common stock repurchase authorization. On March 25,
2020, we suspended activity under our share repurchase program as a result of uncertainties in the global economy due to the
COVID-19 pandemic.
WABCO Distribution Arrangement
On September 13, 2019, we gave notice of our intention to exercise our option to terminate the aftermarket distribution
arrangement with WABCO. On March 13, 2020, we closed on the transaction and received $265 million from WABCO in connection
with the termination of the arrangement.
30
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
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OPERATOR JASMINEE
Reportable Segment Changes
On May 4, 2020, we realigned our operations resulting in a change to our operating and reportable segments. As of the
third quarter of fiscal year 2020, the reportable segments are (1) Commercial Truck and (2) Aftermarket and Industrial. Prior year
reportable segment financial results have been recast for these changes.
Capital Markets Transactions
On June 8, 2020, we issued $300 million of 6.25 percent senior unsecured notes due 2025. Net proceeds from the offering
of the 6.25 percent notes due 2025, as well as cash on hand, were used to repay the then outstanding $304 million balance under
our senior secured revolving credit facility.
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.
Year Ended September 30,
2017
2018
2019
2020
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
218
221
231
345
99
134
359
287
336
485
109
376
307
264
313
484
102
464
237
246
282
469
73
315
2016
253
239
292
449
61
339
Across most regions, we are expecting production build to increase in fiscal year 2021, as discussed below.
North America:
Production volumes in fiscal year 2020 significantly decreased from the production levels experienced in fiscal year 2019.
We expect fiscal 2021 Heavy-Duty Truck production volumes to increase compared with the levels experienced in fiscal year 2020.
Western Europe:
During fiscal year 2020, production volumes in Western Europe significantly decreased from the production levels
experienced in fiscal year 2019. We expect fiscal year 2021 production volumes to increase compared with the levels experienced
in fiscal year 2020.
South America:
During fiscal year 2020, production volumes in South America decreased from the levels experienced in fiscal year 2019.
We expect fiscal year 2021 production volumes to increase from the levels experienced in fiscal year 2020.
China:
During fiscal year 2020, production volumes in China significantly increased from the levels experienced in fiscal year 2019.
We expect fiscal year 2021 production volumes in China to decrease from the levels experienced in fiscal year 2020.
India:
During fiscal year 2020, production volumes in India significantly decreased from the levels experienced in fiscal year 2019.
We expect fiscal year 2021 production volumes in India to significantly increase from the levels experienced in fiscal year 2020.
31
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OPERATOR JASMINEE
Industry-Wide Issues and Other Significant Issues
Our business continues to address a number of challenging industry-wide issues including the following:
• Uncertainty regarding the duration and severity of the COVID-19 pandemic and its effects on public health, the global
economy, financial markets and operations, including additional expense related to enhancing safety measures for
our employees;
• Uncertainty around the global economic outlook;
• Volatility in price and availability of steel, components, transportation costs and other commodities, including energy;
• Potential for disruptions in the financial markets and their impact on the availability and cost of credit;
• Impact of currency exchange rate volatility; and
• Consolidation and globalization of OEMs and their suppliers.
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 execute and implement strategic initiatives, including the ability to launch a significant number of
new products, potential product quality issues, and obtain new business;
• 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;
• Ability to further implement planned productivity, cost reduction and other margin improvement initiatives;
• Ability to work with our customers to manage rapidly changing production volumes, including in the event of production
interruptions affecting us, our customers or our suppliers;
• Competitively driven price reductions to our customers or 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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OPERATOR JASMINEE
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, and free
cash flow.
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.
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. Free cash flow over adjusted income from continuing operations is a specific financial measure in our M2022 plan
used to measure the company’s ability to convert earnings to free cash flow.
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 free cash flow over adjusted income from continuing operations 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 alternatives to net income as indicators 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 divestiture of businesses or sales of other assets and thus does not reflect funds available
for investment or other discretionary uses. 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.
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OPERATOR JASMINEE
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash tax expense (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax reform impacts (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax valuation allowance reversal, net and other (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefits) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement loss (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs (6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from WABCO distribution termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related items (7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted income from continuing operations attributable to the company . . . . . . . . . . . . . . .
Year Ended September 30,
2019
$ 290
8
—
10
51
(3)
(3)
2
—
6
—
(31)
$ 330
2018
$ 120
6
8
3
36
89
(7)
(10)
6
—
—
25
$ 276
2020
$ 244
27
—
8
12
—
—
54
—
5
(265)
—
85
$
Diluted earnings per share from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of adjustments on diluted earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted diluted earnings per share from continuing operations. . . . . . . . . . . . . . . . . . . . . .
$ 3.23
(2.11)
$ 1.12
$ 3.36
0.46
$ 3.82
$ 1.31
1.72
$ 3.03
(1)
(2)
(3)
(4)
(5)
(6)
(7)
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-free repatriation of cash to the United States and $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, 2020 includes $62 million of income tax expense related to the WABCO distribution
arrangement termination, $6 million of income tax benefits related to restructuring, $1 million of income tax benefits related
to transaction costs and $1 million of income tax benefits related to asset impairment charges. 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 a loss on debt extinguishment, $6 million of income tax benefits related
to asbestos related items, $1 million of income tax benefits related to restructuring and $1 million of income tax benefits
related to asset impairment.
The year ended September 30, 2018 includes $6 million related to the U.K. pension settlement loss.
Represents acquisition 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 Maremont plan of reorganization (see Note 22 of the Notes to Consolidated Financial Statements under
Item 8. Financial Statements and Supplementary Data). 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.
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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
$ 256
(103)
$ 153
2018
$ 251
(104)
$ 147
2020
$265
(85)
$180
Free cash flow conversion (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
212%
46%
53%
(1)
The year ended September 30, 2020 includes $265 million of cash received from termination of the WABCO distribution
arrangement. 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
(2)
Represents free cash flow divided by adjusted income from continuing operations
Adjusted EBITDA and segment adjusted EBITDA are reconciled to net income attributable to Meritor, Inc. below (dollars
in millions).
Net income attributable to Meritor, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Loss (income) from discontinued operations, net of tax,
Year Ended September 30,
2019
$ 291
2018
$ 117
2020
$ 245
attributable to Meritor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax, attributable to Meritor, Inc. . . . . . . . . . . .
(1)
$ 244
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from WABCO distribution termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
—
78
101
27
—
5
—
4
8
(265)
4
$ 272
(1)
$ 290
57
—
82
87
8
(31)
6
—
6
10
—
5
$ 520
3
$ 120
67
—
149
84
6
25
—
6
5
3
—
9
$ 474
Adjusted EBITDA margin (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.9%
11.9%
11.3%
Unallocated legacy and corporate expense (income), net (2) . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6)
$ 266
(3)
$ 517
13
$ 487
Commercial Truck (3)
Segment adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA margin (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 116
$ 342
5.3%
9.9%
$ 345
10.4%
Aftermarket and Industrial (3)
Segment adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA margin (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 150
15.3%
$ 175
15.9%
$ 142
13.9%
35
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 36
OPERATOR JASMINEE
(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, 2019 and 2018 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.
Non-Consolidated Joint Ventures
At September 30, 2020, 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
$107 million at September 30, 2020 and $110 million at September 30, 2019.
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 $696 million, $1,231 million and $1,101 million in
fiscal years 2020, 2019 and 2018, respectively.
Our equity in the earnings of affiliates was $14 million, $31 million, and $27 million in fiscal years 2020, 2019 and 2018,
respectively. The decrease in equity in earnings of affiliates for fiscal year 2020 compared to fiscal year 2019 was primarily
attributable to decreased production due to the COVID-19 pandemic. We received cash dividends from our affiliates of $10 million,
$23 million and $17 million in fiscal years 2020, 2019 and 2018, respectively.
For more information about our non-consolidated joint ventures, see Note 12 of the Notes to Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data.
36
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 37
OPERATOR JASMINEE
Results of Operations
Fiscal Year 2020 Compared to Fiscal Year 2019
Sales
The following table reflects total company and business segment sales for fiscal years 2020 and 2019 (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.
Sales:
Commercial Truck
North America . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South America . . . . . . . . . . . . . . . . . . . . . . .
China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales . . . . . . . . . . . . . . . . . .
Intersegment Sales. . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket and Industrial
North America . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales . . . . . . . . . . . . . . . . . .
Intersegment Sales. . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales. . . . . . . . . . . . . . . . . . . . . . . .
2020
2019 (1)
Dollar
Change
%
Change
Dollar Change Due To
Volume/
Other
Currency
$1,181
465
169
134
71
60
$2,080
110
$2,190
$ 803
156
5
$ 964
17
$ 981
$3,044
$1,966
659
248
153
197
84
$3,307
149
$3,456
$ 974
107
—
$1,081
19
$1,100
$4,388
$ (785)
(194)
(79)
(19)
(126)
(24)
$(1,227)
(39)
$(1,266)
$ (171)
49
5
$ (117)
(2)
$ (119)
$(1,344)
(40)%
(29)%
(32)%
(12)%
(64)%
(29)%
(37)%
(26)%
(37)%
(18)%
46 %
N/A
(11)%
(11)%
(11)%
(31)%
$ —
(5)
(36)
(4)
(1)
(1)
$ (47)
(3)
$ (50)
$ (2)
(1)
—
$ (3)
(1)
$ (4)
$ (50)
$ (785)
(189)
(43)
(15)
(125)
(23)
$(1,180)
(36)
$(1,216)
$ (169)
50
5
$ (114)
(1)
$ (115)
$(1,294)
(1)
Amounts for the year ended September 30, 2019 have been recast to reflect reportable segment changes.
Commercial Truck sales were $2,190 million in fiscal year 2020, down 37 percent from fiscal year 2019. Lower sales
were driven by significantly lower market volumes driven by decreased customer demand and government mandates as a result of
the COVID-19 pandemic. The majority of our production facilities were idled during the month of April with production increasing
throughout the remainder of fiscal year 2020.
Aftermarket and Industrial sales were $981 million in fiscal year 2020, down 11 percent from fiscal year 2019. Lower
sales were primarily driven by decreased volumes across the segment. While Aftermarket sites were not idled during fiscal year
2020, sales were lower compared to fiscal year 2019 due to changes in customer demand and the impact from the termination
of the WABCO distribution arrangement. Industrial sales were also down, driven primarily by decreased volumes as a result of the
impact of the COVID-19 pandemic, partially offset by the revenue generated from the AxleTech business.
37
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 38
OPERATOR JASMINEE
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GROSS MARGIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from WABCO distribution termination . . . . . . . . . . . . . . . . . . .
Other operating expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.. . . . . . . . . . . . . . . . . .
Cost of Sales and Gross Profit
Twelve Months Ended
2020
$ 3,044
(2,716)
328
(221)
265
(40)
332
46
14
(66)
326
(78)
248
1
249
(4)
$ 245
2019
$ 4,388
(3,748)
640
(256)
—
(21)
363
40
31
(57)
377
(82)
295
1
296
(5)
$ 291
Increase
(Decrease)
$(1,344)
(1,032)
(312)
(35)
265
19
(31)
6
(17)
9
(51)
(4)
(47)
—
(47)
(1)
(46)
$
%
Change
(31)%
(28)%
(49)%
(14)%
N/A
90 %
(9)%
15 %
(55)%
16 %
(14)%
(5)%
(16)%
— %
(16)%
(20)%
(16)%
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 2020 was $2,716 million, compared to $3,748 million in the prior year,
representing a 28 percent decrease, primarily driven by decreased market volumes. Total cost of sales was approximately
89 percent of sales for fiscal year 2020, compared to approximately 85 percent for the prior fiscal year.
The following table summarizes significant factors contributing to the changes in costs of sales during fiscal year 2020
compared to the prior fiscal year (in millions):
Fiscal year ended September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volumes, mix and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in the components of cost of sales year over year are summarized as follows (in millions):
Lower material costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lower labor and overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total change in cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of
Sales
$3,748
(985)
(47)
$2,716
Change
in Cost of
Sales
$ (911)
(130)
9
$(1,032)
Material costs represent the majority of our cost of sales and include raw materials, composed primarily of steel and
purchased components. Material costs decreased by $911 million compared to the prior fiscal year primarily due to significantly
lower volumes. The third quarter of fiscal year 2020 was significantly impacted by the idling of production facilities. The majority
of the company’s manufacturing facilities were idled during the month of April 2020 with production increasing throughout the
remainder of fiscal year 2020.
38
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 39
OPERATOR JASMINEE
Labor and overhead costs decreased by $130 million compared to the prior fiscal year primarily year primarily due to
lower volumes. During the third quarter of fiscal year 2020, we executed certain cost actions in order to decrease the impacts
of the significantly lower production levels. These actions included hourly employee layoffs and other discretionary spending
reductions. Incentive compensation costs were also lower compared to the prior fiscal year.
Gross margin for fiscal year 2020 was $328 million, compared to $640 million in fiscal year 2019. Gross margin, as
a percentage of sales, was 10.8 percent and 14.6 percent for fiscal years 2020 and 2019, respectively. Gross margin as a
percentage of sales decreased as lower sales more than offset the lower material, labor and overhead costs.
Other Income Statement Items
Selling, general and administrative expenses (“SG&A”) were $221 million in fiscal year 2020, compared to
$256 million in fiscal year 2019, a decrease of $35 million. 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 22 of the Notes to Consolidated
Financial Statements in Item 8. Financial Statements and Supplementary Data). Excluding Maremont, SG&A was lower primarily in
fiscal year 2020 due to certain actions executed in the third quarter of fiscal year 2020, that continued through the fourth quarter
of fiscal year 2020, in order to decrease the impacts of the significantly lower production levels. These actions included temporary
salary reductions, employee headcount reductions, and other discretionary spend reductions. Incentive compensation costs were
also lower compared to the prior year. This was partially offset by additional costs generated from our AxleTech business, which
acquired in the fourth quarter of fiscal year 2019, as well as higher electrification costs.
Operating income for fiscal year 2020 was $332 million, compared to $363 million in fiscal year 2019. Key items affecting
income are discussed above.
Other income, net for fiscal year 2020 was $46 million, compared to $40 million in fiscal year 2019. The increase was
primarily driven by higher pension and retiree medical income in the current year.
Equity in earnings of affiliates was $14 million in fiscal year 2020, compared to $31 million in the prior year. The
decrease was primarily attributable to lower earnings across all our joint ventures due to decreased volumes.
Interest expense, net was $66 million in fiscal year 2020, compared to $57 million in fiscal year 2019. The increase in
interest expense was primarily attributable to new 6.25% notes due 2025 that were issued in June of fiscal year 2020, as well as
higher utilization of our senior secured revolving credit facility during fiscal year 2020 compared to fiscal year 2019.
Provision for income taxes was $78 million in fiscal year 2020, compared to $82 million in fiscal year 2019. The
decrease in tax expense is primarily related to lower earnings in certain jurisdictions that do not have a tax valuation allowance,
largely offset by the tax effect on the proceeds received from the termination of the WABCO distribution arrangement.
Income from continuing operations (before noncontrolling interests) was $248 million for fiscal year 2020, compared
to $295 million for fiscal year 2019. The reasons for the decrease are discussed above.
Net income attributable to Meritor, Inc. was $245 million for fiscal year 2020, compared to $291 million for fiscal year
2019. Various factors that contributed to the decrease in net income are discussed above.
Segment Adjusted EBITDA and Segment Adjusted EBITDA Margins
The following table reflects segment adjusted EBITDA and segment adjusted EBITDA margins for fiscal years 2020 and
2019 (dollars in millions).
Commercial Truck. . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket and Industrial . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA
2019 (1)
$342
175
$517
2020
$ 116
150
$ 266
Change
$(226)
(25)
$(251)
Segment adjusted EBITDA Margins
Change
2020
(4.6)pts
5.3%
(0.6)pts
15.3%
(3.1)pts
8.7%
2019 (1)
9.9%
15.9%
11.8%
(1)
Amounts for the year ended September 30, 2019 have been recast to reflect reportable segment changes.
39
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 40
OPERATOR JASMINEE
Significant items impacting year-over-year segment adjusted EBITDA include the following (in millions):
Segment adjusted EBITDA - Year Ended September 30, 2019 (1) . . . . . . . . . . . . . .
Volume, mix, performance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lower 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, 2020 . . . . . . . . . . . . . . . .
Commercial
Truck
$ 342
(178)
(17)
(33)
2
$ 116
Aftermarket
and Industrial
$ 175
(20)
—
(8)
3
$ 150
TOTAL
$ 517
(198)
(17)
(41)
5
$ 266
(1)
Amounts for the year ended September 30, 2019 have been recast to reflect reportable segment changes.
Commercial Truck Segment adjusted EBITDA was $116 million in fiscal year 2020, compared to $342 million in the
prior fiscal year. Segment adjusted EBITDA margin decreased to 5.3 percent in fiscal year 2020 from 9.9 percent in the prior
fiscal year. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin were primarily driven by significantly
decreased market volumes for most regions across the segment, primarily due to the COVID-19 pandemic, partially offset by the
cost reduction actions executed in the second half of fiscal year 2020 and lower incentive compensation costs.
Aftermarket and Industrial Segment adjusted EBITDA was $150 million in fiscal year 2020, compared to $175 million in
the prior fiscal year. Segment adjusted EBITDA margin decreased to 15.3 percent in fiscal year 2020 from 15.9 percent in fiscal
year 2019. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin was primarily driven by lower volumes
and the impact from the termination of the WABCO distribution arrangement, partially offset by the cost reduction actions executed
in the second half of fiscal year 2020 and lower incentive compensation costs.
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 (1)
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 and Industrial
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales . . . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales. . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total External Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,966
659
248
153
197
84
$3,307
149
$3,456
$ 974
107
$1,081
19
$1,100
$4,388
$1,696
715
224
196
231
109
$3,171
154
$3,325
$ 886
121
$1,007
17
$1,024
$4,178
$270
(56)
24
(43)
(34)
(25)
$136
(5)
$131
$ 88
(14)
$ 74
2
$ 76
$210
16%
(8)%
11%
(22)%
(15)%
(23)%
4%
(3)%
4%
10%
(12)%
7%
12%
7%
5%
$ —
(38)
(25)
(10)
(12)
(2)
$(87)
(12)
$(99)
$ (3)
(6)
$ (9)
(6)
$(15)
$(96)
$270
(18)
49
(33)
(22)
(23)
$223
7
$230
$ 91
(8)
$ 83
8
$ 91
$306
(1)
Amounts for the years ended September 30, 2019 and September 30, 2018 have been recast to reflect reportable
segment changes.
40
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 41
OPERATOR JASMINEE
Commercial Truck sales were $3,456 million in fiscal year 2019, up 4 percent from fiscal year 2018. The increase in sales
was primarily driven 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 and Industrial sales were $1,100 million in fiscal year 2019, up 7 percent from fiscal year 2018. The
increase in sales was primarily driven 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.
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GROSS MARGIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . .
Cost of Sales and Gross Profit
Twelve Months Ended
2019
$ 4,388
(3,748)
640
(256)
(21)
363
40
31
(57)
377
(82)
295
1
296
(5)
$ 291
2018
$ 4,178
(3,553)
625
(313)
(20)
292
26
27
(67)
278
(149)
129
(3)
126
(9)
$ 117
Increase
(Decrease)
$ 210
195
15
(57)
1
71
14
4
(10)
99
(67)
166
4
170
(4)
$ 174
%
Change
5%
5%
2%
(18)%
5%
24%
54%
15%
(15)%
36%
(45)%
129%
133%
135%
(44)%
149%
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 fiscal year,
representing a 5 percent increase, primarily driven by increased volumes. Total cost of sales was approximately 85 percent of sales
for fiscal year 2019 compared to approximately 85 percent for the prior fiscal year.
The following table summarizes significant factors contributing to the changes in costs of sales during fiscal year 2019
compared to the prior fiscal year (in millions):
Fiscal year ended September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,553
Volumes, mix and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286
(91)
Fiscal year ended September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,748
Changes in the components of cost of sales year over year are summarized as follows (in millions):
Cost of
Sales
Higher material costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Higher labor and overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total change in cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change
in Cost
of Sales
$ 185
10
$ 195
41
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 42
OPERATOR JASMINEE
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”) were $256 million in fiscal year 2019, compared to $313 million
in fiscal year 2018. The decrease of $57 million was primarily attributable to asbestos related items as discussed below:
Asbestos-related liability remeasurement
In fiscal year 2019, we recognized $31 million related to remeasuring the Maremont asbestos liability based on the plan
of reorganization in the first quarter of fiscal year 2019 (refer to Note 22 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.
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 22 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.
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. Restructuring costs are
recorded in Other operating expense, net.
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.
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 in jurisdictions for which we do not have a valuation allowance.
42
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 43
OPERATOR JASMINEE
Income from continuing operations (before noncontrolling interests) for fiscal year 2019 was $295 million compared to
$129 million in fiscal year 2018. The reasons for the decrease 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 that contributed to the decrease in net income are discussed above.
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 and Industrial . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA
2018 (1)
$345
142
$487
2019 (1)
$ 342
175
$ 517
Change
$ (3)
33
$30
Segment adjusted EBITDA Margins
Change
(0.5)pts
2.0pts
0.1pts
2018 (1)
10.4%
13.9%
11.7%
2019 (1)
9.9%
15.9%
11.8%
(1)
Amounts for the years ended September 30, 2019 and 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) . . . . . . . . . . . . . . . . .
Higher earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Higher short- and long-term variable compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Higher pension and retiree medical income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volume, mix, performance and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA - Year Ended September 30, 2019 (1) . . . . . . . . . . . . . . . . .
Commercial
Truck
$ 345
4
4
2
(13)
$ 342
Aftermarket
and
Industrial
$ 142
—
3
2
28
$ 175
TOTAL
$ 487
4
7
4
15
$ 517
(1)
Amounts for the years ended September 30, 2019 and September 30, 2018 have been recast to reflect reportable
segment changes.
Commercial Truck Segment adjusted EBITDA was $342 million in fiscal year 2019, compared to $345 million in the prior
fiscal year. Segment adjusted EBITDA margin decreased to 9.9 percent in fiscal year 2019 compared to 10.4 percent in the prior
fiscal year. The decrease in segment adjusted EBITDA was primarily driven 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 primarily driven by higher steel and layered capacity costs.
Aftermarket and Industrial Segment adjusted EBITDA was $175 million in fiscal year 2019, compared to $142 million in
the prior fiscal year. Segment adjusted EBITDA margin increased to 15.9 percent in fiscal year 2019 compared to 13.9 percent in
fiscal year 2018. The increase in segment adjusted EBITDA and segment adjusted EBITDA margin was primarily driven by higher
revenue, including pricing actions within our Aftermarket business.
43
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 44
OPERATOR JASMINEE
Cash Flows (in millions)
OPERATING CASH FLOWS
Year Ended September 30,
2020
2019
2018
$248
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
Pension and retiree medical income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(42)
Pension settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
8
Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14)
27
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received from equity method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
(15)
Pension and retiree medical contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related liability remeasurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Contribution to Maremont trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Restructuring payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25)
61
Increase in working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(77)
Changes in off-balance sheet accounts receivable securitization and factoring . . . . . . . . . . . . . . .
(55)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows provided by continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
265
Cash flows used for discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
$265
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
Cash provided by operating activities for fiscal year 2020 was $265 million, compared to $256 million in fiscal year
2019 and $251 million in fiscal year 2018. The increase in cash flow provided by operating activities in fiscal year 2020 was
driven primarily by $265 million of cash received from the termination of the distribution arrangement with WABCO in fiscal year
2020, largely offset by 2020 lower revenues as a result of significantly lower market volumes due to the impact of the COVID-19
pandemic. The increase in cash flows provided by operating activities in fiscal year 2019 compared to fiscal year 2018 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 or reorganization.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . .
$(85)
—
—
(13)
9
$(89)
$(103)
—
(168)
(6)
6
$(271)
$(104)
250
(35)
(6)
6
$ 111
Year Ended September 30,
2020
2019
2018
Cash used for investing activities was $89 million in fiscal year 2020, compared to cash used for investing activities of
$271 million in fiscal year 2019 and cash provided by investing activities of $111 million in fiscal year 2018. The decrease in cash
used for investing activities in the fiscal year 2020 was primarily driven by lower acquisition activity in fiscal year 2020 as compared
to fiscal year 2019. The decrease in cash provided by investing activities in fiscal year 2019 compared to fiscal year 2018 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.
Capital expenditures were $85 million in fiscal year 2020, compared to $103 million in fiscal year 2019 and $104 million in
fiscal year 2018.
44
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 45
OPERATOR JASMINEE
FINANCING CASH FLOWS
Repayment of notes and term loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings against revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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,
2020
2019
2018
$
(8)
(8)
304
(304)
—
300
—
—
(5)
(2)
277
(241)
$ 36
$ — $ —
(43)
55
(55)
—
—
(181)
—
—
(5)
(229)
(100)
$(329)
(38)
190
(190)
175
—
(24)
(4)
—
(2)
107
(96)
$ 11
Cash provided by financing activities was $36 million in fiscal year 2020, compared to cash provided by financing
activities of $11 million in fiscal year 2019 and cash used for financing activities of $329 million in fiscal year 2018. The increase
in cash provided by financing activities in fiscal year 2020 compared to fiscal year 2019 was primarily related to the proceeds from
the issuance of the $300 million principal amount of our 6.25 percent notes due 2025 (see Note 15 of the Notes to Consolidated
Financial Statements in Item 8. Financial Statements and Supplementary Data), partially offset by the repurchase of 10.4 million
shares of our common stock for $241 million (see Note 17 of the Notes to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data). 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.
Contractual Obligations
As of September 30, 2020, we are contractually obligated to make payments as follows (in millions):
Total debt (1) . . . . . . . . . . . . . . . . . . . . . .
Operating leases. . . . . . . . . . . . . . . . . . . .
Interest payments on long-term debt . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$1,265
93
364
$1,722
2021 (2)
$ 36
17
58
$111
2022
$ 18
14
58
$ 90
2023
$ 13
13
58
$ 84
2024 (3)
$573
9
40
$622
2025 (4)
$300
7
23
$330
Thereafter (5)
$325
33
127
$485
(1)
(2)
(3)
(4)
(5)
Total debt excludes unamortized discount on convertible notes of $29 million, unamortized issuance costs of $14 million,
and original issuance discount of an insignificant amount.
Includes the 7.875 percent convertible notes due 2026, which will be early redeemed on December 1, 2020 (refer to Note
15 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data).
Includes the 6.25 percent senior notes due 2024, which contain a call feature that allows for early redemption (refer to Note
15 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data).
Includes the 6.25 percent senior notes due 2025, which contain a call feature that allows for early redemption (refer to Note
15 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data).
Includes the 3.25 percent convertible notes due 2037, which contain a put and call feature that allows for early redemption
beginning in 2025 (refer to Note 15 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and
Supplementary Data).
45
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 46
OPERATOR JASMINEE
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 2021.
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 $6 million, $5 million, $5 million, $4 million
and $4 million in fiscal years 2021, 2022, 2023, 2024 and 2025, 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
$73 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 21 of the Notes to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data.
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 15 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,
2020
$ 741
343
166
(29)
6
$1,227
2019
$444
342
175
(34)
16
$943
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 2021 capital expenditures to be approximately $85 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
during the uncertain times of the COVID-19 pandemic 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.
46
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 47
OPERATOR JASMINEE
Sources of liquidity as of September 30, 2020, in addition to cash on hand, are as follows (in millions):
On-balance sheet arrangements:
Senior secured 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)(4) . . . . . . . . . . . .
Committed U.S. Factoring Facility (3) . . . . . . . . . . . . . . . . .
Uncommitted U.K. Factoring Facility. . . . . . . . . . . . . . . . . .
Uncommitted Italy Factoring Facility. . . . . . . . . . . . . . . . . .
Other uncommitted factoring facilities (5) . . . . . . . . . . . . . .
Total off-balance sheet arrangements . . . . . . . . . . . . . .
Total available sources . . . . . . . . . . . . . . . . . . . . . . . .
Total
Facility
Size
$ 625
95
720
$ 181
75
29
35
N/A
320
$1,040
Utilized as of
9/30/20
Readily
Available as of
9/30/20
$ —
3
3
$100
30
1
9
14
154
$157
$625
80
705
$ —
—
—
—
N/A
—
$705
Current Expiration
June 2024 (1)
December 2022
March 2024
February 2023
February 2022
June 2022
None
(1)
(2)
(3)
(4)
(5)
The availability under the senior secured 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.
Availability subject to adequate eligible accounts receivable available for sale.
Actual amounts may exceed bank’s commitment at bank’s discretion.
The facility is backed by a 364-day liquidity commitment from Nordea Bank which extends through June 22, 2021.
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, 2020, we had $315 million in cash and cash equivalents, of which $32
million was held in jurisdictions outside of the U.S. that, if repatriated, could result in withholding taxes. We plan to repatriate
approximately $21 million of this cash, with respect to which no withholding taxes are expected to be owed. 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 senior secured 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 senior secured 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 senior secured 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 senior secured revolving credit facility. At
September 30, 2020, we were in compliance with the priority debt to EBITDA ratio covenant with a ratio of approximately 0.39x,
which includes the income recognized related to the termination of the WABCO distribution arrangement.
Equity and Debt Repurchase Authorization — Refer to Note 17 of the Notes to Consolidated Financial Statements in
Item 8. Financial Statements and Supplementary Data.
Redemption of 4.0 Percent Convertible Notes due 2027, Senior Secured Revolving Credit Facility, and Issuance
of 6.25 Percent Notes due 2025 — Refer to Note 15 of the Notes to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data.
U.S. Securitization Program — Refer to Note 8 of the Notes to Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data.
Finance Leases — We had $6 million and $7 million of outstanding finance lease arrangements as of September 30,
2020 and 2019, respectively.
47
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 48
OPERATOR JASMINEE
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, 2020 and 2019, we had $16 million and $30 million,
respectively, outstanding under this program at more than one bank.
Credit Ratings — At November 10, 2020, 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.
Subsidiary Guarantees of Debt — Certain of the company’s 100% owned subsidiaries, as defined in the credit
agreement for the senior secured revolving credit facility (collectively, the “Guarantors”) irrevocably and unconditionally guarantee
amounts outstanding under the senior secured revolving credit facility on a joint and several basis. Similar subsidiary guarantees
are provided for the benefit of the holders of the notes outstanding under the company’s indentures. The notes are guaranteed on
a senior unsecured basis by each of the company’s subsidiaries from time to time guaranteeing its senior secured revolving credit
facility, as it may be amended, extended, replaced or refinanced, or any subsequent credit facility. The guarantees remain in effect
until the earlier to occur of payment in full of the notes or termination or release of the applicable corresponding guarantee under
the company’s senior secured revolving credit facility, as it may be amended, extended, replaced or refinanced, or any subsequent
credit facility. The guarantees rank equally with existing and future senior unsecured indebtedness of the Guarantors and are
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.
The following represents summarized financial information, in millions, of Meritor, Inc (“Parent”) and the Guarantors
(collectively, the “Combined Entities”). The information has been prepared on a combined basis and excludes any investments of
the Parent or Guarantors in non-guarantor subsidiaries. Intercompany transactions and amounts between the Combined Entities
have been eliminated. Equity income from continuing operations of subsidiaries has been eliminated.
Statement of Operations Information
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Meritor, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
September 30, 2020
$1,863
188
190
191
191
Balance Sheet Information
Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2020
$ 566
1,053
413
1,639
Year Ended
September 30, 2019
$2,731
368
123
124
124
September 30, 2019
$ 447
1,178
559
1,376
Redeemable Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
At September 30, 2020 and 2019, amounts owed by the Combined Entities to non-guarantor entities totaled approximately
$100 million and $13 million, respectively, and amounts owed to the Combined Entities from non-guarantor entities totaled
approximately $156 million and $202 million, respectively. For the years ended September 30, 2020 and 2019, intercompany
sales from the Combined Entities to non-guarantor subsidiaries were $79 million and $110 million, respectively. For the years
ended September 30, 2020 and 2019, intercompany sales from non-guarantor subsidiaries to the Combined Entities were $102
million and $201 million, respectively.
48
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 49
OPERATOR JASMINEE
Off-Balance Sheet Arrangements
Accounts Receivable Factoring Arrangements — We participate in accounts receivable factoring programs with total
amounts utilized at September 30, 2020 of $154 million, of which $130 million was attributable to committed factoring facilities
involving the sale of AB Volvo accounts receivables. The remaining amount of $24 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.
Our Swedish factoring facility, which is backed by a 364-day liquidity commitment from Nordea Bank, was renewed through
June 22, 2021. 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 — Refer to Note 15 of the Notes to the Consolidated Financial Statements in Item 8. Financial
Statements and Supplementary Data. There were $8 million of off-balance sheet letters of credit outstanding through letter of credit
facilities as of September 30, 2020 and 2019.
Contingencies
Contingencies related to environmental, asbestos and other matters are discussed in Note 22 of the Notes to Consolidated
Financial Statements in Item 8. Financial Statements and Supplementary Data.
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, 2020 and 2019.
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 2020 and 2019, the only significant non-
U.S. plan is a pension plan 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
2020
2019
U.S.
U.K.
U.S.
U.K.
2.50% - 2.60%
1.70%
3.10% - 3.15%
1.80%
(beginning of the year) (1) . . . . . . . . . . . . . . . . . . . . . . . .
7.75%
5.75%
7.75%
6.00%
(1)
The assumed return on plan assets for fiscal year 2021 is 7.75 percent for the U.S. plan and 5.00 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.
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JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
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OPERATOR JASMINEE
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 2020, are shown below (in millions):
Effect on All Plans – September 30, 2020
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
$ 112
(100)
N/A (1)
N/A (1)
$ —
—
15
(15)
(1)
Not Applicable
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 Accumulated other comprehensive loss.
Based on the September 30, 2020 and 2019 measurement dates, we had an unrecognized loss of $676 million and $806 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 25 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. plans 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 20–35 percent equity investments, 30–40 percent fixed income investments, 0–15
percent real estate and 15–35 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, 2020.
Based on current assumptions, the fiscal year 2021 net pension income is estimated to be $29 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, 2020 and September 30, 2019.
50
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
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OPERATOR JASMINEE
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 . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
2019
2.56%
6.07%
4.67%
2028
2.98%
6.36%
4.69%
2028
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 2021 is 6.07 percent. For measurement purposes, the annual increase in health care costs was assumed
to decrease gradually to 4.67 percent by fiscal year 2028 and remain at that level thereafter.
A one-percentage point change in the assumed health care cost trend rate for all years to, and including, the ultimate rate
would have the following effects (in millions):
Effect on total of service and interest cost
1% Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1% Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on APBO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1% Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1% Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
2019
$ — $ —
—
—
6
(5)
5
(4)
Based on current assumptions, fiscal year 2021 retiree medical income is estimated to be approximately $21 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.
51
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
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OPERATOR JASMINEE
Asbestos — Contingencies for asbestos related matters are discussed in Note 22 of the Notes to Consolidated Financial
Statements in Item 8. Financial Statements and Supplementary Data.
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.
Refer to Note 21 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data,
for additional information on income tax related matters.
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.
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 2020, our reported financial results were adversely
affected by appreciation 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.
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 option contracts to mitigate foreign exchange exposure on expected future foreign currency-denominated purchases.
We 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.
We use option contracts to mitigate the risk of volatility in the translation of foreign currency earnings to U.S. dollars. 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.
52
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
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OPERATOR JASMINEE
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 income (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. In the third quarter of fiscal year 2019, we also entered into multiple new cross-currency swaps
with a combined notional amount of $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 second quarter of fiscal year 2020, we settled these
cross-currency swap contracts and received proceeds of $11 million, $1 million of which related to net accrued interest receivable.
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
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. . . . . . . . . . . . . . . . . . . . . . . . . .
(0.4)
(2.1)
0.4
1.7
(0.3)
0.4
2.1
(0.4)
(0.6)
1.1
Change
In
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
$(35.0)
(0.8)
Assuming a 50
BPS Decrease
in Rates
$ 37.0
0.8
Change
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, 2020, the fair value of outstanding foreign currency denominated debt was $3.6 million. A 10% decrease
in quoted currency exchange rates would result in a decrease of $0.4 million in foreign currency denominated debt. At
September 30, 2020, a 10% increase in quoted currency exchange rates would result in an increase of $0.4 million in
foreign currency denominated debt.
At September 30, 2020, the fair value of outstanding debt was $1,317 million. A 50 basis points decrease in quoted interest
rates would result in an increase of $37.0 million in the fair value of fixed rate debt. A 50 basis points increase in quoted
interest rates would result in a decrease of $35.0 million in the fair value of fixed rate debt.
53
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 54
OPERATOR JASMINEE
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
27, 2020 and September 29, 2019, the related consolidated statements of operations, comprehensive income, equity, and cash
flows, for each of the three years in the period ended September 27, 2020, 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 27, 2020 and September 29, 2019, and the results of its operations and its cash flows for each of the
three years in the period ended September 27, 2020, 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 27, 2020, 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 12, 2020, 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 — Rockwell — Refer to Note 22 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 27, 2020,
the best estimate of the company’s obligation for asbestos-related claims over the next 38 years is $78 million.
54
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 55
OPERATOR JASMINEE
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. 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 27, 2020.
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 actual costs 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 and significant assumptions.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
November 12, 2020
We have served as the Company's auditor since 1996.
55
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 56
OPERATOR JASMINEE
Year Ended September 30,
2019
$ 4,388
(3,748)
640
(256)
—
(21)
363
40
31
(57)
377
(82)
295
1
296
(5)
$ 291
2018
$ 4,178
(3,553)
625
(313)
—
(20)
292
26
27
(67)
278
(149)
129
(3)
126
(9)
117
2020
$ 3,044
(2,716)
328
(221)
265
(40)
332
46
14
(66)
326
(78)
248
1
249
(4)
$ 245
$
$
244
1
$ 245
$ 3�30
0�01
$ 3�31
$ 3�23
0�01
$ 3�24
74�0
75�6
$
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
Sales � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cost of sales� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
GROSS MARGIN� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Selling, general and administrative� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income from WABCO distribution termination � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other operating expense, net� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
OPERATING INCOME � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
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 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
See Notes to Consolidated Financial Statements.
56
MERITOR, INC.CONSOLIDATED STATEMENT OF OPERATIONS (In millions, except per share amounts)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 57
OPERATOR JASMINEE
Net income� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other comprehensive income:
Foreign currency translation adjustments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Pension and other postretirement benefit related adjustments (net of tax of $27,
Year Ended September 30,
2018
2019
2020
$126
$296
$249
(21)
(18)
(51)
$22 and $6 for the year ended September 30, 2020, 2019 and 2018, respectively� � � � � � �
Unrealized gain (loss) on cash flow hedges� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total comprehensive income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Less: Comprehensive income attributable to noncontrolling interest� � � � � � � � � � � � � � � � � � � � �
Comprehensive income attributable to Meritor, Inc�� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
89
—
317
(5)
$312
(96)
(2)
180
(4)
$176
24
4
103
(7)
$ 96
See Notes to Consolidated Financial Statements.
57
MERITOR, INC.CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (In millions)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 58
OPERATOR JASMINEE
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 AND EQUITY
Short-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accounts and notes payable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL CURRENT LIABILITIES � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
LONG-TERM DEBT � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
RETIREMENT BENEFITS � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
OTHER LIABILITIES� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL LIABILITIES � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
COMMITMENTS AND CONTINGENCIES (NOTE 22)
EQUITY:
Common stock (September 30, 2020 and 2019, 103�7 and 104�1 shares issued
and 72�3 and 81�4 shares outstanding, respectively) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Additional paid-in capital� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Retained earnings� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Treasury stock, at cost (September 30, 2020 and September 30, 2019,
31�4 and 22�7 shares, respectively) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accumulated other comprehensive loss � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total equity attributable to Meritor, Inc� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Noncontrolling interests� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL EQUITY � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
TOTAL LIABILITIES AND EQUITY� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
September 30,
2020
2019
$ 315
479
435
54
1,283
515
501
585
$2,884
$
39
423
264
726
1,188
196
279
2,389
105
808
736
(573)
(614)
462
33
495
$2,884
$ 108
551
526
31
1,216
515
478
606
$2,815
$
41
610
285
936
902
336
226
2,400
104
803
491
(332)
(681)
385
30
415
$2,815
See Notes to Consolidated Financial Statements.
58
MERITOR, INC.CONSOLIDATED BALANCE SHEET (In millions)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 59
OPERATOR JASMINEE
Year Ended September 30,
2019
2018
2020
OPERATING ACTIVITIES
CASH PROVIDED BY OPERATING ACTIVITIES (see Note 25) � � � � � � � � � � � � � � � � � � � � � � � �
$ 265
$ 256
$ 251
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 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES� � � � � � � � � � � � � � � � � � � � � � � � � �
FINANCING ACTIVITIES
Securitization � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Proceeds from debt issuances� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Borrowings against revolving line of credit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Repayments of line of credit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
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 � � � � � � � � � � � � � � � � � � � � � � � � �
(85)
—
—
(13)
9
(89)
(8)
300
304
(304)
—
—
(8)
—
(5)
(2)
277
(241)
36
(103)
—
(168)
(6)
6
(271)
(38)
—
190
(190)
175
(24)
—
(4)
—
(2)
107
(96)
11
(104)
250
(35)
(6)
6
111
(43)
—
55
(55)
—
(181)
—
—
—
(5)
(229)
(100)
(329)
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 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(5)
207
108
$ 315
(3)
(7)
115
$ 108
(6)
27
88
$ 115
See Notes to Consolidated Financial Statements.
59
MERITOR, INC.CONSOLIDATED STATEMENT OF CASH FLOWS (In millions)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 60
OPERATOR JASMINEE
Beginning balance at September 30, 2019 � � � � �
Comprehensive income � � � � � � � � � � � � � � � � � � �
Vesting of restricted stock� � � � � � � � � � � � � � � � � �
Equity based compensation expense� � � � � � � � � �
Repurchase of common stock � � � � � � � � � � � � � � �
Non-controlling interest dividends � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Common
Stock
Additional
Paid-in
Capital
$104
$803
—
1
—
—
—
—
—
(1)
7
—
—
(1)
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Loss
Total Equity
Attributable to
Meritor, Inc.
Non-
controlling
Interests
$491
245
—
—
—
—
—
$(332)
$(681)
$ 385
$30
—
—
—
(241)
—
—
67
—
—
—
—
—
312
—
7
(241)
—
(1)
5
—
—
—
(2)
—
Ending balance at September 30, 2020� � � � � � � �
$105
$808
$736
$(573)
$(614)
$ 462
$33
Total
$ 415
317
—
7
(241)
(2)
(1)
$ 495
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 � � � � � � � � � � � �
$102
$787
—
2
—
—
—
—
(2)
18
—
—
$200
291
—
—
—
—
$(236)
—
—
—
(96)
—
$(566)
(115)
—
—
—
—
$ 287
176
—
18
(96)
—
Ending balance at September 30, 2019 � � � � � � � �
$104
$803
$491
$(332)
$(681)
$ 385
$30
$ 317
4
—
—
—
(4)
$30
180
—
18
(96)
(4)
$ 415
Beginning balance at September 30, 2017� � � � � �
Comprehensive income (loss) � � � � � � � � � � � � � � �
Vesting of restricted stock� � � � � � � � � � � � � � � � � �
Equity based compensation expense� � � � � � � � � �
Convertible securities with cash settlement � � � � �
Repurchase of common stock � � � � � � � � � � � � � � �
Non-controlling interest dividends � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$101
$765
—
1
—
—
—
—
—
—
(1)
20
1
—
—
2
$ 83
117
—
—
—
—
—
—
$(136)
—
—
—
—
(100)
—
—
$(545)
(21)
—
—
—
—
—
—
Ending balance at September 30, 2018 � � � � � � � �
$102
$787
$200
$(236)
$(566)
$ 268
$27
$ 295
96
—
20
1
(100)
—
2
$ 287
7
—
—
—
—
(2)
(2)
103
—
20
1
(100)
(2)
—
$30
$ 317
See Notes to Consolidated Financial Statements.
60
MERITOR, INC.CONSOLIDATED STATEMENT OF EQUITY (In millions)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 61
OPERATOR JASMINEE
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 2020, 2019 and 2018 fiscal years ended on
September 27, 2020, September 29, 2019 and September 30, 2018, 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.
COVID-19 Pandemic Update
In March 2020, the World Health Organization declared a global health pandemic related to the outbreak of a novel
coronavirus. The COVID-19 pandemic adversely affected the company’s financial performance in the second, third and fourth
quarters of fiscal year 2020 and could have an impact throughout fiscal year 2021. In response to the COVID-19 pandemic,
government health officials have recommended and mandated precautions to mitigate the spread of the virus, including shelter-in-
place orders, prohibitions on public gatherings and other similar measures. As a result, the company and certain of the company’s
customers and suppliers temporarily closed select manufacturing locations beginning late in the second quarter of fiscal year
2020, continuing into the third quarter of fiscal year 2020. As of May 31, 2020, all of the company’s global facilities were back
open and operating with limited production. Production volume levels continued to increase through the fourth quarter of fiscal year
2020. Most of the company’s salaried employees are primarily working remotely until further notice. There is uncertainty around
the duration and breadth of the COVID-19 pandemic, as well as the impact it will have on the company’s operations, supply chain
and demand for its products. As a result, the ultimate impact on the company’s business, financial condition or operating results
cannot be reasonably estimated at this time.
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 6 and 10), environmental liabilities (see Notes 13, 14 and
22), product warranty liabilities (see Note 13), long-term incentive compensation plan obligations (see Note 18), retiree medical
and pension obligations (see Notes 19 and 20), income taxes (see Note 21), and contingencies, including asbestos (see Note 22).
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 69
percent, 77 percent and 75 percent of sales in fiscal years 2020, 2019 and 2018, respectively. Sales to the company’s top three
customers were 50 percent, 54 percent and 52 percent of total sales in fiscal years 2020, 2019 and 2018, respectively. At
September 30, 2020 and 2019, 25 percent and 26 percent of the company’s trade accounts receivable were from the company’s
three largest customers.
61
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSClean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 62
OPERATOR JASMINEE
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 12).
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.
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,
2018
2019
2020
87.5
83.2
74.0
2.8
2.2
0.8
0.9
0.9
0.8
91.2
86.3
75.6
In November 2019, 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
$25.25, which was the company’s share price on the grant date of December 1, 2019. 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 $25.25, which was the company’s share price on the grant date of December 1, 2019.
62
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 63
OPERATOR JASMINEE
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, 2019 to September 30, 2022, measured
at the end of the performance period. The number of performance share units that vest will depend on adjusted EBITDA margin,
new business wins, free cash flow conversion and adjusted diluted earnings per share from continuing operations, each of which
is weighted at 25%. The number of performance share units that vest will be between 0% and 200% of the grant date amount of
0.4 million performance share units.
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.
The actual number of performance share units that vested depended upon the company’s performance relative to the
established goals for the three-year performance period of October 1, 2017 to September 30, 2020, which was measured at the
end of the performance period.
Other
Other significant accounting policies are included in the related notes, specifically, goodwill (Note 6), inventories (Note 9),
property and depreciation (Note 10), product warranties (Note 13), financial instruments (Note 16), equity based compensation
(Note 18), retirement medical plans (Note 19), retirement pension plans (Note 20), income taxes (Note 21) and environmental and
asbestos-related liabilities (Note 22).
Accounting standards implemented during fiscal year 2020
On October 1, 2019, the company implemented Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The
company elected the practical expedient package, which allowed the company to not reassess whether existing contracts contain
a lease and to not reassess classification of existing leases. The company also adopted ASU 2018-11, Leases (Topic 842) Targeted
Improvements, electing to not separate lease and non-lease components in contracts that contain both and electing to not restate
comparative periods when adopting ASU 2016-02. As a result, the company recognized a right-of-use asset and lease liability as
a lessee for substantially all existing operating leases and has included new and expanded disclosures (Note 4).
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MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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Accounting standards to be implemented
The following represent the standards that may result in a significant change in practice and/or have a significant financial
impact on the company.
In June 2016, the Financial Accounting Standards Board (“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 company expects to adopt this guidance in the first quarter of fiscal year
2021. The guidance is expected to have an impact on the company’s accounting policies and procedures related to calculation of
allowance for doubtful accounts receivable but is not expected to have a material impact on its Consolidated Financial Statements.
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. The company expects to adopt this guidance in the first quarter of fiscal year 2021. The company
is currently evaluating the potential impact of this guidance on its accounting policies and its Consolidated Financial Statements.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity (Subtopic 815-40). The ASU simplifies the accounting for certain financial instruments with characteristics of
liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASC 470-20 outlines five models
to allocate the proceeds attributable to the issuance of a convertible debt instrument. This ASU removes from U.S. GAAP the
separation models for convertible debt with a cash conversion feature (CCF) and convertible debt with a beneficial conversion
feature (BCF). As a result of adopting this ASU, entities are not required to separately present in equity an embedded conversion
feature in such debt. Instead, they should account for a convertible debt instrument wholly as debt. Applying the separation models
in ASC 470-20 to convertible instruments with a CCF or BCF involved the recognition of a debt discount, which is amortized to
interest expense. The elimination of CCF and BCF models will reduce reported interest expense and increase reported net income
for convertible instruments issued within the scope of those models before the adoption of ASU 2020-06. The amendments in
this update are required to be adopted by public business entities in fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal year beginning after December 15,
2020, including interim periods within those fiscal years. Entities are permitted to adopt the guidance through either a modified
retrospective method of transition or a fully retrospective method of transition. The company is currently evaluating the potential
impact of this guidance on its accounting policies and its Consolidated Financial Statements.
3.
ACQUISITIONS AND DIVESTITURE
Acquisition of TransPower Business
On January 16, 2020, Meritor acquired 100 percent of the voting equity interest of Transportation Power, Inc. (“TransPower”)
for a cash purchase price of approximately $15 million, subject to certain purchase price adjustments. Prior to the acquisition,
the fair value of the company’s investment in TransPower was $12 million. The TransPower acquisition was accounted for as
a business combination. With the addition of TransPower’s product portfolio, Meritor advances its strategic priorities through
increased investment in next-generation technologies.
Pro forma financial information of the company is presented in the following table for the twelve months ended September 30,
2020 and 2019 as if the TransPower acquisition had occurred on October 1, 2018. 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, 2018 (in millions).
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Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Meritor, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Twelve Months Ended
September 30,
2020
$3,045
244
2019
$4,394
282
The purchase price was allocated on a provisional basis as of January 16, 2020. 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). The company is reviewing and may record other additional measurement period
adjustments in fiscal year 2021. All goodwill resulting from the acquisition of TransPower was assigned to the Commercial Truck
reportable segment (see Note 6).
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in TransPower . . . . . . . . . . . . . . . . . . . . .
Assets acquired and liabilities assumed:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . .
PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identifiable intangible assets . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Total identifiable net assets acquired . . . . . . . . . . . . . .
Goodwill and other intangible assets resulting from the
acquisition of TransPower . . . . . . . . . . . . . . . . . . .
As of
January 16, 2020
$ 15
12
$ 27
Estimated Fair Value
Measurement
Period
Adjustments
$—
—
$—
As of
September 30, 2020
$ 15
12
$ 27
2
5
8
10
—
—
(3)
(17)
5
22
$ 27
—
—
—
(1)
11
(1)
—
—
9
(9)
$—
2
5
8
9
11
(1)
(3)
(17)
14
13
$ 27
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 senior secured revolving credit agreement (see Note 15). The AxleTech acquisition was accounted for as a
business combination.
The addition of AxleTech enhanced 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 and Industrial segment.
As of September 30, 2020, the company finalized all measurement period adjustments related to the AxleTech acquisition.
Since completion of initial estimates in the fourth quarter of fiscal year 2019, the company recorded a net $5 million measurement
period adjustment to decrease the fair value of identifiable net assets acquired in the AxleTech transaction, resulting in a
corresponding $5 million increase to goodwill. These adjustments were made to reflect additional available information and
65
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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updated valuation results, which included valuation of technology and customer relationships. All goodwill resulting from the
AxleTech acquisition was assigned to the Aftermarket and Industrial reportable segment (see Note 6). Recorded goodwill consists
largely of the synergies and economies of scale expected from combining the operations of the company and AxleTech.
The company incurred acquisition related costs of $1 million and $6 million as of September 30, 2020, and September 30, 2019,
respectively, which were recorded as incurred and have been classified as either cost of sales or selling, general, and administrative
expenses in the Consolidated Statement of Operations for the years ended September 30, 2020 and September 30, 2019.
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets acquired and liabilities assumed:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . .
Identifiable intangible assets . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . .
PP&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable net assets acquired . . . . . . . . . . . .
Goodwill and other intangible assets resulting from
the acquisition of AxleTech . . . . . . . . . . . . . . . .
As of
September 30, 2019
$179
Estimated Fair Value
Measurement
Period Adjustments
$ (2)
As of
September 30, 2020
$177
11
37
70
46
9
26
(33)
(48)
118
61
$179
—
(2)
(2)
7
(1)
7
1
(17)
(7)
5
$ (2)
11
35
68
53
8
33
(32)
(65)
111
66
$177
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
as various tangible assets acquired and liabilities assumed, $12 million was recorded related to amortizable intangibles and
$12 million was recorded as goodwill.
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. (“WABCO”). The total purchase price
for the sale was $250 million.
The company remained the exclusive distributor of a certain range of WABCO’s aftermarket products in the United States
and Canada and the non-exclusive distributor of these products 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 the
distribution arrangement at certain points during the first three and a half years after the closing at an exercise price of between
$225 million and $265 million based on the earnings of the business. On September 13, 2019, the company gave notice of
its intention to exercise its option to terminate the aftermarket distribution arrangement with WABCO. On March 13, 2020 the
company closed on the transaction and received $265 million, from WABCO in connection with the termination of the arrangement.
66
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4.
LEASES
The company’s lease portfolio is comprised of leases of real estate, including manufacturing and office facilities, and leases
of personal property, including machinery and other equipment and IT equipment. Operating leases with an initial term of 12 months
or less are not recorded in the Consolidated Balance Sheet and related lease expense is recognized on a straight-line basis over the
lease term. Short-term lease costs and variable lease costs were insignificant in the twelve months ended September 30, 2020.
For all asset classes, the company has elected to adopt the practical expedient under ASC 842 to not separate lease and
non-lease components in contracts that contain both. These lease agreements are accounted for as a single lease component for
all classes of underlying assets. The company’s lease agreements do not contain any material residual value guarantees or material
restrictive covenants.
As the discount rate implicit in the lease is typically unknown, the discount rate used to determine the lease liability for the
majority of our leases is the collateralized incremental borrowing rate in the applicable geographic area for a similar term and
amount as the lease agreement.
Components of lease expense (in millions)
Finance lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2020
$ 3
20
$23
The following table provides a summary of the location and amounts related to finance leases recognized in the Consolidated
Balance Sheet (in millions).
Finance lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Classification
Net Property
Short-term debt
Long-term debt
September 30, 2020
$5
3
3
The following table provides a summary of the location and amounts related to operating leases recognized in the Consolidated
Balance Sheet (in millions).
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets
Other current liabilities
Other liabilities
Classification
September 30, 2020
$70
15
59
The following tables summarize additional information related to our lease agreements.
Supplemental cash flow information related to leases (in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing cash flows used for finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets obtained in exchange for lease obligations:
Operating leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19
2
8
3
September 30, 2020
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MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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Supplemental balance sheet information related to leases
Weighted-average remaining lease term (years):
Operating leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate:
Operating leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.55
2.21
4.5%
5.0%
September 30, 2020
Maturities (in millions)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Impact of discounting future lease payments . . . . . . . . . . . . . . . . . . . . . . .
Present value of lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Leases
17
14
13
9
40
93
(19)
$ 74
Finance Leases
3
2
1
—
—
6
—
$ 6
Disclosures related to periods prior to adoption of ASU 2016-02
Cash obligations under future minimum rental commitments under operating leases as of September 30, 2019 are shown
in the table below (in millions).
Lease commitments . . . . . . . . . . . . . . . . . . . . .
2021
$18
2022
$15
2023
$14
2024
$13
2025
$13
Thereafter
$25
Total
$98
5.
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.
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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. It also supplies a variety of undercarriage products and systems for trailer applications in North America. This
segment also includes the company’s aftermarket businesses in Asia Pacific and South America.
The Aftermarket and Industrial 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.
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 Note 13 and Note 14).
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, 2020 and 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
Year Ended September 30, 2020
Commercial
Truck
$1,052
—
129
1,181
202
153
105
5
465
170
134
70
60
$2,080
Aftermarket
and
Industrial
$731
54
18
803
—
13
9
134
156
2
1
2
—
$964
Total
$1,783
54
147
1,984
202
166
114
139
621
172
135
72
60
$3,044
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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OPERATOR JASMINEE
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30, 2019 (1)
Commercial
Truck
$1,737
—
229
1,966
276
218
155
10
659
248
153
197
84
$3,307
Aftermarket
and Industrial
$ 885
69
20
974
—
16
10
81
107
—
—
—
—
$1,081
Total
$2,622
69
249
2,940
276
234
165
91
766
248
153
197
84
$4,388
(1)
Amounts for the year ended September 30, 2019 have been recast to reflect reportable segment changes.
Contract balances
As of September 30, 2020 and September 30, 2019, Trade receivables, net, which are included in Receivables, trade and
other, net, on the Consolidated Balance Sheet, were $421 million and $517 million, respectively.
For the year ended September 30, 2020, 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, 2020.
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.
6.
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.
70
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 71
OPERATOR JASMINEE
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 2020 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 2020, the fair value of all of the company’s reporting units exceeded their carrying values.
Realignment of Reporting Units
As discussed in Note 23, the company realigned its operations in the third quarter of fiscal year 2020, resulting in a
change to its reportable segments. As a result of the change in reportable segments, the company’s reporting units changed.
The Commercial Truck segment contains one reporting unit. The Aftermarket and Industrial segment contains two reporting units.
See Note 3 for goodwill recorded as a result of acquisitions in fiscal year 2020.
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, 2018 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AAG measurement period adjustment (see Note 3) . . . . . . . . . . . . . . . .
Goodwill acquired from acquisition (see Note 3) . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AxleTech measurement period adjustment (see Note 3). . . . . . . . . . . . .
Goodwill acquired from acquisition (see Note 3) . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial
Truck
$ 289
—
289
3
—
(5)
287
—
13
4
$ 304
Aftermarket
and Industrial
$ 147
(15)
132
—
61
(2)
191
5
—
1
$ 197
Total
$436
(15)
421
3
61
(7)
478
5
13
5
$501
(1)
Amounts have been recast to reflect reportable segment changes (see Note 23).
71
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 72
OPERATOR JASMINEE
7.
RESTRUCTURING COSTS
At September 30, 2020 and 2019, $10 million and $8 million, respectively, of restructuring reserves primarily related to
unpaid employee termination benefits remained in the Consolidated Balance Sheet.
The following table summarizes changes in restructuring reserves (in millions):
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Activity during the period:
Charges to continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments – continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring reserves, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: non-current restructuring reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring reserves – current, at September 30, 2020. . . . . . . . . . . . . . . . . . . . . . . .
Employee
Termination
Benefits
$ 5
Plant
Shutdown
& Other
$ 1
Total
$ 6
6
(7)
4
8
(5)
1
8
27
(25)
10
—
$ 10
—
(1)
—
—
—
—
—
—
—
—
—
$—
6
(8)
4
8
(5)
1
8
27
(25)
10
—
$ 10
Restructuring costs attributable to the company’s business segments during fiscal years 2020, 2019 and 2018 are as
follows (in millions):
Fiscal year 2020
Commercial
Truck
Aftermarket
and Industrial
Corporate
Total
Global Restructuring Program 2020. . . . . . . . . . . . . . . . . . . . . . . . .
Global Restructuring Program 2019. . . . . . . . . . . . . . . . . . . . . . . . .
AxleTech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year 2019 (1):
Global Restructuring Program 2019. . . . . . . . . . . . . . . . . . . . . . . . .
AxleTech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year 2018 (1):
Segment Realignment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7
11
—
1
$ 19
6
—
(1)
$ 5
—
1
$ 1
$ 3
2
2
1
$ 8
1
3
(1)
$ 3
3
1
$ 4
$ —
—
—
—
$ —
—
—
—
$ —
—
1
$ 1
$ 10
13
2
2
$ 27
7
3
(2)
$ 8
3
3
$ 6
(1)
Fiscal years 2019 and 2018 have been recast to reflect reportable segment changes.
72
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 73
OPERATOR JASMINEE
Footprint Actions: On November 11, 2020, the company approved a restructuring plan to close three U.S. manufacturing
plants and one European administration office in its Aftermarket and Industrial segment and consolidate their operations into
existing facilities. The site closures include:
• Chicago, Illinois (acquired through AxleTech acquisition)
• Livermore, California (acquired through Fabco acquisition)
• Livonia, Michigan (acquired through Fabco acquisition)
• Zurich, Switzerland
The closures impact approximately 150 hourly and salaried workers. These restructuring plans are intended to optimize the
company’s manufacturing footprint, reduce costs and increase efficiencies. With this restructuring plan, the company expects to
incur approximately $19 million in restructuring charges in the Aftermarket and Industrial segment, consisting of impairment of
long-lived assets of $9 million, severance related costs of $5 million and other associated costs of $5 million. Restructuring actions
associated with this plan are expected to be substantially complete by the end of 2021.
Global Restructuring Programs: On June 2, 2020, the company approved and began executing a restructuring plan to reduce
labor costs and align with current market forecasts. Under this program, the company expects to incur approximately $25 million
in employee severance costs in connection with approximately 8 percent of its global salaried positions, and will eliminate certain
hourly roles. During fiscal year 2020, the company incurred $10 million in restructuring costs related to this program, of which
$7 million was in the Commercial Truck segment and $3 million was in the Aftermarket and Industrial segment. Restructuring
actions associated with this plan are expected to be substantially complete by the end of fiscal year 2021.
On September 27, 2019, the company approved and began executing a restructuring plan to reduce salaried and hourly
headcount globally. This restructuring plan was 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 expected to incur approximately $26 million in
employee severance costs in the aggregate across both of its reportable segments. During the fourth quarter of fiscal year 2019,
the company incurred $6 million in restructuring costs in the Commercial Truck segment and $1 million in the Aftermarket and
Industrial segment. During fiscal year 2020, the company incurred $11 million in restructuring costs in the Commercial Truck
segment and $2 million in the Aftermarket and Industrial segment. Restructuring actions associated with this plan are expected to
be substantially complete by the end of the first quarter of fiscal year 2021.
AxleTech: On July 29, 2019, shortly after acquiring AxleTech, the company approved a restructuring plan related to the
integration of the AxleTech business. This restructuring plan was intended to realize certain targeted synergies, primarily from the
elimination of cost overlap. With this restructuring plan, the company expected to incur $11 million of total costs in the Aftermarket
and Industrial 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 and Industrial segment. During fiscal year 2020, the company recorded $2 million of severance related
restructuring costs in the Aftermarket and Industrial segment. Restructuring associated with severance actions are substantially
complete as of the end of 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 and Industrial 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 and Industrial segment.
73
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 74
OPERATOR JASMINEE
8.
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 9/30/20
USD
EUR
Utilized as of
9/30/20
Utilized as of
9/30/19
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 $ 95
N/A $ 95
N/A $ 3
N/A $ 3
N/A
N/A
$ 13
$ 13
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 2024
February 2023
February 2022
June 2022
None
€155 $181 € 86 $100 €109
N/A
N/A
6
1
21
8
18
12
€210 $320 €107 $154 €154
N/A
25
30
N/A
75
29
35
N/A
30
1
9
14
$119
58
6
23
20
$226
(1)
(2)
(3)
(4)
Availability subject to adequate eligible accounts receivable available for sale. The utilized amount includes $3 million and
$4 million of letters of credit as of September 30, 2020 and September 30, 2019, 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 June 22, 2021.
There is no explicit facility size under the factoring agreement, but the counterparty approves the purchase of receivable
tranches at its discretion.
On-balance sheet arrangement
U.S. Securitization Facility: As of September 30, 2019, the U.S. accounts receivables securitization facility with PNC bank
had a facility size of $115 million. On April 20, 2020, the company decreased the size of the facility to $95 million. 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, 2020, there were no borrowings outstanding under this program, and $3 million was outstanding under
related letters of credit. As of September 30, 2019, $9 million was outstanding under this program, and $4 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.
74
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 75
OPERATOR JASMINEE
Off-balance sheet arrangements
Total costs associated with all of the off-balance sheet arrangements described above were $4 million, $6 million and
$5 million in fiscal years 2020, 2019 and 2018, respectively, and are included in selling, general and administrative expenses in
the Consolidated Statement of Operations.
9.
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,
2019
2020
$153
$119
39
38
334
278
$526
$435
10. NET PROPERTY
Property is stated at cost. Depreciation of property is based on estimated useful lives, generally using the straight-line
method. Estimated useful lives for buildings and improvements range from 10 to 50 years and estimated useful lives for machinery
and equipment range from 3 to 25 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,
2020
2019
Property at cost:
Land and land improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company-owned tooling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
32
228
1,002
151
63
1,476
(961)
$ 515
$
31
224
935
136
74
1,400
(885)
$ 515
75
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 76
OPERATOR JASMINEE
11.
OTHER ASSETS
Other assets are summarized as follows (in millions):
Prepaid pension costs (see Note 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets (see Note 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in non-consolidated joint ventures (see Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2019
2020
$149
$179
122
30
110
107
225
269
$606
$585
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, 2020 and September 30, 2019, the company’s investment in the joint venture was $65 million and $69 million,
respectively.
12.
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sistemas Automotrices de Mexico S.A. de C.V.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ege Fren Sanayii ve Ticaret A.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automotive Axles Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2019
2018
49% 49%
50% 50%
49% 49%
36% 36%
2020
49%
50%
49%
36%
The company’s investments in non-consolidated joint ventures are $107 million as of September 30, 2020 and $110 million
as of September 30, 2019. The company’s equity in earnings of non-consolidated joint ventures are $14 million and $31 million for
the fiscal years ended September 30, 2020 and September 30, 2019, respectively. The results of the company’s non-consolidated
joint ventures are included in the Commercial Truck reporting segment.
76
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
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PAGE NO. 77
OPERATOR JASMINEE
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,
2019
2020
$427
$308
211
200
$638
$508
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$209
87
$296
$305
109
$414
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
September 30,
2019
$1,231
147
63
2020
$ 696
76
30
2018
$1,101
154
59
Dividends received from the company’s non-consolidated joint ventures were $10 million in fiscal year 2020, $23 million in
fiscal year 2019 and $17 million in fiscal year 2018.
The company had sales to its non-consolidated joint ventures of approximately $9 million, $9 million and $7 million in fiscal
years 2020, 2019 and 2018, respectively. These sales exclude sales of $92 million, $193 million and $196 million in fiscal years
2020, 2019 and 2018, 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 $509 million, $940 million and $843 million in fiscal years 2020, 2019 and
2018, respectively. Additionally, the company leases space and provides certain administrative and technical services to various
non-consolidated joint ventures. The company collected $14 million, $12 million and $11 million for such leases and services
during fiscal years 2020, 2019 and 2018, respectively.
Amounts due from the company’s non-consolidated joint ventures were $23 million and $34 million at September 30, 2020
and 2019, 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 $56 million and $80 million at September 30, 2020 and 2019, respectively,
and are included in Accounts and notes payable in the Consolidated Balance Sheet.
The fair value of the company’s investment in its Automotive Axles Limited joint venture was approximately $54 million and
$75 million at September 30, 2020 and 2019, respectively, based on quoted market prices, as this joint venture is listed and
publicly traded on the Bombay Stock Exchange in India.
77
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
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PAGE NO. 78
OPERATOR JASMINEE
13. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows (in millions):
Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2019
2020
$125
$ 91
24
6
18
19
118
148
$285
$264
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 14) . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranties – current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2019
$ 54
23
(20)
(7)
50
(32)
$ 18
2018
$ 45
22
(16)
3
54
(35)
$ 19
2020
$ 50
25
(19)
(2)
54
(35)
$ 19
14. OTHER LIABILITIES
Other liabilities are summarized as follows (in millions):
Asbestos-related liabilities (see Note 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities for uncertain tax positions (see Note 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranties (see Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2019
2020
$ 82
$ 67
46
73
32
35
66
104
$ 226
$ 279
78
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 79
OPERATOR JASMINEE
15. 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.875 percent convertible notes due 2026 (1)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.25 percent notes due 2025 (2)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.25 percent notes due 2024 (2)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings and securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized discount on convertible notes (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2020
$ 320
23
295
166
446
6
—
(29)
1,227
(39)
$1,188
2019
$319
23
—
175
444
7
9
(34)
943
(41)
$902
(1)
(2)
(3)
(4)
(5)
(6)
The 3.25 percent convertible notes due 2037 and 7.875 percent convertible notes due 2026 contain a put and call feature,
which allows for early redemption beginning in 2025 and 2020, respectively.
The 6.25 percent notes due 2024 and 2025 contain a call option, which allows for early redemption by Meritor.
The 3.25 percent convertible notes due 2037 are presented net of $5 million and $6 million unamortized issuance costs as
of September 30, 2020 and September 30, 2019, respectively.
The 7.875 percent convertible notes due 2026 are presented net of unamortized issuance costs of an insignificant amount
as of September 30, 2020 and September 30, 2019, and an insignificant amount and $1 million original issuance discount
as of September 30, 2020 and September 30, 2019, respectively.
The 6.25 percent notes due 2025 are presented net of $5 million unamortized issuance costs as of September 30, 2020.
The 6.25 percent notes due 2024 are presented net of $4 million and $6 million unamortized issuance costs as of
September 30, 2020 and September 30, 2019, respectively
(7)
The carrying amount of the equity component related to convertible debt.
Repurchase of Debt Securities
On February 15, 2019, the company redeemed $19 million aggregate principal amount outstanding of its 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. As of September 30, 2019, the 4.0 Percent Convertible notes were fully redeemed.
Current Classification of 7.875 Percent Convertible Notes
The company’s 7.875 percent convertible notes due 2026 (the “7.875 Percent Convertible Notes”) were classified as
current as of September 30, 2020. On October 16, 2020, the company announced that it had issued a notice of redemption for
all of the outstanding $23 million aggregate accreted principal amount of the 7.875 Percent Convertible Notes. The redemption
date is December 1, 2020 and the redemption price will be equal to 100% of the accreted principal amount of the 7.875 Percent
Convertible Notes to be redeemed, plus accrued and unpaid interest, if any (including additional interest, if any), thereon up to but
excluding the redemption date.
79
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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PAGE NO. 80
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From and after the redemption date, the 7.875 Percent Convertible Notes will no longer be outstanding, and interest will
cease to accrue unless the company defaults in making the redemption payment.
As a result of the issuance of the notice of redemption, the 7.875 Percent Convertible Notes are convertible at any time
prior to the close of business on November 30, 2020 at a rate of 83.3333 shares of common stock per $1,000 original principal
amount of the 7.875 Percent Convertible Notes (which is equivalent to a conversion price of approximately $12.00 per share).
The 7.875 Percent Convertible Notes surrendered for conversion will be settled in cash up to the accreted principal amount of the
7.875 Percent Convertible Notes surrendered for conversion and cash, stock or a combination of cash and stock, at the company’s
election, for the remainder of the conversion obligation, if any, in excess of the accreted principal amount, in accordance with the
provisions of the indenture that governs the 7.875 Percent Convertible Notes.
The 7.875 Percent Convertible Notes were classified as current as of September 30, 2019 as the holders were 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 were 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 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.
6.25 Percent Notes due 2025
On June 8, 2020, the company completed the offering and sale of $300 million aggregate principal amount of its 6.25 percent
notes due 2025 (the “6.25 Percent Notes due 2025”) to qualified institutional buyers in reliance on Rule 144A under the Securities
Act of 1933, as amended (the “Securities Act”), and to non-U.S. persons in offshore transactions in reliance of Regulation S under
the Securities Act in a private placement, exempt from the registration requirements of the Securities Act. The 6.25 Percent Notes
due 2025 were issued pursuant to the company’s indenture dated as of April 1, 1998, as supplemented. The net proceeds from the
sale of the 6.25 Percent Notes due 2025 were $295 million and were used to repay approximately $295 million of the outstanding
$304 million balance under the company’s senior secured revolving credit facility.
The 6.25 Percent Notes due 2025 will mature on June 1, 2025 and bear interest at a fixed rate of 6.25 percent per annum.
The company will pay interest on the 6.25 Percent Notes due 2025 semi-annually, in arrears, on June 1 and December 1 of each
year, beginning December 1, 2020. The 6.25 Percent Notes due 2025 will constitute senior unsecured obligations of the company
and will rank equally in right of payment with its existing and future senior unsecured indebtedness, and effectively junior to its
existing and future secured indebtedness to the extent of the security therefor.
The 6.25 Percent Notes due 2025 provide that, prior to June 1, 2022, the company may redeem, at its option, from time
to time, the 6.25 Percent Notes due 2025, in whole or in part, at a redemption price equal to the sum of (i) 100 percent of the
principal amount of the 6.25 Percent Notes due 2025 to be redeemed, plus (ii) the applicable premium as of the redemption
date on the 6.25 Percent Notes due 2025 to be redeemed, plus (iii) accrued and unpaid interest, if any, to, but not including, the
redemption date (subject to the right of holders of record on the relevant regular record date to receive interest due on an interest
payment date that is on or prior to the redemption date) on the 6.25 Percent Notes due 2025 to be redeemed. For purposes of
such calculation, the “applicable premium” means, with respect to the 6.25 Percent Notes due 2025 at any redemption date,
the greater of (i) 1.0 percent of the principal amount of such 6.25 Percent Notes due 2025 and (ii) the excess of (A) the present
value at such redemption date of (1) 103.125 percent of the principal amount of such 6.25 Percent Notes due 2025 plus (2) all
remaining required interest payments due on such 6.25 Percent Notes due 2025 through June 1, 2022 (excluding accrued and
unpaid interest, if any, to the redemption date), computed using a discount rate equal to the treasury rate plus 50 basis points, over
(B) 100 percent of the principal amount of such 6.25 Percent Notes due 2025.
80
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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OPERATOR JASMINEE
The 6.25 Percent Notes due 2025 provide that, on or after June 1, 2022, the company may redeem, at its option, from time
to time, the 6.25 Percent Notes due 2025, in whole or in part, at the redemption prices (expressed as percentages of the principal
amount of the 6.25 Percent Notes due 2025 to be redeemed) set forth below, plus accrued and unpaid interest, if any, to, but not
including, the redemption date (subject to the right of holders of record on the relevant regular record date to receive interest due
on an interest payment date that is on or prior to the redemption date) on the 6.25 Percent Notes due 2025 to be redeemed, if
redeemed during the 12-month period beginning on June 1 of the years indicated below:
Year
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption Price
103.125%
101.563%
100.000%
The 6.25 Percent Notes due 2025 provide that, prior to June 1, 2022, the company may redeem, at its option, from time to
time, up to 35 percent of the aggregate principal amount of the 6.25 Percent Notes due 2025 with the net cash proceeds of one
or more public sales of the company’s common stock at a redemption price equal to 106.25 percent of the principal amount of the
6.25 Percent Notes due 2025 to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date
(subject to the right of holders of record on the relevant regular record date to receive interest due on an interest payment date that
is on or prior to the redemption date) on the 6.25 Percent Notes due 2025 to be redeemed so long as at least 65 percent of the
aggregate principal amount of the 6.25 Percent Notes due 2025 remains outstanding after each such redemption and notice of
any such redemption is mailed within 90 days of any such sale of common stock.
If a Change of Control (as defined in the eighth supplemental indenture under which the 6.25 Percent Notes due 2025 were
issued) occurs, unless the company has exercised its right to redeem the 6.25 Percent Notes due 2025, each holder of 6.25
Percent Notes due 2025 may require the company to repurchase some or all of such holder’s 6.25 Percent Notes due 2025 at a
purchase price equal to 101 percent of the principal amount of the 6.25 Percent Notes due 2025 to be repurchased, plus accrued
and unpaid interest, if any, to, but not including, the payment date (subject to the right of holders of record on the relevant regular
record date to receive interest due on an interest payment date that is on or prior to the payment date) on the 6.25 Percent Notes
due 2025 to be repurchased.
Senior Secured Revolving Credit Facility
On June 7, 2019, the company amended and restated its senior secured revolving credit facility. Pursuant to the revolving
credit agreement, as amended, the company has a $625 million senior secured 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 company’s 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 senior secured 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 revolving credit 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 senior secured 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, 2020, 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.
81
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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Certain of the company’s 100% owned subsidiaries, as defined in the revolving credit agreement (collectively, the
“Guarantors”) irrevocably and unconditionally guarantee amounts outstanding under the senior secured revolving credit facility on
a joint and several basis. Similar subsidiary guarantees are provided for the benefit of the holders of the notes outstanding under
the company’s indentures. The notes are guaranteed on a senior unsecured basis by each of the company’s subsidiaries from time
to time guaranteeing its senior secured revolving credit facility, as it may be amended, extended, replaced or refinanced, or any
subsequent credit facility. The guarantees remain in effect until the earlier to occur of payment in full of the notes or termination
or release of the applicable corresponding guarantee under the company’s senior secured revolving credit facility, as it may be
amended, extended, replaced or refinanced, or any subsequent credit facility. The guarantees rank equally with existing and
future senior unsecured indebtedness of the Guarantors and are 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.
No borrowings were outstanding under the senior secured revolving credit facility at September 30, 2020 and September 30,
2019. The amended and extended senior secured revolving credit facility includes $100 million of availability for the issuance of
letters of credit. At September 30, 2020 and September 30, 2019, there were no letters of credit outstanding under the senior
secured revolving credit facility.
On November 9, 2020, the senior secured revolving credit facility was increased by $60 million to $685 million through the
addition of a new lender.
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
The company’s 3.25 percent convertible notes due 2037 (the “3.25 Percent Convertible Notes”) are fully and unconditionally
guaranteed on a senior unsecured basis by the Guarantors. 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 Guarantor ranks equally with existing and future senior unsecured indebtedness of such
Guarantor and effectively junior to all of the existing and future secured indebtedness of such Guarantor, 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;
82
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• 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.
6.25 Percent Notes due 2024
The 6.25 percent notes due 2024 (“6.25 Percent Notes due 2024”) 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 due 2024 are guaranteed on a senior unsecured basis by each of
the Guarantors. The guarantees rank equally with existing and future senior unsecured indebtedness of the Guarantors and are
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 due 2024,
in whole or in part, at a redemption price equal to 100 percent of the principal amount of the 6.25 Percent Notes due 2024 to be
redeemed, plus an applicable make-whole premium (as defined in the indenture under which the 6.25 Percent Notes due 2024
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 due 2024, in whole or in part, at the redemption prices (expressed as percentages of the
principal amount of the 6.25 Percent Notes due 2024 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%
If a Change of Control (as defined in the indenture under which the 6.25 Percent Notes due 2024 were issued) occurs, unless
the company has exercised its right to redeem the 6.25 Percent Notes due 2024, each holder of 6.25 Percent Notes due 2024 may
require the company to repurchase some or all of such holder’s 6.25 Percent Notes due 2024 at a purchase price equal to 101 percent
of the principal amount of the 6.25 Percent Notes due 2024 to be repurchased, plus accrued and unpaid interest, if any.
83
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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PAGE NO. 84
OPERATOR JASMINEE
7.875 Percent Convertible Notes
The 7.875 Percent Convertible Notes are fully and unconditionally guaranteed on a senior unsecured basis by each of the
Guarantors. 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 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:
Total amortization period for debt discount (in years): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining amortization period for debt discount (in years): . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective interest rates on convertible notes: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2019
2020
$348
$348
(40)
(34)
$308
$314
Convertible Notes
3.25%
7.875%
8
8
5
0
5.6%
10.9%
84
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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OPERATOR JASMINEE
The following table summarizes interest costs recognized on convertible notes (in millions):
Contractual interest coupon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
September 30,
2019
$ 17
2
$ 19
2020
$ 17
2
$ 19
2018
$ 17
2
$ 19
Debt Maturities
As of September 30, 2020, the company is contractually obligated to make payments as follows (in millions):
Total debt (1) . . . . . . . . . . . . . . .
Total
$1,265
2021 (2)
$36
2022
$18
2023
$13
2024 (3)
$573
2025 (4)
$300
Thereafter (5)
$325
(1)
(2)
(3)
(4)
(5)
Total debt excludes unamortized discount on convertible notes of $29 million, unamortized issuance costs of $14 million,
and original issuance discount of an insignificant amount.
Includes the 7.875 Percent Convertible Notes, which will be early redeemed on December 1, 2020
Includes the 6.25 Percent Notes due 2024, which contain a call feature that allows for early redemption
Includes the 6.25 Percent Notes due 2025, which contain a call feature that allows for early redemption
Includes the 3.25 Percent Convertible Notes which contain a put and call feature that allows for early redemption beginning
in 2025
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 $11 million and $12 million of letters of credit outstanding through letter of credit facilities as of
September 30, 2020 and 2019, 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, 2020 and 2019, the company had
$16 million and $30 million, respectively, outstanding under this program at more than one bank.
85
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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16.
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, 2020, 2019 and 2018, the notional amount of the company’s foreign exchange contracts outstanding
under its foreign currency cash flow hedging program was $65 million, $110 million, and $154 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.
86
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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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)
2020
2019
2018
Derivatives designated as hedging instruments:
Amount of gain recognized in AOCI . . . . . . . . . . . . . . . . . . . . . . . .
Amount of gain (loss) reclassified from AOCI into income . . . . . . . .
AOCI
Cost of Sales
$ 4
(1)
$19
4
$ 3
(1)
Derivatives not designated as hedging instruments:
Amount of gain (loss) recognized in income . . . . . . . . . . . . . . . . . .
Derivatives not designated as hedging instruments:
Amount of gain recognized in income. . . . . . . . . . . . . . . . . . . . . . .
Cost of Sales
Other Income
(expense)
—
1
—
1
(2)
2
Fair Value
Fair values of financial instruments are summarized as follows (in millions):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency option contracts (other assets) . . . . . . . . . . . . . . . .
Foreign exchange forward contracts (other liabilities). . . . . . . . . . . . .
Cross-currency swap (other assets) . . . . . . . . . . . . . . . . . . . . . . . . .
Cross-currency swaps (other liabilities). . . . . . . . . . . . . . . . . . . . . . .
September 30,
2020
September 30,
2019
Carrying
Value
$ 315
39
1,188
1
1
—
—
Fair
Value
$ 315
58
1,259
1
1
—
—
Carrying
Value
$108
41
902
—
—
10
5
Fair
Value
$108
60
953
—
—
10
5
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. As of September 30, 2020 and
September 30, 2019, the notional amount of the company’s foreign exchange contracts outstanding under its foreign currency
cash flow hedging program was $65 million and $110 million, respectively. 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 foreign currency-denominated purchases. As of September 30, 2020 and September 30, 2019, the notional amount of
the foreign exchange option contracts outstanding was $39 million and $139 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.
87
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The company uses option contracts to mitigate the risk of volatility in the translation of foreign currency earnings to U.S.
dollars. As of September 30, 2020 and September 30, 2019, the notional amount of the company’s option contracts outstanding
was $24 million and $28 million, respectively. 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 2019, the company entered into multiple new cross-currency swaps with a combined
notional amount of $225 million and maturities in October 2022. As of September 30, 2019, the notional amount of the company’s
outstanding cross-currency swaps 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 second quarter of fiscal year 2020, the company
settled these cross-currency swap contracts and received proceeds of $11 million, $1 million of which related to net accrued
interest receivable.
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 were to mature in May 2021. 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 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, 2020
September 30, 2019
Gross
Amounts
Recognized
Gross
Amounts
Offset
Net
Amounts
Reported
Gross
Amounts
Recognized
Gross
Amounts
Offset
Net
Amounts
Reported
Derivative Asset
Foreign currency option contract . . . . . . . . . . .
Cross-currency swaps . . . . . . . . . . . . . . . . . .
Derivative Liabilities
Foreign exchange forward contract . . . . . . . . .
Cross-currency swaps . . . . . . . . . . . . . . . . . .
—
—
—
—
1
—
1
—
—
10
—
5
—
—
—
—
—
10
—
5
1
—
1
—
88
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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OPERATOR JASMINEE
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, 2020 is as follows (in millions):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts (asset) . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts (liability) . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency option contracts (other assets) . . . . . . . . . . . . . . . . . . . . . . .
Cross-currency swaps (other assets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cross-currency swaps (other liabilities). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 1
$315
—
—
—
—
—
—
—
Level 2
$ —
43
1,103
—
1
1
—
—
Level 3
$ —
15
156
—
—
—
—
—
Fair value of financial instruments by the valuation hierarchy at September 30, 2019 is as follows (in millions):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts (asset) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts (liability) . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency option contracts (other assets) . . . . . . . . . . . . . . . . . . . . . . . .
Cross-currency swaps (other assets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cross-currency swaps (other liabilities). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 1
$108
—
—
—
—
—
—
—
Level 2
$ —
49
782
—
—
—
10
5
Level 3
$ —
11
171
—
—
—
—
—
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, 2020 and September 30, 2019, respectively.
No transfers of assets between any of the Levels occurred during these periods.
89
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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Twelve months ended September 30, 2020 (in millions)
Fair Value as of September 30, 2019. . . . . . . . . . . . . . . . . . . .
Total unrealized gains:
Included in other income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Included in cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total realized gains:
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, 2020. . . . . . . . . . . . . . . . . . . .
(1)
Transfers as of the last day of the reporting period
Twelve months ended September 30, 2019 (in millions)
Fair Value as of September 30, 2018. . . . . . . . . . . . . . . . . . . .
Total unrealized gains:
Included in other income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Included in cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total realized gains:
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
Short-term foreign
currency option
contracts (asset)
$—
Long-term foreign
currency option
contracts (asset)
$—
—
—
1
—
2
(2)
—
—
$ 1
—
—
—
—
—
—
—
—
$—
Short-term foreign
currency option/
collar contracts
(asset)
$—
Long-term foreign
currency option/
collar contracts
(asset)
$—
(1)
1
1
—
—
(1)
—
—
$—
—
—
—
—
—
—
—
—
$—
Total
$—
—
—
1
—
2
(2)
—
—
$ 1
Total
$—
(1)
1
1
—
—
(1)
—
—
$—
90
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 91
OPERATOR JASMINEE
17. SHAREHOLDERS’ EQUITY
There were no dividends declared or paid by the company in fiscal years 2020, 2019 or 2018. 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.
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 ("Preferred Stock"), 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 December 2017, 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 4 million shares of common stock in connection with its 2020 Long-Term
Incentive Plan ("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, 2020, there
were 4.1 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 superseded the remaining authority
under the prior November 2018 equity repurchase authorization described below. On November 7, 2019, the Board of Directors
increased the amount of the repurchase authorization to $325 million. During fiscal year 2020, the company repurchased
10.4 million shares of common stock for $241 million (including commission costs) pursuant to the common stock repurchase
authorization. As of September 30, 2020, the amount remaining available for repurchases was $59 million under this common
stock repurchase authorization.
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, 2020, 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.
91
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 92
OPERATOR JASMINEE
Accumulated Other Comprehensive Income (AOCI)
The components of AOCI as reported in the Consolidated Balance Sheet and Statement of Equity, and the changes in AOCI
by components, net of tax, are as follows (in millions):
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassification . . . . . .
Amounts reclassified from accumulated other
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive income (loss) . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . .
Details about Accumulated Other Comprehensive Income Components
Employee Benefit Related Adjustment
Amortization of prior service benefit. . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . .
Total reclassifications for the period . . . . . . . . . . . . . . . . . . . . . . .
Foreign
Currency
Translation
$(107)
(22)
—
$ (22)
$(129)
Employee
Benefit
Related
Adjustments
$(572)
79
10
$ 89
$(483)
Unrealized
Income
(Loss) on
cash flow
hedges
$ (2)
(1)
1
$—
$ (2)
Total
$(681)
56
11
$ 67
$(614)
Amount
Reclassified from
Accumulated Other
Comprehensive
Income
$(36)
47
11
(1)
$ 10
Affected Line Item
in the Consolidated
Statement of
Operations
(a)
(a)
Total before tax
Tax (benefit) expense
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 19 and 20 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, 2018 . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassification . . . . . .
Amounts reclassified from accumulated other
comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . .
Net current-period other comprehensive loss . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . .
$ (90)
(17)
—
$ (17)
$(107)
$(476)
(100)
4
$ (96)
$(572)
$—
2
(4)
$ (2)
$ (2)
Total
$(566)
(115)
—
$(115)
$(681)
92
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 93
OPERATOR JASMINEE
Details about Accumulated Other Comprehensive Income Components
Employee Benefit Related Adjustment
Amortization of prior service benefit. . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . .
Total reclassifications for the period . . . . . . . . . . . . . . . . . . . . . . .
Amount
Reclassified from
Accumulated Other
Comprehensive
Income
$(35)
39
4
—
$ 4
Affected Line Item
in the Consolidated
Statement of
Operations
(a)
(a)
Total before tax
Tax (benefit) expense
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 19 and 20 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
$—
Details about Accumulated Other Comprehensive Income Components
Employee Benefit Related Adjustment
Amortization of prior service benefit. . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial losses . . . . . . . . . . . . . . . . . . . . . . . .
Recognized prior service costs due to settlement . . . . . . . . . . .
Total reclassifications for the period . . . . . . . . . . . . . . . . . . . . . . .
Amount
Reclassified from
Accumulated Other
Comprehensive
Income
$(35)
46
6
17
(1)
$ 16
Affected Line Item
in the Consolidated
Statement of
Operations
(a)
(a)
(a)
Total before tax
Tax (benefit) expense
Net of tax
Total
$(545)
(38)
17
$ (21)
$(566)
(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and
retiree medical expense (see Notes 19 and 20 for additional details), which is recorded in other income (expense), net.
93
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 94
OPERATOR JASMINEE
18. EQUITY BASED COMPENSATION
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 its 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,
2020, and the activity during fiscal year 2020 is summarized as follows (shares in thousands):
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
1,320
558
(533)
(170)
1,175
Weighted-Average
Grant-Date Fair
Value
$17.55
23.77
13.57
21.41
21.75
In fiscal years 2020, 2019 and 2018, the company granted 0.6 million, 0.5 million, and 0.4 million shares of restricted stock
and restricted share units, respectively. The grant date weighted average fair value of these shares of restricted stock and restricted
share units was $23.77, $17.24 and $24.93 for shares of restricted stock and restricted share units granted in fiscal years 2020,
2019 and 2018, respectively.
As of September 30, 2020, there was $9 million of total unrecognized compensation costs related to non-vested shares
of restricted stock and restricted share units. These costs are expected to be recognized over a weighted average period of
1.84 years. Total compensation expense recognized for restricted stock and restricted share units was $8 million in each of fiscal
years 2020, 2019 and 2018.
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.
Refer to Note 2 for descriptions of the performance share unit awards.
The following is a rollforward of the company’s non-vested performance share units as of September 30, 2020, and the
activity during fiscal year 2020 is summarized as follows (shares in thousands):
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
1,325
732
(851)
(170)
1,036
Weighted-Average
Grant-Date Fair
Value
$17.08
19.42
12.92
20.90
21.52
94
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 95
OPERATOR JASMINEE
There were 0.7 million performance share units granted during fiscal 2020 which includes the performance achievement
of 0.3 million performance share units related to the fiscal year 2017 to 2019 LTIP cycle. For the year ended September 30,
2020, compensation costs recognized for the performance share units was $1 million of income due to decreased performance
payouts. For the years ended 2019 and 2018, compensation cost recognized related to the performance share units were $10
million and $14 million, respectively. As of September 30, 2020, 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 1.86 years.
19. 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 17, 2020, the company notified certain medical plan participants that it will further 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 $500 per year until 2024. These benefit modifications generated
a $7 million prior service credit in September 2020, 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.
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 expected 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.
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.
The company’s retiree medical obligations were measured as of September 30, 2020, 2019 and 2018. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
2.56%
6.07%
4.67%
2028
2019
2.98%
6.36%
4.69%
2028
2018
4.05%
6.18%
4.63%
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.
95
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB TITLE Meritor AR
JOB NUMBER 381751(1)
JOB NUMBER 381751(1)
REVISION 2
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
TYPE
PAGE NO. 96
PAGE NO. 96
OPERATOR JASMINEE
OPERATOR JASMINEE
MERITOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 2021 health care cost trend rate is 6.07 percent.
The APBO as of the September 30, 2020 and 2019 measurement dates are summarized as follows (in millions):
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees eligible to retire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
$ 52
—
$ 52
2019
$ 67
—
$ 67
The following reconciles the change in APBO and the amounts included in the Consolidated Balance Sheet for years ended
September 30, 2020 and 2019, respectively (in millions):
APBO — beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit payments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APBO — end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retiree medical liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020
$ 67
2
—
(7)
(10)
52
$ 52
2019
$ 86
3
4
(15)
(11)
67
$ 67
(1) Net of subsidies and rebates available under Employer Group Waiver Plan (“EGWP”).
Actuarial loss (gain) relates 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
11 years.
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 income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30,
2019
2020
$ 11
$ 6
56
46
$ 67
$52
96
Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 97
OPERATOR JASMINEE
The following table summarizes the amounts included in AOCL net of tax related to retiree medical liabilities as of September
30, 2020 and 2019 and changes recognized in Other Comprehensive Income (Loss) net of tax for the years ended September 30,
2020 and 2019.
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial gain for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognized prior service costs due to plan amendment . . . . . . . . . . . . . .
Amortization for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net
Actuarial
Loss
$ 70
—
—
(14)
8
$ 64
$ 76
4
—
(15)
5
$ 70
Prior
Service
Cost
(Benefit)
$(165)
—
(7)
36
(3)
$(139)
$(178)
—
(15)
35
(7)
$(165)
Total
$ (95)
—
(7)
22
5
$ (75)
$(102)
4
(15)
20
(2)
$ (95)
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 2021 are $(13) million and $35 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:
2020
2018
2019
$ — $ — $ —
3
3
2
Prior service benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retiree medical income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(36)
14
$(20)
(35)
15
$(17)
(35)
17
$(15)
97
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 98
OPERATOR JASMINEE
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
2020
2019
1% Increase
1% Decrease
$— $ —
—
—
Effect on APBO
1% Increase
1% Decrease
6
(5)
5
(4)
The company expects future benefit payments as follows (in millions):
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026 – 2029
Gross
Benefit
Payments
$ 6
5
5
4
4
13
Gross
Receipts (1)
$—
—
—
—
—
2
(1)
Consists of subsidies and rebates available under EGWP
20. RETIREMENT PENSION PLANS
The company sponsors defined benefit pension plans that cover certain of its US and non-US 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 US and the actuarial recommendations or statutory
requirements in other countries
The mortality assumptions for participants in the company’s US 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
The company’s defined benefit pension plan in the United Kingdom was amended 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 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 25 years rather than over their remaining average service
The company’s defined benefit pension plan for salaried and non-represented employees in the United States is frozen After
the plan was frozen, the company started making additional contributions to its defined contribution savings plan on behalf of the
affected employees These additional contributions have been suspended since May 2020 and are anticipated to be suspended
for the foreseeable future The amount of the savings plan contribution is based on a percentage of the employees’ pay, with the
98
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
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PAGE NO. 99
OPERATOR JASMINEE
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
The company’s US Retirement Plan includes 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, 2020, 2019 and 2018 The US plans include
qualified and non-qualified pension plans The company’s only significant remaining non-US 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)
Discount rate
Assumed return on plan assets (beginning of the year)
U.S. Plans
2020
250% — 260%
775%
2019
310% — 315%
775%
2020
170%
575%
U.K. Plan
2019
180%
600%
2018
430%
775%
2018
290%
600%
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 UK 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
99
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
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PAGE NO. 100
OPERATOR JASMINEE
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, 2020 and 2019, 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 - over (under)
U.S.
$1,006
31
64
—
—
—
(74)
—
$1,027
$ 741
221
5
—
(74)
—
$ 893
$ (134)
2020
Non- U.S.
$621
11
(24)
—
—
—
(25)
19
$602
$764
12
—
—
(25)
25
$776
$174
Total
$1,627
42
40
—
—
—
(99)
19
$1,629
$1,505
233
5
—
(99)
25
$1,669
40
$
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)
Amounts included in the Consolidated Balance Sheet at September 30, 2020 and 2019 are comprised of the following
(in millions):
Non-current assets
Current liabilities
Retirement benefits-non-current
Net amount recognized
2020
Non-U.S.
U.S.
$ — $179
—
(5)
$174
(5)
(129)
$(134)
Total
$ 179
(5)
(134)
$ 40
2019
Non-U.S.
U.S.
$ — $149
—
(6)
$143
(5)
(260)
$(265)
Total
$ 149
(5)
(266)
$(122)
100
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 101
OPERATOR JASMINEE
The following tables summarize the amounts included in AOCL net of tax related to pension liabilities as of September 30,
2020 and 2019 and changes recognized in Other Comprehensive Income (Loss) net of tax for the year ended September 30, 2020
Balance at September 30, 2019
Net actuarial loss for the year
Amortization for the year
Deferred tax impact
Balance at September 30, 2020
Net Actuarial Loss
Non-U.S.
$200
3
(7)
—
$196
U.S.
$ 467
(101)
(26)
22
$ 362
Total
$667
(98)
(33)
22
$558
Balance at September 30, 2018
Net actuarial loss for the year
Amortization for the year
Deferred tax impact
Balance at September 30, 2019
$ 394
113
(20)
(20)
$ 467
$184
20
(4)
—
$200
$578
133
(24)
(20)
$667
The company estimates that $31 million of net actuarial losses will be amortized from AOCL into net periodic pension expense
during fiscal year 2021 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 19)
Other
Total retirement benefits
September 30,
2020
2019
$134 $266
56
14
$196 $336
46
16
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
$ 1,032
1,032
893
2020
Assets
Exceed
ABO
$ 597
597
776
ABO
Exceeds
Assets
$1,012
1,012
741
Total
$1,629
1,629
1,669
2019
Assets
Exceed
ABO
$ 615
615
764
Total
$1,627
1,627
1,505
101
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
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PAGE NO. 102
OPERATOR JASMINEE
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 actuarial losses
Settlement loss
Net periodic pension income
2020
2018
2019
$ — $ — $ —
54
53
(99)
(97)
29
24
—
6
$(10)
$(20)
42
(97)
33
—
$(22)
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 US plans 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-US plans are 20–35 percent equity investments, 30–40
percent fixed income investments, 0–15 percent real estate and 15–35 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
102
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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OPERATOR JASMINEE
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 US 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 requiring a 30-60 day notice
Fixed Income Securities: The overall fixed income category includes US 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
US 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
103
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
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OPERATOR JASMINEE
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
Insurance Contract: The plan entered into a pensioner buy-in insurance contract which reimburses the plan for specified
benefit payment streams The valuation for the buy-in contract is calculated on an insurer pricing basis and is estimated using
observable inputs, by adjusting the premium paid for cash flows and movements in gilt yields during the reporting period
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 in addition
to entering into futures contracts across various asset classes 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 while some offer daily liquidity 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
104
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 105
OPERATOR JASMINEE
The fair value of plan assets at September 30, 2020 by asset category is as follows (in millions):
U.S. Plans
Asset Category
Equity investments
US – Large cap
US – Small cap
International equity
Equity investments measured at net asset value (1)
Total equity investments
Fixed income investments
US fixed income
Emerging fixed income
Partnerships fixed income
Fixed income investments measured at net asset value (1)
Total fixed income
Alternatives
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
Insurance contract
Total assets at fair value
2020
Level 1
Level 2
Level 3
Total
$209
15
12
—
$236
$
$
9
—
—
—
9
9
—
—
—
$254
$ —
—
—
—
$ —
$270
13
—
—
$283
—
—
—
62
$345
$— $209
15
—
—
12
189
—
$— $425
$— $279
13
—
—
—
—
26
$— $318
9
—
5
5
74
—
62
—
$893
$ 5
2020
Level 1
Level 2
Level 3
Total
$180
$180
$
$
5
—
5
—
—
—
—
—
$185
$ —
$ —
$214
—
$214
2
—
—
9
131
$356
$— $180
$— $180
$— $219
—
71
$— $290
2
—
127
—
37
—
9
—
131
—
$— $776
(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
105
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 106
OPERATOR JASMINEE
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
US – Large cap
US – Small cap
Private equity
International equity
Equity investments measured at net asset value (1)
Total equity investments
Fixed income investments
US 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
21
154
$247
—
19
—
—
$ 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
106
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
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PAGE NO. 107
OPERATOR JASMINEE
Unfunded Commitment
As of September 30, 2020, the US plan had $1 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-US 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, 2020 (in millions):
U.S. Plans
2020
Fair Value at
October 1,
2019
Return on Plan Assets:
Attributable to
Assets Held at
September 30, 2020
Purchases
Settlements
Net
Transfers
Into (Out of)
Level 3
Fair Value at
September 30,
2020
Asset Category
Private equity
Alternatives –
Partnerships
Total Level 3 fair value
$ 19
86
$105
$ —
1
$ 1
$ —
—
$ —
$ —
$ (19)
$ —
(1)
$ (1)
(81)
$(100)
5
5
$
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
Information about the expected cash flows for the US and non-US pension plans is as follows (in millions):
Expected employer contributions:
Fiscal 2021
Expected benefit payments:
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026-2030
U.S.
Non U.S.
Total
$
5
$
1
$
6
70
70
68
67
66
302
25
25
25
25
25
124
95
95
93
92
91
426
The company also sponsors certain defined contribution savings plans for eligible employees Expense related to these
plans, including company matching contributions, was $14 million, $21 million and $21 million for fiscal years 2020, 2019 and
2018, respectively
107
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21.
INCOME TAXES
The income tax provisions were calculated based upon the following components of income before income taxes (in millions):
US income
Foreign income
Total
2020
$268
58
$326
2019
$194
183
$377
2018
$ 85
193
$278
The components of the provision (benefit) for income taxes are summarized as follows (in millions):
2020
2019
2018
Current tax expense:
US
Foreign
State and local
Total current tax expense
Deferred tax expense (benefit):
US
Foreign
State and local
Total deferred tax expense
Income tax expense
$20
16
4
40
40
(5)
3
38
$78
$ 1
40
1
42
34
6
—
40
$82
$ 24
51
—
75
76
(5)
3
74
$149
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 US 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
108
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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
Lease liabilities
Loss and credit carryforwards
Other
Sub-total
Less: Valuation allowances
Deferred income taxes - asset
Taxes on undistributed income
Intangible assets
Lease assets
Debt basis difference
Deferred income taxes - liability
Net deferred income tax assets
September 30,
2019
2020
$ 19
$ 13
11
11
7
12
8
8
8
5
16
13
59
25
7
9
—
18
230
215
18
16
383
345
(226)
(207)
$ 176
$ 119
$ (10)
$ (11)
(51)
(65)
—
(17)
(7)
(8)
$ (69)
$(100)
$ 107
$ 19
Net deferred income tax assets (liabilities) are included in the Consolidated Balance Sheet as follows (in millions):
Other assets (see Note 11)
Other liabilities (see Note 14)
Net deferred income taxes — asset
September 30,
2019
2020
$122
$ 30
(15)
(11)
$107
$ 19
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 UK 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
As of September 30, 2020, the company continues to maintain the valuation allowances in France, Germany, the UK 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
109
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The expiration periods for deferred tax assets related to net operating losses and tax credit carryforwards as of September 30,
2020 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
2021-2025
$ 7
$ 6
2026-2035
$15
$13
2036-2040
$—
$—
Indefinite
$193
$188
Total
$215
$207
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 US
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
US tax impact on non-US earnings
Nondeductible expenses
Tax credits
Valuation allowances
Tax audit adjustments
Other
Income tax expense
2020
$ 68
5
2
(10)
(3)
—
11
(8)
10
5
(2)
$ 78
2019
$ 79
3
11
1
(6)
—
16
(11)
(7)
—
(4)
$ 82
2018
$ 68
2
4
126
(6)
4
8
(9)
(40)
—
(8)
$149
On December 22, 2017, the US government enacted the US tax reform The US tax reform made broad and complex
changes to the US tax code that affected the company's fiscal year ended September 30, 2018, including, but not limited to,
reducing the US federal corporate tax rate from 35 percent to 21 percent and requiring a one-time transition tax on deemed
repatriated earnings of foreign subsidiaries
Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the US tax reform,
provides a measurement period that should not extend beyond one year from the US tax reform enactment date for companies
to complete the accounting under ASC 740 The company completed its accounting for the enactment date income tax effects of
US tax reform as of December 31, 2018 As reflected in the company's fiscal year 2019 Consolidated 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 US tax reform items
At September 30, 2020 and 2019, $1,161 million and $1,163 million, respectively, of non-US earnings were considered
indefinitely reinvested in operations outside the US, for which deferred taxes have not been provided Quantification of the
deferred tax liability, if any, associated with permanently reinvested earnings is not practicable
110
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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 US
tax reform that are effective in fiscal year 2020 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, 2020 was $283 million, of which $234 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
2020
$276
4
5
(1)
(4)
3
$283
2019
$261
11
9
—
(4)
(1)
$276
2018
$269
—
—
(6)
(1)
(1)
$261
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, 2020 and 2019, the company recorded assets of
$13 million and $12 million, respectively, of interest on uncertain tax positions in the Consolidated Balance Sheet In addition,
penalties of $2 million and $1 million were recorded as of September 30, 2020 and 2019, respectively The income tax benefit
related to interest was $1 million, for the fiscal years ended September 30, 2020 and 2019 The income tax benefit related to
interest was $4 million for the fiscal year ended September 30, 2018 The income tax expense related to penalties was $1 million
for fiscal year ended September 30, 2020 The income tax expense related to penalties was immaterial for fiscal years ended
September 30, 2019 and 2018
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
Indian subsidiary is currently under audit for fiscal years 2015 and 2016 The company's UK 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 2001-2019 with various significant
taxing jurisdictions, including the US, Brazil, Canada, China, Italy, Mexico, Sweden and the UK 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
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, which includes various income and payroll
tax provisions, was signed into law by the US government In addition, various other coronavirus tax relief initiatives have been
implemented around the world These tax initiatives did not have a material impact on the Consolidated Financial Statements for
the fiscal year ended September 30, 2020
111
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22. CONTINGENCIES
Environmental
Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes
and other activities affecting the environment have, and will continue to have, an impact on the 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 at 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,
2020 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 sites were $4 million in fiscal year 2020,
$2 million in fiscal year 2019 and $12 million in fiscal year 2018.
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, 2020 to be approximately $14 million, of which $5 million is probable
and recorded as a liability. During each of fiscal years 2020, 2019 and 2018, the company recorded environmental remediation
costs of $2 million 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 1.50 to 2.25 percent
and is approximately $13 million at September 30, 2020. 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, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at September 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Superfund
Sites
$11
(4)
4
$11
Non-Superfund
Sites
$ 4
(1)
2
$ 5
Total
$15
(5)
6
$16
There were $6 million, $3 million, and $12 million of environmental remediation costs recognized in other operating expense
in the Consolidated Statement of Operations in fiscal years 2020, 2019 and 2018, respectively.
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Environmental reserves are included in Other Current Liabilities (see Note 13) and Other Liabilities (see Note 14) in the
Consolidated Balance Sheet.
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.
113
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The Plan was confirmed by the Bankruptcy Court 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.
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 1,200 and 1,400 pending active asbestos claims in lawsuits that name AM as a
defendant at September 30, 2020 and 2019, respectively.
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, 2020. 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, 2020, the best estimate of the company’s obligation for asbestos-related claims over the next 38 years
is $78 million. The company recognized a liability for pending and future claims of $78 million as of September 30, 2020 and
$91 million as of September 30, 2019. 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
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 recorded $28 million as an insurance receivable related to this settlement. The
insurance receivables for Rockwell’s asbestos-related liabilities totaled $62 million and $61 million as of September 30, 2020 and
2019, respectively.
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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,
2019
2020
$ 91
$ 78
2
1
$ 93
$ 79
$ 61
$ 62
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 38 year period ending in fiscal year 2058;
• 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.
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.
115
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23. 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 third quarter of fiscal year 2020, the company realigned its operations resulting in a change to its operating
and reportable segments. As of the third quarter of fiscal year 2020, the reportable segments are (1) Commercial Truck and
(2) Aftermarket and Industrial. Prior year reportable segment financial results have been recast for these changes.
The company has two reportable segments at September 30, 2020, 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. It also supplies a variety of undercarriage products and systems for trailer
applications in North America. This segment also includes the company’s aftermarket businesses in Asia Pacific and
South America.
• The Aftermarket and Industrial 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.
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.
Segment information is summarized as follows (in millions):
Commercial
Truck
Aftermarket
and Industrial
Elims
Total
Fiscal year 2020 Sales:
External Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year 2019 Sales (1):
External Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year 2018 Sales (1):
External Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment Sales . . . . . . . . . . . . . . . . . . . . . . . . .
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,080
110
$ 2,190
$ 3,307
149
$ 3,456
$ 3,171
154
$ 3,325
$ 964
17
$ 981
$ 1,081
19
$ 1,100
$ 1,007
17
$ 1,024
$ — $ 3,044
—
$ 3,044
(127)
$(127)
$ — $ 4,388
—
$ 4,388
(168)
$(168)
$ — $ 4,178
—
$ 4,178
(171)
$(171)
(1) Fiscal years 2019 and 2018 have been recast to reflect reportable segment changes.
116
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 117
OPERATOR JASMINEE
Segment adjusted EBITDA:
Commercial Truck (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket and Industrial (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated legacy and corporate income (expense), net (2) . . . . . . . . . . . . . . .
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related items (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement loss (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from WABCO distribution termination . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations attributable to Meritor, Inc. . . . . . . . . . . . . .
Year Ended September 30,
2020
$ 116
150
266
6
(66)
—
(78)
(101)
(4)
(27)
(5)
—
—
(8)
265
(4)
$ 244
2019
$ 342
175
517
3
(57)
—
(82)
(87)
(6)
(8)
(6)
31
—
(10)
—
(5)
$ 290
2018
$ 345
142
487
(13)
(67)
—
(149)
(84)
(5)
(6)
—
(25)
(6)
(3)
—
(9)
$ 120
(1)
(2)
(3)
Fiscal years 2019 and 2018 have been recast to reflect reportable segment changes.
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.
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.
(4)
The year ended September 30, 2018 includes $6 million related to the U.K. pension settlement loss.
117
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 118
OPERATOR JASMINEE
Year Ended September 30,
Depreciation and Amortization:
Commercial Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket and Industrial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures:
Commercial Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket and Industrial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment Assets:
Commercial Truck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aftermarket and Industrial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accounts receivable sold under off-balance sheet
factoring programs (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2020
76
25
$ 101
2020
68
17
85
$
$
2019 (1)
73
$
14
87
$
2019 (1)
88
$
15
$ 103
September 30,
2020
$1,666
658
2,324
714
2019 (2)
$1,745
729
2,474
567
(154)
$2,884
(226)
$2,815
2018 (1)
$ 72
12
$ 84
2018 (1)
$ 88
16
$104
(1)
(2)
(3)
(4)
Fiscal years 2019 and 2018 have been recast to reflect reportable segment changes.
Amounts as of September 30, 2019 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, 2020 and September 30, 2019, segments assets include $154 million and $226 million, respectively,
of accounts receivable sold under off-balance sheet accounts receivable factoring programs (see Note 8). These sold
receivables are included in segment assets as the CODM reviews segment assets inclusive of these balances.
118
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 119
OPERATOR JASMINEE
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):
Year ended September 30,
2020
2019
2018
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,783
54
147
1,984
202
166
114
139
621
172
135
72
60
$ 3,044
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,622
69
249
2,940
276
234
165
91
766
248
153
197
84
$ 4,388
$ 2,289
72
221
2,582
311
243
179
103
836
224
196
231
109
$ 4,178
September 30,
2020
2019
$ 1,458
35
190
1,683
136
111
270
269
786
132
130
76
77
$ 2,884
$ 1,504
39
197
1,740
130
81
241
173
625
187
124
84
55
$ 2,815
Sales to AB Volvo represented approximately 21 percent, 22 percent and 23 percent of the company’s sales in fiscal years
2020, 2019 and 2018, respectively. Sales to Daimler AG represented approximately 17 percent, 19 percent and 17 percent of
the company’s sales in fiscal years 2020, 2019 and 2018, respectively. Sales to PACCAR represented approximately 12 percent,
13 percent and 12 percent of the company’s sales in fiscal years 2020, 2019 and 2018, respectively. Sales to Navistar represented
approximately 8 percent, 10 percent and 9 percent of the company’s sales in fiscal years 2020, 2019 and 2018, 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, 2020.
119
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 120
OPERATOR JASMINEE
24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a condensed summary of the company’s unaudited quarterly results of continuing operations for fiscal
years 2020 and 2019. 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.
First
2020 Fiscal Quarters (Unaudited)
Third
Second
(In millions, except share related data)
Fourth
2020
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 901
(774)
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
127
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13)
Benefit (provision) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
Net income (loss) from continuing operations attributable to Meritor, Inc. . . . . .
39
Net income (loss) attributable to Meritor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings (loss) per share from continuing operations . . . . . . . . . . . . . . . $0.50
Diluted earnings (loss) per share from continuing operations . . . . . . . . . . . . . . $0.48
$ 871
(757)
114
(73)
242
240
241
$3.27
$3.19
$ 514
(486)
28
13
(34)
(36)
(36)
$ 758
(699)
59
(5)
—
1
1
$(0.50) $0.01
$(0.50) $0.01
$ 3,044
(2,716)
328
(78)
249
244
245
$ 3.30
$ 3.23
The company recognized restructuring income and costs in its continuing operations during fiscal year 2020 as follows:
$5 million of costs in the first quarter, $10 million of costs in the second quarter, $12 million of costs in the third quarter and an
insignificant amount in the fourth quarter (see Note 7). In the second quarter of fiscal year 2020, the company exercised the option
to terminate its aftermarket distribution arrangement with WABCO and received $265 million from WABCO in connection with the
termination of the arrangement (see Note 3).
First
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,038
(897)
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21)
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90
Net income from continuing operations attributable to Meritor, Inc. . . . . .
Net income attributable to Meritor, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . .
90
Basic earnings per share from continuing operations. . . . . . . . . . . . . . . . $ 1.06
Diluted earnings per share from continuing operations . . . . . . . . . . . . . . $ 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 7). 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.
120
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
JOB NUMBER 381751(1)
REVISION 2
SERIAL <12345678> DATE / TIME Saturday, November 21, 2020
TYPE
PAGE NO. 121
OPERATOR JASMINEE
25. OPERATING CASH FLOWS AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION
2020
Year Ended September 30,
2019
(in millions)
2018
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 income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos related liability remeasurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution to Maremont trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 249
1
248
$ 296
1
295
$ 126
(3)
129
101
38
27
—
8
(14)
7
—
(42)
—
—
—
10
(15)
(25)
(77)
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
147
100
(186)
(64)
2
265
—
$ 265
80
9
(103)
(3)
(22)
256
—
$ 256
(98)
(112)
97
36
59
252
(1)
$ 251
121
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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2020
September 30,
2019
(In millions)
2018
Balance sheet data:
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3
$ 3
$ 4
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 finance leases . . . . . . . . . . . . . . . . . .
47
74
87
19
4
(70)
48
55
—
55
75
76
19
4
(61)
41
64
—
52
73
74
18
3
(70)
49
33
4
122
MERITOR, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Clean JOB TITLE Meritor AR
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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, 2020. 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, 2020. 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, 2020.
The independent registered public accounting firm of Deloitte & Touche LLP, as auditors of the Consolidated Balance Sheets
of Meritor as of September 30, 2020 and the related Consolidated Statements of Operations, Comprehensive Income, Cash Flows
and Equity for the year ended September 30, 2020, 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 27, 2020, 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 27, 2020, 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 27, 2020, of the Company and our report
dated November 12, 2020 expressed an unqualified opinion on those financial statements.
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 U.S. 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 12, 2020
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Item 9B. Other Information.
On November 5, 2020, the Board of Directors approved amendments to Section 2.1, Section 2.4, Section 2.6 and Section
2.8A of the Amended and Restated By-laws of the Company to allow for virtual shareholders’ meetings. The Amended and
Restated By-laws are attached hereto as Exhibit 3-b and are incorporated herein by reference.
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 2021 Annual Meeting (the "2021 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 2021 Proxy Statement. Disclosure of delinquent Section 16 filers
pursuant to Item 405 of Regulation S-K will be contained in the 2021 Proxy Statement.
Item 11. Executive Compensation.
See the information under the captions Director Compensation in Fiscal Year 2020, Executive Compensation and CEO Pay
Ratio in the 2021 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 2021
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, 2020, were as follows:
Plan Category
Equity compensation plans approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(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)
—
—
—
$—
—
$—
4,104,642
—
4,104,642
(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, 2020. 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,
2020. Grants may be in the form of any of the listed type of awards.
Plan
2020 Long-Term Incentive Plan*
Number of shares
4,104,642
Type of award
Stock options, stock appreciation rights, stock awards and other
stock-based awards
*
The 2020 Long-Term Incentive Plan was approved by the Company’s shareholders on January 23, 2020. At that time the
2010 Long-Term Incentive Plan was terminated and no new awards will be made under the 2010 Long-Term Incentive Plan.
The 2007 Long-Term Incentive Plan and the 2004 Directors Stock Plan were terminated on January 28, 2010. Earlier equity
compensation plans were terminated on January 26, 2007.
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 2021 Proxy Statement.
Item 14. Principal Accountant Fees and Services.
See the information under the caption Independent Accountants’ Fees in the 2021 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, 2020, 2019 and 2018.
Consolidated Statement of Comprehensive Income, years ended September 30, 2020, 2019 and 2018.
Consolidated Balance Sheet, September 30, 2020 and 2019.
Consolidated Statement of Cash Flows, years ended September 30, 2020, 2019 and 2018.
Consolidated Statement of Shareholders’ Equity, years ended September 30, 2020, 2019 and 2018.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
(2) Financial Statement Schedule for the years ended September 30, 2020, 2019 and 2018.
Schedules not filed with this Annual Report on Form 10-K are omitted because of the absence of conditions under which
they are required or because the information called for is shown in the financial statements or related notes.
(3) Exhibits
3-a
3-b**
4-a**
4-b
4-b-1
4-b-2
4-b-3
4-b-4
Amended and Restated Articles of Incorporation of Meritor effective January 23, 2020, filed as Exhibit 3-a to Meritor’s
Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2019, is incorporated herein by reference.
Amended and Restated By-laws of Meritor effective November 5, 2020.
Description of Securities.
Indenture, dated as of April 1, 1998, between Meritor and The Bank of New York Mellon Trust Company, N.A. (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, N.A. (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, N.A. (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 4.2 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, N.A. (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.
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, N.A. (as successor to BNY Midwest Trust Company as
successor to The Chase Manhattan Bank), as trustee, filed as Exhibit 4.1 to Meritor’s Current Report on Form 8-K filed
on February 13, 2014, is incorporated herein by reference.
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4-b-5
4-c
4-d
4-e
10-a-1
10-a-2
10-a-3
10-a-4
*10-b
*10-b-1
*10-c
*10-c-1
*10-c-2
Eighth Supplemental Indenture, dated as of June 8, 2020, to the Indenture, dated as of April 1, 1998, between
Meritor, U.S. Bank National Association, as trustee, and The Bank of New York Mellon Trust Company, N.A. (as
successor to BNY Midwest Trust company as successor to The Chase Manhattan Bank), as predecessor trustee, filed
as Exhibit 4-a to Meritor’s Current Report on Form 8-k filed on June 8, 2020, is incorporated herein by reference.
Indenture, dated as of February 8, 2007, between Meritor and The Bank of New York Mellon Trust Company, N.A.
(as successor to The Bank of New York Trust Company, N.A.), 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, N.A.,
as trustee (including form of the note and form of subsidiary guaranty), filed as Exhibit 4.1 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 U.S. 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, N.A., 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, N.A., 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.
Amendment No. 1 to Fourth Amended and Restated Credit Agreement, dated as of March 12, 2020, among
Meritor, the subsidiaries named therein, the financial institutions party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent, filed as Exhibit 10-a to Meritor’s Quarterly report on Form 10-Q for the fiscal quarter ended
March 29, 2020, is incorporated herein by reference.
Amendment No. 2 to Fourth Amended and Restated Credit Agreement and Amendment No. 2 to Third Amended
and Restated Pledge and Security Agreement, dated as of June 26, 2020, among Meritor, the subsidiaries named
therein, the financial institutions party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, filed as
Exhibit 10-a to Meritor’s Quarterly report on Form 10-Q for the fiscal quarter ended June 28, 2020, 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.
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*10-c-3
*10-c-4
*10-d
*10-e
*10-f
*10-g
*10-g-1
*10-g-2
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.
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.
10-h**
2020 Long-Term Incentive Plan.
10-h-1
10-h-2
10-h-3
10-h-4
10-h-5
10-i
10-j
Form of Restricted Stock Agreement for Directors under the 2020 Long-Term Incentive Plan, filed as Exhibit 10-a
to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2019, 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 2020 Long-Term Incentive Plan, filed as Exhibit 10-b to Meritor’s Quarterly Report on
Form 10-Q for the fiscal quarter ended December 29, 2019, is incorporated herein by reference.
Form of Performance Share Unit Agreement for Employees under the 2020 Long-Term Incentive Plan, filed
as Exhibit 10-c to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2019, is
incorporated herein by reference.
Form of Restricted Share Unit Agreement for Employees under the 2020 Long-Term Incentive Plan, filed as Exhibit 10-d
to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2019, is incorporated herein
by reference.
Form of Restricted Share Unit Agreement for Employee retention under the 2020 Long-Term Incentive Plan, filed
as Exhibit 10-e to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2019, 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.
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10-j-1
10-k
10-k-1
10-k-2
10-l
10-l-1
10-m
10-m-1
10-m-2
10-m-3
10-m-4
Extension dated March 19, 2020 of 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-b to Meritor’s Quarterly Report on Form 10-Q for the fiscal quarter ended
March 29, 2020, 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 S.P.A.,
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 S.P.A. 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.
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.
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10-m-5
10-m-6
10-m-7
10-m-8
10-m-9
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-m-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,
filed as Exhibit 10-l-10 to Meritor’s Annual report on Form 10-K for the fiscal year ended September 29, 2019, is
incorporated herein by reference.
10-n
10-n-1
10-o
10-p
*10-q
Fourth Amended and Restated Purchase and Sale Agreement dated June 18, 2012 among Meritor Heavy Vehicle
Braking Systems (U.S.A.), 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.
Letter Agreement relating to Fourth Amended and Restated Receivables Purchase Agreement dated as of December 14,
2012 among Meritor Heavy Vehicle Braking Systems (U.S.A.), 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.
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, L.P., 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.
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*10-r
*10-s
*10-t
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.
Special Retention Letter dated as of November 4, 2020 between Meritor, Inc. and Carl D. Anderson, II, filed as
Exhibit 10-a to Meritor’s Current Report on Form 8-K filed on November 9, 2020, is incorporated herein by reference.
*10-u**
Form of Employment Agreement (portions of this exhibit have been omitted).
*10-v**
Schedule identifying agreements substantially identical to the Form of Employment Agreement constituting
Exhibit 10-u hereto.
21**
22**
List of Subsidiaries of Meritor, Inc.
Guarantor Subsidiaries of Meritor, Inc.
23-a**
Consent of Hannah Lim-Johnson, 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 U.S.C. Section 1350.
Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and
18 U.S.C. Section 1350.
101.INS
XBRL INSTANCE DOCUMENT
101.SCH
XBRL TAXONOMY EXTENSION SCHEMA
101.PRE
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
101.LAB
XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.CAL
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
*
**
Management contract or compensatory plan or arrangement.
Filed herewith.
Item 16. Form 10-K Summary.
None.
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OPERATOR JASMINEE
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/ Hannah S. Lim-Johnson
Hannah S. Lim-Johnson
Senior Vice President,
Chief Legal Officer and Corporate Secretary
Date: November 12, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 12th day of
November, 2020 by the following persons on behalf of the registrant and in the capacities indicated.
William R. Newlin*
Chairman of the Board of Directors
Steven Beringhause, Jan A. Bertsch, Rodger L. Boehm,
Rhonda L. Brooks, Ivor J. Evans, Fazal Merchant,
Thomas L. Pajonas, Lloyd G. Trotter*
Directors
Jay A. Craig*
Carl D. Anderson II*
Paul D. Bialy*
* By:
/s/ Hannah S. Lim-Johnson
Hannah S. Lim-Johnson
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)
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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
Former Executive Chairman,
Chief Executive Officer
and President
Meritor, Inc.
Fazal Merchant
Retired Co-Chief
Executive Officer
Tanium, 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 2 0 ANNUAL REPORT
Executive Team
Jeffrey A. Craig
Chief Executive Officer
and President
Carl Anderson
Timothy Bowes
Senior Vice President and
Chief Financial Officer
Group Vice President and
President, Industrial and
North America Aftermarket
Timothy J. Heffron
Senior Vice President,
Human Resources and
Chief Information Officer
Hannah Lim-Johnson
Senior Vice President,
Chief Legal Officer and
Corporate Secretary
John Nelligan
Group Vice President
and President,
North America Truck
Krista L. Sohm
Vice President and
Chief Marketing Officer
Chris Villavarayan
Executive Vice President
and Chief Operating Officer
Meritor, Inc.
2 0 2 0 ANNU AL REPORT
Shareholder Information
Annual Meeting
The company’s annual meeting of shareholders will be held virtually
on Thursday, January 28, 2021. A notice of meeting and proxy material
will be made available to shareholders on or about December 18, 2020.
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
For other questions or concerns, you may contact the Board of Directors
at the following address:
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 2 0 ANNUAL REPORT
Independent Auditors
Deloitte & Touche LLP
200 Renaissance Center
Suite 3900
Detroit, Ml 48243-1300
Phone: (313) 396-3000
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.
New York Stock Exchange
Common Stock (Symbol: MTOR)
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 6, 2020, 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.
Cautionary Statement
This Annual Report on Form 10-K contains statements relating to future results of the company
(including certain outlooks, 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 the duration and severity of
the COVID-19 pandemic and its effects on public health, the global economy, financial markets and
operations; 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., AxleTech and Transportation Power, Inc. 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 2 0 ANNU AL REPORT
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 more than 7,000
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 2020
Meritor, Inc.
Litho in USA
Issued 12-20
2020 Annual Report