

☐			Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File No. 1-15983

~~1-15983~~

MERITOR, INC.

~~MERITOR, INC.~~

(Exact name of registrant as specified in its charter)

Indiana

38-3354643

~~38-3354643~~

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2135 West Maple Road,

Troy,

Michigan

~~48084-7186~~

48084-7186

(Address of principal executive offices)

(Zip Code)

(~~248~~) (248) 435-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 Par Value	MTOR	New York Stock Exchange

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

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Registration S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

~~Large Accelerated Filer~~

☒

~~Accelerated Filer~~

☐

~~Non-accelerated Filer~~

☐

~~Smaller Reporting Company~~

☐

~~Emerging Growth Company~~

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

~~72,259,278~~72,289,344 shares of Common Stock, $1.00 par value, of Meritor, Inc. were outstanding on ~~April 29,~~July 27, 2020.

INDEX

Page

No.

PART I.

FINANCIAL INFORMATION:

Item 1.

Financial Statements:

Condensed Consolidated Statement of Operations - - Three and ~~Six~~Nine Months Ended ~~March 31,~~June 3 0 , 2020 and 2019

Condensed Consolidated Statement Of Comprehensive Income - - Three and ~~Six~~Nine Months Ended ~~March 31,~~June 3 0 , 2020 and 2019

Condensed Consolidated Balance Sheet - - ~~March 31,~~June 3 0 , 2020 and September 30, 2019

Condensed Consolidated Statement of Cash Flows - - ~~Six~~Nine Months Ended ~~March 31,~~June 3 0 , 2020 and 2019

Condensed Consolidated Statement of Equity - - Three and ~~Six~~Nine Months Ended ~~March 31,~~June 3 0 , 2020 and 2019

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Conditions and Results of Operations

4834

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

6352

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

MERITOR, INC.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in millions, except per share amounts)

Three Months Ended March 31, Six Months Ended March 31,
2020 2019 2020 2019
(Unaudited)
Sales $ 871
$ 1,156
$ 1,772
$ 2,194
Cost of sales (757 ) (982 ) (1,531 ) (1,879 )
GROSS PROFIT 114
174
241
315
Selling, general and administrative (59 ) (73 ) (129 ) (107 )
Income from WABCO distribution termination 265
—
265
—
Other operating income (expense), net (10 ) 1
(15 ) 1
OPERATING INCOME 310
102
362
209
Other income, net 14
9
24
20
Equity in earnings of affiliates 6
6
12
15
Interest expense, net (16 ) (15 ) (30 ) (29 )
INCOME BEFORE INCOME TAXES 314
102
368
215
Provision for income taxes (73 ) (27 ) (86 ) (48 )
INCOME FROM CONTINUING OPERATIONS 241
75
282
167
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax 1
(1 ) 1
(1 )
NET INCOME 242
74
283
166
Less: Net income attributable to noncontrolling interests (1 ) (2 ) (3 ) (4 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 241
$ 72
$ 280
$ 162
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
Net income from continuing operations $ 240
$ 73
$ 279
$ 163
Income (loss) from discontinued operations 1
(1 ) 1
(1 )
Net income $ 241
$ 72
$ 280
$ 162
BASIC EARNINGS (LOSS) PER SHARE
Continuing operations $ 3.27
$ 0.88
$ 3.68
$ 1.94
Discontinued operations 0.01
(0.01 ) 0.01
(0.01 )
Basic earnings per share $ 3.28
$ 0.87
$ 3.69
$ 1.93
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations $ 3.19
$ 0.85
$ 3.58
$ 1.88
Discontinued operations 0.01
(0.01 ) 0.01
(0.01 )
Diluted earnings per share $ 3.20
$ 0.84
$ 3.59
$ 1.87

Basic average common shares outstanding 73.4
83.3
75.8
84.0
Diluted average common shares outstanding 75.3
85.6
78.0
86.6


	Three Months Ended June 30,						Nine Months Ended June 30,
	2020		2019		2020		2019
	(Unaudited)
Sales	$	514	$	1,166	$	2,286	$	3,360
Cost of sales	(486)		(987)		(2,017)		(2,866)
GROSS PROFIT	28		179		269		494
Selling, general and administrative	(52)		(73)		(181)		(180)


Income from WABCO distribution termination	—		—		265		—
Other operating expense, net	(17)		(2)		(32)		(1)

OPERATING INCOME (LOSS)	(41)		104		321		313
Other income, net	12		10		36		30

Equity in earnings of affiliates	(1)		9		11		24
Interest expense, net	(17)		(14)		(47)		(43)
INCOME (LOSS) BEFORE INCOME TAXES	(47)		109		321		324
Benefit (provision) for income taxes	13		(21)		(73)		(69)
INCOME (LOSS) FROM CONTINUING OPERATIONS	(34)		88		248		255
INCOME FROM DISCONTINUED OPERATIONS, net of tax	—		1		1		—
NET INCOME (LOSS)	(34)		89		249		255
Less: Net income attributable to noncontrolling interests	(2)		(3)		(5)		(7)
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.	$	(36)	$	86	$	244	$	248
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
Net income (loss) from continuing operations	$	(36)	$	85	$	243	$	248
Income from discontinued operations	—		1		1		—
Net income (loss)	$	(36)	$	86	$	244	$	248
BASIC EARNINGS (LOSS) PER SHARE
Continuing operations	$	(0.50)	$	1.02	$	3.26	$	2.96
Discontinued operations	—		0.01		0.01		—
Basic earnings per share	$	(0.50)	$	1.03	$	3.27	$	2.96
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations	$	(0.50)	$	0.99	$	3.19	$	2.86
Discontinued operations	—		0.01		0.01		—
Diluted earnings per share	$	(0.50)	$	1.00	$	3.20	$	2.86

Basic average common shares outstanding	72.1		83.0		74.6		83.7
Diluted average common shares outstanding	72.1		85.6		76.3		86.6

See Notes to Condensed Consolidated Financial Statements.

MERITOR, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions)

Three Months Ended March 31, Six Months Ended March 31,
2020 2019 2020 2019
(Unaudited)
Net income $ 242
$ 74
$ 283
$ 166
Other comprehensive income (loss):
Foreign currency translation adjustments:
Attributable to Meritor, Inc. (56 ) 7
(35 ) 3
Attributable to noncontrolling interest —
—
—
1
Pension and other postretirement benefit related adjustments 2
1
5
1
Unrealized loss on cash flow hedges (5 ) (1 ) (3 ) —
Other comprehensive income (loss), net of tax (59 ) 7
(33 ) 5
Total comprehensive income 183
81
250
171
Less: Comprehensive income attributable to noncontrolling interest (1 ) (2 ) (3 ) (5 )
Comprehensive income attributable to Meritor, Inc. $ 182
$ 79
$ 247
$ 166


	Three Months Ended June 30,						Nine Months Ended June 30,
	2020		2019		2020		2019
	(Unaudited)
Net income (loss)	$	(34)	$	89	$	249	$	255
Other comprehensive income (loss):
Foreign currency translation adjustments:
Attributable to Meritor, Inc.	10		(6)		(25)		(3)
Attributable to noncontrolling interest	(2)		(1)		(2)		—

Pension and other postretirement benefit related adjustments	3		1		8		2
Unrealized loss on cash flow hedges	—		(2)		(3)		(2)
Other comprehensive income (loss), net of tax	11		(8)		(22)		(3)
Total comprehensive income (loss)	(23)		81		227		252
Less: Comprehensive income attributable to noncontrolling interest	—		(2)		(3)		(7)
Comprehensive income (loss) attributable to Meritor, Inc.	$	(23)	$	79	$	224	$	245

See Notes to Condensed Consolidated Financial Statements.

MERITOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in millions)

March 31,
2020 September 30,
2019
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 508
$ 108
Receivables, trade and other, net 466
551
Inventories 529
526
Other current assets 35
31
TOTAL CURRENT ASSETS 1,538
1,216
NET PROPERTY 509
515
GOODWILL 500
478
OTHER ASSETS 678
606
TOTAL ASSETS $ 3,225
$ 2,815
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term debt $ 138
$ 41
Accounts and notes payable 541
610
Other current liabilities 257
285
TOTAL CURRENT LIABILITIES 936
936
LONG-TERM DEBT 1,203
902
RETIREMENT BENEFITS 315
336
OTHER LIABILITIES 347
226
TOTAL LIABILITIES 2,801
2,400
COMMITMENTS AND CONTINGENCIES (See Note 20)

EQUITY:
Common stock (March 31, 2020 and September 30, 2019, 103.7 and 104.1 shares issued and 72.3 and 81.4 shares outstanding, respectively) 105
104
Additional paid-in capital 803
803
Retained earnings 771
491
Treasury stock, at cost (March 31, 2020 and September 30, 2019, 31.4 and 22.7 shares, respectively) (573 ) (332 )
Accumulated other comprehensive loss (714 ) (681 )
Total equity attributable to Meritor, Inc. 392
385
Noncontrolling interests 32
30
TOTAL EQUITY 424
415
TOTAL LIABILITIES AND EQUITY $ 3,225
$ 2,815


	June 30, 2020		September 30, 2019
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	280	$	108

Receivables, trade and other, net	390		551
Inventories	495		526
Other current assets	35		31
TOTAL CURRENT ASSETS	1,200		1,216
NET PROPERTY	498		515
GOODWILL	503		478
OTHER ASSETS	671		606
TOTAL ASSETS	$	2,872	$	2,815
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term debt	$	34	$	41
Accounts and notes payable	322		610
Other current liabilities	284		285
TOTAL CURRENT LIABILITIES	640		936
LONG-TERM DEBT	1,193		902
RETIREMENT BENEFITS	308		336
OTHER LIABILITIES	328		226
TOTAL LIABILITIES	2,469		2,400
COMMITMENTS AND CONTINGENCIES (See Note 20)

EQUITY:
Common stock (June 30, 2020 and September 30, 2019, 103.7 and 104.1 shares issued and 72.3 and 81.4 shares outstanding, respectively)	105		104
Additional paid-in capital	805		803
Retained earnings	735		491
Treasury stock, at cost (June 30, 2020 and September 30, 2019, 31.4 and 22.7 shares, respectively)	(573)		(332)
Accumulated other comprehensive loss	(701)		(681)
Total equity attributable to Meritor, Inc.	371		385
Noncontrolling interests	32		30
TOTAL EQUITY	403		415
TOTAL LIABILITIES AND EQUITY	$	2,872	$	2,815

See Notes to Condensed Consolidated Financial Statements.

MERITOR, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

Six Months Ended March 31,
2020 2019
(Unaudited)
OPERATING ACTIVITIES
Net income $ 283
$ 166
Less: Income (loss) from discontinued operations, net of tax 1
(1 )
Income from continuing operations 282
167
Adjustments to income from continuing operations to arrive at cash provided by operating activities:
Depreciation and amortization 50
43
Deferred income tax expense (benefit) (4 ) 16
Restructuring costs 15
(1 )
Equity in earnings of affiliates (12 ) (15 )
Pension and retiree medical income (21 ) (19 )
Asbestos related liability remeasurement —
(31 )
Other adjustments to income from continuing operations 1
8
Dividends received from equity method investments —
1
Pension and retiree medical contributions (7 ) (8 )
Restructuring payments (15 ) (1 )
Changes in off-balance sheet accounts receivable securitization and factoring programs 20
22
Changes in receivables, inventories and accounts payable (8 ) (91 )
Changes in other current assets and liabilities (49 ) (33 )
Changes in other assets and liabilities 38
(6 )
Operating cash flows provided by continuing operations 290
52
Operating cash flows used for discontinued operations —
(1 )
CASH PROVIDED BY OPERATING ACTIVITIES 290
51
INVESTING ACTIVITIES
Capital expenditures (33 ) (44 )
Cash paid for acquisition of Transportation Power, Inc., net of cash acquired (13 ) (3 )
Other investing activities 9
—
CASH USED FOR INVESTING ACTIVITIES (37 ) (47 )
FINANCING ACTIVITIES
Securitization 96
48
Borrowings against revolving line of credit 304
—
Redemption of notes —
(19 )
Term loan payments (4 ) —
Other financing activities (1 ) (1 )
Net change in debt 395
28
Repurchase of common stock (241 ) (50 )
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 154
(22 )
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE
RATES ON CASH AND CASH EQUIVALENTS
(7 ) 1
CHANGE IN CASH AND CASH EQUIVALENTS 400
(17 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 108
115
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 508
$ 98


	Nine Months Ended June 30,
	2020		2019
	(Unaudited)
OPERATING ACTIVITIES
Net income	$	249	$	255
Less: Income from discontinued operations, net of tax	1		—
Income from continuing operations	248		255
Adjustments to income from continuing operations to arrive at cash provided by operating activities:
Depreciation and amortization	74		64
Deferred income tax expense (benefit)	(4)		27
Restructuring costs	27		(2)
Asset impairment charges	—		1
Equity in earnings of affiliates	(11)		(24)
Pension and retiree medical income	(31)		(28)
Asbestos related liability remeasurement	—		(31)
Other adjustments to income from continuing operations	3		13
Dividends received from equity method investments	8		14
Pension and retiree medical contributions	(11)		(12)
Restructuring payments	(21)		(2)


Changes in off-balance sheet accounts receivable securitization and factoring programs	(104)		41
Changes in receivables, inventories and accounts payable	11		(96)
Changes in other current assets and liabilities	(26)		(21)
Changes in other assets and liabilities	25		(3)
Operating cash flows provided by continuing operations	188		196
Operating cash flows used for discontinued operations	—		(2)
CASH PROVIDED BY OPERATING ACTIVITIES	188		194
INVESTING ACTIVITIES
Capital expenditures	(45)		(63)





Cash paid for acquisition of Transportation Power, Inc., net of cash acquired	(13)		(6)
Other investing activities	9		17



CASH USED FOR INVESTING ACTIVITIES	(49)		(52)
FINANCING ACTIVITIES
Securitization	(8)		—
Borrowings against revolving line of credit	304		—
Repayments of revolving line of credit	(304)		(46)
Redemption of notes	—		(24)
Proceeds from debt issuances	300		—
Deferred issuance costs	(4)		(4)
Term loan payments	(6)		—
Other financing activities	(1)		(2)
Net change in debt	281		(76)
Repurchase of common stock	(241)		(71)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES	40		(147)
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	(7)		1
CHANGE IN CASH AND CASH EQUIVALENTS	172		(4)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	108		115
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	280	$	111

See Notes to Condensed Consolidated Financial Statements.

MERITOR, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(in millions)

(Unaudited)

Three months ended March 31, 2020
Common
Stock Additional
Paid-in
Capital Retained Earnings Treasury Stock Accumulated
Other
Comprehensive
Loss Total Equity Attributable to
Meritor, Inc. Noncontrolling
Interests Total
Beginning Balance at December 31, 2019 $ 105
$ 804
$ 530
$ (432 ) $ (655 ) $ 352
$ 32
$ 384
Comprehensive income (loss) —
—
241
—
(59 ) 182
1
183
Equity based compensation expense —
(2 ) —
—
—
(2 ) —
(2 )
Repurchase of common stock —
—
—
(141 ) —
(141 ) —
(141 )
Noncontrolling interest dividend —
—
—
—
—
—
(1 ) (1 )
Other equity adjustments —
1
—
—
—
1
—
1
Ending Balance at March 31, 2020 $ 105
$ 803
$ 771
$ (573 ) $ (714 ) $ 392
$ 32
$ 424

Three months ended March 31, 2019
Common
Stock Additional
Paid-in
Capital Retained Earnings Treasury Stock Accumulated
Other
Comprehensive
Loss Total Equity Attributable to
Meritor, Inc. Noncontrolling
Interests Total
Beginning Balance at December 31, 2018 $ 104
$ 790
$ 290
$ (286 ) $ (569 ) $ 329
$ 33
$ 362
Comprehensive income —
—
72
—
7
79
2
81
Equity based compensation expense —
3
—
—
—
3
—
3
Noncontrolling interest dividends —
—
—
—
—
—
(1 ) (1 )
Ending Balance at March 31, 2019 $ 104
$ 793
$ 362
$ (286 ) $ (562 ) $ 411
$ 34
$ 445


	Three months ended June 30, 2020
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Equity Attributable to Meritor, Inc.		Noncontrolling Interests		Total
Beginning Balance at March 31, 2020	$	105	$	803	$	771	$	(573)	$	(714)	$	392	$	32	$	424
Comprehensive income (loss)	—		—		(36)		—		13		(23)		—		(23)
Equity based compensation expense	—		2		—		—		—		2		—		2






Ending Balance at June 30, 2020	$	105	$	805	$	735	$	(573)	$	(701)	$	371	$	32	$	403

	Three months ended June 30, 2019
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Equity Attributable to Meritor, Inc.		Noncontrolling Interests		Total
Beginning Balance at March 31, 2019	$	104	$	793	$	362	$	(286)	$	(562)	$	411	$	34	$	445
Comprehensive income (loss)	—		—		86		—		(7)		79		2		81



Equity based compensation expense	—		5		—		—		—		5		—		5



Repurchase of common stock	—		—		—		(21)		—		(21)		—		(21)


Ending Balance at June 30, 2019	$	104	$	798	$	448	$	(307)	$	(569)	$	474	$	36	$	510

See Notes to Condensed Consolidated Financial Statements.

MERITOR, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(in millions)

(Unaudited)

Six months ended March 31, 2020
Common
Stock Additional
Paid-in
Capital Retained Earnings Treasury Stock Accumulated
Other
Comprehensive
Loss Total Equity Attributable to
Meritor, Inc. Noncontrolling
Interests Total
Beginning Balance at September 30, 2019 $ 104
$ 803
$ 491
$ (332 ) $ (681 ) $ 385
$ 30
$ 415
Comprehensive income (loss) —
—
280
—
(33 ) 247
3
250
Equity based compensation expense —
1
—
—
—
1
—
1
Vesting of equity based awards 1
(1 ) —
—
—
—
—
—
Repurchase of common stock —
—
—
(241 ) —
(241 ) —
(241 )
Noncontrolling interest dividend —
—
—
—
—
—
(1 ) (1 )
Ending Balance at March 31, 2020 $ 105
$ 803
$ 771
$ (573 ) $ (714 ) $ 392
$ 32
$ 424

Six months ended March 31, 2019
Common
Stock Additional
Paid-in
Capital Retained Earnings Treasury Stock Accumulated
Other
Comprehensive
Loss Total Equity Attributable to
Meritor, Inc. Noncontrolling
Interests Total
Beginning Balance at September 30, 2018 $ 102
$ 787
$ 200
$ (236 ) $ (566 ) $ 287
$ 30
$ 317
Comprehensive income —
—
162
—
4
166
5
171
Equity based compensation expense —
8
—
—
—
8
—
8
Vesting of equity based awards 2
(2 ) —
—
—
—
—
—
Repurchase of common stock —
—
—
(50 ) —
(50 ) —
(50 )
Noncontrolling interest dividends —
—
—
—
—
—
(1 ) (1 )
Ending Balance at March 31, 2019 $ 104
$ 793
$ 362
$ (286 ) $ (562 ) $ 411
$ 34
$ 445


	Nine months ended June 30, 2020
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Equity Attributable to Meritor, Inc.		Noncontrolling Interests		Total
Beginning Balance at September 30, 2019	$	104	$	803	$	491	$	(332)	$	(681)	$	385	$	30	$	415
Comprehensive income (loss)	—		—		244		—		(20)		224		3		227
Equity based compensation expense	—		3		—		—		—		3		—		3
Vesting of equity based awards	1		(1)		—		—		—		—		—		—



Repurchase of common stock	—		—		—		(241)		—		(241)		—		(241)
Noncontrolling interest dividend	—		—		—		—		—		—		(1)		(1)

Ending Balance at June 30, 2020	$	105	$	805	$	735	$	(573)	$	(701)	$	371	$	32	$	403

	Nine months ended June 30, 2019
	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Equity Attributable to Meritor, Inc.		Noncontrolling Interests		Total
Beginning Balance at September 30, 2018	$	102	$	787	$	200	$	(236)	$	(566)	$	287	$	30	$	317
Comprehensive income (loss)	—		—		248		—		(3)		245		7		252



Equity based compensation expense	—		13		—		—		—		13		—		13
Vesting of equity based awards	2		(2)		—		—		—		—		—		—


Repurchase of common stock	—		—		—		(71)		—		(71)		—		(71)
Noncontrolling interest dividends	—		—		—		—		—		—		(1)		(1)

Ending Balance at June 30, 2019	$	104	$	798	$	448	$	(307)	$	(569)	$	474	$	36	$	510

See Notes to Condensed Consolidated Financial Statements.

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 Condensed Consolidated Financial Statements are those of the company and its consolidated subsidiaries.

In the opinion of the company, the unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting solely of adjustments of a normal, recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. These statements should be read in conjunction with the company’s audited Consolidated Financial Statements and notes thereto included in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019. The Condensed Consolidated Balance Sheet data as of September 30, 2019 was derived from audited financial statements but does not include all annual disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 are not necessarily indicative of the results for the full year.

The company’s fiscal year ends on the Sunday nearest September 30, and its fiscal quarters generally end on the Sundays nearest December 31, March 31 and June 30. The ~~second~~third quarter of fiscal years 2020 and 2019 ended on ~~March 29,~~June 28, 2020 and ~~March 31,~~June 30, 2019, respectively. Fiscal year 2019 ended on September 29, 2019. All year and quarter references relate to the company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, September 30 and ~~March 31~~June 30 are used consistently throughout this report to represent the fiscal year end and ~~second~~third fiscal quarter end, respectively.

COVID-19 Pandemic Update

In March 2020 the World Health Organization declared a global health pandemic related to the recent outbreak of a novel coronavirus. The COVID-19 pandemic adversely affected the company's financial performance in the second ~~quarter~~and third quarters of fiscal year 2020 and will continue to have an adverse impact for at least the remainder of fiscal year 2020. 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 ~~have~~ temporarily closed select manufacturing locations beginning late in the second quarter of fiscal year 2020, continuing into the third quarter of fiscal year 2020. ~~The~~As of May 31, 2020, all of the company's global facilities were operating limited production. Most of the company’s salaried employees are 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. 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 dilutive common stock options, restricted shares, restricted share units, performance share unit awards and convertible securities, if applicable.

A reconciliation of basic average common shares outstanding to diluted average common shares outstanding is as follows (in millions):


	Three Months Ended June 30,			Nine Months Ended June 30,
	2020	2019	2020	2019
Basic average common shares outstanding	72.1	83.0	74.6	83.7
Impact of restricted shares, restricted share units and performance share units	—	1.7	0.9	2.1


Impact of convertible notes	—	0.9	0.8	0.8
Diluted average common shares outstanding ⁽¹⁾	72.1	85.6	76.3	86.6

Three Months Ended March 31, Six Months Ended March 31,
2020 2019 2020 2019
Basic average common shares outstanding 73.4
83.3
75.8
84.0
Impact of restricted shares, restricted share units and performance share units 1.1
1.5
1.3
1.9
Impact of convertible notes 0.8
0.8
0.9
0.7
Diluted average common shares outstanding 75.3

85.6

78.0

86.6

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

⁽¹⁾ The potential effect of 0.6 million restricted and performance shares and 0.7 million shares issuable upon conversion of our convertibles notes are excluded from the diluted earnings per share calculation for the three months ended June 30, 2020 because inclusion in a loss from continuing operations period would reduce the loss per share from continuing operations attributable to common shareholders.

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 1 share of common stock or its cash

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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.

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~~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 which are all 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.

3. New Accounting Standards

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. (See Note 5)

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 amendments in this update are required to be adopted by public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The company is currently evaluating the potential impact of this guidance on its accounting policies and its Condensed 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. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The company is currently evaluating the potential impact of this guidance on its accounting policies and its Condensed Consolidated Financial Statements.

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Revenue

Disaggregation of revenue

In the following tables, revenue is disaggregated for each of our operating segments by primary geographical market for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 and 2019 (in millions).



	Three Months Ended June 30, 2020
Primary Geographical Market	Commercial Truck		Aftermarket and Industrial		Total
U.S.	$	147	$	149	$	296
Canada	—		12		12
Mexico	17		3		20
Total North America	164		164		328
Sweden	28		—		28
Italy	25		3		28
United Kingdom	15		1		16
Other Europe	2		29		31
Total Europe	70		33		103
Brazil	21		1		22
China	41		1		42
India	5		—		5
Other Asia-Pacific	14		—		14
Total sales	$	315	$	199	$	514



	Three Months Ended June 30, 2019 ⁽¹⁾
Primary Geographical Market	Commercial Truck		Aftermarket and Industrial		Total
U.S.	$	466	$	230	$	696
Canada	—		18		18
Mexico	62		5		67
Total North America	528		253		781
Sweden	75		—		75
Italy	62		4		66
United Kingdom	40		3		43
Other Europe	3		16		19
Total Europe	180		23		203
Brazil	67		—		67
China	44		—		44
India	53		—		53
Other Asia-Pacific	18		—		18
Total sales	$	890	$	276	$	1,166

⁽¹⁾ Amounts for the three months ended June 30, 2019 have been recast to reflect reportable segment changes.

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



	Nine Months Ended June 30, 2020
Primary Geographical Market	Commercial Truck		Aftermarket and Industrial		Total
U.S.	$	782	$	566	$	1,348
Canada	—		41		41
Mexico	95		13		108
Total North America	877		620		1,497
Sweden	153		—		153
Italy	116		10		126
United Kingdom	78		6		84
Other Europe	4		102		106
Total Europe	351		118		469
Brazil	124		2		126
China	101		1		102
India	49		1		50
Other Asia-Pacific	42		—		42
Total sales	$	1,544	$	742	$	2,286


	Three Months Ended March 31, 2020							Nine Months Ended June 30, 2019 ⁽¹⁾
Primary Geographical Market	Commercial Truck		Aftermarket, Industrial and Trailer		Total		Primary Geographical Market	Commercial Truck		Aftermarket and Industrial		Total
U.S.	$	269	$	248	$	517	U.S.	$	1,309	$	653	$	1,962
Canada	—		15		15		Canada	—		53		53
Mexico	36		9		45		Mexico	172		15		187
Total North America	305		272		577		Total North America	1,481		721		2,202
Sweden	63		—		63		Sweden	223		—		223
Italy	46		3		49		Italy	178		13		191
United Kingdom	30		3		33		United Kingdom	126		8		134
Other Europe	1		36		37		Other Europe	9		54		63
Total Europe	140		42		182		Total Europe	536		75		611
Brazil	50		—		50		Brazil	180		—		180
China	26		—		26		China	129		—		129
India	22		—		22		India	172		—		172
Other Asia-Pacific	14		—		14		Other Asia-Pacific	66		—		66
Total sales	$	557	$	314	$	871	Total sales	$	2,564	$	796	$	3,360

⁽¹⁾ Amounts for the nine months ended June 30, 2019 have been recast to reflect reportable segment changes.

Three Months Ended March 31, 2019
Primary Geographical Market Commercial Truck Aftermarket, Industrial and Trailer Total
U.S. $ 413
$ 263
$ 676
Canada —
17
17
Mexico 50
13
63
Total North America 463
293
756
Sweden 74
—
74
Italy 59
5
64
United Kingdom 45
2
47
Other Europe 3
19
22
Total Europe 181
26
207
Brazil 63
—
63
China 44
—
44
India 62
—
62
Other Asia-Pacific 24
—
24
Total sales $ 837
$ 319
$ 1,156

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Six Months Ended March 31, 2020
Primary Geographical Market Commercial Truck Aftermarket, Industrial and Trailer Total
U.S. $ 561
$ 491
$ 1,052
Canada —
29
29
Mexico 70
18
88
Total North America 631
538
1,169
Sweden 125
—
125
Italy 91
7
98
United Kingdom 63
5
68
Other Europe 2
73
75
Total Europe 281
85
366
Brazil 103
1
104
China 60
—
60
India 44
1
45
Other Asia-Pacific 28
—
28
Total sales $ 1,147
$ 625
$ 1,772

Six Months Ended March 31, 2019
Primary Geographical Market Commercial Truck Aftermarket, Industrial and Trailer Total
U.S. $ 763
$ 503
$ 1,266
Canada —
35
35
Mexico 97
23
120
Total North America 860
561
1,421
Sweden 148
—
148
Italy 116
9
125
United Kingdom 86
5
91
Other Europe 6
38
44
Total Europe 356
52
408
Brazil 113
—
113
China 85
—
85
India 119
—
119
Other Asia-Pacific 48
—
48
Total sales $ 1,581
$ 613
$ 2,194

~~Contract balances~~

As of ~~March 31,~~June 30, 2020 and September 30, 2019, Trade receivables, net, which are included in Receivables, trade and other, net, on the Condensed Consolidated Balance Sheet, were ~~$435~~$347 million and $517 million, respectively.

For the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019, the company had no material bad-debt expense. There were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheet as of ~~March 31,~~June 30, 2020 and September 30, 2019.

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. 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 equipment and IT equipment. Operating leases with an initial term of 12 months or less are not recorded on the Condensed 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 three and ~~six~~nine months ended ~~March 31,~~June 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)


	Three Months Ended June 30, 2020		Nine Months Ended June 30, 2020



Finance lease costs	$	1	$	2

Operating lease costs	5		15

Total lease costs	$	6	$	17

Three Months Ended March 31, 2020 Six Months Ended March 31, 2020
Finance lease costs $ —
$ 1
Operating lease costs 5
10
Total lease costs $ 5
$ 11

Commercial Truck
Aftermarket,
Industrial and Trailer
Eliminations Total
Six Months Ended March 31, 2020
External Sales $ 1,147
$ 625
$ —
$ 1,772
Intersegment Sales 63
11
(74 ) —
Total Sales $ 1,210
$ 636
$ (74 ) $ 1,772
Six Months Ended March 31, 2019

External Sales $ 1,581
$ 613
$ —
$ 2,194
Intersegment Sales 74
19
(93 ) —
Total Sales $ 1,655
$ 632
$ (93 ) $ 2,194

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Three Months Ended June 30,						Nine Months Ended June 30,
	2020		2019 ⁽³⁾		2020		2019 ⁽³⁾
Segment adjusted EBITDA:
Commercial Truck	$	(23)	$	97	$	92	$	270
Aftermarket and Industrial	31		50		116		134
Segment adjusted EBITDA	8		147		208		404
Unallocated legacy and corporate expense, net ⁽¹⁾	(1)		(1)		4		—

Interest expense, net	(17)		(14)		(47)		(43)
Benefit (provision) for income taxes	13		(21)		(73)		(69)
Depreciation and amortization	(24)		(21)		(74)		(64)
Noncontrolling interests	(2)		(3)		(5)		(7)
Loss on sale of receivables	(1)		(2)		(3)		(5)
Asset impairment charges	—		(1)		—		(1)
Restructuring	(12)		1		(27)		2
Transaction costs	—		—		(5)		—
Income from WABCO distribution termination	—		—		265		—
Asbestos related liability remeasurement ⁽²⁾	—		—		—		31

Income (loss) from continuing operations attributable to Meritor, Inc.	$	(36)	$	85	$	243	$	248

⁽¹⁾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.

Three Months Ended March 31, Six Months Ended March 31,
2020 2019 2020 2019
Segment adjusted EBITDA:
Commercial Truck $ 55
$ 88
$ 111
$ 165
Aftermarket, Industrial and Trailer 49
52
89
92
Segment adjusted EBITDA 104

140
200
257
Unallocated legacy and corporate expense, net ⁽¹⁾
3
(1 ) 5
1
Interest expense, net (16 ) (15 ) (30 ) (29 )
Provision for income taxes (73 ) (27 ) (86 ) (48 )
Depreciation and amortization (26 ) (21 ) (50 ) (43 )
Noncontrolling interests (1 ) (2 ) (3 ) (4 )
Loss on sale of receivables (1 ) (2 ) (2 ) (3 )
Restructuring (10 ) 1
(15 ) 1
Transaction costs (5 ) —
(5 ) —
Income from WABCO distribution termination 265
—
265
—
Asbestos related liability remeasurement ⁽²⁾
—
—
—
31
Income from continuing operations attributable to Meritor, Inc. $ 240

$ 73
$ 279
$ 163
⁽²⁾ The nine months ended June 30, 2019 includes $31 million related to the remeasurement of the Maremont asbestos liability based on the Maremont prepackaged plan of reorganization.

⁽³⁾Amounts for the three and nine months ended June 30, 2019 have been recast to reflect reportable segment changes.


	June 30, 2020		September 30, 2019 ⁽³⁾
Segment Assets:
Commercial Truck	$	1,579	$	1,745
Aftermarket and Industrial	658		729


Total segment assets	2,237		2,474
Corporate ⁽¹⁾	761		567
Less: Accounts receivable sold under off-balance sheet factoring programs ⁽²⁾	(126)		(226)
Total assets	$	2,872	$	2,815


⁽¹⁾	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.


⁽²⁾	~~The six months ended March 31, 2019 includes $31 million related to the remeasurement of the Maremont asbestos liability based on the Maremont prepackaged plan of reorganization.~~

March 31,
2020 September 30,
2019
Segment Assets:
Commercial Truck $ 1,682
$ 1,659
Aftermarket, Industrial and Trailer 810
815
Total segment assets 2,492
2,474
Corporate ⁽¹⁾
977
567
Less: Accounts receivable sold under off-balance sheet factoring programs ⁽²⁾
(244 ) (226 )
Total assets $ 3,225
$ 2,815

⁽¹⁾


⁽¹⁾	Corporate assets consist primarily of cash, deferred income taxes and prepaid pension costs.


⁽²⁾	At March 31, 2020 and September 30, 2019, segment assets include $244 million and $226 million, respectively, of accounts receivable sold under off-balance sheet accounts receivable factoring programs (see Note 10). These sold receivables are included in segment assets as the CODM reviews segment assets inclusive of these balances.

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~23. Supplemental Guarantor Condensed Consolidating Financial Statements~~

Rule 3-10 of Regulation S-X requires that separate financial information for issuers and guarantors of registered securities be filed in certain circumstances. Certain of the company's 100-percent-owned subsidiaries, as defined in the credit agreement (the "Guarantors"), irrevocably and unconditionally guarantee amounts outstanding under the senior secured revolving credit facility on a joint and several basis. Similar subsidiary guarantees were provided for the benefit of the holders of the notes outstanding under the company's indentures (see Note 17).

In lieu of providing separate audited financial statements for Meritor, Inc. (the "Parent") and Guarantors, the company has included the accompanying condensed consolidating financial statements as permitted by Regulation S-X Rules 3-10. These condensed consolidating financial statements are presented on the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Parent's share of the subsidiary's cumulative results of operations, capital contributions and distribution and other equity changes. The Guarantors are combined in the condensed consolidating financial statements.

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(In millions)~~

~~(Unaudited)~~

Three Months Ended March 31, 2020
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Sales
External $ —
$ 515
$ 356
$ —
$ 871
Subsidiaries —
21
27
(48 ) —
Total sales —
536
383
(48 ) 871
Cost of sales (11 ) (461 ) (333 ) 48
(757 )
GROSS PROFIT (11 ) 75
50
—
114
Selling, general and administrative (9 ) (33 ) (17 ) —
(59 )
Income from WABCO distribution termination 265
—
—
—
265
Other operating expense, net (1 ) (6 ) (3 ) —
(10 )
OPERATING INCOME 244
36
30
—
310
Other income (expense), net 44
(9 ) (21 ) —
14
Equity in earnings of affiliates —
5
1
—
6
Interest income (expense), net (31 ) 9
6
—
(16 )
INCOME BEFORE INCOME TAXES 257
41
16
—
314
Provision for income taxes (58 ) (11 ) (4 ) —
(73 )
Equity income from continuing operations of subsidiaries 41
2
—
(43 ) —
INCOME FROM CONTINUING OPERATIONS 240
32
12
(43 ) 241
INCOME FROM DISCONTINUED OPERATIONS, net of tax 1
1
1
(2 ) 1
NET INCOME 241
33
13
(45 ) 242
Less: Net income attributable to noncontrolling interests —
—
(1 ) —
(1 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 241
$ 33
$ 12
$ (45 ) $ 241

⁽²⁾

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)~~

~~(In millions)~~

~~(Unaudited)~~

Three Months Ended March 31, 2020
Parent Guarantors Non-
Guarantors Elims Consolidated
Net income $ 241
$ 33
$ 13
$ (45 ) $ 242
Other comprehensive loss, net of tax (59 ) (70 ) (71 ) 141
(59 )
Total comprehensive income (loss) 182
(37 ) (58 ) 96
183
Less: Comprehensive income attributable to
noncontrolling interests —
—
(1 ) —
(1 )
Comprehensive income (loss) attributable to Meritor, Inc. $ 182
$ (37 ) $ (59 ) $ 96
$ 182

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(In millions)~~

~~(Unaudited)~~

Three Months Ended March 31, 2019
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Sales
External $ —
$ 677
$ 479
$ —
$ 1,156
Subsidiaries —
28
51
(79 ) —
Total sales —
705
530
(79 ) 1,156
Cost of sales (16 ) (590 ) (455 ) 79
(982 )
GROSS PROFIT (16 ) 115
75
—
174
Selling, general and administrative (28 ) (30 ) (15 ) —
(73 )
Other operating income, net —
—
1
—
1
OPERATING INCOME (LOSS) (44 ) 85
61
—
102
Other income (expense), net 50
(14 ) (27 ) —
9
Equity in earnings of affiliates —
3
3
—
6
Interest income (expense), net (33 ) 12
6
—
(15 )
INCOME (LOSS) BEFORE INCOME TAXES (27 ) 86
43
—
102
Benefit (provision) for income taxes 20
(22 ) (25 ) —
(27 )
Equity income from continuing operations of subsidiaries 80
9
—
(89 ) —
INCOME FROM CONTINUING OPERATIONS 73
73
18
(89 ) 75
LOSS FROM DISCONTINUED OPERATIONS, net of tax (1 ) —
—
—
(1 )
NET INCOME 72
73
18
(89 ) 74
Less: Net income attributable to noncontrolling interests —
—
(2 ) —
(2 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 72
$ 73
$ 16
$ (89 ) $ 72

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)~~

~~(In millions)~~

~~(Unaudited)~~

Three Months Ended March 31, 2019
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Net income $ 72
$ 73
$ 18
$ (89 ) $ 74
Other comprehensive income, net of tax 7
1
1
(2 ) 7
Total comprehensive income 79
74
19
(91 ) 81
Less: Comprehensive income attributable to noncontrolling interests —
—
(2 ) —
(2 )
Comprehensive income attributable to Meritor, Inc. $ 79
$ 74
$ 17
$ (91 ) $ 79

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(In millions)~~

~~(Unaudited)~~

Six Months Ended March 31, 2020
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Sales
External $ —
$ 1,050
$ 722
$ —
$ 1,772
Subsidiaries —
44
62
(106 ) —
Total sales —
1,094
784
(106 ) 1,772
Cost of sales (27 ) (930 ) (680 ) 106
(1,531 )
GROSS PROFIT (27 ) 164
104
—
241
Selling, general and administrative (33 ) (62 ) (34 ) —
(129 )
Income from WABCO distribution termination 265
—
—
—
265
Other operating expense, net (1 ) (6 ) (8 ) —
(15 )
OPERATING INCOME 204
96
62
—
362
Other income (expense), net 44
(2 ) (18 ) —
24
Equity in earnings of affiliates —
9
3
—
12
Interest income (expense), net (62 ) 20
12
—
(30 )
INCOME BEFORE INCOME TAXES 186
123
59
—
368
Provision for income taxes (46 ) (26 ) (14 ) —
(86 )
Equity income from continuing operations of subsidiaries 139
30
—
(169 ) —
INCOME FROM CONTINUING OPERATIONS 279
127
45
(169 ) 282
INCOME FROM DISCONTINUED OPERATIONS, net of tax 1
1
1
(2 ) 1
NET INCOME 280
128
46
(171 ) 283
Less: Net income attributable to noncontrolling interests ��
—
(3 ) —
(3 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 280
$ 128
$ 43
$ (171 ) $ 280

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)~~

~~(In millions)~~

~~(Unaudited)~~

Six Months Ended March 31, 2020
Parent Guarantors Non-
Guarantors Elims Consolidated
Net income $ 280
$ 128
$ 46
$ (171 ) $ 283
Other comprehensive loss, net of tax (33 ) (40 ) (39 ) 79
(33 )
Total comprehensive income 247
88
7
(92 ) 250
Less: Comprehensive income attributable to
noncontrolling interests —
—
(3 ) —
(3 )
Comprehensive income attributable to Meritor, Inc. $ 247
$ 88
$ 4
$ (92 ) $ 247

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(In millions)~~

~~(Unaudited)~~

Six Months Ended March 31, 2019
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Sales
External $ —
$ 1,266
$ 928
$ —
$ 2,194
Subsidiaries —
60
108
(168 ) —
Total sales —
1,326
1,036
(168 ) 2,194
Cost of sales (31 ) (1,124 ) (892 ) 168
(1,879 )
GROSS PROFIT (31 ) 202
144
—
315
Selling, general and administrative (53 ) (57 ) 3
—
(107 )
Other operating income, net —
—
1
—
1
OPERATING INCOME (LOSS) (84 ) 145
148
—
209
Other income (expense), net 50
(9 ) (21 ) —
20
Equity in earnings of affiliates —
10
5
—
15
Interest income (expense), net (65 ) 24
12
—
(29 )
INCOME (LOSS) BEFORE INCOME TAXES (99 ) 170
144
—
215
Benefit (provision) for income taxes 31
(34 ) (45 ) —
(48 )
Equity income from continuing operations of subsidiaries 231
49
—
(280 ) —
INCOME FROM CONTINUING OPERATIONS 163
185
99
(280 ) 167
LOSS FROM DISCONTINUED OPERATIONS, net of tax (1 ) —
—
—
(1 )
NET INCOME 162
185
99
(280 ) 166
Less: Net income attributable to noncontrolling interests —
—
(4 ) —
(4 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 162
$ 185
$ 95
$ (280 ) $ 162

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)~~

~~(In millions)~~

~~(Unaudited)~~

Six Months Ended March 31, 2019
Parent Guarantors Non-
Guarantors Elims Consolidated
Net income $ 162
$ 185
$ 99
$ (280 ) $ 166
Other comprehensive income (loss), net of tax 4
(7 ) (8 ) 16
5
Total comprehensive income 166
178
91
(264 ) 171
Less: Comprehensive income attributable to
noncontrolling interests —
—
(5 ) —
(5 )
Comprehensive income attributable to Meritor, Inc. $ 166
$ 178
$ 86
$ (264 ) $ 166

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING BALANCE SHEET~~

~~(In millions)~~

~~(Unaudited)~~

March 31, 2020
Parent Guarantors
Non-
Guarantors
Elims Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 351
$ 4
$ 153
$ —
$ 508
Receivables trade and other, net —
78
388
—
466
Inventories —
297
232
—
529
Other current assets 6
10
19
—
35
TOTAL CURRENT ASSETS 357
389
792
—
1,538
NET PROPERTY 21
265
223
—
509
GOODWILL —
360
140
—
500
OTHER ASSETS 177
239
262
—
678
INVESTMENTS IN SUBSIDIARIES 4,531
888
—
(5,419 ) —
TOTAL ASSETS $ 5,086
$ 2,141
$ 1,417
$ (5,419 ) $ 3,225
CURRENT LIABILITIES:
Short-term debt $ 33
$ —
$ 105
$ —
$ 138
Accounts and notes payable 50
226
265
—
541
Other current liabilities 68
90
99
—
257
TOTAL CURRENT LIABILITIES 151
316
469
—
936
LONG-TERM DEBT 1,200
—
3
—
1,203
RETIREMENT BENEFITS 291
1
23
—
315
INTERCOMPANY PAYABLE (RECEIVABLE) 2,932
(3,030 ) 98
—
—
OTHER LIABILITIES 120
124
103
—
347
EQUITY ATTRIBUTABLE TO MERITOR, INC. 392
4,730
689
(5,419 ) 392
NONCONTROLLING INTERESTS —
—
32
—
32
TOTAL LIABILITIES AND EQUITY $ 5,086
$ 2,141
$ 1,417
$ (5,419 ) $ 3,225

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING BALANCE SHEET~~

~~(In millions)~~

~~(Unaudited)~~

September 30, 2019
Parent Guarantors
Non-
Guarantors
Elims Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 4
$ 4
$ 100
$ —
$ 108
Receivables trade and other, net 3
92
456
—
551
Inventories —
292
234
—
526
Other current assets 6
10
15
—
31
TOTAL CURRENT ASSETS 13
398
805
—
1,216
NET PROPERTY 21
260
234
—
515
GOODWILL —
337
141
—
478
OTHER ASSETS 170
225
211
—
606
INVESTMENTS IN SUBSIDIARIES 4,432
899
—
(5,331 ) —
TOTAL ASSETS $ 4,636
$ 2,119
$ 1,391
$ (5,331 ) $ 2,815
CURRENT LIABILITIES:
Short-term debt $ 32
$ —
$ 9
$ —
$ 41
Accounts and notes payable 53
283
274
—
610
Other current liabilities 77
109
99
—
285
TOTAL CURRENT LIABILITIES 162
392
382
—
936
LONG-TERM DEBT 898
—
4
—
902
RETIREMENT BENEFITS 312
1
23
—
336
INTERCOMPANY PAYABLE (RECEIVABLE) 2,833
(3,005 ) 172
—
—
OTHER LIABILITIES 46
112
68
—
226
EQUITY ATTRIBUTABLE TO MERITOR, INC. 385
4,619
712
(5,331 ) 385
NONCONTROLLING INTERESTS —
—
30
—
30
TOTAL LIABILITIES AND EQUITY $ 4,636
$ 2,119
$ 1,391
$ (5,331 ) $ 2,815

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~(In millions)~~

~~(Unaudited)~~

Six Months Ended March 31, 2020
Parent Guarantors
Non-
Guarantors
Elims Consolidated
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES $ 370
$ 17
$ (97 ) $ —
$ 290
INVESTING ACTIVITIES
Capital expenditures (1 ) (17 ) (15 ) —
(33 )
Cash paid for acquisition of TransPower, net of cash acquired (13 ) —
—
—
(13 )
Other investing activities 9
—
—
9
CASH USED FOR INVESTING ACTIVITIES (5 ) (17 ) (15 ) —
(37 )
FINANCING ACTIVITIES
Securitization —
—
96
—
96
Borrowings against revolving line of credit 304
—
—
—
304
Term loan payments (4 ) —
—
—
(4 )
Repurchase of common stock (241 ) —
—
—
(241 )
Intercompany advances (76 ) —
76
—
—
Other financing activities (1 ) —
—
—
(1 )
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (18 ) —
172
—
154
EFFECT OF CHANGES IN FOREIGN CURRENCY
       EXCHANGE RATES ON CASH AND CASH
       EQUIVALENTS
—
—
(7 ) —
(7 )
CHANGE IN CASH AND CASH EQUIVALENTS 347
—
53
—
400
CASH AND CASH EQUIVALENTS AT BEGINNING
       OF PERIOD
4
4
100
—
108
CASH AND CASH EQUIVALENTS AT END OF
       PERIOD
$ 351
$ 4
$ 153
$ —
$ 508

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~(In millions)~~

~~(Unaudited)~~

Six Months Ended March 31, 2019
Parent Guarantors
Non-
Guarantors
Elims Consolidated
CASH PROVIDED BY (USED FOR)
       OPERATING ACTIVITIES
$ 32
$ 23
$ (4 ) $ —
$ 51
INVESTING ACTIVITIES
Capital expenditures (2 ) (23 ) (19 ) —
(44 )
Cash paid for investment in TransPower (3 ) —
—
—
(3 )
CASH USED FOR INVESTING ACTIVITIES (5 ) (23 ) (19 ) —
(47 )
FINANCING ACTIVITIES
Securitization —
—
48
—
48
Redemption of notes (19 ) —
—
—
(19 )
Repurchase of common stock (50 ) —
—
—
(50 )
Intercompany advances 29
—
(29 ) —
—
Other financing activities —
(1 ) —
—
(1 )
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (40 ) (1 ) 19
—
(22 )
EFFECT OF CHANGES IN FOREIGN CURRENCY
       EXCHANGE RATES ON CASH AND CASH
       EQUIVALENTS
—
—
1
—
1
CHANGE IN CASH AND CASH EQUIVALENTS (13 ) (1 ) (3 ) —
(17 )
CASH AND CASH EQUIVALENTS AT BEGINNING
       OF PERIOD
24
6
85
—
115
CASH AND CASH EQUIVALENTS AT END OF
       PERIOD
$ 11
$ 5
$ 82
$ —
$ 98

~~Basis of Presentation~~

Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. As of March 31, At June 30, 2020 and September 30, 2019, ~~Parent-only obligations included $295~~segment assets include $126 million and ~~$315~~$226 million, respectively, of ~~pension and retiree medical benefits, respectively~~accounts receivable sold under off-balance sheet accounts receivable factoring programs (see Note ~~19)~~10). ~~All debt is debt~~These sold receivables are included in segment assets as the CODM reviews segment assets inclusive of ~~the Parent other than $108 million and $13 million at March 31, 2020 and~~these balances.

⁽³⁾ Amounts as of September 30, 2019 ~~respectively (see Note 17), which is primarily related~~have been recast to ~~U.S. accounts receivable securitization and financing lease obligations. There were $23 million cash dividends paid to~~reflect reportable segment changes, including the ~~Parent by subsidiaries and investments accounted for by the equity method for the six months ended March 31, 2020. There were $29 million~~reallocation of ~~cash dividends paid to the Parent by subsidiaries and investments accounted for by the equity method for the six months ended March 31, 2019.~~

goodwill..

MERITOR, INC.

Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations

OVERVIEW

Meritor, Inc. (the "company," "our," "we" 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. 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 recent outbreak of a novel coronavirus. The COVID-19 pandemic adversely affected our financial performance in the second ~~quarter~~and third quarters of fiscal year 2020 and will continue to have an adverse impact for at least the remainder of fiscal year 2020. 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 ~~have~~ temporarily closed select manufacturing locations beginning late in the second quarter of fiscal year 2020, continuing into the third quarter of fiscal year 2020. ~~Our~~As of May 31, 2020, all of our global facilities were operating limited production. Most of our salaried employees are 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 ~~have~~ established and ~~began execution of~~executed a “Safe Start” plan for the reopening of plants, ~~in addition to~~ test labs, distribution centers and administrative facilities. We ~~will~~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 are complying with 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 beginning late in the second quarter of fiscal year 2020 and continuing into the third quarter of fiscal year 2020. ~~A majority~~All of our operations ~~in North America and Europe~~ are now running limited ~~production, with expectations that facilities in India and South America will restart in early May.~~production. Our operations in China were temporarily suspended in mid-January and resumed production in mid-February and are now fully operational.

~~However, as~~As we also serve the transportation, industrial and defense industries, we ~~will continue~~also continued to ~~help~~ 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 ~~throughout March and April~~ 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. We will continue to monitor government and other mandates to understand the potential impact on our operations in other areas.

Cost Reductions

~~We have~~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, ~~and~~ 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 June 16, 2020. ~~Additionally, we~~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 eight-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 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 first quarter of fiscal year 2021. We will continue to evaluate further cost reduction measures as the impact of the COVID-19 pandemic becomes clearer. ~~We lowered~~

MERITOR, INC.

Special Incentive Plan

On June 10, 2020, we approved a special incentive plan to better align the compensation of our ~~incentive compensation accrual to align~~employees with the ~~revised performance expectations~~strategic goals of the company for the ~~year.~~remainder of fiscal year 2020 given the impacts of the ongoing COVID-19 pandemic. Awards under the special incentive plan are also designed to give employees an opportunity, if certain performance targets are met, to recoup lost salary stemming from the base pay reductions instituted by us in response to the pandemic, which are expected to remain partially reduced through at least the end of fiscal year 2020. The special incentive plan targets are based on liquidity and cost reduction targets.

~~2nd~~3rd Quarter Fiscal Year 2020 Results

Our sales for the ~~second~~third quarter of fiscal year 2020 were ~~$871~~$514 million, compared to $1,166 million in the same period in the prior fiscal year, a decrease of 56 percent year over year. The decrease in sales was primarily due to lower market volumes driven by decreased customer demand and government mandates as a result of the COVID-19 pandemic. The majority of the company's manufacturing facilities were idled during the month of April with production increasing throughout the remainder of the quarter.

Net loss attributable to Meritor for the third quarter of fiscal year 2020 was $36 million compared to ~~$1,156~~net income attributable to Meritor of $86 million in the same period in the prior fiscal year. ~~The decrease in sales was driven by lower global production volumes, including changes in customer~~

~~MERITOR, INC.~~

~~demand and the impact of government mandates as a result of COVID-19, partially offset by sales from our AxleTech business, which we acquired in the fourth quarter of fiscal year 2019.~~

~~Net income attributable to Meritor for the second quarter of fiscal year 2020 was $241 million compared to $72 million in the same period in the prior fiscal year. Higher~~Lower net income year over year was driven primarily by ~~$203 million~~lower revenues as a result significantly lower market volumes due to the COVID-19 pandemic, as well as higher restructuring costs related to programs announced in June 2020. During the quarter, certain actions were executed in order to decrease the impact of ~~after tax income associated with~~ the ~~termination of our distribution arrangement with WABCO Holdings, Inc. ("WABCO").~~significantly lower production levels. These actions included temporary salary reductions, employee headcount reductions, hourly employee layoffs and other discretionary spend reductions.

Adjusted EBITDA (see Non-GAAP Financial Measures below) for the ~~second~~third quarter of fiscal year 2020 was ~~$107~~$7 million compared to ~~$139~~$146 million in the same period in the prior fiscal year. Our adjusted EBITDA margin (see Non-GAAP Financial Measures below) in the ~~second~~third quarter of fiscal year 2020 was ~~12.3~~1.4 percent compared to ~~12.0~~12.5 percent in the same period in the prior fiscal year. The decrease in adjusted EBITDA year over year was driven primarily by lower ~~revenue, partially offset by~~revenues as a result of lower ~~incentive compensation costs and lower material, labor and burden costs. Incentive compensation was reduced $10 million in the quarter to align with revised performance expectations~~market volumes due to the COVID-19 pandemic. ~~We also recognized a $4 million benefit resulting~~Cost reduction actions executed in the quarter partially offset the impact from ~~a tax law change in India.~~lower revenue.

Net ~~income~~loss from continuing operations attributable to the company for the ~~second~~third quarter of fiscal year 2020 was ~~$240~~$36 million compared to ~~$73~~net income from continuing operations attributable to the company of $85 million in the same period in the prior fiscal year. Adjusted ~~income~~loss from continuing operations attributable to the company (see Non-GAAP Financial Measures below) for the ~~second~~third quarter of fiscal year 2020 was~~$56~~ $34 million compared to ~~$88~~adjusted income from continuing operations attributable to the company of $103 million in the same period in the prior fiscal year.

Cash ~~provided by~~used for operating activities was ~~$309~~$102 million in the ~~second~~third quarter of fiscal year 2020 compared to ~~$40~~cash provided by operating activities of $143 million in the ~~second~~third quarter of fiscal year 2019. The ~~increase~~decrease in operating cash ~~provided by operating activities~~flow year on year was driven primarily by ~~$265~~lower revenues as a result of significantly lower market volumes due to the impact of the COVID-19 pandemic. Of the total decline in operating cash flow, $124 million of ~~cash received from~~ the ~~termination~~reduction was due to the impact of accounts receivable factoring as a result of lower balances available under the factoring programs.

Reportable Segment Changes

On May 4, 2020, we realigned our operations resulting in a change to our operating and reportable segments. As of the ~~distribution arrangement with WABCO.~~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.

~~Equity Repurchase Authorization~~Capital Markets Transactions

InDuring the ~~second~~third quarter of fiscal year 2020, we ~~repurchased 5.6~~issued $300 million ~~shares~~ of ~~our common stock for $141 million (including commission costs) pursuant to~~6.25 percent unsecured senior notes due 2025 (the "2025 Notes"). Net proceeds from the ~~November 2019 equity repurchase authorization described in the~~ ~~Liquidity~~ ~~section below. The amount remaining available for repurchases under that repurchase authorization was $59 million as of March 31, 2020.~~

~~WABCO Distribution Arrangement~~

~~On March 13, 2020, we exercised our option to terminate our aftermarket distribution arrangement with WABCO. We received $265 million from WABCO in connection with the termination~~offering of the ~~arrangement.~~notes, as well as cash on hand, were used to repay the outstanding $304 million balance under our senior secured credit facility.

MERITOR, INC.

Trends and Uncertainties

Industry Production Volumes

The following table reflects estimated on-highway commercial truck production volumes for selected original equipment markets for the three months ended ~~March 31,~~June 30, 2020 and 2019 based on available sources and management’s estimates.


	Three Months Ended June 30,				Percent	Nine Months Ended June 30,			Percent
	2020	2019	Change		2020	2019	Change
Estimated Commercial Truck production (in thousands):
North America, Heavy-Duty Trucks	28	96	(71)	%	159	269	(41)	%
North America, Medium-Duty Trucks	37	78	(53)	%	157	213	(26)	%
North America, Trailers	45	86	(48)	%	180	251	(28)	%
Western Europe, Heavy- and Medium-Duty Trucks	44	122	(64)	%	241	379	(36)	%
South America, Heavy- and Medium-Duty Trucks	19	28	(32)	%	71	78	(9)	%
India, Heavy- and Medium-Duty Trucks	7	93	(92)	%	98	326	(70)	%

The third quarter of fiscal year 2020 was significantly impacted by production shut-downs attributable to the COVID-19 pandemic. We expect production volumes to increase in the fourth quarter of fiscal year 2020 in comparison with the third quarter of fiscal 2020. However, volumes in the fourth quarter of fiscal year 2020 are expected to be significantly lower than those experienced in fiscal year 2019.

Three Months Ended March 31, Percent Six Months Ended March 31, Percent
2020 2019 Change 2020 2019 Change
Estimated Commercial Truck production (in thousands):
North America, Heavy-Duty Trucks 61
89
(31 )% 130
173
(25 )%
North America, Medium-Duty Trucks 60
70
(14 )% 120
135
(11 )%
North America, Trailers 55
78
(29 )% 135
165
(18 )%
Western Europe, Heavy- and Medium-Duty Trucks 88
127
(31 )% 197
257
(23 )%
South America, Heavy- and Medium-Duty Trucks 22
23
(4 )% 52
50
4 %
India, Heavy- and Medium-Duty Trucks 66
118
(44 )% 114
233
(51 )%

North America:

During fiscal year 2020, we expect production volumes to significantly decrease from the levels experienced in fiscal year

2019.

~~MERITOR, INC.~~

Western Europe:

During fiscal year 2020, we expect production volumes in Western Europe to significantly decrease from the levels experienced

in fiscal year 2019.

South America:

During fiscal year 2020, we expect production volumes to decrease from the levels experienced in fiscal year 2019.

China:

During fiscal year 2020, we expect production volumes to ~~decrease~~slightly increase from the levels experienced in fiscal year 2019.

India:

During fiscal year 2020, we expect production volumes to significantly decrease from the levels experienced in fiscal year 2019.

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

MERITOR, INC.

•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).

~~MERITOR, INC.~~

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 related to 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.

MERITOR, INC.

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 of 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 an alternative to net income as an indicator of our financial performance. Free cash flow should not be considered a substitute for cash provided by (used for) operating activities, or other cash flow statement data prepared in accordance with GAAP, or as a measure of financial position or liquidity. In addition, this non-GAAP cash flow measure does not reflect cash used to repay debt or cash received from the divestitures of businesses or sales of other assets and thus does not reflect funds available for investment or other discretionary uses. 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.

~~MERITOR, INC.~~

Adjusted income (loss) from continuing operations attributable to the company and adjusted diluted earnings (loss) per share from continuing operations are reconciled to Income (loss) from continuing operations attributable to the company and Diluted earnings (loss) per share from continuing operations below (in millions, except per share amounts).


	Three Months Ended June 30,						Nine Months Ended June 30,
	2020		2019		2020		2019
Income (loss) from continuing operations attributable to the company	$	(36)	$	85	$	243	$	248


Restructuring	12		(1)		27		(2)
Asset impairment charges, net of noncontrolling interests	—		1		—		1
Non-cash tax expense (benefit) ⁽¹⁾	(8)		20		9		47
U.S. tax reform impacts ⁽²⁾	—		(2)		—		(9)
Asbestos related liability remeasurement ⁽³⁾	—		—		—		(31)
Income from WABCO distribution termination	—		—		(265)		—
Income tax expense (benefit) ⁽⁴⁾	(2)		—		55		6
Transaction costs ⁽⁵⁾	—		—		5		—
Adjusted income (loss) from continuing operations attributable to the company	$	(34)	$	103	$	74	$	260

Diluted earnings (loss) per share from continuing operations	$	(0.50)	$	0.99	$	3.19	$	2.86
Impact of adjustments on diluted earnings per share	0.03		0.21		(2.22)		0.14
Adjusted diluted earnings (loss) per share from continuing operations	$	(0.47)	$	1.20	$	0.97	$	3.00

MERITOR, INC.

Three Months Ended March 31, Six Months Ended March 31,
2020 2019 2020 2019
Income from continuing operations attributable to the company $ 240
$ 73
$ 279
$ 163
Restructuring 10
(1 ) 15
(1 )
Non-cash tax expense ⁽¹⁾
8
16
17
27
U.S. tax reform impacts ⁽²⁾
—
—
—
(7 )
Asbestos related liability remeasurement ⁽³⁾
—
—
—
(31 )
Income from WABCO distribution termination (265 ) —
(265 ) —
Income tax expense ⁽⁴⁾
58
—
57
6
Transaction costs ⁽⁵⁾
5
—
5
—
Adjusted income from continuing operations attributable to the company $ 56
$ 88
$ 108
$ 157

Diluted earnings per share from continuing operations $ 3.19
$ 0.85
$ 3.58
$ 1.88
Impact of adjustments on diluted earnings per share (2.45 ) 0.18
(2.20 ) (0.07 )
Adjusted diluted earnings per share from continuing operations $ 0.74
$ 1.03
$ 1.38
$ 1.81

⁽¹⁾ Represents tax expense (benefit) related to the use of deferred tax assets in jurisdictions with net operating loss carry forwards or tax credits.

⁽²⁾The ~~six~~nine months ended ~~March 31,~~June 30, 2019 includes ~~$11~~$12 million of non-cash tax benefit related to the one time deemed repatriation of accumulated foreign earnings and $4$3 million of non-cash tax expense related to other adjustments.

⁽³⁾The ~~six~~nine months ended ~~March 31,~~June 30, 2019 includes $31 million related to the remeasurement of the Maremont net asbestos liability based on the Maremont prepackaged plan of reorganization.

⁽⁴⁾The three months ended ~~March 31,~~June 30, 2020 includes $2 million of income tax benefits related to restructuring. The nine months ended June 30, 2020 includes $62 million of income tax expense related to the WABCO distribution arrangement termination, $3$6 million of income tax benefits related to restructuring and $1 million of income tax benefits related to AxleTech transaction costs. The ~~six~~nine months ended March 31, 2020 includes $62 million of income tax expense related to the WABCO distribution arrangement termination, $4 million of income tax benefits related to restructuring and $1 million of income tax benefits related to AxleTech transaction costs. The six months ended March 31,June 30, 2019 includes $6 million of income tax expense related to the remeasurement of the Maremont net asbestos liability based on the Maremont prepackaged plan of reorganization.

⁽⁵⁾Represents transaction fees and inventory step-up amortization related to the acquisitions of AxleTech and TransPower.

Free cash flow is reconciled to cash provided by operating activities below (in millions).


	Three Months Ended June 30,								Nine Months Ended June 30,
	2020		2019			2020			2019
Cash provided by (used for) operating activities	$	(102)	$	143		$	188		$	194
Capital expenditures	(12)		(19)			(45)			(63)
Free cash flow	$	(114)	$	124		$	143		$	131

Free cash flow conversion⁽¹⁾	N/A		120		%	193		%	50		%

Three Months Ended March 31, Six Months Ended March 31,
2020 2019 2020 2019
Cash provided by operating activities $ 309
$ 40
$ 290
$ 51
Capital expenditures (17 ) (21 ) (33 ) (44 )
Free cash flow $ 292
$ 19
$ 257
$ 7

Free cash flow conversion⁽¹⁾
521 % 22 % 238 % 4 %

⁽¹⁾ Represents free cash flow divided by adjusted income from continuing operations.

MERITOR, INC.

Adjusted EBITDA and segment adjusted EBITDA are reconciled to net income (loss) attributable to Meritor, Inc. below (dollars in millions).


	Three Months Ended June 30,									Nine Months Ended June 30,
	2020			2019			2020			2019

Net income (loss) attributable to Meritor, Inc.	$	(36)		$	86		$	244		$	248
Loss (income) from discontinued operations, net of tax, attributable to Meritor, Inc.	—			(1)			(1)			—
Income (loss) from continuing operations, net of tax, attributable to Meritor, Inc.	$	(36)		$	85		$	243		$	248

Interest expense, net	17			14			47			43
Provision (benefit) for income taxes	(13)			21			73			69
Depreciation and amortization	24			21			74			64
Noncontrolling interests	2			3			5			7
Loss on sale of receivables	1			2			3			5
Asset impairment charges	—			1			—			1
Asbestos related liability remeasurement	—			—			—			(31)
Restructuring	12			(1)			27			(2)
Transaction costs	—			—			5			—
Income from WABCO distribution termination	—			—			(265)			—
Adjusted EBITDA	$	7		$	146		$	212		$	404

Adjusted EBITDA margin ⁽¹⁾	1.4		%	12.5		%	9.3		%	12.0		%

Unallocated legacy and corporate expense (income), net ⁽²⁾	1			1			(4)			—
Segment adjusted EBITDA	$	8		$	147		$	208		$	404

Commercial Truck ⁽³⁾
Segment adjusted EBITDA	$	(23)		$	97		$	92		$	270
Segment adjusted EBITDA margin ⁽⁴⁾	(6.8)		%	10.5		%	5.6		%	10.1		%

Aftermarket and Industrial ⁽³⁾
Segment adjusted EBITDA	$	31		$	50		116			$	134
Segment adjusted EBITDA margin⁽⁴⁾	15.3		%	17.7		%	15.4		%	16.5		%

Three Months Ended March 31, Six Months Ended March 31,
2020 2019 2020 2019
Net income attributable to Meritor, Inc. $ 241
$ 72
$ 280
$ 162
Loss (income) from discontinued operations, net of tax, attributable to Meritor, Inc. (1 ) 1
(1 ) 1
Income from continuing operations, net of tax, attributable to Meritor, Inc. $ 240
$ 73
$ 279
$ 163

Interest expense, net 16
15
30
29
Provision for income taxes 73
27
86
48
Depreciation and amortization 26
21
50
43
Noncontrolling interests 1
2
3
4
Loss on sale of receivables 1
2
2
3
Asbestos related liability remeasurement —
—
—
(31 )
Restructuring 10
(1 ) 15
(1 )
Transaction costs 5
—
5
—
Income from WABCO distribution termination (265 ) —
(265 ) —
Adjusted EBITDA $ 107
$ 139
$ 205
$ 258

Adjusted EBITDA margin ⁽¹⁾
12.3 % 12.0 % 11.6 % 11.8 %

Unallocated legacy and corporate expense (income), net ⁽²⁾
(3 ) 1
(5 ) (1 )
Segment adjusted EBITDA $ 104
$ 140
$ 200
$ 257

Commercial Truck
Segment adjusted EBITDA $ 55
$ 88
$ 111
$ 165
Segment adjusted EBITDA margin ⁽³⁾
9.4 % 10.0 % 9.2 % 10.0 %

Aftermarket, Industrial and Trailer
Segment adjusted EBITDA $ 49
$ 52
$ 89
$ 92
Segment adjusted EBITDA margin⁽³⁾
15.4 % 15.8 % 14.0 % 14.6 %

⁽¹⁾ Adjusted EBITDA margin equals adjusted EBITDA divided by consolidated sales from continuing operations.

⁽²⁾ 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.

⁽³⁾ Amounts for the three and nine months ended June 30, 2019 have been recast to reflect reportable segment changes.

⁽⁴⁾Segment adjusted EBITDA margin equals segment adjusted EBITDA divided by consolidated sales from continuing operations, either in the aggregate or by segment as applicable.

MERITOR, INC.

Results of Operations

Three Months Ended ~~March 31,~~June 30, 2020 Compared to Three Months Ended ~~March 31,~~June 30, 2019

Sales

The following table reflects total company and business segment sales for the three months ended ~~March 31,~~June 30, 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.


	Three Months Ended June 30,										Dollar Change Due To
	2020		2019 ⁽¹⁾		Dollar Change		% Change		Currency		Volume/ Other
Sales:
Commercial Truck
North America	$	164	$	528	$	(364)	(69)	%	$	—	$	(364)
Europe	70		180		(110)		(61)	%	(2)		(108)
South America	21		67		(46)		(69)	%	(7)		(39)
China	41		44		(3)		(7)	%	(2)		(1)
India	5		53		(48)		(91)	%	—		(48)
Other	14		18		(4)		(22)	%	—		(4)
Total External Sales	$	315	$	890	$	(575)	(65)	%	$	(11)	$	(564)
Intersegment Sales	21		35		(14)		(40)	%	(1)		(13)
Total Sales	$	336	$	925	$	(589)	(64)	%	$	(12)	$	(577)

Aftermarket and Industrial
North America	$	164	$	253	$	(89)	(35)	%	$	(1)	$	(88)
Europe	33		23		10		43	%	—		10
Other	2		—		2		N/A		—		2
Total External Sales	$	199	$	276	$	(77)	(28)	%	$	(1)	$	(76)
Intersegment Sales	4		6		(2)		(33)	%	—		(2)
Total Sales	$	203	$	282	$	(79)	(28)	%	$	(1)	$	(78)

Total External Sales	$	514	$	1,166	$	(652)	(56)	%	$	(12)	$	(640)

Three Months Ended March 31, Dollar Change Due To
2020 2019
Dollar
Change

%
Change
Currency Volume/ Other
Sales:
Commercial Truck
            North America $ 305
$ 463
$ (158 ) (34 )% $ —
$ (158 )
            Europe 140
181
(41 ) (23 )% (5 ) (36 )
            South America 50
63
(13 ) (21 )% (9 ) (4 )
     China 26
44
(18 ) (41 )% (1 ) (17 )
     India 22
62
(40 ) (65 )% —
(40 )
     Other 14
24
(10 ) (42 )% —
(10 )
          Total External Sales $ 557
$ 837
$ (280 ) (33 )% $ (15 ) $ (265 )
            Intersegment Sales 31
39
(8 ) (21 )% (2 ) (6 )
          Total Sales $ 588
$ 876
$ (288 ) (33 )% $ (17 ) $ (271 )

Aftermarket, Industrial and Trailer
            North America $ 272
$ 293
$ (21 ) (7 )% $ —
$ (21 )
            Europe 42
26
16
62 % (2 ) 18
          Total External Sales $ 314
$ 319
$ (5 ) (2 )% $ (2 ) $ (3 )
            Intersegment Sales 5
10
(5 ) (50 )% (1 ) (4 )
          Total Sales $ 319
$ 329
$ (10 ) (3 )% $ (3 ) $ (7 )

Total External Sales $ 871

$ 1,156
$ (285 ) (25 )% $ (17 ) $ (268 )
⁽¹⁾ Amounts for the three months June 30, 2019 have been recast to reflect reportable segment changes.

Commercial Truck sales were ~~$588~~$336 million in the ~~second~~third quarter of fiscal year 2020, down 3364 percent compared to the ~~second~~third quarter of fiscal year 2019. The decrease in sales in the third quarter of fiscal year 2020 was primarily due to lower volumes driven ~~primarily~~ by decreased ~~market volumes for most regions across the segment, including changes in~~ customer demand and ~~the impact of~~ government mandates as a result of the COVID-19 pandemic. The majority of the company’s production facilities were idled during the month of April with production increasing throughout the remainder of the quarter.

Aftermarket and Industrial ~~and Trailer~~sales were ~~$319~~$203 million in the ~~second~~third quarter of fiscal year 2020, down 328 percent compared to the ~~second~~third quarter of fiscal year 2019. ~~Lower~~While Aftermarket facilities were not idled during the third quarter of fiscal year 2020, sales were ~~primarily driven by decreased volumes across the segment, including~~lower in comparison with fiscal year 2019 due to changes in customer demand and the impact from the termination of ~~government mandates~~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 ~~our~~the AxleTech business.

MERITOR, INC.


	Three Months Ended June 30,
	2020		2019		Dollar Change		% Change
Sales	$	514	$	1,166	$	(652)	(56)	%
Cost of sales	(486)		(987)		501		51	%
GROSS PROFIT	28		179		(151)		(84)	%
Selling, general and administrative	(52)		(73)		21		29	%

Other operating expense, net	(17)		(2)		(15)		750	%
Other income, net	12		10		2		20	%
Equity in earnings of affiliates	(1)		9		(10)		(111)	%
Interest expense, net	(17)		(14)		(3)		(21)	%
INCOME (LOSS) BEFORE INCOME TAXES	(47)		109		(156)		(143)	%
Benefit (provision) for income taxes	13		(21)		34		162	%
INCOME (LOSS) FROM CONTINUING OPERATIONS	(34)		88		(122)		(139)	%
INCOME FROM DISCONTINUED OPERATIONS, net of tax	—		1		(1)		(100)	%
NET INCOME (LOSS)	(34)		89		(123)		(138)	%
Less: Net income attributable to noncontrolling interests	(2)		(3)		1		(33)	%
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.	$	(36)	$	86	$	(122)	(142)	%

Three Months Ended March 31,
2020 2019
Dollar
Change

%
Change
Sales $ 871
$ 1,156
$ (285 ) (25 )%
Cost of sales (757 ) (982 ) 225
23 %
GROSS PROFIT 114
174
(60 ) (34 )%
Selling, general and administrative (59 ) (73 ) 14
19 %
Income from WABCO distribution termination 265
—
265
N/A
Other operating income (expense), net (10 ) 1
(11 ) (1,100 )%
Other income, net 14
9
5
56 %
Equity in earnings of affiliates 6
6
—
— %
Interest expense, net (16 ) (15 ) (1 ) (7 )%
INCOME BEFORE INCOME TAXES 314
102
212
208 %
Provision for income taxes (73 ) (27 ) (46 ) (170 )%
INCOME FROM CONTINUING OPERATIONS 241
75
166
221 %
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax 1
(1 ) 2
(200 )%
NET INCOME 242
74
168
227 %
Less: Net income attributable to noncontrolling interests (1 ) (2 ) 1
(50 )%
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 241
$ 72
$ 169
235 %

Cost of Sales and Gross Profit

Cost of sales primarily represents materials, labor and overhead production costs associated with the company’s products and production facilities. Cost of sales for the three months ended ~~March 31,~~June 30, 2020 was ~~$757~~$486 million compared to ~~$982~~$987 million in the same period in the prior fiscal year, representing a decrease of 2351 percent, primarily driven by decreased market volumes. Total cost of sales was ~~86.9~~94.6 and ~~84.9~~84.6 percent of sales for the three-month periods ended ~~March 31,~~June 30, 2020 and 2019, respectively.

Material costs represent the majority of our cost of sales and include raw materials, composed primarily of steel, and purchased components. Material costs for the three months ended ~~March 31,~~June 30, 2020 decreased ~~$204~~$439 million compared to the same period in the prior fiscal year primarily due to significantly lower volumes. The majority of the company’s manufacturing facilities were idled during the month of April 2020 with production increasing throughout the remainder of the third quarter of fiscal year 2020.

Labor and overhead costs decreased by $67 million compared to the same period in the prior fiscal year primarily due to lower ~~volumes, year-over-year steel prices~~volumes. During the third quarter of fiscal year 2020, we also executed certain actions in order to decrease the impacts of the significantly lower production levels. These actions included hourly employee layoffs and ~~layered capacity costs.~~

~~Labor and overhead~~other discretionary spend reductions. Incentive compensation costs ~~decreased by $23 million~~were also lower compared to the ~~same period in the~~ prior ~~fiscal year primarily due to lower volumes.~~year.

Gross profit was ~~$114~~$28 million and ~~$174~~$179 million for the three-month periods ended ~~March 31,~~June 30, 2020 and 2019, respectively. Gross profit as a percentage of sales was ~~13.1~~5.4 and ~~15.1~~15.4 percent for the three-month periods ended ~~March 31,~~June 30, 2020 and 2019, respectively. Gross profit as a percentage of sales decreased as lower sales more than offset the lower material, ~~primarily steel,~~ labor and ~~burden and freight~~overhead costs.

Other Income Statement Items

Selling, general and administrative expenses ("SG&A") for the three months ended ~~March 31,~~June 30, 2020 and 2019 were ~~$59~~$52 million and $73 million, respectively. ~~This decrease was primarily driven by lower incentive compensation of $15 million, partially offset by additional costs generated from our AxleTech business, which was acquired in~~During the ~~fourth~~third quarter of fiscal year ~~2019.~~2020, we executed certain actions 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.

~~Provision~~Benefit for income taxes was ~~$73~~$13 million for the three months ended ~~March 31,~~June 30, 2020 compared to ~~$27~~a provision for income taxes of $21 million in the same period in the prior fiscal year. The ~~increase~~decrease in tax expense is primarily related to ~~the tax effect of the proceeds received from the termination of the WABCO distribution arrangement, partially offset by a decrease in earnings~~losses in certain jurisdictions that do not have a tax valuation allowance.

MERITOR, INC.

Segment Adjusted EBITDA and Segment Adjusted EBITDA Margins

The following table reflects segment adjusted EBITDA and segment adjusted EBITDA margins for the three months ended ~~March 31,~~June 30, 2020 and 2019 (dollars in millions).


	Segment adjusted EBITDA										Segment adjusted EBITDA margins
	Three Months Ended June 30,								Three Months Ended June 30,
	2020		2019 ⁽¹⁾		Change		2020		2019 ⁽¹⁾		Change
Commercial Truck	$	(23)	97		$	(120)	(6.8)	%	10.5	%	(17.3)	pts
Aftermarket and Industrial	31		50		(19)		15.3	%	17.7	%	(2.4)	pts
Segment adjusted EBITDA	$	8	$	147	$	(139)	1.6	%	12.6	%	(11)	pts

~~MERITOR, INC.~~

⁽¹⁾ Amounts for the three months ended June 30, 2019 have been recast to reflect reportable segment changes.

Segment adjusted EBITDA Segment adjusted EBITDA margins
Three Months Ended March 31, Three Months Ended March 31,
2020 2019 Change 2020 2019 Change
Commercial Truck $ 55
$ 88
$ (33 ) 9.4 % 10.0 % (0.6 ) pts
Aftermarket, Industrial and Trailer 49
52
(3 ) 15.4 % 15.8 % (0.4 ) pts
Segment adjusted EBITDA $ 104
$ 140
$ (36 ) 11.9 % 12.1 % (0.2 ) pts

Significant items impacting year-over-year segment adjusted EBITDA include the following (in millions):

Commercial Truck Aftermarket, Industrial and Trailer TOTAL
Segment adjusted EBITDA– Quarter ended March 31, 2019 $ 88
$ 52
$ 140
Impact of foreign currency exchange rates (4 ) (1 ) (5 )
Volume, mix, pricing and other (29 ) (2 ) (31 )
Segment adjusted EBITDA – Quarter ended March 31, 2020 $ 55
$ 49
$ 104


	Commercial Truck		Aftermarket and Industrial		TOTAL
Segment adjusted EBITDA– Quarter ended June 30, 2019 ⁽¹⁾	$	97	$	50	$	147







Lower earnings from unconsolidated affiliates	(10)		—		(10)
Impact of foreign currency exchange rates	(8)		(2)		(10)




Cost reduction actions	22		9		31
Volume, mix, pricing and other	(124)		(26)		(150)
Segment adjusted EBITDA – Quarter ended June 30, 2020	$	(23)	$	31	$	8

⁽¹⁾ Amounts for the three months ended June 30, 2019 have been recast to reflect reportable segment changes.

Commercial Truck segment adjusted EBITDA was ~~$55~~$(23) million in the ~~second~~third quarter of fiscal year 2020, down ~~$33~~$120 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin decreased from ~~10.0~~10.5 percent in the ~~second~~third quarter of fiscal year 2019 to ~~9.4~~(6.8) percent in the ~~second~~third quarter of fiscal year 2020. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin were driven primarily by ~~lower~~significantly decreased market volumes for most regions across the segment due to the COVID-19 pandemic, partially offset by ~~lower incentive compensation costs and lower material, labor and burden costs.~~cost reduction actions executed in the third quarter of fiscal year 2020.

Aftermarket ~~Industrial~~ and ~~Trailer~~Industrial segment adjusted EBITDA was ~~$49~~$31 million in the ~~second~~third quarter of fiscal year 2020, down $3$19 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin decreased from ~~15.8~~17.7 percent in the ~~second~~third quarter of fiscal year 2019 to ~~15.4~~15.3 percent in the ~~second~~third quarter of fiscal year 2020. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin was driven primarily by lower volumes, partially offset by ~~lower incentive compensation costs.~~the cost reduction actions executed in the third quarter of fiscal year 2020.

MERITOR, INC.

Results of Operations

~~Six~~Nine Months Ended ~~March 31,~~June 30, 2020 Compared to ~~Six~~Nine Months Ended ~~March 31,~~June 30, 2019

Sales

The following table reflects total company and business segment sales for the ~~six~~nine months ended ~~March 31,~~June 30, 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.


	Nine Months Ended June 30,										Dollar Change Due To
	2020		2019 ⁽¹⁾		Dollar Change		% Change		Currency		Volume/ Other
Sales:
Commercial Truck
North America	$	877	$	1,481	$	(604)	(41)	%	$	—	$	(604)
Europe	351		536		(185)		(35)	%	(10)		(175)
South America	124		180		(56)		(31)	%	(20)		(36)
China	101		129		(28)		(22)	%	(4)		(24)
India	49		172		(123)		(72)	%	—		(123)
Other	42		66		(24)		(36)	%	(1)		(23)
Total External Sales	$	1,544	$	2,564	$	(1,020)	(40)	%	$	(35)	$	(985)
Intersegment Sales	86		114		(28)		(25)	%	(4)		(24)
Total Sales	$	1,630	$	2,678	$	(1,048)	(39)	%	$	(39)	$	(1,009)

Aftermarket and Industrial
North America	$	620	$	721	$	(101)	(14)	%	$	(1)	$	(100)
Europe	118		75		43		57	%	(3)		46
Other	4		—		4		N/A		—		4
Total External Sales	$	742	$	796	$	(54)	(7)	%	$	(4)	$	(50)
Intersegment Sales	13		15		(2)		(13)	%	(2)		—
Total Sales	$	755	$	811	$	(56)	(7)	%	$	(6)	$	(50)

Total External Sales	$	2,286	$	3,360	$	(1,074)	(32)	%	$	(39)	$	(1,035)

Six Months Ended March 31, Dollar Change Due To
2020 2019
Dollar
Change

%
Change
Currency Volume/ Other
Sales:
Commercial Truck
            North America $ 631
$ 860
$ (229 ) (27 )% $ —
$ (229 )
            Europe 281
356
(75 ) (21 )% (8 ) (67 )
            South America 103
113
(10 ) (9 )% (13 ) 3
     China 60
85
(25 ) (29 )% (2 ) (23 )
     India 44
119
(75 ) (63 )% —
(75 )
     Other 28
48
(20 ) (42 )% (1 ) (19 )
          Total External Sales $ 1,147
$ 1,581
$ (434 ) (27 )% $ (24 ) $ (410 )
            Intersegment Sales 63
74
(11 ) (15 )% (3 ) (8 )
          Total Sales $ 1,210
$ 1,655
$ (445 ) (27 )% $ (27 ) $ (418 )

Aftermarket, Industrial and Trailer
            North America $ 538
$ 561
$ (23 ) (4 )% $ —
$ (23 )
            Europe 85
52
33
63 % (3 ) 36
            Other 2
—
2
N/A
—
2
          Total External Sales $ 625
$ 613
$ 12
2 % $ (3 ) $ 15
            Intersegment Sales 11
19
(8 ) (42 )% (2 ) (6 )
          Total Sales $ 636
$ 632
$ 4
1 % $ (5 ) $ 9

Total External Sales $ 1,772
$ 2,194
$ (422 ) (19 )% $ (27 ) $ (395 )
⁽¹⁾ Amounts for the nine months ended June 30, 2019 have been recast to reflect reportable segment changes.

Commercial Truck sales were ~~$1,210~~$1,630 million in the first ~~six~~nine months of fiscal year 2020, down 2739 percent compared to the first ~~six~~nine months of fiscal year 2019. ~~The decrease in~~Lower sales ~~was~~were driven ~~primarily~~by significantly lower market volumes driven by decreased ~~market volumes for most regions across the segment, including changes in~~ customer demand and ~~the impact of~~ 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 the quarter.

Aftermarket ~~Industrial~~ and ~~Trailer~~Industrial sales were ~~$636~~$755 million in the first ~~six~~nine months of fiscal year 2020, ~~up 1~~down 7 percent compared to the first ~~six~~nine months of fiscal year 2019. ~~Higher~~Lower sales were primarily driven by ~~revenue generated from our AxleTech business we acquired in the fourth quarter of fiscal year 2019, partially offset~~ by decreased volumes across the ~~segment, including~~segment. While Aftermarket sites were not idled during the third quarter of fiscal year 2020, sales were lower compared to fiscal year 2019 due to changes in customer demand and the impact from the termination of ~~government mandates~~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.~~pandemic, partially offset by the revenue generated from the AxleTech business.

MERITOR, INC.


	Nine months ended June 30,
	2020		2019		Dollar Change		% Change
Sales	$	2,286	$	3,360	$	(1,074)	(32)	%
Cost of sales	(2,017)		(2,866)		849		30	%
GROSS PROFIT	269		494		(225)		(46)	%
Selling, general and administrative	(181)		(180)		(1)		(1)	%
Income from WABCO distribution termination	265		—		265		N/A
Other operating expense, net	(32)		(1)		(31)		3,100	%
Other income, net	36		30		6		20	%
Equity in earnings of affiliates	11		24		(13)		(54)	%
Interest expense, net	(47)		(43)		(4)		(9)	%
INCOME BEFORE INCOME TAXES	321		324		(3)		(1)	%
Provision for income taxes	(73)		(69)		(4)		(6)	%
INCOME FROM CONTINUING OPERATIONS	248		255		(7)		(3)	%
INCOME FROM DISCONTINUED OPERATIONS, net of tax	1		(1)		2		200	%
NET INCOME	249		255		(6)		(2)	%
Less: Net income attributable to noncontrolling interests	(5)		(7)		2		(29)	%
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	244	$	248	$	(4)	(2)	%

Six Months Ended March 31,
2020 2019
Dollar
Change

%
Change
Sales $ 1,772
$ 2,194
$ (422 ) (19 )%
Cost of sales (1,531 ) (1,879 ) 348
19 %
GROSS PROFIT 241
315
(74 ) (23 )%
Selling, general and administrative (129 ) (107 ) (22 ) (21 )%
Income from WABCO distribution termination 265
—
265
N/A
Other operating income (expense), net (15 ) 1
(16 ) (1,600 )%
Other income, net 24
20
4
20 %
Equity in earnings of affiliates 12
15
(3 ) (20 )%
Interest expense, net (30 ) (29 ) (1 ) (3 )%
INCOME BEFORE INCOME TAXES 368
215
153
71 %
Provision for income taxes (86 ) (48 ) (38 ) (79 )%
INCOME FROM CONTINUING OPERATIONS 282
167
115
69 %
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax 1
(1 ) 2
200 %
NET INCOME 283
166
117
70 %
Less: Net income attributable to noncontrolling interests (3 ) (4 ) 1
(25 )%
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 280
$ 162
$ 118
73 %

Cost of Sales and Gross Profit

Cost of sales primarily represents materials, labor and overhead production costs associated with the company’s products and production facilities. Cost of sales for the ~~six~~nine months ended ~~March 31,~~June 30, 2020 was ~~$1,531~~$2,017 million compared to ~~$1,879~~$2,866 million in the same period in the prior fiscal year, representing a decrease of 1930 percent, primarily driven by decreased market volumes. Total cost of sales was ~~86.4~~88.2 and ~~85.6~~85.3 percent of sales for the ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2020 and 2019, respectively.

Material costs represent the majority of our cost of sales and include raw materials, composed primarily of steel, and purchased components. Material costs for the ~~six~~nine months ended ~~March 31,~~June 30, 2020 decreased ~~$310~~$749 million compared to the same period in 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 the third quarter of fiscal year 2020.

Labor and overhead costs decreased by $110 million compared to the same period in the prior fiscal year primarily due to lower ~~volumes, year-over-year steel prices~~volumes. During the third quarter of fiscal year 2020, we executed certain actions in order to decrease the impacts of the significantly lower production levels. These actions included hourly employee layoffs and ~~layered capacity costs.~~

~~Labor and overhead~~other discretionary spend reductions. Incentive compensation costs ~~decreased by $43 million~~were also lower compared to the ~~same period in the~~ prior ~~fiscal year primarily due to lower volumes.~~year.

Gross profit was ~~$241~~$269 million and ~~$315~~$494 million for the ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2020 and 2019, respectively. Gross profit as a percentage of sales was ~~13.6~~11.8 and ~~14.4~~14.7 percent for the ~~six-month~~nine-month periods ended ~~March 31,~~June 30, 2020 and 2019, respectively. Gross profit as a percentage of sales decreased as lower sales more than offset the lower material, ~~primarily steel,~~ labor and ~~burden and freight~~overhead costs.

Other Income Statement Items

Selling, general and administrative expenses for the ~~six~~nine months ended ~~March 31,~~June 30, 2020 and 2019 were ~~$129~~$181 million and ~~$107~~$180 million, respectively.

We recognized $31 million of income related to remeasuring the Maremont asbestos liability based on the terms of the plan of reorganization in the first quarter of fiscal year 2019 (see Note 20 of the Notes to the Condensed Consolidated Financial Statements in Part I of this Quarterly Report). Excluding Maremont, SG&A ~~decreased~~was lower primarily due to ~~lower incentive compensation costs~~certain actions executed in the ~~second~~third 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 was acquired in the fourth quarter of fiscal year 2019, as well as higher electrification costs.

MERITOR, INC.

Provision for income taxes was ~~$86~~$73 million in the first ~~six~~nine months of fiscal year 2020 compared to ~~$48~~$69 million in the same period in the prior fiscal year. The increase in tax expense is primarily related to the tax effect ofon the proceeds received from the termination of the WABCO distribution arrangement, ~~partially~~largely offset ~~by a decrease in~~lower earnings in certain jurisdictions that do not have a tax valuation allowance.

~~MERITOR, INC.~~

Segment Adjusted EBITDA and Segment Adjusted EBITDA Margins

The following table reflects segment adjusted EBITDA and segment adjusted EBITDA margins for the ~~six~~nine months ended ~~March 31,~~June 30, 2020 and 2019 (dollars in millions).


	Segment adjusted EBITDA										Segment adjusted EBITDA margins
	Nine Months Ended June 30,								Nine Months Ended June 30,
	2020		2019 ⁽¹⁾		Change		2020		2019 ⁽¹⁾		Change
Commercial Truck	$	92	$	270	$	(178)	5.6	%	10.1	%	(4.5)	pts
Aftermarket and Industrial	116		134		(18)		15.4	%	16.5	%	(1.1)	pts
Segment adjusted EBITDA	$	208	$	404	$	(196)	9.1	%	12.0	%	(2.9)	pts

Segment adjusted EBITDA Segment adjusted EBITDA margins
Six Months Ended March 31, Six Months Ended March 31,
2020 2019 Change 2020 2019 Change
Commercial Truck $ 111
$ 165
$ (54 ) 9.2 % 10.0 % (0.8 ) pts
Aftermarket, Industrial and Trailer 89
92
(3 ) 14.0 % 14.6 % (0.6 ) pts
Segment adjusted EBITDA $ 200
$ 257
$ (57 ) 11.3 % 11.7 % (0.4 ) pts
⁽¹⁾ Amounts for the nine months ended June 30, 2019 have been recast to reflect reportable segment changes.

Significant items impacting year-over-year segment adjusted EBITDA include the following (in millions):


	Commercial Truck		Aftermarket and Industrial		TOTAL
Segment adjusted EBITDA– Nine months ended June 30, 2019 ⁽¹⁾	$	270	$	134	$	404







Lower earnings from unconsolidated affiliates	(13)		—		(13)
Impact of foreign currency exchange rates	(15)		(4)		(19)
Cost savings actions	22		9		31




Volume, mix, pricing and other	(172)		(23)		(195)
Segment adjusted EBITDA – Nine months ended June 30, 2020	$	92	$	116	$	208

Commercial Truck Aftermarket, Industrial and Trailer TOTAL
Segment adjusted EBITDA– Six months ended March 31, 2019 $ 165
$ 92
$ 257
Lower earnings from unconsolidated affiliates (3 ) —
(3 )
Impact of foreign currency exchange rates (7 ) (2 ) (9 )
Volume, mix, pricing and other (44 ) (1 ) (45 )
Segment adjusted EBITDA – Six months ended March 31, 2020 $ 111
$ 89
$ 200
⁽¹⁾ Amounts for the nine months ended June 30, 2019 have been recast to reflect reportable segment changes.

Commercial Truck segment adjusted EBITDA was ~~$111~~$92 million in the first ~~six~~nine months of fiscal year 2020, down ~~$54~~$178 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin decreased from ~~10.0~~10.1 percent in the first ~~six~~nine months of fiscal year 2019 to ~~9.2~~5.6 percent in the first ~~six~~nine months of fiscal year 2020. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin were driven primarily by ~~lower~~significantly decreased market volumes for most regions across the segment, primarily due to the COVID-19 pandemic, partially offset by ~~lower freight, labor and burden and material costs~~the cost reduction actions executed in the third quarter of fiscal year 2020 and lower incentive compensation costs.

Aftermarket ~~Industrial~~ and ~~Trailer~~Industrial segment adjusted EBITDA was ~~$89~~$116 million in the first ~~six~~nine months of fiscal year 2020, down $3$18 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin decreased from ~~14.6~~16.5 percent in the first ~~six~~nine months of fiscal year 2019 to ~~14.0~~15.4 percent in the first ~~six~~nine months of fiscal year 2020. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin was driven primarily by lower volumes, partially offset by the ~~impact from our AxleTech business, as~~cost reduction actions executed in the ~~benefit from executed synergies continue to ramp up to full run rate, as well as~~third quarter of fiscal year 2020 and lower incentive compensation costs.

MERITOR, INC.

Financial Condition

Cash Flows (in millions)


	Nine Months Ended June 30,
	2020		2019
OPERATING CASH FLOWS
Income from continuing operations	$	248	$	255
Depreciation and amortization	74		64
Deferred income tax expense (benefit)	(4)		27

Restructuring costs	27		(2)



Equity in earnings of affiliates	(11)		(24)
Pension and retiree medical income	(31)		(28)
Asbestos related liability remeasurement	—		(31)
Dividends received from equity method investments	8		14
Pension and retiree medical contributions	(11)		(12)
Restructuring payments	(21)		(2)


Changes in receivables, inventories and accounts payable	11		(96)
Changes in off-balance sheet accounts receivable factoring	(104)		41
Changes in other current assets and liabilities	(26)		(21)
Changes in other assets and liabilities	25		(3)
Other, net	3		13
Cash flows provided by continuing operations	188		196
Cash flows used for discontinued operations	—		(2)
CASH PROVIDED BY OPERATING ACTIVITIES	$	188	$	194

Six Months Ended March 31,
2020 2019
OPERATING CASH FLOWS
Income from continuing operations $ 282
$ 167
Depreciation and amortization 50
43
Deferred income tax expense (benefit) (4 ) 16
Restructuring costs 15
(1 )
Equity in earnings of affiliates (12 ) (15 )
Pension and retiree medical income (21 ) (19 )
Asbestos related liability remeasurement —
(31 )
Dividends received from equity method investments —
1
Pension and retiree medical contributions (7 ) (8 )
Restructuring payments (15 ) (1 )
Changes in receivables, inventories and accounts payable (8 ) (91 )
Changes in off-balance sheet accounts receivable factoring 20
22
Changes in other current assets and liabilities (49 ) (33 )
Changes in other assets and liabilities 38
(6 )
Other, net 1
8
Cash flows provided by continuing operations 290
52
Cash flows used for discontinued operations —
(1 )
CASH PROVIDED BY OPERATING ACTIVITIES $ 290
$ 51

Cash provided by operating activities in the first ~~six~~nine months of fiscal year 2020 was ~~$290~~$188 million compared to ~~$51~~$194 million in the same period of fiscal year 2019. The ~~increase~~decrease in cash provided by operating activities was driven primarily by lower revenues, partially offset by $265 million of cash received from the WABCO distribution arrangement termination in the second quarter of fiscal year 2020.


	Six Months Ended March 31,							Nine Months Ended June 30,
	2020			2019				2020		2019
INVESTING CASH FLOWS							INVESTING CASH FLOWS
Capital expenditures	$	(33	)	$	(44	)	Capital expenditures	$	(45)	$	(63)

Cash paid for acquisition of TransPower, net of cash acquired	(13		)	(3		)	Cash paid for acquisition of TransPower, net of cash acquired	(13)		(6)
Other investing activities	9			—			Other investing activities	9		17

CASH USED FOR INVESTING ACTIVITIES	$	(37	)	$	(47	)	CASH USED FOR INVESTING ACTIVITIES	$	(49)	$	(52)


	Classification	June 30, 2020
Finance lease right-of-use assets	Net Property	$	6
Finance lease liabilities	Short-term debt	3
Finance lease liabilities	Long-term debt	3



	Classification	March 31, 2020
Finance lease right-of-use assets	Net Property	$	6
Finance lease liabilities	Short-term debt	2
Finance lease liabilities	Long-term debt	4


	Classification	June 30, 2020
Operating lease right-of-use assets	Other assets	$	75
Operating lease liabilities	Other current liabilities	14
Operating lease liabilities	Other liabilities	61



	Classification	March 31, 2020
Operating lease right-of-use assets	Other assets	$	77
Operating lease liabilities	Other current liabilities	14
Operating lease liabilities	Other liabilities	63


	Nine Months Ended June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	14

Financing cash flows used for finance leases	2
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	7
Finance leases	2



☒			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



	Three Months Ended March 31,						Six Months Ended March 31,
	2020			2019			2020			2019
	(Unaudited)
Sales	$	871		$	1,156		$	1,772		$	2,194
Cost of sales	(757		)	(982		)	(1,531		)	(1,879		)
GROSS PROFIT	114			174			241			315
Selling, general and administrative	(59		)	(73		)	(129		)	(107		)
Income from WABCO distribution termination	265			—			265			—
Other operating income (expense), net	(10		)	1			(15		)	1
OPERATING INCOME	310			102			362			209
Other income, net	14			9			24			20
Equity in earnings of affiliates	6			6			12			15
Interest expense, net	(16		)	(15		)	(30		)	(29		)
INCOME BEFORE INCOME TAXES	314			102			368			215
Provision for income taxes	(73		)	(27		)	(86		)	(48		)
INCOME FROM CONTINUING OPERATIONS	241			75			282			167
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax	1			(1		)	1			(1		)
NET INCOME	242			74			283			166
Less: Net income attributable to noncontrolling interests	(1		)	(2		)	(3		)	(4		)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	241		$	72		$	280		$	162
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
Net income from continuing operations	$	240		$	73		$	279		$	163
Income (loss) from discontinued operations	1			(1		)	1			(1		)
Net income	$	241		$	72		$	280		$	162
BASIC EARNINGS (LOSS) PER SHARE
Continuing operations	$	3.27		$	0.88		$	3.68		$	1.94
Discontinued operations	0.01			(0.01		)	0.01			(0.01		)
Basic earnings per share	$	3.28		$	0.87		$	3.69		$	1.93
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations	$	3.19		$	0.85		$	3.58		$	1.88
Discontinued operations	0.01			(0.01		)	0.01			(0.01		)
Diluted earnings per share	$	3.20		$	0.84		$	3.59		$	1.87

Basic average common shares outstanding	73.4			83.3			75.8			84.0
Diluted average common shares outstanding	75.3			85.6			78.0			86.6



	March 31, 2020			September 30, 2019
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	508		$	108
Receivables, trade and other, net	466			551
Inventories	529			526
Other current assets	35			31
TOTAL CURRENT ASSETS	1,538			1,216
NET PROPERTY	509			515
GOODWILL	500			478
OTHER ASSETS	678			606
TOTAL ASSETS	$	3,225		$	2,815
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term debt	$	138		$	41
Accounts and notes payable	541			610
Other current liabilities	257			285
TOTAL CURRENT LIABILITIES	936			936
LONG-TERM DEBT	1,203			902
RETIREMENT BENEFITS	315			336
OTHER LIABILITIES	347			226
TOTAL LIABILITIES	2,801			2,400
COMMITMENTS AND CONTINGENCIES (See Note 20)

EQUITY:
Common stock (March 31, 2020 and September 30, 2019, 103.7 and 104.1 shares issued and 72.3 and 81.4 shares outstanding, respectively)	105			104
Additional paid-in capital	803			803
Retained earnings	771			491
Treasury stock, at cost (March 31, 2020 and September 30, 2019, 31.4 and 22.7 shares, respectively)	(573		)	(332		)
Accumulated other comprehensive loss	(714		)	(681		)
Total equity attributable to Meritor, Inc.	392			385
Noncontrolling interests	32			30
TOTAL EQUITY	424			415
TOTAL LIABILITIES AND EQUITY	$	3,225		$	2,815



	Six months ended March 31, 2020
	Common Stock		Additional Paid-in Capital			Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Equity Attributable to Meritor, Inc.			Noncontrolling Interests			Total
Beginning Balance at September 30, 2019	$	104	$	803		$	491	$	(332	)	$	(681	)	$	385		$	30		$	415
Comprehensive income (loss)	—		—			280		—			(33		)	247			3			250
Equity based compensation expense	—		1			—		—			—			1			—			1
Vesting of equity based awards	1		(1		)	—		—			—			—			—			—
Repurchase of common stock	—		—			—		(241		)	—			(241		)	—			(241		)
Noncontrolling interest dividend	—		—			—		—			—			—			(1		)	(1		)
Ending Balance at March 31, 2020	$	105	$	803		$	771	$	(573	)	$	(714	)	$	392		$	32		$	424

	Six months ended March 31, 2019
	Common Stock		Additional Paid-in Capital			Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Equity Attributable to Meritor, Inc.			Noncontrolling Interests			Total
Beginning Balance at September 30, 2018	$	102	$	787		$	200	$	(236	)	$	(566	)	$	287		$	30		$	317
Comprehensive income	—		—			162		—			4			166			5			171
Equity based compensation expense	—		8			—		—			—			8			—			8
Vesting of equity based awards	2		(2		)	—		—			—			—			—			—
Repurchase of common stock	—		—			—		(50		)	—			(50		)	—			(50		)
Noncontrolling interest dividends	—		—			—		—			—			—			(1		)	(1		)
Ending Balance at March 31, 2019	$	104	$	793		$	362	$	(286	)	$	(562	)	$	411		$	34		$	445



	Three Months Ended March 31, 2019
Primary Geographical Market	Commercial Truck		Aftermarket, Industrial and Trailer		Total
U.S.	$	413	$	263	$	676
Canada	—		17		17
Mexico	50		13		63
Total North America	463		293		756
Sweden	74		—		74
Italy	59		5		64
United Kingdom	45		2		47
Other Europe	3		19		22
Total Europe	181		26		207
Brazil	63		—		63
China	44		—		44
India	62		—		62
Other Asia-Pacific	24		—		24
Total sales	$	837	$	319	$	1,156



	Six Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9
Operating cash flows from finance leases	—
Financing cash flows from finance leases	1
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	6
Finance leases	2



	~~March 31,~~June 30, 2020
Weighted-average remaining lease term (years):
Operating leases	~~8.6~~		8.59
Finance leases	~~2.6~~		2.37
Weighted-average discount rate:
Operating leases	4.5	%
Finance leases	5.2	%


	Operating Leases		Finance Leases
Remainder of 2020	$	5	$	—
2021	17		3
2022	13		2
2023	12		1
2024	8		—
Thereafter	40		—
Total lease payments	95		6
Less: Impact of discounting future lease payments	(20)		—
Present value of lease liabilities	$	75	$	6


	Total
Balance at September 30, 2019	$	8
Activity during the period:
Charges to continuing operations	27

Cash payments – continuing operations	(21)


Total restructuring reserves at June 30, 2020	14
Less: non-current restructuring reserves	—
Restructuring reserves – current, at June 30, 2020	$	14

Balance at September 30, 2018	$	4
Activity during the period:
Charges to continuing operations	(2)

Cash payments – continuing operations	(2)

Total restructuring reserves at June 30, 2019	1
Less: non-current restructuring reserves	—
Restructuring reserves – current, at June 30, 2019	$	1


	Estimated Fair Value
	As of January 16, 2020		Measurement Period Adjustments		As of June 30, 2020
Purchase price	$	15	$	—	$	15
Investments in TransPower	12		—		12

Assets acquired and liabilities assumed:
Cash	2		—		2
Receivables, net	5		—		5
Inventories, net	8		—		8
PP&E	10		(1)		9
Accounts payable	(3)		—		(3)
Other current liabilities	(17)		(1)		(18)
Total identifiable net assets acquired	5		(2)		3

Goodwill and other intangible assets resulting from the acquisition of TransPower	22		2		24
	$	27	$	—	$	27



	January 16, 2020
Purchase price	$	15
Investments in TransPower	12

Assets acquired and liabilities assumed:
Cash	2
Receivables, net	5
Inventories, net	8
PP&E	10
Accounts payable	(3		)
Other current liabilities	(17		)
Total identifiable net assets acquired	5

Goodwill and other intangible assets resulting from the acquisition of TransPower	22
	$	27


	Current Expiration	Total Facility Size as of 6/30/2020						Utilized as of 6/30/2020						Utilized as of 9/30/2019
		EUR		USD		EUR		USD		EUR		USD
On-balance sheet arrangement

Committed U.S. accounts receivable securitization ⁽¹⁾	December 2022	N/A		$	95	N/A		$	—	N/A		$	13
Total on-balance sheet arrangement:⁽¹⁾		N/A		$	95	N/A		$	—	N/A		$	13
Off-balance sheet arrangements
Committed Swedish factoring facility ⁽²⁾⁽³⁾	March 2024	€	155	$	174	€	65	$	73	€	109	$	119
Committed U.S. factoring facility ⁽²⁾	February 2023	N/A		75		N/A		26		N/A		58
Uncommitted U.K. factoring facility	February 2022	25		28		3		3		6		6
Uncommitted Italy factoring facility	June 2022	30		34		12		13		21		23
Other uncommitted factoring facilities ⁽⁴⁾	None	N/A		N/A		10		11		18		20
Total off-balance sheet arrangements		€	210	$	311	€	90	$	126	€	154	$	226



	Current Expiration	Total Facility Size as of 3/31/20				Utilized as of 3/31/20				Utilized as of 9/30/19
		EUR		USD		EUR		USD		EUR		USD
On-balance sheet arrangement
Committed U.S. accounts receivable securitization ⁽¹⁾	December 2022	N/A		$	115	N/A		$	108	N/A		$	13
Total on-balance sheet arrangement:⁽¹⁾		N/A		$	115	N/A		$	108	N/A		$	13
Off-balance sheet arrangements
Committed Swedish factoring facility ⁽²⁾⁽³⁾	March 2024	€	155	$	171	€	133	$	147	€	109	$	119
Committed U.S. factoring facility ⁽²⁾	February 2023	N/A		75		N/A		48		N/A		58
Uncommitted U.K. factoring facility	February 2022	25		28		5		5		6		6
Uncommitted Italy factoring facility	June 2022	30		33		22		25		21		23
Other uncommitted factoring facilities ⁽⁴⁾	None	N/A		N/A		17		19		18		20
Total off-balance sheet arrangements		€	210	$	307	€	177	$	244	€	154	$	226


	June 30, 2020		September 30, 2019
Finished goods	$	131	$	153
Work in process	46		39
Raw materials, parts and supplies	318		334
Total	$	495	$	526


	June 30, 2020		September 30, 2019
Property at cost:
Land and land improvements	$	31	$	31
Buildings	225		224
Machinery and equipment	973		935
Company-owned tooling	142		136
Construction in progress	49		74
Total	1,420		1,400
Less: accumulated depreciation	(922)		(885)
Net property	$	498	$	515


	June 30, 2020		September 30, 2019
Investments in non-consolidated joint ventures	$	105	$	110



Deferred income tax assets, net	139		122

Prepaid pension costs	170		149

Other	257		225
Other assets	$	671	$	606


	June 30, 2020		September 30, 2019
Compensation and benefits	$	97	$	125



Product warranties	15		18





Other	172		142
Other current liabilities	$	284	$	285


	June 30, 2020		September 30, 2019
Asbestos-related liabilities (see Note 20)	$	77	$	82


Liabilities for uncertain tax positions	93		46
Product warranties (see Note 15)	29		32


Other	129		66
Other liabilities	$	328	$	226


	June 30, 2020		September 30, 2019
3.25 percent convertible notes due 2037	$	320	$	319

7.875 percent convertible notes due 2026	23		23
6.25 percent notes due 2025	295		—
Term loan due 2024	168		175
6.25 percent notes due 2024	445		444
Financing lease obligation	6		7
Borrowings and securitization	—		9
Unamortized discount on convertible notes	(30)		(34)
Subtotal	1,227		943
Less: current maturities	(34)		(41)
Long-term debt	$	1,193	$	902


Year	Redemption Price
2022	103.125	%
2023	101.563	%
2024 and thereafter	100.000	%


	June 30, 2020						September 30, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and cash equivalents	$	280	$	280	$	108	$	108
Short-term debt	34		52		41		60

Long-term debt	1,193		1,239		902		953

Foreign exchange forward contracts (other liabilities)	2		2		—		—

Cross-currency swaps (other assets)	—		—		10		10
Cross-currency swaps (other liabilities)	—		—		5		5


	June 30, 2020					September 30, 2019
	Gross Amounts Recognized	Gross Amounts Offset	Net Amounts Reported	Gross Amounts Recognized	Gross Amounts Offset	Net Amounts Reported
Derivative Assets

Cross-currency swaps	—	—	—	10	—	10

Derivative Liabilities
Foreign exchange forward contracts	2	—	2	—	—	—
Cross-currency swaps	—	—	—	5	—	5


	Level 1		Level 2		Level 3
Cash and cash equivalents	$	280	$	—	$	—
Short-term debt	—		41		11

Long-term debt	—		1,076		163

Foreign exchange forward contracts (other liabilities)	—		2		—


	June 30, 2020		September 30, 2019
Retiree medical liability	$	61	$	67
Pension liability	247		271
Other	17		14
Subtotal	325		352
Less: current portion (included in compensation and benefits, Note 15)	(17)		(16)
Retirement benefits	$	308	$	336


	2020						2019
	Pension		Retiree Medical		Pension		Retiree Medical

Interest cost	$	10	$	—	$	13	$	1
Assumed return on plan assets	(23)		—		(24)		—
Amortization of prior service benefit	—		(9)		—		(9)
Recognized actuarial loss	8		4		6		4

Total income	$	(5)	$	(5)	$	(5)	$	(4)


	Superfund Sites		Non-Superfund Sites		Total
Beginning Balance at September 30, 2019	$	11	$	4	$	15
Payments and other	(3)		(1)		(4)
Accruals	4		1		5
Ending Balance at June 30, 2020	$	12	$	4	$	16


	Foreign Currency Translation		Employee Benefit Related Adjustments		Unrealized Income (Loss) on cash flow hedges		Total
Balance at March 31, 2020	$	(142)	$	(567)	$	(5)	$	(714)
Other comprehensive income before reclassification	10		—		—		10
Amounts reclassified from accumulated other comprehensive loss	—		3		—		3
Net current-period other comprehensive income	10		3		—		13
Balance at June 30, 2020	$	(132)	$	(564)	$	(5)	$	(701)



Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Consolidated Statement of Operations
Employee Benefit Related Adjustment
Prior service benefit	$	(9	)	^(a)
Actuarial losses	11			^(a)
	2			Total before tax
	—			Tax benefit
Total reclassifications for the period	$	2		Net of tax
^(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and retiree medical expense (see Note 19 for additional details), which is recorded in other income (expense), net.


	Commercial Truck		Aftermarket and Industrial		Eliminations		Total
Three Months Ended June 30, 2020
External Sales	$	315	$	199	$	—	$	514
Intersegment Sales	21		4		(25)		—
Total Sales	$	336	$	203	$	(25)	$	514
Three Months Ended June 30, 2019⁽¹⁾
External Sales	$	890	$	276	$	—	$	1,166
Intersegment Sales	35		6		(41)		—
Total Sales	$	925	$	282	$	(41)	$	1,166



	Commercial Truck		Aftermarket, Industrial and Trailer		Eliminations			Total
Six Months Ended March 31, 2020
External Sales	$	1,147	$	625	$	—		$	1,772
Intersegment Sales	63		11		(74		)	—
Total Sales	$	1,210	$	636	$	(74	)	$	1,772
Six Months Ended March 31, 2019
External Sales	$	1,581	$	613	$	—		$	2,194
Intersegment Sales	74		19		(93		)	—
Total Sales	$	1,655	$	632	$	(93	)	$	2,194