

☐			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 ~~twelve~~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~~

☐

~~(Do not check if a smaller reporting company)~~

~~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

☐

☒

~~82,579,930~~72,289,344 shares of Common Stock, $1.00 par value, of Meritor, Inc. were outstanding on July ~~30, 2019.~~27, 2020.

INDEX

Page

No.

PART I.

FINANCIAL INFORMATION:

Item 1.

Financial Statements:

Condensed Consolidated Statement of Operations - - Three and Nine Months Ended June ~~30, 2019~~ 3 0 , 2020 and ~~2018~~2019

Condensed Consolidated Statement Of Comprehensive Income - - Three and Nine Months Ended June ~~30, 2019~~ 3 0 , 2020 and ~~2018~~2019

Condensed Consolidated Balance Sheet - - June ~~30, 2019~~ 3 0 , 2020 and September 30, ~~2018~~2019

Condensed Consolidated Statement of Cash Flows - ~~-Nine~~- Nine Months Ended June ~~30, 2019~~ 3 0 , 2020 and ~~2018~~2019

Condensed Consolidated Statement of Equity - - Three and Nine Months Ended June ~~30, 2019~~ 3 0 , 2020 and ~~2018~~2019

Notes to Condensed Consolidated Financial Statements

Item 2.

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

5234

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

7252

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 June 30, Nine Months Ended June 30,
2019 2018 2019 2018
(Unaudited)
Sales $ 1,166
$ 1,129
$ 3,360
$ 3,098
Cost of sales (987 ) (959 ) (2,866 ) (2,625 )
GROSS MARGIN 179
170
494
473
Selling, general and administrative (73 ) (76 ) (180 ) (218 )
Restructuring 1
(3 ) 2
(6 )
Other operating expense, net (3 ) —
(3 ) (12 )
OPERATING INCOME 104
91
313
237
Other income, net 10
9
30
24
Equity in earnings of affiliates 9
9
24
20
Interest expense, net (14 ) (14 ) (43 ) (54 )
INCOME BEFORE INCOME TAXES 109
95
324
227
Provision for income taxes (21 ) (26 ) (69 ) (131 )
INCOME FROM CONTINUING OPERATIONS 88
69
255
96
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax 1
(2 ) —
(3 )
NET INCOME 89
67
255
93
Less: Net income attributable to noncontrolling interests (3 ) (3 ) (7 ) (8 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 86
$ 64
$ 248
$ 85
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.
Net income from continuing operations $ 85
$ 66
$ 248
$ 88
Income (Loss) from discontinued operations 1
(2 ) —
(3 )
Net income $ 86
$ 64
$ 248
$ 85
BASIC EARNINGS (LOSS) PER SHARE
Continuing operations $ 1.02
$ 0.76
$ 2.96
$ 1.00
Discontinued operations 0.01
(0.02 ) —
(0.03 )
Basic earnings per share $ 1.03
$ 0.74
$ 2.96
$ 0.97
DILUTED EARNINGS (LOSS) PER SHARE
Continuing operations $ 0.99
$ 0.73
$ 2.86
$ 0.96
Discontinued operations 0.01
(0.02 ) —
(0.03 )
Diluted earnings per share $ 1.00
$ 0.71
$ 2.86
$ 0.93

Basic average common shares outstanding 83.0
87.2
83.7
88.1
Diluted average common shares outstanding 85.6
89.8
86.6
91.2


	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. ~~Prior periods have been recast, see Note 20.~~

MERITOR, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions)

Three Months Ended June 30, Nine Months Ended June 30,
2019 2018 2019 2018
(Unaudited)
Net income $ 89
$ 67
$ 255
$ 93
Other comprehensive income (loss):
Foreign currency translation adjustments:
Attributable to Meritor, Inc. (6 ) (52 ) (3 ) (46 )
Attributable to noncontrolling interest (1 ) (2 ) —
(1 )
Pension and other postretirement benefit related adjustments 1
3
2
9
Unrealized gain (loss) on cash flow hedges (2 ) 1
(2 ) 4
Other comprehensive loss, net of tax (8 ) (50 ) (3 ) (34 )
Total comprehensive income 81
17
252
59
Less: Comprehensive income attributable to noncontrolling interest (2 ) (1 ) (7 ) (7 )
Comprehensive income attributable to Meritor, Inc. $ 79
$ 16
$ 245
$ 52


	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)

June 30,
2019 September 30,
2018
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 111
$ 115
Receivables, trade and other, net 625
588
Inventories 491
477
Other current assets 32
46
TOTAL CURRENT ASSETS 1,259
1,226
NET PROPERTY 481
483
GOODWILL 421
421
OTHER ASSETS 567
596
TOTAL ASSETS $ 2,728
$ 2,726
LIABILITIES, MEZZANINE EQUITY AND EQUITY
CURRENT LIABILITIES:
Short-term debt $ 24
$ 94
Accounts and notes payable 691
700
Other current liabilities 296
290
TOTAL CURRENT LIABILITIES 1,011
1,084
LONG-TERM DEBT 734
730
RETIREMENT BENEFITS 238
262
OTHER LIABILITIES 234
332
TOTAL LIABILITIES 2,217
2,408
COMMITMENTS AND CONTINGENCIES (See Note 21)

MEZZANINE EQUITY:
Convertible debt with cash settlement 1
1
EQUITY:
Common stock (June 30, 2019 and September 30, 2018, 103.9 and 102.2 shares issued and 82.6 and 84.9 shares outstanding, respectively) 104
102
Additional paid-in capital 798
787
Retained earnings 448
200
Treasury stock, at cost (June 30, 2019 and September 30, 2018, 21.4 and 17.3 shares, respectively) (307 ) (236 )
Accumulated other comprehensive loss (569 ) (566 )
Total equity attributable to Meritor, Inc. 474
287
Noncontrolling interests 36
30
TOTAL EQUITY 510
317
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY $ 2,728
$ 2,726


	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)

Nine Months Ended June 30,
2019 2018
(Unaudited)
OPERATING ACTIVITIES
CASH PROVIDED BY OPERATING ACTIVITIES (See Note 11) $ 194
$ 191
INVESTING ACTIVITIES
Capital expenditures (63 ) (52 )
Proceeds from sale of equity method investment —
250
Cash paid for acquisition of AA Gear & Manufacturing, Inc. —
(36 )
Cash paid for investment in Transportation Power, Inc. (6 ) (6 )
Proceeds from sale of a business —
4
Proceeds from sale of assets —
2
Proceeds from settlement of cross-currency swaps 17
—
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (52 ) 162
FINANCING ACTIVITIES
Borrowings and securitization (46 ) (89 )
Redemption of notes (24 ) (181 )
Deferred issuance costs (4 ) —
Other financing activities (2 ) (3 )
Net change in debt (76 ) (273 )
Repurchase of common stock (71 ) (63 )
CASH USED FOR FINANCING ACTIVITIES (147 ) (336 )
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE
RATES ON CASH AND CASH EQUIVALENTS
1
(5 )
CHANGE IN CASH AND CASH EQUIVALENTS (4 ) 12
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 115
88
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 111
$ 100


	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 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 —
—
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

Three months ended June 30, 2018
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, 2018 $ 102
$ 775
$ 104
$ (169 ) $ (530 ) $ 282
$ 30
$ 312
Comprehensive income (loss) —
—
64
—
�� (48 ) 16
1
17
Equity based compensation expense —
4
—
—
—
4
—
4
Repurchase of common stock —
—
—
(30 ) —
(30 ) —
(30 )
Ending Balance at June 30, 2018 $ 102
$ 779
$ 168
$ (199 ) $ (578 ) $ 272
$ 31
$ 303

~~MERITOR, INC.~~

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 —
—
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 dividend —
—
—
—
—
—
(1 ) (1 )
Ending Balance at June 30, 2019 $ 104
$ 798
$ 448

$ (307 ) $ (569 ) $ 474
$ 36
$ 510

Nine months ended June 30, 2018
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 October 1, 2017 $ 101
$ 765
$ 83
$ (136 ) $ (545 ) $ 268
$ 27
$ 295
Comprehensive income (loss) —
—
85
—
(33 ) 52
7
59
Equity based compensation expense —
14
—
—
—
14
—
14
Vesting of equity based awards 1
(1 ) —
—
—
—
—
—
Repurchase of common stock —
—
—
(63 ) —
(63 ) —
(63 )
Noncontrolling interest dividends —
—
—
—
—
—
(1 ) (1 )
Other equity adjustments —
1
—
—
—
1
(2 ) (1 )
Ending Balance at June 30, 2018 $ 102
$ 779
$ 168

$ (199 ) $ (578 ) $ 272
$ 31
$ 303


	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)


	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.

Certain businesses are reported in discontinued operations in the Condensed Consolidated Statement of Operations, Condensed Consolidated Statement of Cash Flows and related notes for all periods presented. Additional information regarding discontinued operations is discussed in Note 5.

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~~Consolidated Financial Statements and notes thereto included in the company's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. The Condensed Consolidated Balance Sheet data as of September 30, ~~2018~~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 nine months ended June 30, ~~2019~~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 third quarter of fiscal years ~~2019~~2020 and ~~2018~~2019 ended on June 28, 2020 and June 30, 2019, ~~and July 1, 2018,~~ 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 June 30 are used consistently throughout this report to represent the fiscal year end and 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 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 temporarily closed select manufacturing locations beginning late in the second quarter of fiscal year 2020, continuing into the third quarter of fiscal year 2020. As of May 31, 2020, all of the company's global facilities were 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 June 30, Nine Months Ended June 30,
2019 2018 2019 2018
Basic average common shares outstanding 83.0
87.2
83.7
88.1
Impact of restricted shares, restricted share units and performance share units 1.7
1.7
2.1
2.1
Impact of convertible notes 0.9
0.9
0.8
1.0
Diluted average common shares outstanding 85.6

89.8

86.6

91.2

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 ~~2018,~~2019, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the long-term incentive plan. Each performance share unit represents the right to receive ~~one~~1 share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was ~~$16.50,~~$25.25, which was the company’s share price on the grant date of December 1, ~~2018.~~2019. The Board of Directors also approved a grant of ~~0.4~~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 ~~$16.50,~~$25.25, which was the company's share price on the grant date of December 1, ~~2018.~~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, ~~2018~~2019 to September 30, ~~2021,~~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 ~~the following weights: 50% associated with achieving an adjusted EBITDA~~

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~margin target and 50% associated with achieving an adjusted diluted earnings per share from continuing operations target.~~25%. The number of performance share units that vest will be between 0% and 200% of the grant date amount of ~~0.5~~0.4 million performance share units.

In November 2015, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the long-term incentive plan. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $10.51, which was the company’s share price on the grant date of December 1, 2015. The Board of Directors also approved a grant of 0.5 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $10.51, which was the company's share price on the grant date of December 1, 2015.

The actual number of performance share units that vested depended upon the company’s performance relative to the established performance metrics for the three-year performance period of October 1, 2015 to September 30, 2018, which was measured at the end of the performance period.

For the three and nine months ended June 30, 2019, the dilutive impact of previously issued restricted shares, restricted share units and performance share units was 1.7 million and 2.1 million shares, respectively. For the three and nine months ended June 30, 2018, the dilutive impact of previously issued restricted shares, restricted share units and performance share units was 1.7 million and 2.1 million shares, respectively. For the three and nine months ended June 30, 2019, compensation cost related to restricted shares, restricted share units and performance share units was $5 million and $13 million, respectively. For the three and nine months ended June 30, 2018, compensation cost related to restricted shares, restricted share units and performance share units was $4 million and $14 million, respectively.

For the three and nine months ended June 30, 2019, 0.9 million and 0.8 million shares, respectively, were included in the computation of diluted earnings per share, as the company's average stock price during these periods exceeded the conversion price for the 7.875 percent convertible notes due 2026. For the three and nine months ended June 30, 2018, 0.9 million and 1.0 million shares, respectively, were included in the computation of diluted earnings per share, as the company's average stock price during these periods exceeded the conversion price for the 7.875 percent convertible notes due 2026.

3. New Accounting Standards

Accounting standards implemented during fiscal year ~~2019~~2020

~~In May 2014,~~On October 1, 2019, the ~~Financial Accounting Standards Board ("FASB") issued~~company implemented Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, followed by various related amendments (ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-05, ASU 2017-06, ASU 2017-13, and ASU 2017-14) collectively referred to as "Topic 606", which requires companies to recognize revenue when a customer obtains control rather than when companies have transferred substantially all risks and rewards of a good or service and requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.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 ~~Topic 606~~ASU 2018-11, Leases (Topic 842) Targeted Improvements, electing to not separate lease and non-lease components in ~~the first quarter of the fiscal year beginning October 1, 2018.~~contracts that contain both and electing to not restate comparative periods when adopting ASU 2016-02. As a result, the company ~~has changed its accounting policy~~recognized a right-of-use asset and lease liability as a lessee for ~~revenue recognition as detailed below.~~

The company applied Topic 606 using the modified retrospective approach (i.e., by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity at October 1, 2018). Therefore, the comparative information has not been adjusted and continues to be reported under Topic 605. There was no adjustment to the opening balance of equity at October 1, 2018 as there was no significant impact to previously recorded revenue or expense. The guidance has been applied tosubstantially all existing ~~contracts at the date of initial application. The adoption of Topic 606 had an immaterial impact on our Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Operations,~~operating leases and ~~Condensed Consolidated Statement of Cash Flows but did require enhanced disclosures to meet the~~has included new ~~disclosure requirements; those enhanced disclosures are included in~~and expanded disclosures. (See Note 4.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The guidance requires entities to only include the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, are to be included in a separate line item(s) outside of any sub-total of operating income. ASU 2017-07 also provides guidance that only the service cost component of net benefit cost is eligible for capitalization. The revisions in this amendment

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

are to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The company adopted this standard in the first quarter of fiscal year 2019. Amounts previously reflected in Operating Income were reclassified to Other income (expense) in accordance with the provisions of ASU 2017-07. Refer to Note 20 for amounts that were reclassified.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in this ASU result from the FASB’s standing project to address suggestions on the Accounting Standards Codification ("ASC") and to make other incremental improvements to GAAP. The amendments include changes to clarify the ASC or correct unintended application of guidance that is not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.

Some of the amendments in this ASU were effective upon issuance. Others have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities, or are conforming amendments that have been made to recently issued guidance that is not yet effective that may require application of the transition and effective date guidance in the original ASU.

The company adopted certain amendments in this ASU in the first quarter of fiscal year 2019. Those certain amendments had effective dates for annual periods beginning after December 15, 2017, for public business entities. The amendments that were adopted in the first quarter of fiscal year 2019 did not have a material impact on the company's Condensed Consolidated Financial Statements. The company plans to implement the remaining amendments beginning October 1, 2019 and is currently evaluating the potential impact on its Condensed Consolidated Financial Statements.

~~The company also adopted the following ASUs during fiscal year 2019, none of which had a material impact on the Condensed Consolidated Financial Statements or financial statement disclosures:~~



~~ASU~~		~~Effective Date~~
~~2016-01~~	~~Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~	~~October 1, 2018~~
~~2016-15~~	~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)~~	~~October 1, 2018~~
~~2016-16~~	~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~	~~October 1, 2018~~
~~2016-18~~	~~Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)~~	~~October 1, 2018~~
~~2017-01~~	~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~	~~October 1, 2018~~
~~2017-09~~	~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~	~~October 1, 2018~~
~~2017-10~~	~~Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (a consensus of the FASB Emerging Issues Task Force)~~	~~October 1, 2018~~
~~2018-03~~	~~Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~	~~October 1, 2018~~
~~2018-04~~	~~Investments—Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273 (SEC Update)~~	~~October 1, 2018~~
~~2018-08~~	~~Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made~~	~~October 1, 2018~~

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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update will require lessees to recognize a right-of-use asset and lease liability for substantially all leases. The standard is required to be adopted by public business entities in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted.

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The company plans to implement this standard in the first quarter of the fiscal year beginning October 1, 2019, and is currently assessing the potential impact of this guidance on its accounting policies and its Condensed Consolidated Financial Statements. The company plans to implement this standard using the additional and optional transition method as provided by ASU 2018-11. Please see discussion of ASU 2018-11 below.

In June 2016, the ~~FASB~~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 February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The guidance in ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 ("U.S. tax reform") from accumulated other comprehensive income into retained earnings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The company is currently evaluating the potential impact of this new guidance on its Condensed Consolidated Financial Statements.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842. The amendments in this ASU affect narrow aspects of the guidance issued in ASU 2016-02, Leases (Topic 842), which is not yet effective. The effective date and transition requirements for this ASU are the same as those for ASU 2016-02 as described above. Therefore, the company plans to implement this standard in the first quarter of the fiscal year beginning October 1, 2019 in connection with its planned implementation of ASU 2016-02 and is currently assessing the potential impact of this new guidance on its accounting policies and its Condensed Consolidated Financial Statements.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The amendments in this ASU affect the guidance issued in ASU 2016-02, Leases (Topic 842), which is not yet effective. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments also provide lessors with a practical expedient to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component in certain circumstances. The effective date for this ASU are the same as those for ASU 2016-02 as described above. Therefore, the company plans to implement this standard in the first quarter of the fiscal year beginning October 1, 2019 in connection with its planned implementation of ASU 2016-02 and is currently assessing the potential impact of this new guidance on its accounting policies and its 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 ~~new~~ guidance on its accounting policies and its Condensed Consolidated Financial Statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this ASU affect a variety of Topics in the Codification (ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities; ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities).

For the amendments in this ASU that are applicable to ASU 2016-01, which Meritor has adopted, the effective date is the first quarter of fiscal year 2021 with early adoption permitted. For the amendments in this ASU that are applicable to ASU 2016-13, which Meritor has not yet adopted, the effective date is the first quarter of fiscal year 2021. For the amendments in this ASU that

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

are applicable to ASU 2017-12, which Meritor has adopted, the effective date is the first quarter of fiscal year 2020 with early adoption permitted. The company has not yet adopted any of these amendments and is currently evaluating the potential impact of this new guidance on its Condensed Consolidated Financial Statements.

4. Revenue

Revenue is measured based on the consideration to which the company expects to be entitled, and is presented net of any estimates of customer sales allowances, incentives, rebates, and returns. The company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost, as opposed to a distinct performance obligation, and are included in cost of sales.

~~Nature of goods and services~~

~~The following is a description of principal activities - separated by reportable segments - from which the company generates its revenue.~~

The Commercial Truck segment supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, primarily for medium- and heavy-duty trucks and other applications in North America, South America, Europe and Asia Pacific. This segment also includes the company's aftermarket businesses in Asia Pacific and South America.

The Aftermarket, Industrial and Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement parts to commercial vehicle and industrial aftermarket customers, primarily in North America and Europe. In addition, this segment supplies drivetrain systems and certain components, including axles, drivelines, brakes and suspension systems for military, construction, bus and coach, fire and emergency and other applications in North America and Europe. It also supplies a variety of undercarriage products and systems for trailer applications in North America.

Although the company may enter into long-term supply arrangements with its major customers, the prices and volumes are not fixed over the term of the arrangements and a contract does not exist under the scope of Topic 606 until prices and volumes are known. As such, individual customer releases or purchase orders represent the contract with the customer.

The company accounts for individual products and services separately if they are distinct (i.e., if a product or service is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The company has identified certain performance obligations related to brake pad fitting and axle dressing where it is acting as an agent and, therefore, recognizes revenue on a net basis for satisfaction of those performance obligations.

The company recognizes revenue for the sale of goods at the point in time when the customer takes control of the goods. As such, revenue is recognized upon shipment of product and transfer of ownership to the customer. The amount of revenue recognized is based on the purchase order price and adjusted for variable consideration (i.e., customer sales allowances, incentives, rebates, and returns). Provisions for customer sales allowances, incentives, rebates, and returns are recorded as a reduction of sales at the time of revenue recognition based primarily on historical experience. The company’s payment terms with customers are customary and vary by customer and geography but typically range from 30 to 90 days.

~~The company provides warranties on some of its products. The company records estimated product warranty costs at the time of shipment of products to customers (see Note 16 and Note 17).~~

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Disaggregation of revenue

In the following tables, revenue is disaggregated for each of our operating segments by primary geographical market for the three and nine months ended June 30, ~~2019.~~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
Primary Geographical Market Commercial Truck Aftermarket, Industrial and Trailer Total
U.S. $ 419
$ 278
$ 697
Canada —
18
18
Mexico 54
12
66
Total North America 473
308
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 $ 835
$ 331
$ 1,166

Nine Months Ended June 30, 2019
Primary Geographical Market Commercial Truck Aftermarket, Industrial and Trailer Total
U.S. $ 1,182
$ 781
$ 1,963
Canada —
53
53
Mexico 151
35
186
Total North America 1,333
869
2,202
Sweden 223
—
223
Italy 178
13
191
United Kingdom 126
8
134
Other Europe 9
54
63
Total Europe 536
75
611
Brazil 180
—
180
China 129
—
129
India 172
—
172
Other Asia-Pacific 66
—
66
Total sales $ 2,416
$ 944
$ 3,360



	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

~~Contract balances~~⁽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



	Nine Months Ended June 30, 2019 ⁽¹⁾
Primary Geographical Market	Commercial Truck		Aftermarket and Industrial		Total
U.S.	$	1,309	$	653	$	1,962
Canada	—		53		53
Mexico	172		15		187
Total North America	1,481		721		2,202
Sweden	223		—		223
Italy	178		13		191
United Kingdom	126		8		134
Other Europe	9		54		63
Total Europe	536		75		611
Brazil	180		—		180
China	129		—		129
India	172		—		172
Other Asia-Pacific	66		—		66
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.

As of June 30, ~~2019~~2020 and September 30, ~~2018,~~2019, Trade receivables, net, which are included in Receivables, trade and other, net, on the Condensed Consolidated Balance Sheet, were ~~$611~~$347 million and ~~$566~~$517 million, respectively.

For the three and nine months ended June 30, 2020 and June 30, 2019, the company had no material bad-debt ~~expense and there~~expense. There were no material contract

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheet as of June 30, 2020 and September 30, 2019.

~~Contract costs~~

The company applies the practical expedient provided in Topic 606 and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the company otherwise would have recognized is one year or less. The costs which are not capitalized are included in cost of sales.

~~5. Discontinued Operations~~

~~Results of discontinued operations are summarized as follows (in millions):~~

Three Months Ended June 30, Nine Months Ended June 30,
2019 2018 2019 2018
Sales $ —
$ —
$ —
$ —

Income (loss) before income taxes $ 1
$ (2 ) $ —
$ (4 )
Benefit from income taxes —
—
—
1
Income (loss) from discontinued operations attributable to Meritor, Inc. $ 1

$ (2 ) $ —
$ (3 )

~~Loss from discontinued operations attributable to~~

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 ~~company for~~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 nine months ended June 30, ~~2018 was primarily~~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

The following table provides a summary of the location and amounts related to ~~environmental remediation~~finance leases recognized in the Condensed Consolidated Balance Sheet (in millions).


	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

The following table provides a summary of the location and ~~changes in estimates~~amounts related to ~~legal costs incurred~~operating leases recognized in ~~connection with a previously divested business.~~the Condensed Consolidated Balance Sheet (in millions).


	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

The following tables summarize additional information related to our lease agreements.

Supplemental cash flow information related to leases (in millions)


	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

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental balance sheet information related to leases


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

Maturities (in millions)


	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

Disclosures related to periods prior to adoption of ASU 2016-02

Cash obligations under future minimum rental commitments under operating leases as of September 30, 2019 are shown in the table below (in millions).


	2020		2021		2022		2023		2024		Thereafter		Total
Lease commitments	$	18	$	15	$	14	$	13	$	13	$	25	$	98

6. Goodwill

In accordance with ASC Topic 350-20, "Intangibles—Goodwill and Other," goodwill is reviewed for impairment annually during the fourth quarter of the fiscal year or more frequently if certain indicators arise. If business conditions or other factors cause the operating results and cash flows of a reporting unit to decline, the company may be required to record impairment charges for goodwill at that time.

The company tests goodwill for impairment at a level of reporting referred to as a reporting unit, which is an operating segment or one level below an operating segment (referred to as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. When two or more components of an operating segment have similar economic characteristics, the components are aggregated and deemed a single reporting unit. An operating segment is deemed to be a reporting unit if all of its components are similar, if none of its components are a reporting unit, or if the segment comprises only a single component.

~~Acquisition of AA Gear & Manufacturing, Inc. Business~~

On April 30, 2018, the company acquired substantially all of the assets of AA Gear & Manufacturing, Inc. and its subsidiaries ("AAG") for a cash purchase price of approximately $35 million. The AAG acquisition was accounted for as a business combination. The company recorded goodwill in the amount of $12 million for the excess of consideration paid over the fair value of the individual assets acquired and liabilities assumed. This recorded goodwill consists largely of the synergies and economies of scale expected from combining the operations of the company and AAG. All of the goodwill was assigned to the Aftermarket, Industrial and Trailer reportable segment. All goodwill recognized is expected to be deductible for income tax purposes over the next 15 years.

Realignment of Reporting Units

As discussed in Note ~~23,~~22, the company realigned its operations in the ~~second~~third quarter of fiscal year ~~2019,~~2020, resulting in a change to its reportable segments. ~~The company’s reporting units did not change as~~As a result of the change in reportable ~~segments.~~segments, the company’s reporting units changed. The Commercial Truck segment contains ~~one~~1 reporting unit. The Aftermarket ~~Industrial~~ and ~~Trailer~~Industrial segment contains ~~four~~3 reporting units.

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of the changes in the carrying value of goodwill by the company’s ~~two~~2 reportable segments are presented below (in millions):

Commercial Truck Aftermarket, Industrial and Trailer Total
Goodwill ⁽¹⁾
$ 266
$ 170
$ 436
Accumulated impairment losses ⁽¹⁾
—
(15 ) (15 )
Beginning Balance at September 30, 2018 ⁽¹⁾
266
155
421
AAG measurement period adjustment (see Note 9) —
3
3
Foreign currency translation (3 ) —
(3 )
Ending Balance at June 30, 2019 $ 263
$ 158
$ 421


	Commercial Truck		Aftermarket and Industrial		Total
Goodwill ⁽¹⁾	$	287	$	206	$	493
Accumulated impairment losses ⁽¹⁾	—		(15)		(15)
Beginning Balance at September 30, 2019 ⁽¹⁾	287		191		478


AxleTech measurement period adjustment (see Note 9)	—		1		1
Goodwill acquired from acquisition (see Note 9)	24		—		24
Foreign currency translation	1		(1)		—
Ending Balance at June 30, 2020	$	312	$	191	$	503

⁽¹⁾ Amounts have been recast to reflect reportable segment changes (see Note ~~23)~~22).

7. Restructuring Costs

Restructuring reserves, primarily related to unpaid employee termination benefits, were $1$14 million at June 30, ~~2019~~2020 and $4$8 million at September 30, ~~2018.~~2019. Restructuring costs are recorded within Other operating expense, net within the Condensed Consolidated Statement of Operations. The changes in restructuring reserves for the nine months ended June 30, ~~2019~~2020 and ~~2018~~2019 are as follows (in millions):


	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

Employee Termination Benefits Plant Shutdown & Other Total
Beginning Balance at September 30, 2018 $ 4
$ —
$ 4
Activity during the period:
Charges to continuing operations (2 ) —
(2 )
Cash payments – continuing operations (2 ) —
(2 )
Other 1
—
1
Total restructuring reserves at June 30, 2019 1
—
1
Less: non-current restructuring reserves —
—
—
Restructuring reserves – current, at June 30, 2019 $ 1
$ —
$ 1

Balance at September 30, 2017 $ 5
$ 1
$ 6
Activity during the period:
Charges to continuing operations 6
—
6
Cash payments – continuing operations (6 ) (1 ) (7 )
Total restructuring reserves at June 30, 2018 5
—
5
Less: non-current restructuring reserves (1 ) —
(1 )
Restructuring reserves – current, at June 30, 2018 $ 4
$ —
$ 4

Global Restructuring Program Fiscal Year 2020: On June 2, 2020, the company approved and began executing a restructuring plan to reduce labor costs and align with current market forecasts. Under this program, the company expects to incur approximately $25 million in employee severance costs that affects approximately 8-percent of its global salaried positions, and will eliminate certain hourly roles. During the third quarter of fiscal year 2020, the company incurred $10 million in restructuring costs related to this program of which $7 million was in the Commercial Truck segment and $3 million related to the Aftermarket and Industrial segment. Restructuring actions associated with this plan are expected to be substantially complete by the end of the first quarter of fiscal year 2021.

Global Restructuring Programs Fiscal Year 2019: On September 27, 2019, the company approved and began executing a restructuring plan to reduce salaried and hourly headcount globally. This restructuring plan is intended to reduce labor costs in response to anticipated volume declines, primarily in the global truck and trailer market. With this program, the company expects to incur approximately $26 million of restructuring costs, primarily severance, across both of its reportable segments.

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the third quarter of fiscal year 2020, the company incurred $1 million in restructuring costs in the Commercial Truck segment. The total severance costs incurred for this plan are $20 million as of the end of the third quarter for fiscal year 2020, of which $13 million was incurred in fiscal year 2020 and $7 million was incurred in fiscal year 2019. Restructuring actions associated with this plan are expected to be substantially complete by the end of the first quarter of fiscal year 2021.

8. Income Taxes

For each interim reporting period, the company makes an estimate of the effective tax rate expected to be applicable for the full fiscal year pursuant to FASB ASC Topic 740-270, "Accounting for Income Taxes in Interim Periods." The rate so determined is used in providing for income taxes on a year-to-date basis. Jurisdictions with a projected loss for the year or an actual year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of including these jurisdictions on the quarterly effective rate calculation could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.

Income tax expense (benefit) is allocated among continuing operations, discontinued operations and other comprehensive income ("OCI"). Such allocation is applied by tax jurisdiction, and in periods in which there is a pre-tax loss from continuing

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

operations and pre-tax income in another category, such as discontinued operations or OCI, income tax expense is allocated to the other sources of income, with a related benefit recorded in continuing operations.

On December 22, 2017, the U.S. government enacted the U.S. tax reform. The U.S. tax reform made broad and complex changes to the U.S. tax code that affected the company's fiscal year ended September 30, 2018, including, but not limited to, reducing the U.S. federal corporate tax rate and requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. The U.S. tax reform reduced the federal corporate tax rate to 21 percent effective January 1, 2018.

The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the U.S. tax reform. SAB 118 provides a measurement period that should not extend beyond one year from the U.S. tax reform enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the U.S. tax reform for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the U.S. tax reform is incomplete but the company is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the U.S. tax reform.

Specifically, the company included discrete tax expense in its first quarter financial statements for fiscal year 2018 related to provisional amounts under SAB 118 for the impact of the revaluation of U.S. deferred tax assets and liabilities due to the federal income tax rate reduction from 35 percent to 21 percent. Additionally, the company estimated its liability and included provisional amounts for the one-time transition tax as a discrete tax expense. The company will elect to offset the liability associated with this transition tax by utilizing foreign tax credit carryovers. The revaluation of the deferred tax assets and the transition tax resulted in a non-cash charge of $77 million in the first quarter of fiscal year 2018. In the first quarter of fiscal year 2019, a $7 million income tax net benefit was recorded which consists of an income tax benefit of $11 million for refinement of the transition tax and $4 million income tax expense for refinement of other adjustments. In the third quarter of fiscal year 2019, a $2 million income tax benefit was recored to these other adjustments.

Tax expense related to the transition tax and rate change on net deferred tax assets and liabilities as of December 31, 2018 is now considered complete under SAB 118. Additionally, as of December 31, 2018, the company has accounted for the tax impacts related to the Global Intangible Low Tax Income ("GILTI"), Base Erosion Anti Abuse Tax ("BEAT") and Foreign Derived Intangible Income ("FDII") regimes as well as all other provisions of the U.S. tax reform that are effective in fiscal year 2019. The company has elected to treat GILTI as a period cost and, therefore, has not recognized deferred taxes for basis differences that may reverse as GILTI tax in future periods.

In evaluating the ability to recover its net deferred tax assets, the company utilizes a consistent approach which considers its historical operating results, including an assessment of the degree to which any gains or losses are driven by items that are unusual in nature, and tax planning strategies. In addition, the company reviews changes in near-term market conditions and other factors that impact future operating results. ~~In fiscal year 2018, after sustained profitability and improved market conditions, the valuation allowance in Brazil was reversed.~~ As of June 30, ~~2019,~~2020, the company continues to maintain the valuation allowances in France, Germany, the U.K., and certain other jurisdictions, as the company believes the negative evidence that it will be able to recover these net deferred tax assets continues to outweigh the positive evidence. If, in the future, the company generates taxable income on a sustained basis, its conclusion regarding the need for valuation allowances in these jurisdictions could change.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, which includes various income and payroll tax provisions, was signed into law by the U.S. government. In addition, various other coronavirus tax relief initiatives have been implemented around the world. As of the third quarter of fiscal year 2020, these tax initiatives did not have a material impact on the Condensed Consolidated Financial Statements.

For the three months ended June 30, ~~2019,~~2020, the company had approximately $4$6 million of net pre-tax ~~income~~loss compared to $7$4 million, of net pre-tax income in the same period in fiscal year ~~2018~~2019 in tax jurisdictions in which tax expense (benefit) is not recorded. For the nine months ended June 30, 2020, the company had approximately $1 million of net pre-tax loss compared to $12 million of net pre-tax income in the same period in fiscal year 2019 in tax jurisdictions in which tax expense (benefit) is not recorded.

For the nine months ended June 30, 2019, the company had approximately $12 million of net pre-tax income compared to $20 million of net pre-tax income in the same period in fiscal year 2018 in tax jurisdictions in which tax expense (benefit) is not recorded.

9. Acquisition ~~and Divestiture~~

Acquisition of AxleTech Business

On July 26, 2019, the company acquired 100 percent of the voting equity interest of the AxleTech group companies for approximately ~~$175~~$179 million in cash, subject to certain purchase price adjustments. The company funded the acquisition with the

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

term loan under the revolving credit agreement (see Note ~~18)~~17). The ~~addition~~acquisition of AxleTech enhances Meritor’s growth platform with the addition of a complementary product portfolio that includes a full line of independent suspensions, axles, braking solutions and drivetrain components across the off-highway, defense, specialty and aftermarket markets. AxleTech ~~will operate~~operates within Meritor’s Aftermarket and Industrial ~~and Trailer~~ segment. The amounts of revenue and earnings, fair value of identifiable net assets and related goodwill of AxleTech are unavailable and will be disclosed in the company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

Additionally, on July 29, 2019, the company approved a restructuring plan related to the integration of its acquisition of AxleTech. This restructuring plan is intended to realize certain targeted synergies following the acquisition, primarily from the elimination of cost overlap. With this restructuring plan, the Company expects to incur $11 million of total costs in the Aftermarket, Industrial and Trailer segment with approximately $7 million related to employee severance charges and approximately $4 million related to lease termination costs. Restructuring associated with severance actions are expected to be substantially completed by fiscal year 2020. The lease term expires in fiscal year 2023.

~~Acquisition of AAG Business~~

On April 30, 2018, the company acquired substantially all of the assets of AAG for a cash purchase price of approximately $35 million. AAG provides low-to-medium volume batch manufacturing for complex gear and shaft applications, as well as quick-turnaround prototyping solutions and emergency plant support. The AAG acquisition was accounted for as a business combination.

~~As of June 30, 2019, the company finalized all measurement period adjustments related to the AAG acquisition.~~ Since completion of initial estimates in the fourth quarter of fiscal year ~~2018,~~2019, the company has recorded $1 million in measurement period adjustments to decrease the provisional fair value of receivables, inventory and other assets acquired in the AxleTech transaction, resulting in a ~~$4 million decrease to finite lived intangible assets, a~~corresponding $1 million increase ~~to accounts receivable and a $3 million increase to~~in goodwill. ~~The adjustments were~~This adjustment was made to reflect additional available ~~information~~information. The measurement period remains open to finalize the value of tangible and ~~updated valuation results.~~intangible assets. The company is reviewing and may record other additional measurement period adjustments in fiscal year 2020. All goodwill resulting from the ~~AAG~~ acquisition of AxleTech was assigned to the Aftermarket ~~Industrial~~ and ~~Trailer~~Industrial reportable segment (see Note 6).

~~Divestiture~~Acquisition of ~~Meritor Huayang Vehicle Braking Company Ltd.~~

~~On February 7, 2018, Meritor completed the sale of its equity interest in Meritor Huayang Vehicle Braking Company Ltd~~. ~~All assets and liabilities of the business were transferred at closing.~~

TransPower Business

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On January 16, 2020, Meritor acquired 100 percent of the voting equity interest of Transportation Power, Inc. ("TransPower") for a cash purchase price of approximately $15 million, subject to certain purchase price adjustments. Prior to the acquisition, the fair value of the company’s investment in TransPower was $12 million. The TransPower acquisition was accounted for as a business combination. With the addition of TransPower's product portfolio, Meritor advances its strategic priorities through increased investment in next-generation technologies.

Pro forma financial information of the company is presented in the following table for the three and nine months ended June 30, 2020 and 2019 as if the TransPower acquisition had occurred on October 1, 2018. The pro forma financial information is unaudited and is provided for informational purposes only and does not purport to be indicative of the results which would have actually been attained had the acquisition occurred on October 1, 2018 (in millions).


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

Sales	$	514	$	1,168	$	2,287	$	3,364
Net income attributable to Meritor, Inc.	(36)		83		243		242

The purchase price was allocated on a provisional basis as of January 16, 2020. Assets acquired and liabilities assumed were recorded at estimated fair values based on management's estimates, available information, and reasonable and supportable assumptions. Additionally, the company is utilizing a third-party to assist with certain estimates of fair values. The provisional purchase price allocation, which is subject to change and may be subsequently adjusted to reflect final valuation results and other adjustments, is shown below (in millions). The company is reviewing and may record other additional measurement period adjustments in fiscal year 2020. All goodwill resulting from the acquisition of TransPower was assigned to the Commercial Truck reportable segment (see Note 6).


	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

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. Accounts Receivable Factoring and Securitization

The company has a U.S. accounts receivable securitization facility with PNC Bank and participates in various accounts receivable factoring programs, primarily with Nordea Bank for trade receivables from AB Volvo, as follows:


	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 6/30/19 Utilized as of 6/30/19 Utilized as of 9/30/18
EUR USD EUR USD EUR USD
On-balance sheet arrangement
Committed U.S. accounts receivable securitization ⁽¹⁾
December 2021 N/A
$ 110
N/A
$ 3
N/A
$ 57
Total on-balance sheet arrangement:⁽¹⁾
N/A
$ 110
N/A
$ 3
N/A
$ 57
Off-balance sheet arrangements
Committed Swedish factoring facility ⁽²⁾⁽³⁾
March 2020 € 155
$ 176
€ 140
$ 160
€ 136
$ 158
Committed U.S. factoring facility ⁽²⁾
February 2023 N/A
75
N/A
70
45
53
Uncommitted U.K. factoring facility February 2022 25
28
10
11
8
9
Uncommitted Italy factoring facility June 2022 30
34
30
34
24
28
Other uncommitted factoring facilities ⁽⁴⁾
None N/A
N/A
18
19
11
12
Total off-balance sheet arrangements € 210
$ 313
€ 198
$ 294
€ 224
$ 260

⁽¹⁾Availability subject to adequate eligible accounts receivable available for sale. The utilized amount includes ~~$3 million and $11~~$4 million of letters of credit as of June 30, ~~2019~~2020 and $4 million as of September 30, ~~2018, respectively.~~2019.

⁽²⁾Actual amounts may exceed the bank's commitment at the bank's discretion.

⁽³⁾The facility is backed by a 364-day liquidity commitment from Nordea Bank which extends through ~~January 10, 2020.~~June 22, 2021.

⁽⁴⁾There is no explicit facility size under the agreement, but the counterparty approves the purchase of receivable tranches at its discretion.

~~On-balance sheet arrangement~~

~~U.S. Securitization Facility:~~ The company's U.S. accounts receivables securitization facility with PNC Bank is subject to a maximum permitted priority debt-to-EBITDA ratio as of the last day of each fiscal quarter under the facility of 2.25 to 1.00. Under this program, the company has the ability to sell an undivided percentage ownership interest in substantially all of its trade receivables (excluding the receivables due from AB Volvo and subsidiaries eligible for sale under the U.S. accounts receivable factoring facility) of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation ("ARC"), a wholly-owned, special purpose subsidiary. ARC funds these purchases with borrowings from participating lenders under a loan agreement. This program also includes a letter of credit facility pursuant to which ARC may request the issuance of letters of credit issued for the company’s U.S. subsidiaries (originators) or their designees, which when issued will constitute a utilization of the facility for the amount of letters of credit issued. Amounts outstanding under this agreement are collateralized by eligible receivables purchased by ARC and are reported as short-term debt in the Condensed Consolidated Balance Sheet. This securitization program contains a cross default to the company's revolving credit facility. At certain times during any given month, the company may sell eligible accounts receivable under this program to fund intra-month working capital needs. In such months, the company would then typically utilize the cash received from customers throughout the month to repay the borrowings under the program. Accordingly, during any given month, the company may borrow under this program amounts exceeding the amounts shown as outstanding at fiscal quarter ends.

Off-balance sheet arrangements

Total costs associated with all of the off-balance sheet arrangements described above were $2$1 million and $1$2 million for the three months ended June 30, ~~2019~~2020 and ~~2018,~~June 30, 2019, respectively. Total costs associated with all of the off-balance sheet arrangements described above were $3 million and $5 million ~~and $3 million in~~for the nine months ended June 30, ~~2019~~2020 and ~~2018,~~June 30, 2019, respectively, and are included in selling, general and administrative expenses in the Condensed Consolidated ~~Statements~~Statement of Operations.

~~MERITOR, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

11. ~~Operating Cash Flows~~

~~The reconciliation of net income to cash flows provided by operating activities is as follows (in millions):~~

Nine Months Ended June 30,
2019 2018
OPERATING ACTIVITIES
Net income $ 255
$ 93
Less: Loss from discontinued operations, net of tax —
(3 )
Income from continuing operations 255
96
Adjustments to income from continuing operations to arrive at cash provided by operating activities:
Depreciation and amortization 64
64
Deferred income tax expense 27
92
Loss on debt extinguishment —
8
Restructuring costs (2 ) 6
Asset impairment charges 1
2
Equity in earnings of affiliates (24 ) (20 )
Pension and retiree medical income (28 ) (23 )
Asbestos related liability remeasurement (31 ) —
Other adjustments to income from continuing operations 13
13
Dividends received from equity method investments 14
9
Pension and retiree medical contributions (12 ) (17 )
Restructuring payments (2 ) (7 )
Changes in off-balance sheet accounts receivable securitization and factoring programs 41
65
Changes in receivables, inventories and accounts payable (96 ) (136 )
Changes in other current assets and liabilities (21 ) 26
Changes in other assets and liabilities (3 ) 12
Operating cash flows provided by continuing operations 196
190
Operating cash flows provided by (used for) discontinued operations (2 ) 1
CASH PROVIDED BY OPERATING ACTIVITIES $ 194
$ 191

~~12.~~ Inventories

Inventories are stated at the lower of cost (using FIFO or average methods) or market (determined on the basis of estimated realizable values) and are summarized as follows (in millions):


	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,
2019 September 30,
2018
Finished goods $ 154
$ 170
Work in process 42
41
Raw materials, parts and supplies 295
266
Total $ 491
$ 477

MERITOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~13. Other Current Assets~~

~~Other current assets are summarized as follows (in millions):~~

June 30,
2019 September 30,
2018
Asbestos-related recoveries (see Note 21) $ 8
$ 16
Prepaid and other 24
30
Other current assets $ 32
$ 46

~~14.~~12. Net Property

Net property is summarized as follows (in millions):


	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,
2019 September 30,
2018
Property at cost:
Land and land improvements $ 30
$ 29
Buildings 228
228
Machinery and equipment 928
914
Company-owned tooling 136
130
Construction in progress 66
81
Total 1,388
1,382
Less: accumulated depreciation (907 ) (899 )
Net property $ 481
$ 483


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


⁽²⁾	At June 30, 2019 and September 30, 2018, segment assets include $294 million and $260 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.


⁽³⁾	~~Amounts as of September 30, 2018 have been recast to reflect reportable segment changes, including the reallocation of goodwill.~~

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

~~24. Supplemental Guarantor Condensed Consolidating Financial Statements~~

⁽¹⁾~~Rule 3-10 of Regulation S-X requires~~Unallocated legacy and corporate income (expense), net represents items that ~~separate financial information for issuers and guarantors of registered securities be filed in certain circumstances. Certain of~~are not directly related to the company's ~~100-percent-owned subsidiaries, as defined in the credit agreement (the "Guarantors"), irrevocably~~business segments. These items primarily include asbestos-related charges 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 18).

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 June 30, 2019
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Sales
External $ —
$ 696
$ 470
$ —
$ 1,166
Subsidiaries —
24
46
(70 ) —
Total sales —
720
516
(70 ) 1,166
Cost of sales (17 ) (599 ) (441 ) 70
(987 )
GROSS MARGIN (17 ) 121
75
—
179
Selling, general and administrative (30 ) (28 ) (15 ) —
(73 )
Restructuring —
1
—
—
1
Other operating expense, net (3 ) —
—
—
(3 )
OPERATING INCOME (LOSS) (50 ) 94
60
—
104
Other income (expense), net 14
(2 ) (2 ) —
10
Equity in earnings of affiliates —
6
3
—
9
Interest income (expense), net (32 ) 11
7
—
(14 )
INCOME (LOSS) BEFORE INCOME TAXES (68 ) 109
68
—
109
Benefit (provision) for income taxes 19
(18 ) (22 ) —
(21 )
Equity income from continuing operations of subsidiaries 134
37
—
(171 ) —
INCOME FROM CONTINUING OPERATIONS 85
128
46
(171 ) 88
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax 1
—
—
—
1
NET INCOME 86
128
46
(171 ) 89
Less: Net income attributable to noncontrolling interests —
—
(3 ) —
(3 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 86
$ 128
$ 43
$ (171 ) $ 86

~~MERITOR, INC.~~

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

~~(In millions)~~

~~(Unaudited)~~

Three Months Ended June 30, 2019

Parent Guarantors Non-
Guarantors Elims Consolidated
Net income $ 86
$ 128
$ 46
$ (171 ) $ 89
Other comprehensive loss, net of tax (7 ) (2 ) (3 ) 4
(8 )
Total comprehensive income 79
126
43
(167 ) 81
Less: Comprehensive income attributable to
noncontrolling interests —
—
(2 ) —
(2 )
Comprehensive income attributable to Meritor, Inc. $ 79
$ 126
$ 41
$ (167 ) $ 79

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(In millions)~~

~~(Unaudited)~~

Three Months Ended June 30, 2018 ⁽¹⁾
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Sales
External $ —
$ 629
$ 500
$ —
$ 1,129
Subsidiaries —
40
61
(101 ) —
Total sales —
669
561
(101 ) 1,129
Cost of sales (20 ) (559 ) (481 ) 101
(959 )
GROSS MARGIN (20 ) 110
80
—
170
Selling, general and administrative (30 ) (27 ) (19 ) —
(76 )
Restructuring (2 ) (1 ) —
—
(3 )
OPERATING INCOME (LOSS) (52 ) 82
61
—
91
Other income (expense), net 28
(15 ) (4 ) —
9
Equity in earnings of affiliates —
6
3
—
9
Interest income (expense), net (26 ) 6
6
—
(14 )
INCOME (LOSS) BEFORE INCOME TAXES (50 ) 79
66
—
95
Benefit (provision) for income taxes 7
(13 ) (20 ) —
(26 )
Equity income from continuing operations of subsidiaries 109
39
—
(148 ) —
INCOME FROM CONTINUING OPERATIONS 66
105
46
(148 ) 69
LOSS FROM DISCONTINUED OPERATIONS, net of tax (2 ) (2 ) (2 ) 4
(2 )
NET INCOME 64
103
44
(144 ) 67
Less: Net income attributable to noncontrolling interests —
—
(3 ) —
(3 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 64
$ 103
$ 41
$ (144 ) $ 64

⁽¹⁾~~Prior period has been recast, see Note 20.~~

~~MERITOR, INC.~~

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

~~(In millions)~~

~~(Unaudited)~~

Three Months Ended June 30, 2018
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Net income $ 64
$ 103
$ 44
$ (144 ) $ 67
Other comprehensive loss, net of tax (48 ) (57 ) (8 ) 63
(50 )
Total comprehensive income 16
46
36
(81 ) 17
Less: Comprehensive income attributable to noncontrolling interests —
—
(1 ) —
(1 )
Comprehensive income attributable to Meritor, Inc. $ 16
$ 46
$ 35
$ (81 ) $ 16

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(In millions)~~

~~(Unaudited)~~

Nine Months Ended June 30, 2019
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Sales
External $ —
$ 1,962
$ 1,398
$ —
$ 3,360
Subsidiaries —
84
154
(238 ) —
Total sales —
2,046
1,552
(238 ) 3,360
Cost of sales (48 ) (1,723 ) (1,333 ) 238
(2,866 )
GROSS MARGIN (48 ) 323
219
—
494
Selling, general and administrative (83 ) (85 ) (12 ) —
(180 )
Restructuring —
1
1
—
2
Other operating expense, net (3 ) —
—
—
(3 )
OPERATING INCOME (LOSS) (134 ) 239
208
—
313
Other income (expense), net 64
(11 ) (23 ) —
30
Equity in earnings of affiliates —
16
8
—
24
Interest income (expense), net (97 ) 35
19
—
(43 )
INCOME (LOSS) BEFORE INCOME TAXES (167 ) 279
212
—
324
Benefit (provision) for income taxes 50
(52 ) (67 ) —
(69 )
Equity income from continuing operations of subsidiaries 365
86
—
(451 ) —
INCOME FROM CONTINUING OPERATIONS 248
313
145
(451 ) 255
LOSS FROM DISCONTINUED OPERATIONS, net of tax —
—
—
—
—
NET INCOME 248
313
145
(451 ) 255
Less: Net income attributable to noncontrolling interests —
—
(7 ) —
(7 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 248
$ 313
$ 138
$ (451 ) $ 248

~~MERITOR, INC.~~

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

~~(In millions)~~

~~(Unaudited)~~

Nine Months Ended June 30, 2019

Parent Guarantors Non-
Guarantors Elims Consolidated
Net income $ 248
$ 313
$ 145
$ (451 ) $ 255
Other comprehensive loss, net of tax (3 ) (9 ) (11 ) 20
(3 )
Total comprehensive income 245
304
134
(431 ) 252
Less: Comprehensive income attributable to
noncontrolling interests —
—
(7 ) —
(7 )
Comprehensive income attributable to Meritor, Inc. $ 245
$ 304
$ 127
$ (431 ) $ 245

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(In millions)~~

~~(Unaudited)~~

Nine Months Ended June 30, 2018 ⁽¹⁾
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Sales
External $ —
$ 1,663
$ 1,435
$ —
$ 3,098
Subsidiaries —
107
159
(266 ) —
Total sales —
1,770
1,594
(266 ) 3,098
Cost of sales (57 ) (1,477 ) (1,357 ) 266
(2,625 )
GROSS MARGIN (57 ) 293
237
—
473
Selling, general and administrative (90 ) (74 ) (54 ) —
(218 )
Restructuring (2 ) (2 ) (2 ) —
(6 )
Other operating expense, net (10 ) (1 ) (1 ) —
(12 )
OPERATING INCOME (LOSS) (159 ) 216
180
—
237
Other income (expense), net 70
(10 ) (36 ) —
24
Equity in earnings of affiliates —
14
6
—
20
Interest income (expense), net (91 ) 21
16
—
(54 )
INCOME (LOSS) BEFORE INCOME TAXES (180 ) 241
166
—
227
Provision for income taxes (8 ) (75 ) (48 ) —
(131 )
Equity income from continuing operations of subsidiaries 276
100
—
(376 ) —
INCOME FROM CONTINUING OPERATIONS 88
266
118
(376 ) 96
LOSS FROM DISCONTINUED OPERATIONS, net of tax (3 ) (2 ) (2 ) 4
(3 )
NET INCOME 85
264
116
(372 ) 93
Less: Net income attributable to noncontrolling interests —
—
(8 ) —
(8 )
NET INCOME ATTRIBUTABLE TO MERITOR, INC. $ 85
$ 264
$ 108
$ (372 ) $ 85

⁽¹⁾~~Prior period has been recast, see Note 20.~~

~~MERITOR, INC.~~

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

~~(In millions)~~

~~(Unaudited)~~

Nine Months Ended June 30, 2018
Parent Guarantors
Non-
Guarantors
Elims Consolidated
Net income $ 85
$ 264
$ 116
$ (372 ) $ 93
Other comprehensive income (loss), net of tax (33 ) (45 ) 6
38
(34 )
Total comprehensive income 52
219
122
(334 ) 59
Less: Comprehensive income attributable to noncontrolling interests —
—
(7 ) —
(7 )
Comprehensive income attributable to Meritor, Inc. $ 52
$ 219
$ 115
$ (334 ) $ 52

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING BALANCE SHEET~~

~~(In millions)~~

~~(Unaudited)~~

June 30, 2019
Parent Guarantors
Non-
Guarantors
Elims Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 27
$ 5
$ 79
$ —
$ 111
Receivables trade and other, net 3
81
541
—
625
Inventories —
260
231
—
491
Other current assets 4
11
17
—
32
TOTAL CURRENT ASSETS 34
357
868
—
1,259
NET PROPERTY 21
240
220
—
481
GOODWILL —
254
167
—
421
OTHER ASSETS 147
189
231
—
567
INVESTMENTS IN SUBSIDIARIES 4,188
960
—
(5,148 ) —
TOTAL ASSETS $ 4,390
$ 2,000
$ 1,486
$ (5,148 ) $ 2,728
CURRENT LIABILITIES:
Short-term debt $ 23
$ —
$ 1
$ —
$ 24
Accounts and notes payable 54
292
345
—
691
Other current liabilities 144
65
87
—
296
TOTAL CURRENT LIABILITIES 221
357
433
—
1,011
LONG-TERM DEBT 730
—
4
—
734
RETIREMENT BENEFITS 218
—
20
—
238
INTERCOMPANY PAYABLE (RECEIVABLE) 2,691
(2,856 ) 165
—
—
OTHER LIABILITIES 55
118
61
—
234
MEZZANINE EQUITY 1
—
—
—
1
EQUITY ATTRIBUTABLE TO MERITOR, INC. 474
4,381
767
(5,148 ) 474
NONCONTROLLING INTERESTS —
—
36
—
36
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY $ 4,390
$ 2,000
$ 1,486
$ (5,148 ) $ 2,728

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING BALANCE SHEET~~

~~(In millions)~~

~~(Unaudited)~~

September 30, 2018
Parent Guarantors
Non-
Guarantors
Elims Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 24
$ 6
$ 85
$ —
$ 115
Receivables trade and other, net 2
62
524
—
588
Inventories —
242
235
—
477
Other current assets 6
12
28
—
46
TOTAL CURRENT ASSETS 32
322
872
—
1,226
NET PROPERTY 24
241
218
—
483
GOODWILL —
250
171
—
421
OTHER ASSETS 179
182
235
—
596
INVESTMENTS IN SUBSIDIARIES 3,583
855
—
(4,438 ) —
TOTAL ASSETS $ 3,818
$ 1,850
$ 1,496
$ (4,438 ) $ 2,726
CURRENT LIABILITIES:
Short-term debt $ 47
$ —
$ 47
$ —
$ 94
Accounts and notes payable 64
297
339
—
700
Other current liabilities 77
71
142
—
290
TOTAL CURRENT LIABILITIES 188
368
528
—
1,084
LONG-TERM DEBT 726
—
4
—
730
RETIREMENT BENEFITS 241
—
21
—
262
INTERCOMPANY PAYABLE (RECEIVABLE) 2,325
(2,640 ) 315
—
—
OTHER LIABILITIES 50
124
158
—
332
MEZZANINE EQUITY 1
—
—
—
1
EQUITY ATTRIBUTABLE TO MERITOR, INC. 287
3,998
440
(4,438 ) 287
NONCONTROLLING INTERESTS —
—
30
—
30
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY $ 3,818
$ 1,850
$ 1,496
$ (4,438 ) $ 2,726

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~(In millions)~~

~~(Unaudited)~~

Nine Months Ended June 30, 2019

Parent Guarantors
Non-
Guarantors
Elims Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES $ 8
$ 32
$ 154
$ —
$ 194
INVESTING ACTIVITIES
Capital expenditures (2 ) (32 ) (29 ) —
(63 )
Cash paid for investment in Transportation Power, Inc. (6 ) —
—
—
(6 )
Proceeds from settlement of cross-currency swaps 17
—
—
—
17
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 9
(32 ) (29 ) —
(52 )
FINANCING ACTIVITIES
Borrowings and securitization —
—
(46 ) —
(46 )
Redemption of notes (24 ) —
—
—
(24 )
Deferred issuance costs (4 ) —
—
—
(4 )
Repurchase of common stock (71 ) —
—
—
(71 )
Intercompany advances 86
—
(86 ) —
—
Other financing activities (1 ) (1 ) —
—
(2 )
CASH USED FOR FINANCING ACTIVITIES (14 ) (1 ) (132 ) —
(147 )
EFFECT OF CHANGES IN FOREIGN CURRENCY
       EXCHANGE RATES ON CASH AND CASH
       EQUIVALENTS
—
—
1
—
1
CHANGE IN CASH AND CASH EQUIVALENTS 3
(1 ) (6 ) —
(4 )
CASH AND CASH EQUIVALENTS AT BEGINNING
       OF PERIOD
24
6
85
—
115
CASH AND CASH EQUIVALENTS AT END OF
       PERIOD
$ 27
$ 5
$ 79
$ —
$ 111

~~MERITOR, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~(In millions)~~

~~(Unaudited)~~

Nine Months Ended June 30, 2018
Parent Guarantors
Non-
Guarantors
Elims Consolidated
CASH PROVIDED BY (USED FOR)
       OPERATING ACTIVITIES
$ (26 ) $ 31
$ 186
$ —
$ 191
INVESTING ACTIVITIES
Capital expenditures (3 ) (25 ) (24 ) —
(52 )
Proceeds from sale of a business 4
—
—
—
4
Proceeds from prior year sale of equity method investment 250
—
—
—
250
Cash paid for investment in Transportation Power, Inc. (6 ) —
—
—
(6 )
Cash paid for acquisition of AA Gear & Manufacturing, Inc. (36 ) —
—
—
(36 )
Proceeds from sale of assets —
—
2
—
2
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 209
(25 ) (22 ) —
162
FINANCING ACTIVITIES
Borrowings and securitization —
—
(89 ) —
(89 )
Redemption of notes (181 ) —
—
—
(181 )
Repurchase of common stock (63 ) —
—
—
(63 )
Intercompany advances 67
—
(67 ) —
—
Other financing activities (1 ) (2 ) —
—
(3 )
CASH USED FOR FINANCING ACTIVITIES (178 ) (2 ) (156 ) —
(336 )
EFFECT OF CHANGES IN FOREIGN CURRENCY
       EXCHANGE RATES ON CASH AND CASH
       EQUIVALENTS
—
—
(5 ) —
(5 )
CHANGE IN CASH AND CASH EQUIVALENTS 5
4
3
—
12
CASH AND CASH EQUIVALENTS AT BEGINNING
       OF PERIOD
10
3
75
—
88
CASH AND CASH EQUIVALENTS AT END OF
       PERIOD
$ 15
$ 7
$ 78
$ —
$ 100

~~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 June 30, 2019 and September 30, 2018, Parent-only obligations included $224 million and $248 million ofsettlements, pension and retiree medical ~~benefits, respectively (see Note 20). All debt is debt of the Parent~~costs associated with sold businesses, and other ~~than $5 million~~legacy costs for environmental and $51 million at June 30, 2019 and September 30, 2018, respectively (see Note 18), and is primarily related to U.S. accounts receivable securitization and capital lease obligations. There were $29 million of cash dividends paid to the Parent by subsidiaries and investments accounted for by the equity method for theproduct liability.

⁽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, ~~2018, respectively.~~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⁾ Corporate assets consist primarily of cash, deferred income taxes and prepaid pension costs.

⁽²⁾ At June 30, 2020 and September 30, 2019, segment assets include $126 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.

⁽³⁾ Amounts as of September 30, 2019 have been recast to reflect reportable segment changes, including the reallocation of 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 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 temporarily closed select manufacturing locations beginning late in the second quarter of fiscal year 2020, continuing into the third quarter of fiscal year 2020. As of May 31, 2020, all of our global facilities were 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 established and executed a “Safe Start” plan for the reopening of plants, test labs, distribution centers and administrative facilities. We intend to operate under these enhanced safety guidelines for the foreseeable future. To ensure consistent application and compliance with these safety protocols, we have expanded the role of our Vice President and General Auditor to include responsibilities as Chief Safety Compliance Officer.

Operations

We 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. All of our operations are now running limited production. Our operations in China were temporarily suspended in mid-January and resumed production in mid-February and are now fully operational.

As we also serve the transportation, industrial and defense industries, we also continued to support customers who are actively engaged in the COVID-19 pandemic response. Our Aftermarket business remained fully operational to maintain the supply of critical replacement parts to the vital truck and trailer transportation network. Our Industrial businesses also remained operational at varying levels to support the production of vehicles deemed critical, including defense, bus and coach, terminal tractor, fire and rescue and off-highway applications. We will continue to monitor government and other mandates to understand the potential impact on our operations in other areas.

Cost Reductions

In March 2020, we implemented a series of cost reduction measures to preserve our financial flexibility, including a reduction to the base salary of each of our executive officers and salaried employees in the United States and Canada of between 40 percent and 60 percent effective April 1 through April 30, 2020, a reduction between 20 percent and 60 percent effective May 1, 2020 through June 15, 2020 and a reduction between 10 percent and 20 percent effective June 16, 2020. 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.

MERITOR, INC.

Special Incentive Plan

On June 10, 2020, we approved a special incentive plan to better align the compensation of our employees with the strategic goals of the company for the remainder of fiscal year 2020 given the impacts of the ongoing COVID-19 pandemic. Awards under the special incentive plan 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.

3rd Quarter Fiscal Year ~~2019~~2020 Results

Our sales for the third quarter of fiscal year ~~2019~~2020 were $514 million, compared to $1,166 million ~~an increase~~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 ~~$1,129~~net income attributable to Meritor of $86 million in the same period in the prior fiscal year. ~~The increase in sales was driven by higher truck production, primarily in North America, partially offset by the strengthening of the U.S. dollar against most currencies.~~

~~Net income attributable to Meritor for the third quarter of fiscal year 2019 was $86 million compared to $64 million in the same period in the prior fiscal year. Higher~~Lower net income year over year was driven primarily ~~attributable~~by lower revenues as a result significantly lower market volumes due to ~~conversion on increased revenue~~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 the significantly lower production levels. These actions included temporary salary reductions, employee headcount reductions, hourly employee layoffs and ~~lower income tax expense.~~other discretionary spend reductions.

Adjusted EBITDA (see Non-GAAP Financial Measures below) for the third quarter of fiscal year ~~2019~~2020 was ~~$146~~$7 million compared to ~~$135~~$146 million in the same period in the prior fiscal year. Our adjusted EBITDA margin (see Non-GAAP Financial Measures below) in the third quarter of fiscal year ~~2019~~2020 was ~~12.5~~1.4 percent compared to ~~12.0~~12.5 percent in the same period in the prior fiscal year. The ~~increase~~decrease in adjusted EBITDA ~~and adjusted EBITDA margin~~ year over year was driven primarily by ~~conversion on higher revenue and~~lower revenues as a result of lower market volumes due to the COVID-19 pandemic. Cost reduction actions executed in the quarter partially offset the impact ~~of Aftermarket pricing actions implemented earlier this year, partially offset by higher material costs.~~from lower revenue.

Net ~~income~~loss from continuing operations attributable to the company for the third quarter of fiscal year ~~2019~~2020 was ~~$85~~$36 million compared to ~~$66~~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 third quarter of fiscal year ~~2019~~2020 was~~$103~~ $34 million compared to ~~$80~~adjusted income from continuing operations attributable to the company of $103 million in the same period in the prior fiscal year.

Cash used for operating activities was $102 million in the third quarter of fiscal year 2020 compared to cash provided by operating activities ~~was~~of $143 million in the third quarter of fiscal year ~~2019 compared~~2019. The decrease in operating cash flow year on year was driven primarily by lower revenues as a result of significantly lower market volumes due to ~~$119~~the impact of the COVID-19 pandemic. Of the total decline in operating cash flow, $124 million of the 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 third quarter of fiscal year ~~2018. Higher earnings helped drive cash flow performance in~~2020, the reportable segments are (1) Commercial Truck and (2) Aftermarket and Industrial. Prior year reportable segment financial results have been recast for these changes.

Capital Markets Transactions

During the third quarter of fiscal year ~~2019.~~

~~Equity Repurchase Authorization~~

~~On July 26, 2019, our Board of Directors authorized the repurchase of up to $250~~2020, we issued $300 million of 6.25 percent unsecured senior notes due 2025 (the "2025 Notes"). Net proceeds from the offering of the notes, as well as cash on hand, were used to repay the outstanding $304 million balance under our common stock from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and our debt covenants. This authorization supersedes the remaining authority under the prior November 2018 equity repurchase authorization described below.senior secured credit facility.

In the third quarter of fiscal year 2019, we repurchased 1.0 million shares of our common stock for $21 million (including commission costs) pursuant to the November 2018 equity repurchase authorization described in the ~~Liquidity~~ ~~section below. The amount remaining available for repurchases under that repurchase authorization was $130 million as of June 30, 2019.~~

~~Acquisition of AxleTech Business~~

On July 26, 2019, we acquired 100 percent of AxleTech's shares for approximately $175 million in cash, subject to certain purchase price adjustments. The addition of AxleTech enhances our growth platform with the addition of a complementary product portfolio that includes a full line of independent suspensions, axles, braking solutions and drivetrain components across the off-highway, defense, specialty and aftermarket markets.

~~Income from continuing operations~~ (before noncontrolling interests) was $88 million in the third quarter of fiscal year 2019 compared to $69 million in the third quarter of fiscal year 2018. The reasons for the increase are discussed above.

~~Net income attributable to Meritor, Inc.~~ ~~was $86 million in the third quarter of fiscal year 2019 compared to $64 million in the third quarter of fiscal year 2018. The various factors affecting net income are discussed above.~~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 June 30, ~~2019~~2020 and ~~2018~~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

Segment adjusted EBITDA Segment adjusted EBITDA margins
Three Months Ended June 30, Three Months Ended June 30,
2019
2018 ⁽¹⁾
Change 2019
2018 ⁽¹⁾
Change
Commercial Truck $ 93
$ 100
$ (7 ) 10.7 % 11.7 % (1.0) pts
Aftermarket, Industrial and Trailer 54
38
16
15.9 % 11.9 % 4.0 pts
Segment adjusted EBITDA $ 147
$ 138
$ 9
12.6 % 12.2 % 0.4 pts

⁽¹⁾ Amounts for the three months ended June 30, ~~2018~~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, Industrial and Trailer TOTAL
Segment adjusted EBITDA– Quarter ended June 30, 2018⁽¹⁾
$ 100
$ 38
$ 138
Lower pension and retiree medical expense, net 1
—
1
Impact of foreign currency exchange rates (5 ) (1 ) (6 )
Volume, mix, pricing and other (3 ) 17
14
Segment adjusted EBITDA – Quarter ended June 30, 2019 $ 93
$ 54
$ 147

~~MERITOR, INC.~~


	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, ~~2018~~2019 have been recast to reflect reportable segment changes.

Commercial Truck segment adjusted EBITDA was ~~$93~~$(23) million in the third quarter of fiscal year ~~2019,~~2020, down $7$120 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin decreased from ~~11.7~~10.5 percent in the third quarter of fiscal year ~~2018~~2019 to ~~10.7~~(6.8) percent in the third quarter of fiscal year ~~2019.~~2020. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin were driven primarily by ~~higher material costs,~~significantly decreased market volumes for most regions across the segment due to the COVID-19 pandemic, partially offset by ~~the conversion on higher revenue. We continue to incur these layered capacity costs, but they are trending to be less than we have incurred~~cost reduction actions executed in the ~~past. Segment adjusted EBITDA was also unfavorably impacted by the strengthening~~third quarter of ~~the U.S. dollar against most currencies.~~fiscal year 2020.

Aftermarket ~~Industrial~~ and ~~Trailer~~Industrial segment adjusted EBITDA was ~~$54~~$31 million in the third quarter of fiscal year ~~2019, up $16~~2020, down $19 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin ~~increased~~decreased from ~~11.9~~17.7 percent in the third quarter of fiscal year ~~2018~~2019 to ~~15.9~~15.3 percent in the third quarter of fiscal year ~~2019.~~2020. The ~~increase~~decrease in segment adjusted EBITDA and segment adjusted EBITDA margin was driven primarily by ~~pricing~~lower volumes, partially offset by the cost reduction actions ~~within our Aftermarket business.~~executed in the third quarter of fiscal year 2020.

MERITOR, INC.

Results of Operations

Nine Months Ended June 30, ~~2019~~2020 Compared to Nine Months Ended June 30, ~~2018~~2019

Sales

The following table reflects total company and business segment sales for the nine months ended June 30, ~~2019~~2020 and ~~2018~~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)

Nine Months Ended June 30, Dollar Change Due To
2019
2018 ⁽¹⁾

Dollar
Change

%
Change
Currency Volume/ Other
Sales:
Commercial Truck
            North America $ 1,333
$ 1,122
$ 211
19 % $ —
$ 211
            Europe 536
567
(31 ) (5 )% (35 ) 4
            South America 180
162
18
11 % (24 ) 42
     China 129
149
(20 ) (13 )% (8 ) (12 )
     India 172
172
—
— % (13 ) 13
     Other 66
82
(16 ) (20 )% (3 ) (13 )
          Total External Sales $ 2,416
$ 2,254
$ 162
7 % $ (83 ) $ 245
            Intersegment Sales 108
102
6
6 % (11 ) 17
          Total Sales $ 2,524
$ 2,356
$ 168
7 % $ (94 ) $ 262

Aftermarket, Industrial and Trailer
            North America $ 869
$ 752
$ 117
16 % $ (3 ) $ 120
            Europe 75
92
(17 ) (18 )% (4 ) (13 )
          Total External Sales $ 944
$ 844
$ 100
12 % $ (7 ) $ 107
            Intersegment Sales 28
25
3
12 % (5 ) 8
          Total Sales $ 972
$ 869
$ 103
12 % $ (12 ) $ 115

Total External Sales $ 3,360

$ 3,098
$ 262
8 % $ (90 ) $ 352

⁽¹⁾ Amounts for the nine months ended June 30, ~~2018~~2019 have been recast to reflect reportable segment changes.

Commercial Truck sales were ~~$2,524~~$1,630 million in the first nine months of fiscal year ~~2019, up~~2020, down 39 percent compared to the first nine months of fiscal year 2019. Lower sales were driven by significantly lower market volumes driven by decreased customer demand and government mandates as a result of the COVID-19 pandemic. The majority of our production facilities were idled during the month of April with production increasing throughout the remainder of the quarter.

Aftermarket and Industrial sales were $755 million in the first nine months of fiscal year 2020, down 7 percent compared to the first nine months of fiscal year ~~2018. The increase~~2019. Lower sales were primarily driven by by decreased volumes across the 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 the WABCO distribution arrangement. Industrial sales ~~was~~were also down, driven primarily by ~~higher truck production in North America and increased market share,~~decreased volumes as a result of the impact of the COVID-19 pandemic, partially offset by the ~~strengthening of~~revenue generated from the ~~U.S. dollar against most currencies.~~AxleTech business.

~~Aftermarket, Industrial and Trailer~~

sales were $972 million in the first nine months of fiscal year 2019, up 12 percent compared to the first nine months of fiscal year 2018. Higher sales were driven by increased volumes across North America and pricing actions within our Aftermarket 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)	%

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 nine months ended June 30, ~~2019~~2020 was ~~$2,866~~$2,017 million compared to ~~$2,625~~$2,866 million in the same period in the prior fiscal year, representing ~~an increase~~a decrease of 930 percent, primarily driven by ~~increased~~decreased market volumes. Total cost of sales was ~~85.3~~88.2 and ~~84.7~~85.3 percent of sales for the nine-month periods ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

The following table summarizes significant factors contributing to the changes in costs of sales during the first nine months of fiscal year 2019 compared to the same quarter in the prior year (in millions):

~~MERITOR, INC.~~

Cost of Sales
Nine Months Ended June 30, 2018 ⁽¹⁾
$ 2,625
Volume, mix and other, net 332
Foreign exchange (91 )
Nine Months Ended June 30, 2019 $ 2,866

⁽¹⁾ Amounts for the nine months ended June 30, 2018 have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715). $22 million was reclassified out of Cost of goods sold and into Non-operating income (expense).

~~Changes in the components of cost of sales year over year are summarized as follows (in millions):~~

Change in Cost of Sales
Higher material costs $ 229
Higher labor and overhead costs 13
Other, net (1 )
Total change in costs of sales $ 241

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 nine months ended June 30, ~~2019 increased $229~~2020 decreased $749 million compared to the same period in the prior fiscal year primarily due to ~~higher volumes and higher year-over-year steel prices.~~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~~increased $13~~decreased by $110 million compared to the same period in the prior fiscal year primarily due to ~~higher~~lower 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 other discretionary spend reductions. Incentive compensation costs were also lower compared to the prior year.

Gross ~~margin~~profit was ~~$494~~$269 million and ~~$473~~$494 million for the nine-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Gross ~~margin,~~profit as a percentage of sales was ~~14.7~~11.8 and ~~15.3~~14.7 percent for the nine-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Gross ~~margin~~profit as a percentage of sales decreased ~~primarily due to higher freight and other layered capacity costs driven by significant production levels, which~~as lower sales more than offset the ~~impact of conversion on higher revenue.~~lower material, labor and overhead costs.

Other Income Statement Items

~~SG&A~~Selling, general and administrative expenses for the nine months ended June 30, 2020 and 2019 were $181 million and ~~2018 are summarized as follows (dollars in millions):~~

Nine Months Ended
June 30, 2019
June 30, 2018 ⁽¹⁾
Increase (Decrease)
SG&A Amount % of sales Amount % of sales Amount % of sales
Loss on sale of receivables $ (5 ) (0.1 )% $ (3 ) (0.1 )% $ 2
0.0 pts
Short and long-term variable
compensation
(37 ) (1.1 )% (43 ) (1.4 )% (6 ) (0.3) pts
Asbestos related expense, net of asbestos related insurance recoveries —
— % (7 ) (0.2 )% (7 ) (0.2) pts
Q1 Asbestos related liability remeasurement 31
0.9 % —
— % (31 ) (0.9) pts
All other SG&A (169 ) (5.1 )% (165 ) (5.3 )% 4
(0.2) pts
Total SG&A $ (180 ) (5.4 )% $ (218 ) (7.0 )% $ (38 ) (1.6) pts

⁽¹⁾ ~~Amounts for the nine months ended June 30, 2018 have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715).~~

$180 million, respectively. We recognized $31 million of income related to remeasuring the Maremont asbestos liability based on the ~~Maremont~~terms of the plan of reorganization in the first quarter of fiscal year 2019 (see Note 2120 of the Notes to the Condensed Consolidated Financial Statements in Part I of this Quarterly Report). ~~We recognized $7 million related~~Excluding Maremont, SG&A was lower primarily due to ~~previous cash settlements with insurance companies for recoveries of defense and indemnity costs associated with asbestos liabilities~~certain actions executed in the ~~first nine months~~third quarter of fiscal year ~~2018,~~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 ~~is included~~was acquired in the fourth quarter of fiscal year 2019, as well as higher electrification costs.

MERITOR, INC.

~~Asbestos-related expense, net of asbestos-related insurance recoveries (see Note 21 of the~~ ~~Notes to the Condensed Consolidated Financial Statements~~ ~~in Part I of this Quarterly Report).~~

All other SG&A, which represents normal selling, general and administrative expense, increased year over year, primarily due to investments made throughout fiscal year 2019 to support plan growth initiatives.

~~Other operating expense~~Provision for income taxes was $3$73 million in the first nine months of fiscal year 2019. Other operating expense was $12 million in the first nine months of fiscal year 2018. During the nine months ended June 30, 2019 and June 30, 2018, these costs primarily related to environmental remediation.

~~Operating income~~ increased by $76 million from $237 million in the first nine months of fiscal year 2018 to $313 million in the same period in fiscal year 2019. Key items affecting operating income are discussed above.

~~Non-operating income~~ increased by $6 million from $24 million in the first nine months of fiscal year 2018 to $30 million in the same period in fiscal year 2019. The increase was driven primarily by lower pension and retiree medical expense in the current year. Amounts for the nine months ended June 30, 2018 have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715). For the nine months ended June 30, 2018, $22 million was reclassified out of Cost of goods sold and $1 million was reclassified out of SG&A and into Non-operating income.

~~Equity in earnings of affiliates~~ increased by $4 million from $20 million in the first nine months of fiscal year 2018 to $24 million in the same period in fiscal year 2019. The increase was primarily attributable to higher earnings across all our joint ventures.

~~Interest expense, net~~ decreased by $11 million from $54 million in the first nine months of fiscal year 2018 to $43 million in the same period in fiscal year 2019. The decrease in Interest expense was primarily attributable to the loss on debt extinguishment of $8 million recognized in the first quarter of fiscal year 2018 that did not repeat, as well as the benefits from the cross-currency swaps entered into during the third quarter of fiscal year 2018.

~~Provision for income taxes~~ ~~was $69 million in the first nine months of fiscal year 2019~~2020 compared to ~~$131~~$69 million in the same period in the prior fiscal year. The ~~nine months ended June 30, 2018 included $43 million of non-cash~~increase in tax expense is primarily related to the ~~remeasurement of our deferred~~ tax ~~attributes as a result~~effect on the proceeds received from the termination of the U.S. tax reform and $34 million of non-cash tax expense related to the one-time deemed repatriation of accumulated foreign earnings, which had no cash impact due to the use of foreign tax credits. For the nine months ended June 30, 2019, a $12 million non-cash tax benefit was recorded to reduce the liability for the refinement of the one-time deemed repatriation. Also impacting the first nine months of fiscal year 2019 was a $6 million non-cash income tax expense adjustment related to the remeasurement of the Maremont asbestos liability. Also impacting the third quarter of fiscal year 2019 was strongerWABCO distribution arrangement, largely offset lower earnings in certain jurisdictions that do not have a tax valuation ~~allowance compared to the prior year.~~allowance.

~~Income from continuing operations~~ (before noncontrolling interests) was $255 million in the first nine months of fiscal year 2019 compared to $96 million in the first nine months of fiscal year 2018. The reasons for the increase are discussed above.

~~Net income attributable to Meritor, Inc.~~ ~~was $248 million in the first nine months of fiscal year 2019 compared to $85 million in the first nine months of fiscal year 2018. The various factors affecting net income are discussed above.~~

Segment Adjusted EBITDA and Segment Adjusted EBITDA Margins

The following table reflects segment adjusted EBITDA and segment adjusted EBITDA margins for the nine months ended June 30, ~~2019~~2020 and ~~2018~~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
Nine Months Ended June 30, Nine Months Ended June 30,
2019
2018 ⁽¹⁾
Change 2019
2018 ⁽¹⁾
Change
Commercial Truck $ 258
$ 263
$ (5 ) 10.2 % 11.2 % (1.0) pts
Aftermarket, Industrial and Trailer 146
108
38
15.0 % 12.4 % 2.6 pts
Segment adjusted EBITDA $ 404
$ 371
$ 33
12.0 % 12.0 % 0.0 pts

⁽¹⁾ Amounts for the nine months ended June 30, ~~2018~~2019 have been recast to reflect reportable segment changes.

~~MERITOR, INC.~~

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– Nine months ended June 30, 2018⁽¹⁾
$ 263
$ 108
$ 371
Higher earnings from unconsolidated affiliates 4
—
4
Lower pension and retiree medical expense, net 2
1
3
Impact of foreign currency exchange rates (14 ) (4 ) (18 )
Volume, mix, pricing and other 3
41
44
Segment adjusted EBITDA – Nine months ended June 30, 2019 $ 258
$ 146
$ 404

⁽¹⁾ Amounts for the nine months ended June 30, ~~2018~~2019 have been recast to reflect reportable segment changes.

Commercial Truck segment adjusted EBITDA was ~~$258~~$92 million in the first nine months of fiscal year ~~2019,~~2020, down $5$178 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin decreased from ~~11.2 percent for the first nine months of fiscal year 2018 to 10.2~~10.1 percent in the first nine months of fiscal year ~~2019.~~2019 to 5.6 percent in the first nine months of fiscal year 2020. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin were driven primarily by significantly decreased market volumes for most regions across the segment, primarily due to the COVID-19 pandemic, partially offset by the cost reduction actions executed in the third quarter of fiscal year 2020 and lower incentive compensation costs.

Aftermarket and Industrial segment adjusted EBITDA was $116 million in the first nine months of fiscal year 2020, down $18 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin decreased from 16.5 percent in the first nine months of fiscal year 2019 to 15.4 percent in the first nine months of fiscal year 2020. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin was driven primarily by ~~higher net steel, freight and other layered capacity costs,~~lower volumes, partially offset by ~~conversion on higher revenue and continued material performance. Segment adjusted EBITDA was also unfavorably impacted by~~ the ~~strengthening of the U.S. dollar against most currencies.~~

~~Aftermarket, Industrial and Trailer~~ ~~segment adjusted EBITDA was $146 million~~cost reduction actions executed in the ~~first nine months~~third quarter of fiscal year 2019, up $38 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin increased from 12.4 percent in the first nine months of fiscal year 2018 to 15.0 percent in the first nine months of fiscal year 2019. The increase in segment adjusted EBITDA2020 and ~~segment adjusted EBITDA margin was driven primarily by pricing actions within our Aftermarket business.~~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

Nine Months Ended June 30,
2019 2018
OPERATING CASH FLOWS
Income from continuing operations $ 255
$ 96
Depreciation and amortization 64
64
Deferred income tax expense 27
92
Loss on debt extinguishment —
8
Restructuring costs (2 ) 6
Asset impairment charges 1
2
Equity in earnings of affiliates (24 ) (20 )
Pension and retiree medical income (28 ) (23 )
Asbestos related liability remeasurement (31 ) —
Dividends received from equity method investments 14
9
Pension and retiree medical contributions (12 ) (17 )
Restructuring payments (2 ) (7 )
Changes in receivables, inventories and accounts payable (96 ) (136 )
Changes in off-balance sheet accounts receivable factoring 41
65
Changes in other current assets and liabilities (21 ) 26
Changes in other assets and liabilities (3 ) 12
Other, net 13
13
Cash flows provided by continuing operations 196
190
Cash flows provided by (used for) discontinued operations (2 ) 1
CASH PROVIDED BY OPERATING ACTIVITIES $ 194
$ 191

~~MERITOR, INC.~~

Cash provided by operating activities in the first nine months of fiscal year ~~2019~~2020 was ~~$194~~$188 million compared to ~~$191~~$194 million in the same period of fiscal year ~~2018.~~2019. The 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.

Nine Months Ended June 30,
2019 2018
INVESTING CASH FLOWS
Capital expenditures $ (63 ) $ (52 )
Proceeds from sale of equity method investment —
250
Cash paid for acquisition of AA Gear & Manufacturing, Inc. —
(36 )
Proceeds from sale of a business —
4
Proceeds from settlement of cross-currency swaps 17
—
Cash paid for investment in Transportation Power, Inc. (6 ) (6 )
Proceeds from sale of assets —
2
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES $ (52 ) $ 162


	Nine Months Ended June 30,
	2020		2019
INVESTING CASH FLOWS
Capital expenditures	$	(45)	$	(63)





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


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

Cash used for investing activities was $5249 million in the first nine months of fiscal year ~~2019~~2020 compared to ~~cash provided by investing activities of $162~~$52 million in the same period in fiscal year ~~2018. The decrease in cash~~2019.

MERITOR, INC.


	Nine Months Ended June 30,
	2020		2019
FINANCING CASH FLOWS
Securitization	$	(8)	$	—
Borrowings against revolving line of credit	304		—
Repayments of revolving line of credit	(304)		(46)
Proceeds from debt issuances	300		—
Redemption of notes	—		(24)
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)

Cash provided by investing activities was driven by $250 million of proceeds received in the first quarter of fiscal year 2018 from the sale of our interest in Meritor WABCO Vehicle Control Systems ("Meritor WABCO") in the fourth quarter of fiscal year 2017 that did not repeat.

Nine Months Ended June 30,
2019 2018
FINANCING CASH FLOWS
Borrowings and securitization $ (46 ) $ (89 )
Redemption of notes (24 ) (181 )
Deferred issuance costs (4 ) —
Other financing activities (2 ) (3 )
Net change in debt (76 ) (273 )
Repurchase of common stock (71 ) (63 )
CASH USED FOR FINANCING ACTIVITIES $ (147 ) $ (336 )

~~Cash used for~~ financing activities was ~~$147~~$40 million in the first nine months of fiscal year ~~2019~~2020 compared to ~~$336~~cash used for financing activities of $147 million in the same period of fiscal year ~~2018.~~2019. The ~~decrease~~increase in cash ~~used for~~provided by financing activities is primarily related to the ~~redemption~~net proceeds from the offering of ~~our 6.75 percent notes due 2021 (the "6.75 Percent Notes")~~the 2025 Notes, offset by share repurchases that occurred in the first ~~quarter~~half of fiscal year 2018, that did not repeat. In the first quarter of fiscal year 2018, we utilized $185 million to redeem $175 million principal amount of the 6.75 Percent Notes. The decrease in cash used for financing activities was also driven by outstanding borrowings against our revolving credit and securitization facilities, partially offset by the repurchase of 3.0 million shares of common stock for $50 million (including commission costs) in the first quarter of fiscal year 2019 (see~~Note 22 of the~~ ~~Notes to the Condensed Consolidated Financial Statements in Part I~~ of this Quarterly Report), the repurchase of 1.0 million shares of common stock for $21 million (including commission costs) in the third quarter of fiscal year 2019, the redemption of $19 million aggregate principal amount outstanding of our 4.0 percent senior convertible notes due 2027 (the "4.0 Percent Convertible Notes") at a price of 100 percent of the accreted principal amount, plus accrued and unpaid interest, in the second quarter of fiscal year 2019 and the redemption of $5 million aggregate principal amount outstanding of the 4.0 Percent Convertible Notes at a price of 100 percent of the accreted principal amount, plus accrued and unpaid interest, in the third quarter of fiscal year 2019.2020.

~~MERITOR, INC.~~

Liquidity

Our outstanding debt, net of discounts and unamortized debt issuance costs, where applicable, is summarized in the table below (in millions).


	June 30, 2020		September 30, 2019

Fixed-rate debt securities	$	740	$	444
Fixed-rate convertible notes	343		342
Unamortized discount on convertible notes	(30)		(34)
Term loan	168		175
Other borrowings	6		16
Total debt	$	1,227	$	943

June 30, 2019 September 30, 2018
Fixed-rate debt securities $ 444
$ 444
Fixed-rate convertible notes 341
364
Unamortized discount on convertible notes (34 ) (37 )
Other borrowings 7
53
Total debt $ 758
$ 824

Overview – Our principal operating and capital requirements are for working capital needs, capital expenditure requirements, debt service requirements, funding of pension and retiree medical costs and restructuring and product development programs. We expect fiscal year ~~2019~~2020 capital expenditures for our business segments to be approximately ~~$105~~$85 million.

We generally fund our operating and capital needs with cash on hand, cash flows from operations, our various accounts receivable securitization and factoring arrangements and availability under our revolving credit facility. Cash in excess of local operating needs is generally used to reduce amounts outstanding, if any, under our revolving credit facility or U.S. accounts receivable securitization program. Our ability to access additional capital in the long term will depend on availability of capital markets and pricing on commercially reasonable terms, as well as our credit profile at the time we are seeking funds. We continuously evaluate our capital structure to ensure the most appropriate and optimal structure and may, from time to time, retire, repurchase, exchange or redeem outstanding indebtedness or common equity, issue new equity or debt securities or enter into new lending arrangements if conditions warrant.

In December 2017, we filed a shelf registration statement with the Securities and Exchange Commission ("SEC"), registering an indeterminate amount of debt and/or equity securities that we may offer in one or more offerings on terms to be determined at the time of sale.

We believe our current financing arrangements provide us with the financial flexibility required to maintain our operations during the uncertain times of the COVID-19 pandemic and fund future growth, including actions required to improve our

MERITOR, INC.

market share and further diversify our global operations, through the term of our revolving credit facility, which matures in June 2024.

~~MERITOR, INC.~~

Sources of liquidity as of June 30, ~~2019,~~2020, in addition to cash on hand, are as follows (in millions):


	Total Facility Size		Utilized as of 6/30/2020		Readily Available as of 6/30/2020		Current Expiration
On-balance sheet arrangements:
Revolving credit facility ⁽¹⁾	$	625	$	—	$	625	June 2024⁽¹⁾
Committed U.S. accounts receivable securitization ⁽²⁾	95		—		65		December 2022
Total on-balance sheet arrangements	$	720	$	—	$	690
Off-balance sheet arrangements: ⁽²⁾
Committed Swedish factoring facility ⁽³⁾⁽⁴⁾	$	174	$	73	$	—	March 2024
Committed U.S. factoring facility ⁽³⁾	75		26		—		February 2023
Uncommitted U.K. factoring facility	28		3		—		February 2022
Uncommitted Italy factoring facility	34		13		—		June 2022
Other uncommitted factoring facilities ⁽⁵⁾	N/A		11		N/A		N/A

Total off-balance sheet arrangements	$	311	$	126	$	—
Total available sources	$	1,031	$	126	$	690

Total Facility
Size

Utilized as of
6/30/19

Readily Available as of
6/30/19
Current Expiration
On-balance sheet arrangements:
Revolving credit facility ⁽¹⁾
$ 625
$ —
$ 625

June 2024⁽¹⁾
Committed U.S. accounts receivable securitization ⁽²⁾
110
3
107
December 2021
Total on-balance sheet arrangements $ 735

$ 3
$ 732

Off-balance sheet arrangements: ⁽²⁾

Committed Swedish factoring facility ⁽³⁾
$ 176
$ 160
$ —
March 2020
Committed U.S. factoring facility ⁽³⁾
75
70
—
February 2023
Uncommitted U.K. factoring facility 28
11
—
February 2022
Uncommitted Italy factoring facility 34
34
—
June 2022
Other uncommitted factoring facilities ⁽⁴⁾
N/A
19
N/A
None
Total off-balance sheet arrangements 313
294
—

Total available sources $ 1,048

$ 297
$ 732

⁽¹⁾The availability under the revolving credit facility is subject to a priority debt-to-EBITDA ratio covenant. The facility will expire in November 2023 if the outstanding amount of the 6.25 percent notes due 2024 is greater than $75 million at that time.

⁽¹⁾

⁽²⁾Availability subject to adequate eligible accounts receivable available for sale.

⁽³⁾Actual amounts may exceed the bank's commitment at the bank's discretion.

⁽⁴⁾The facility is backed by a 364-day liquidity commitment from Nordea Bank which extends through June 22, 2021.

⁽⁵⁾There is no explicit facility size under the agreement, but the counterparty approves the purchase of receivable tranches at its discretion.

The availability under the revolving credit facility is subject to a priority debt-to-EBITDA ratio covenant. The facility will expire in November 2023 if the outstanding amount of the 6.25 percent notes due 2024 is greater than $75 million at that time.


⁽²⁾	~~Availability subject to adequate eligible accounts receivable available for sale.~~


⁽³⁾	~~Actual amounts may exceed the bank's commitment at the bank's discretion.~~


⁽⁴⁾	~~There is no explicit facility size under the agreement, but the counterparty approves the purchase of receivable tranches at its discretion.~~

Cash and Liquidity Needs – At June 30, ~~2019,~~2020, we had ~~$111~~$280 million in cash and cash equivalents, of which ~~$30~~$13 million was held in jurisdictions outside of the U.S. that, if repatriated, could result in withholding taxes. ~~It is our intent~~We plan to ~~reinvest those~~repatriate approximately $10 million of this cash, ~~balances in our foreign~~of which no withholding taxes are expected to be owed. In addition, we plan to utilize ongoing cash flow from domestic operations ~~as we expect~~and external borrowings, to meet our liquidity needs in the U.S. ~~through ongoing cash flows from operations in the U.S., external borrowings or both.~~

Our availability under the revolving credit facility is subject to a priority debt-to-EBITDA ratio covenant, as defined in the credit agreement, which may limit our borrowings under such agreement as of each quarter end. As long as we are in compliance with this covenant as of the quarter end, we have full availability under the revolving credit facility every other day during the quarter. Our future liquidity is subject to a number of factors, including access to adequate funding under our revolving credit facility, access to other borrowing arrangements such as factoring or securitization facilities, vehicle production schedules and customer demand. Even taking into account these and other factors, management expects to have sufficient liquidity to fund our operating requirements through the term of our revolving credit facility. At June 30, ~~2019,~~2020, we were in compliance with ~~this~~the priority debt to EBITDA ratio covenant ~~under our credit agreement.~~with a ratio of approximately 0.36x, which includes the income recognized related to the termination of the WABCO distribution arrangement.

Equity Repurchase Authorization – On ~~July 21, 2016, our~~November 7, 2019, the Board of Directors authorized the repurchase of up to ~~$100~~$325 million of ~~our~~the company's common stock, which was an increase from the prior $250 million authorization approved on July 26, 2019. Repurchases can be made from time to time through open market purchases, privately negotiated transactions or otherwise, ~~until September 30, 2019,~~ subject to compliance with legal and regulatory requirements and ~~our~~the company’s debt covenants. During ~~the second quarter of~~ fiscal year ~~2018, we~~2019, the company repurchased ~~1.4~~1.3 million shares of common stock for ~~$33~~$25 million (including commission costs) pursuant to this common stock repurchase authorization. During the first quarter of fiscal year 2020, the company repurchased 4.9 million shares of common stock for $100 million (including commission costs) pursuant to this authorization. During the ~~third~~second quarter of fiscal year ~~2018, we~~2020, the company repurchased ~~1.4~~5.6 million shares of common stock for ~~$30~~$141 million (including commission costs) pursuant to this authorization. ~~During~~As of June 30, 2020, the ~~fourth quarter of fiscal year 2018, we repurchased 1.7 million shares of our common stock~~amount remaining available for ~~$37 million (including commission costs) pursuant to this authorization. The~~ repurchases under this common stock repurchase authorization ~~were complete~~was $59 million. On March 25, 2020, we suspended activity under our share repurchase program as a result of ~~September 30, 2018.~~uncertainties in the global economy due to the COVID-19 pandemic.

On November 2, 2018, our Board of Directors authorized the repurchase of up to $200 million of our common stock from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal

MERITOR, INC.

and regulatory requirements and our debt covenants. ~~This repurchase authorization superseded the prior July 2016 equity repurchase authorization.~~ In the first quarter of fiscal year 2019, we repurchased 3.0 million shares of common stock for $50 million (including commission costs) pursuant to this repurchase authorization. In the third quarter of fiscal year 2019, we repurchased 1.0 million shares of common stock for $21 million (including commission costs) pursuant to this authorization. ~~The amount remaining available for repurchases under this repurchase authorization was $130 million as of June 30, 2019.~~

~~MERITOR, INC.~~

On July 26, 2019, our Board of Directors authorized the repurchase of up to $250 million of our common stock from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and our debt covenants. This authorization supersedes the remaining authority under the prior November 2018 equity repurchase authorization described above.

Debt Repurchase Authorization – On July 21, 2016, our Board of Directors authorized the repurchase of up to $150 million aggregate principal amount of any of our debt securities (including convertible debt securities) from time to time through open market purchases, privately negotiated transactions or otherwise until September 30, 2019, subject to compliance with legal and regulatory requirements and our debt covenants. The amount remaining available for repurchases under this authorization was $50 million as of September 30, 2018.

On November 2, 2018, our Board of Directors authorized the repurchase of up to $100 million aggregate principal amount of any of our debt securities (including convertible debt securities) from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and our debt covenants. ~~This repurchase authorization supersedes the prior July 2016 debt repurchase authorization.~~ The amount remaining available for repurchases under this repurchase authorization was $76 million as of June 30, 2020 and September 30, 2019.

~~Redemption of 6.75 Percent Notes~~Revolving Credit Facility - On September 28, 2017, we redeemed $100 million of the outstanding $275 million aggregate principal amount of the 6.75 Percent Notes at a price of $1,033.75 per $1,000 of principal amount, plus accrued and unpaid interest. As a result, a loss on debt extinguishment of $5 million was recorded– The revolving credit facility is discussed in ~~the Condensed Consolidated Statement of Operations within Interest expense, net during fiscal year 2017. The redemption was made pursuant to the July 2016 debt repurchase authorization (see~~ Note 2217 of the Notes to the Condensed Consolidated Financial Statementsin Part I of this Quarterly ~~Report).~~Report.

Issuance of 2025 Notes – On ~~November 2, 2017,~~June 8, 2020, we ~~redeemed~~completed the ~~remaining $175~~offering and sale of $300 million aggregate principal amount ~~outstanding~~ of the ~~6.75 Percent~~company’s 2025 Notes atto qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to non-U.S. persons in offshore transactions in reliance on Regulations S under the Securities Act, in a price of $1,033.75 per $1,000 of principal amount, plus accrued and unpaid interest. As a result, a loss on debt extinguishment of $8 million was recorded in the Condensed Consolidated Statement of Operations within Interest expense, net. The redemption was made pursuant to a special authorizationprivate placement, exempt from the ~~Board of Directors in connection with the sale of Meritor WABCO.~~

~~Redemption of 4.0 Percent Notes~~ ~~- On February 15, 2019, we redeemed $19 million aggregate principal amount outstanding~~registration requirements of the ~~4.0 Percent Convertible~~Securities Act. The 2025 Notes at a price of 100 percent of the accreted principal amount, plus accrued and unpaid interest. On June 7, 2019, we redeemed the remaining $5 million aggregate principal amount outstanding of the 4.0 Percent Convertible Notes at a price equal to 100 percent of the accreted principal amount, plus accrued and unpaid interest. The 4.0 Percent Convertible Notes were classified as current as of September 30, 2018 as the securities were redeemable at the option of the holder on February 15, 2019, at a repurchase priceare discussed in ~~cash equal to 100 percent of the accreted principal amount of the securities to be repurchased, plus accrued and unpaid interest.~~

~~Revolving Credit Facility~~ – On June 7, 2019, we amended and restated our revolving credit facility. Pursuant to the revolving credit agreement, as amended, we have a $625 million revolving credit facility and a $175 million term loan facility intended for our acquisition of AxleTech that mature in June 2024 (with a springing maturity in November 2023 if the outstanding amount of the 6.25 percent Notes is greater than $75 million).

The availability under the revolving credit facility is subject to certain financial covenants based on the ratio of our priority debt (consisting principally of amounts outstanding under the revolving credit facility, U.S. accounts receivable securitization and factoring programs, and third-party non-working capital foreign debt) to EBITDA. We are required to maintain a total priority debt-to-EBITDA ratio, as defined in the agreement, of 2.25 to 1.00 or less as of the last day of each fiscal quarter throughout the term of the agreement. At June 30, 2019, we were in compliance with all covenants under the revolving credit facility with a ratio of approximately 0.2x for the priority debt-to-EBITDA ratio covenant.

Borrowings under the revolving credit facility are subject to interest based on quoted LIBOR rates plus a margin and a commitment fee on undrawn amounts, both of which are based upon either our current corporate credit rating or our total leverage ratio, as defined in the agreement. At June 30, 2019, the margin over LIBOR rate was 200 basis points and the commitment fee was 30 basis points. Overnight revolving credit loans are at the prime rate plus a margin of 100 basis points.

Certain of our subsidiaries, as defined in the revolving credit agreement, irrevocably and unconditionally guarantee amounts outstanding under the revolving credit facility. Similar subsidiary guarantees are provided for the benefit of the holders of the publicly-held notes outstanding under our indentures (see Note ~~24 of the~~ ~~Notes to the Condensed Consolidated Financial Statements~~ ~~in Part I of this Quarterly Report).~~

~~MERITOR, INC.~~

At June 30, 2019 and September 30, 2018, there were no borrowings outstanding under the revolving credit facility. The amended and extended revolving credit facility includes $100 million of availability for the issuance of letters of credit. At June 30, 2019 and September 30, 2018, there were no letters of credit outstanding under the revolving credit facility.

~~U.S. Securitization Program~~ – As of September 30, 2018, the U.S. accounts receivable securitization facility size was $100 million. On October 4, 2018, we entered into an amendment that increased the size of the facility to $110 million and extended its expiration date to December 2021. The maximum permitted priority debt-to-EBITDA ratio as of the last day of each fiscal quarter under the facility is 2.25 to 1.00. This program is provided by PNC Bank, National Association, as Administrator and Purchaser, and the other Purchasers and Purchaser Agents party to the agreement from time to time (participating lenders). Under this program, we have the ability to sell an undivided percentage ownership interest in substantially all of our trade receivables (excluding the receivables due from AB Volvo and subsidiaries eligible for sale under the U.S. accounts receivable factoring facility) of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation ("ARC"), a wholly-owned, special purpose subsidiary. ARC funds these purchases with borrowings from participating lenders under a loan agreement. This program also includes a letter of credit facility pursuant to which ARC may request the issuance of letters of credit for our U.S. subsidiaries (originators) or their designees, which when issued will constitute a utilization of the facility for the amount of letters of credit issued. Amounts outstanding under this agreement are collateralized by eligible receivables purchased by ARC and are reported as short-term debt in the consolidated balance sheet. As of June 30, 2019, there were no borrowings outstanding under this program, and $3 million of letters of credit were issued. As of September 30, 2018, $46 million was outstanding under this program, and $11 million of letters of credit were issued. This securitization program contains a cross default to our revolving credit facility. As of June 30, 2019, we were in compliance with all covenants under our credit agreement (see~~Note 18~~17 of the Notes to the Condensed Consolidated Financial Statementsin Part I of this Quarterly Report). At certain times during any given month, we may sell eligible accounts receivable under this program to fund intra-month working capital needs. In such months, we would then typically utilize the cash received from our customers throughout the month to repay the borrowings under the program. Accordingly, during any given month, we may borrow under this program in amounts exceeding the amounts shown as outstanding at fiscal year ends.

~~Capital Leases~~ ~~– We had $7 million of outstanding capital lease arrangements at both June 30, 2019 and September 30, 2018.~~Report.

Other – ~~One~~Refer to Note 17 of ~~our consolidated joint ventures~~the Notes to the Condensed Consolidated Financial Statements in ~~China participates in a bills~~Part I of exchange program to settle its obligations with its trade suppliers. These programs are common in China and generally require the participation of local banks. Under these programs, our joint venture issues notes payable through the participating banks to its trade suppliers. If the issued notes payable remain unpaid on their respective due dates, this could constitute an event of default under our revolving credit facility if the defaulted amount exceeds $35 million per bank. As of June 30, 2019 and September 30, 2018, we had $25 million and $22 million, respectively, outstanding under this program at more than one bank.Quarterly Report.

Credit Ratings – At July ~~30, 2019,~~27, 2020, our Standard & Poor’s corporate credit rating and senior unsecured credit rating were BB and BB-, ~~respectively,~~ respectively, and our Moody’s Investors Service corporate credit rating and senior unsecured credit rating were Ba3 and B1, respectively. Any lowering of our credit ratings could increase our cost of future borrowings and could reduce our access to capital markets and result in lower trading prices for our securities.

Subsidiary Guarantees of Debt –Certain of the company's 100% owned subsidiaries, as defined in the credit agreement (collectively, the "Guarantors") irrevocably and unconditionally guarantee amounts outstanding under the senior secured revolving credit facility on a joint and several basis. Similar subsidiary guarantees are provided for the benefit of the holders of the notes outstanding under the company's indentures. The notes are guaranteed on a senior unsecured basis by each of the company’s subsidiaries from time to time guaranteeing its senior secured credit facility, as it may be amended, extended, replaced or refinanced, or any subsequent credit facility. The guarantees remain in effect until the earlier to occur of payment in full of the notes or termination or release of the applicable corresponding guarantee under the company’s senior secured credit facility, as it may be amended, extended, replaced or refinanced, or any subsequent credit facility. The guarantees rank equally with existing and future senior unsecured indebtedness of the Guarantors and are effectively subordinated to all of the existing and future secured indebtedness of the Guarantors, to the extent of the value of the assets securing such indebtedness.

The following represents summarized financial information, in millions, of Meritor Inc (“Parent”) and the Guarantors (collectively, “the Combined Entities”). The information has been prepared on a combined basis and excludes any investments of the Parent or Guarantors in non-guarantor subsidiaries. Intercompany transactions and amounts between the Combined Entities have been eliminated.

MERITOR, INC.


Statement of Operations Information	Nine Months ended June 30, 2020		Year ended September 30, 2019
Net Sales	$	1,409	$	2,731
Gross profit	157		368
Net income from continuing operations	389		708
Net income	390		709
Net income attributable to Meritor, Inc.	390		709

Balance Sheet Information	June 30, 2020		September 30, 2019
Current Assets	$	568	$	447
Non-current Assets	1,154		1,178
Current Liabilities	386		559
Non-current Liabilities	1,792		1,376

Redeemable Preferred Stock	—		—
Noncontrolling Interest	—		—

At June 30, 2020 and September 30, 2019, amounts owed by the Combined Entities to non-guarantor entities totaled approximately $105 million and $13 million, respectively, and amounts owed to the Combined Entities from non-guarantor entities totaled approximately $153 million and $202 million, respectively. For the nine months ended June 30, 2020, intercompany sales from the Combined Entities to non-guarantor subsidiaries was $60 million. For the nine months ended June 30, 2020, intercompany sales from non-guarantor subsidiaries to the Combined Entities was $75 million. For the year ended September 30, 2019, intercompany sales from the Combined Entities to non-guarantor subsidiaries was $110 million. For the year ended September 30, 2019, intercompany sales from non-guarantor subsidiaries to the Combined Entities was $201 million.

Off-Balance Sheet Arrangements

Accounts Receivable Factoring Arrangements – We participate in accounts receivable factoring programs with a total amount utilized at June 30, ~~2019~~2020 of ~~$294~~$126 million, of which ~~$230~~$99 million was attributable to committed factoring facilities involving the sale of AB Volvo accounts receivables. The remaining amount of ~~$64~~$27 million was related to factoring by certain of our European subsidiaries under uncommitted factoring facilities with financial institutions. The receivables under all of these programs are sold at face value and are excluded from the consolidated balance sheet. Total facility size, utilized amounts, readily available amounts and expiration dates for each of these programs are shown in the table above under Liquidity.

The Swedish facility is backed by a ~~364-day~~364-day liquidity commitment from Nordea Bank, which was renewed through ~~January 10, 2020.~~June 22, 2021. Commitments under all of our factoring facilities are subject to standard terms and conditions for these types of arrangements (including, in the case of the U.K. and Italy commitments, a sole discretion clause whereby the bank retains the right to not purchase receivables, which has not been invoked since the inception of the respective programs).

~~MERITOR, INC.~~

Letter of Credit Facilities – On February 21, 2014, we entered into an arrangement to amend and restate the letter of credit facility with Citicorp USA, Inc., as administrative agent and issuing bank, and the other lenders party thereto. Under the terms of this amended credit agreement, which expired in March 2019, we had the right to obtain the issuance, renewal, extension and increase of letters of credit up to an aggregate availability of $25 million. This facility contained covenants and events of default generally similar to those existing in our public debt indentures. ~~There were $1 million of letters of credit outstanding under this facility at September 30, 2018.~~ On March 20, 2019, we allowed this facility to expire. The letters of credit previously provided under this facility were replaced with letters of credit issued under our U.S. accounts receivable securitization facility with PNC Bank. There were $8 million of letters of credit outstanding through other letter of credit facilities as of both June 30, ~~2019~~2020 and September 30, ~~2018, respectively.~~2019.

Contingencies

Contingencies related to environmental, asbestos and other matters are discussed in Note 2120 of the Notes to the Condensed Consolidated Financial Statements in Part I of this Quarterly Report.

Critical Accounting Policies

Our significant accounting policies are consistent with those described in Note 2 to our ~~consolidated financial statements~~Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018~~2019 (the ~~"2018~~"2019 Form 10-K"). Our critical accounting estimates are consistent with those described in Item 7 of our ~~2018~~2019 Form 10-K.

New Accounting Pronouncements

New Accounting Pronouncements are discussed in Note 3 of the Notes to the Condensed Consolidated Financial Statements in Part I of this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain global market risks, including foreign currency exchange risk and interest rate risk associated with our debt.

As a result of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies. In addition, we translate sales and financial results denominated in foreign currencies into U.S. dollars for purposes of our Condensed Consolidated Financial Statements. As a result, appreciation of the U.S. dollar against these foreign currencies generally will have a negative impact on our reported revenues and operating income while depreciation of the U.S. dollar against these foreign currencies will generally have a positive effect on reported revenues and operating income.

We use foreign currency forward contracts to minimize the earnings exposures arising from foreign currency exchange risk on foreign currency purchases and sales. Gains and losses on the underlying foreign currency exposures are partially offset with gains and losses on the foreign currency forward contracts. Under this cash flow hedging program, we designate the foreign currency contracts as cash flow hedges of underlying foreign currency forecasted purchases and sales. Changes in the fair value of these contracts are recorded in Accumulated other comprehensive loss in the Condensed Consolidated Statement of Equity and is recognized in operating income when the underlying forecasted transaction impacts earnings. These contracts generally mature within 18 months.

We use cross-currency swap contracts to hedge a portion of our net investment in a foreign subsidiary against volatility in foreign exchange rates. These derivative instruments are designated and qualify as hedges of net investments in foreign operations. Settlements and changes in fair values of the instruments are recognized in foreign currency translation adjustments, a component of other comprehensive income (loss) in the Condensed Consolidated Statement of Comprehensive Income, to offset the changes in the values of the net investments being hedged.

In the third quarter of fiscal year ~~2018,~~2019, we entered into multiple cross-currency ~~swaps.~~swap contracts with a combined notional amount of $225 million and maturities in October 2022. These swaps hedged a portion of the net investment in a certain European subsidiary against volatility in the euro/U.S. dollar foreign exchange rate. In the ~~third~~second quarter of fiscal year ~~2019, the company unwound~~2020, we settled these cross-currency ~~swaps~~swap contracts and received proceeds of ~~$19~~$11 million, $2$1 million of which related to net accrued interest receivable. The company also entered into multiple new cross-currency swaps with a combined notional amount of $225 million. These swaps hedge a portion of the net investment in a certain European subsidiary against volatility in the euro/U.S. dollar foreign exchange rate. They mature in October 2022.

Interest rate risk relates to the gain/increase or loss/decrease we could incur in our debt balances and interest expense associated with changes in interest rates. To manage this risk, we enter into interest rate swaps from time to time to economically convert portions of our fixed-rate debt into floating rate exposure, ensuring that the sensitivity of the economic value of debt falls within our corporate risk tolerances. It is our policy not to enter into derivative instruments for speculative purposes, and therefore, we hold no derivative instruments for trading purposes.

~~MERITOR, INC.~~

Included below is a sensitivity analysis to measure the potential gain (loss) in the fair value of financial instruments with exposure to market risk (in millions). The model assumes a 10% hypothetical change (increase or decrease) in exchange rates and instantaneous, parallel shifts of 50 basis points in interest rates.

MERITOR, INC.

Market Risk


	Assuming a 10% Increase in Rates		Assuming a 10% Decrease in Rates		Increase (Decrease) in
Foreign Currency Sensitivity:
Forward contracts in USD ⁽¹⁾	$	(1.0)	$	1.0	Fair Value
Forward contracts in Euro ⁽¹⁾	(0.7)		0.7		Fair Value

Foreign currency denominated debt ⁽²⁾	0.4		(0.4)		Fair Value

Foreign currency option contracts in Euro	(0.4)		1.9		Fair Value



	Assuming a 50 BPS Increase in Rates		Assuming a 50 BPS Decrease in Rates		Increase (Decrease) in
Interest Rate Sensitivity:
Debt – fixed rate ⁽³⁾	$	(34.5)	$	36.4	Fair Value
Debt – variable rate	(0.8)		0.8		Cash flow

Assuming a
10% Increase
in Rates

Assuming a
10% Decrease
in Rates
Increase (Decrease) in
Foreign Currency Sensitivity:
Forward contracts in USD ⁽¹⁾
$ 2.6
$ (2.6 ) Fair Value
Forward contracts in Euro ⁽¹⁾
(2.6 ) 2.6
Fair Value
Foreign currency denominated debt ⁽²⁾
0.5
(0.5 ) Fair Value
Foreign currency option contracts in USD 1.0
0.5
Fair Value
Foreign currency option contracts in Euro (0.3 ) 4.5
Fair Value
Cross-currency swaps (26.3 ) 26.3
Fair Value

Assuming a 50
BPS Increase
in Rates

Assuming a 50
BPS Decrease
in Rates
Increase (Decrease) in
Interest Rate Sensitivity:
Debt – fixed rate ⁽³⁾
$ (33.1 ) $ 35.3
Fair Value
Debt – variable rate —
—
Cash flow

⁽¹⁾~~(1)~~Includes only the risk related to the derivative instruments and does not include the risk related to the underlying exposure. The analysis assumes overall derivative instruments and debt levels remain unchanged for each hypothetical scenario.

⁽²⁾At June 30, ~~2019,~~2020, the fair value of outstanding foreign currency denominated debt was $5$3.8 million. A 10% decrease in quoted currency exchange rates would result in a decrease of $1$0.4 million in foreign currency denominated debt. At June 30, ~~2019,~~2020, a 10% increase in quoted currency exchange rates would result in an increase of $1$0.4 million in foreign currency denominated debt.

⁽³⁾At June 30, ~~2019,~~2020, the fair value of outstanding debt was ~~$857~~$1,291 million. A 50 basis points decrease in quoted interest rates would result in an increase of ~~$35~~$36.4 million in the fair value of fixed rate debt. A 50 basis points increase in quoted interest rates would result in a decrease of ~~$33~~$34.5 million in the fair value of fixed rate debt.

MERITOR, INC.

Item 4. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange Act"), management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2019.~~2020. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of June 30, ~~2019,~~2020, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the company’s internal control over financial reporting that occurred during the quarter ended June 30, ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

In connection with the rule, the company continues to review and document its disclosure controls and procedures, including the company’s internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and ensuring that the company’s systems evolve with the business.

MERITOR, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Except as set forth in Note 2120 of the Notes to the Condensed Consolidated Financial Statements in Part I of this Quarterly Report on Form 10-Q, there have been no material developments in legal proceedings involving the company or its subsidiaries since those reported in the company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018, as amended.~~2019.

Item 1A. Risk Factors

There have been no material changes in risk factors involving the company or its subsidiaries from those previously disclosed in the company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018~~2019 and ~~the company's~~ Quarterly Report on Form 10-Q for the ~~period~~fiscal quarter ended ~~December~~March 31, ~~2018.~~2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer repurchases

The table below sets forth information with respect to purchases made by or on behalf of us of shares of our common stock during the three months ended June 30, ~~2019:~~2020:

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
April 1- 30, 2019 —
$ —
—
$ 150,060,376
May 1- 31, 2019 726,473
$ 20.44
726,473
$ 135,213,780
June 1- 30, 2019 273,527
$ 20.66
273,527
$ 129,562,852
Total 1,000,000
1,000,000
129,562,852


~~(1)~~Period	~~On November 2, 2018,~~Total Number of Shares Purchased	Average Price Paid Per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Board of Directors authorized the repurchase of up to $200 million of the company's common stock and up to $100 million aggregate principal amount of any of the company's debt securities (including convertible debt securities), in each case from time to time through open market purchases, privately negotiated transactionsPlans or otherwise, subject to compliance with legal and regulatory requirements and the company's debt covenants. On July 26, 2019, the Board of Directors authorized the repurchase of up to $250 million of the company’s common stock from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and the company’s debt covenants. This authorization supersedes the remaining authority under the prior November 2018 equity repurchase authorization.Programs ⁽¹⁾⁽²⁾
April 1- 30, 2020	—	$	—	—	$	59,199,494
May 1- 31, 2020	—	$	—	—	$	59,199,494
June 1 - 30, 2020	—	$	—	—	$	59,199,494
Total	—			—		59,199,494

⁽¹⁾ On July 26, 2019, the Board of Directors authorized the repurchase of up to $250 million of the company’s common stock from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and the company’s debt covenants. This authorization superseded the remaining authority under the prior November 2018 equity repurchase authorization. On November 7, 2019, the Board of Directors increased the amount of the repurchase authorization to $325 million.

⁽²⁾ On March 25, 2020, the company suspended activity under its share repurchase program as a result of uncertainties in theglobal economy due to the COVID-19 pandemic.

The independent trustee of our 401(k) plans purchases shares in the open market to fund investments by employees in our common stock, one of the investment options available under such plans, and any matching contributions in company stock we provide under certain of such plans. In addition, our stock incentive plans permit payment of an option exercise price by means of cashless exercise through a broker and permit the satisfaction of the minimum statutory tax obligations upon exercise of options and the vesting of restricted stock units through stock withholding. There were no shares withheld in the third quarter of fiscal ~~2019~~2020 to satisfy tax obligations for exercise of options. In addition, our stock incentive plans also permit the satisfaction of tax obligations upon the vesting of restricted stock through stock withholding. There were no shares withheld in the third quarter of fiscal ~~2019~~2020 to satisfy tax obligations upon the vesting of restricted shares. The company does not believe such purchases or transactions described above are issuer repurchases for the purposes of this Item 2 of Part II of this Quarterly Report on Form 10-Q.

MERITOR, INC.

Item 5. Other Information

Cautionary Statement

This Quarterly Report on Form 10-Q contains statements relating to future results of the company (including certain outlooks, projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "estimate," "should," "are likely to be," "will" and similar expressions. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the duration and severity of the COVID-19 pandemic and its effects on public health, the global economy, financial markets and operations; reliance on major OEM customers and possible negative outcomes from contract negotiations with our major customers, including failure to negotiate acceptable terms in contract renewal negotiations and our ability to obtain new customers; the outcome of actual and potential product liability, warranty and recall claims; our ability to successfully manage rapidly changing volumes in the commercial truck markets and work with our customers to manage demand expectations in view of rapid changes in production levels; global economic and market cycles and conditions; availability and sharply rising costs of raw materials, including steel, and our ability to manage or recover such costs; our ability to manage possible adverse effects on European markets or our European operations, or financing arrangements related thereto following the United Kingdom's decision to exit the European Union or, in the event one or more other countries exit the European monetary union; risks inherent in operating abroad (including foreign currency exchange rates, restrictive government actions regarding trade, implications of foreign regulations relating to pensions and potential disruption of production and supply due to terrorist attacks or acts of aggression); risks related to our joint ventures; rising costs of pension benefits; the ability to achieve the expected benefits of strategic initiatives and restructuring actions; our ability to successfully integrate the products and technologies of Fabco Holdings, Inc., AA Gear Mfg., Inc., AxleTech and ~~AxleTech~~Transportation Power, Inc. and future results of such acquisitions, including their generation of revenue and their being accretive; the demand for commercial and specialty vehicles for which we supply products; whether our liquidity will be affected by declining vehicle production in the future; OEM program delays; demand for and market acceptance of new and existing products; successful development and launch of new products; labor relations of our company, our suppliers and customers, including potential disruptions in supply of parts to our facilities or demand for our products due to work stoppages; the financial condition of our suppliers and customers, including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our suppliers; potential impairment of long-lived assets, including goodwill; potential adjustment of the value of deferred tax assets; competitive product and pricing pressures; the amount of our debt; our ability to continue to comply with covenants in our financing agreements; our ability to access capital markets; credit ratings of our debt; the outcome of existing and any future legal proceedings, including any proceedings or related liabilities with respect to environmental, asbestos-related, or other matters; possible changes in accounting rules; and other substantial costs, risks and uncertainties, including but not limited to those detailed herein and from time to time in other filings of the company with the SEC. These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law.

~~Restructuring Plan~~

On July 29, 2019, the company approved a restructuring plan related to the integration of its acquisition of AxleTech. This restructuring plan is intended to realize certain targeted synergies following the acquisition, primarily from the elimination of cost overlap. With this restructuring plan, the Company expects to incur $11 million of total costs in the Aftermarket, Industrial and Trailer segment with approximately $7 million related to employee severance charges and approximately $4 million related to lease termination costs. Restructuring associated with severance actions are expected to be substantially completed by fiscal year 2020. The lease term expires in fiscal year 2023.

~~Amended and Restated By-laws~~

On July 29, 2019, the Board of Directors approved an amendment and restatement of the company’s Amended and Restated By-Laws to implement shareholder “proxy access” provisions. Under the proxy access by-law contained in the company’s Amended and Restated By-Laws, an eligible shareholder (or qualifying group of up to 20 shareholders) owning at least 3% of the company’s outstanding common stock continuously for at least three years may generally nominate qualifying director candidates, and require that the company include such shareholder’s or group of shareholders’ proxy access director nominees in the company’s proxy materials for an annual meeting of shareholders, constituting up to the greater of two candidates or 20% of the Board, provided that such shareholders and their director nominees satisfy the requirements specified in the Amended and Restated By-Laws. Proxy access will be available to the company’s shareholders for the first time in connection with the company’s annual meeting of shareholders in 2020 and is subject to the additional eligibility, procedural and disclosure requirements set forth in the Amended and Restated By-Laws. For the 2020 annual meeting of shareholders, proxy access nomination notices are required to be submitted on or after September 26, 2019 and on or before October 26, 2019.

MERITOR, INC.

In connection with the adoption of the proxy access provisions described above, the Amended and Restated By-Laws were also amended to update the advance notice and related by-law provisions concerning shareholder notices of business to be brought before meetings of shareholders, including covered proposals and nominations. These updates, among other things, address required supplements and updates to shareholder notices, the submission of completed questionnaires, representations and agreements, and the required disclosures and categories of information to be included in a compliant notice, including notices applicable to shareholder director nominees. The preceding summary of amendments to the company’s Amended and Restated By-Laws is qualified in its entirety by reference to the Amended and Restated By-Laws, which are attached hereto as Exhibit 3-b-1 and are incorporated herein by reference.

~~MERITOR, INC.~~

Item 6. Exhibits



3-a			Amended and Restated Articles of Incorporation of Meritor effective January 23, 2020, filed as Exhibit 3-a to Meritor’s ~~Annual~~Quarterly Report on Form ~~10-K~~10-Q for the fiscal ~~year~~quarter ended ~~September 27, 2015,~~December 29, 2019, is incorporated herein by reference.
3-b-1**
3-b			~~Redline~~ Amended and Restated By-laws of Meritor effective ~~July~~January 23, 2020, filed as Exhibit 3-b to Meritor's Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2019, is incorporated herein by reference.
3-b-2**






4-a			~~Amended~~Eighth Supplemental Indenture, dated as of June 8, 2020, to the Indenture, dated as of April 1, 1998, between Meritor, U.S. Bank National Association, as trustee, and ~~Restated By-laws~~The Bank of ~~Meritor effective July 29, 2019~~New York Mellon Trust Company, N.A. (as successor to BNY Midwest Trust Company as successor to The Chase Manhattan Bank), as predecessor trustee, filed as Exhibit 4-a to Meritor's Current Report on Form 8-K filed on June 8, 2020, is incorporated herein by reference.
~~10-a~~10-a**			~~Fourth~~ Amendment ~~and Restatement Agreement relating~~No. 2 to Fourth Amended and Restated Credit Agreement and Amendment No. 2 to Third Amended and Restated Pledge and Security Agreement, dated as of June ~~7, 2019,~~26, 2020, among Meritor, ~~ArvinMeritor Finance Ireland (“AFI”),~~the subsidiaries named therein, the financial institutions party thereto and JPMorgan Chase Bank, N.A., as Administrative ~~Agent, filed as Exhibit 10-a to Meritor’s Current Report on Form 8-K filed on June 10, 2019, is incorporated herein by reference.~~Agent.
~~10-b~~22**			~~Agreement and Plan~~Guarantor Subsidiaries of ~~Merger dated as of May 3, 2019 by and among~~ Meritor Inc., Janus Merger Sub, LLC, CAX Parent, LLC, and Carlyle Equity Opportunity GP, L.P., solely in its capacity as Holder Representative, filed as Exhibit 10-a to Meritor’s Current Report on Form 8-K filed on May 8, 2019, is incorporated herein by reference.
31-a**			Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act
31-b**			Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act
32-a**			Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350
32-b**			Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350
101.INS			Inline XBRL INSTANCE DOCUMENT - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			Inline XBRL TAXONOMY EXTENSION SCHEMA
101.PRE			Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
101.LAB			Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.CAL			Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF			Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

** Filed herewith.

MERITOR, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MERITOR, INC.

Date:

July 29, 2020

By:

/s/

Scott M. Confer

Interim Chief Legal Officer and Corporate Secretary

(For the registrant)

Date:

July 29, 2020

By:

/s/

Carl D. Anderson II

Senior Vice President, Chief Financial Officer

~~MERITOR, INC.~~

Date:

July 29, 2020

By:

/s/

~~Date:~~

~~July 31, 2019~~

~~By:~~

~~/s/~~

~~April Miller Boise~~

~~Senior Vice President, Chief Legal Officer and Corporate Secretary~~

~~(For the registrant)~~

~~Date:~~

~~July 31, 2019~~

~~By:~~

~~/s/~~

Paul D. Bialy

Vice President, Chief Accounting Officer

~~Date:~~

~~July 31, 2019~~

~~By:~~

~~/s/~~

~~Carl D. Anderson~~

~~Senior Vice President, Chief Financial Officer~~

7958



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



	June 30, 2019			September 30, 2018
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	111		$	115
Receivables, trade and other, net	625			588
Inventories	491			477
Other current assets	32			46
TOTAL CURRENT ASSETS	1,259			1,226
NET PROPERTY	481			483
GOODWILL	421			421
OTHER ASSETS	567			596
TOTAL ASSETS	$	2,728		$	2,726
LIABILITIES, MEZZANINE EQUITY AND EQUITY
CURRENT LIABILITIES:
Short-term debt	$	24		$	94
Accounts and notes payable	691			700
Other current liabilities	296			290
TOTAL CURRENT LIABILITIES	1,011			1,084
LONG-TERM DEBT	734			730
RETIREMENT BENEFITS	238			262
OTHER LIABILITIES	234			332
TOTAL LIABILITIES	2,217			2,408
COMMITMENTS AND CONTINGENCIES (See Note 21)
MEZZANINE EQUITY:
Convertible debt with cash settlement	1			1
EQUITY:
Common stock (June 30, 2019 and September 30, 2018, 103.9 and 102.2 shares issued and 82.6 and 84.9 shares outstanding, respectively)	104			102
Additional paid-in capital	798			787
Retained earnings	448			200
Treasury stock, at cost (June 30, 2019 and September 30, 2018, 21.4 and 17.3 shares, respectively)	(307		)	(236		)
Accumulated other comprehensive loss	(569		)	(566		)
Total equity attributable to Meritor, Inc.	474			287
Noncontrolling interests	36			30
TOTAL EQUITY	510			317
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	2,728		$	2,726



	Nine Months Ended June 30,
	2019			2018
	(Unaudited)
OPERATING ACTIVITIES
CASH PROVIDED BY OPERATING ACTIVITIES (See Note 11)	$	194		$	191
INVESTING ACTIVITIES
Capital expenditures	(63		)	(52		)
Proceeds from sale of equity method investment	—			250
Cash paid for acquisition of AA Gear & Manufacturing, Inc.	—			(36		)
Cash paid for investment in Transportation Power, Inc.	(6		)	(6		)
Proceeds from sale of a business	—			4
Proceeds from sale of assets	—			2
Proceeds from settlement of cross-currency swaps	17			—
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES	(52		)	162
FINANCING ACTIVITIES
Borrowings and securitization	(46		)	(89		)
Redemption of notes	(24		)	(181		)
Deferred issuance costs	(4		)	—
Other financing activities	(2		)	(3		)
Net change in debt	(76		)	(273		)
Repurchase of common stock	(71		)	(63		)
CASH USED FOR FINANCING ACTIVITIES	(147		)	(336		)
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	1			(5		)
CHANGE IN CASH AND CASH EQUIVALENTS	(4		)	12
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	115			88
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	111		$	100



	Commercial Truck			Aftermarket, Industrial and Trailer			Total
Goodwill ⁽¹⁾	$	266		$	170		$	436
Accumulated impairment losses ⁽¹⁾	—			(15		)	(15		)
Beginning Balance at September 30, 2018 ⁽¹⁾	266			155			421
AAG measurement period adjustment (see Note 9)	—			3			3
Foreign currency translation	(3		)	—			(3		)
Ending Balance at June 30, 2019	$	263		$	158		$	421



	Employee Termination Benefits			Plant Shutdown & Other			Total
Beginning Balance at September 30, 2018	$	4		$	—		$	4
Activity during the period:
Charges to continuing operations	(2		)	—			(2		)
Cash payments – continuing operations	(2		)	—			(2		)
Other	1			—			1
Total restructuring reserves at June 30, 2019	1			—			1
Less: non-current restructuring reserves	—			—			—
Restructuring reserves – current, at June 30, 2019	$	1		$	—		$	1

Balance at September 30, 2017	$	5		$	1		$	6
Activity during the period:
Charges to continuing operations	6			—			6
Cash payments – continuing operations	(6		)	(1		)	(7		)
Total restructuring reserves at June 30, 2018	5			—			5
Less: non-current restructuring reserves	(1		)	—			(1		)
Restructuring reserves – current, at June 30, 2018	$	4		$	—		$	4



	Current Expiration	Total Facility Size as of 6/30/19				Utilized as of 6/30/19				Utilized as of 9/30/18
		EUR		USD		EUR		USD		EUR		USD
On-balance sheet arrangement
Committed U.S. accounts receivable securitization ⁽¹⁾	December 2021	N/A		$	110	N/A		$	3	N/A		$	57
Total on-balance sheet arrangement:⁽¹⁾		N/A		$	110	N/A		$	3	N/A		$	57
Off-balance sheet arrangements
Committed Swedish factoring facility ⁽²⁾⁽³⁾	March 2020	€	155	$	176	€	140	$	160	€	136	$	158
Committed U.S. factoring facility ⁽²⁾	February 2023	N/A		75		N/A		70		45		53
Uncommitted U.K. factoring facility	February 2022	25		28		10		11		8		9
Uncommitted Italy factoring facility	June 2022	30		34		30		34		24		28
Other uncommitted factoring facilities ⁽⁴⁾	None	N/A		N/A		18		19		11		12
Total off-balance sheet arrangements		€	210	$	313	€	198	$	294	€	224	$	260



	June 30, 2019		September 30, 2018
Asbestos-related recoveries (see Note 21)	$	8	$	16
Prepaid and other	24		30
Other current assets	$	32	$	46


	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


⁽¹⁾	Primarily relates to customer relationships. As of June 30, 2019, the gross carrying value was $18 million and the accumulated amortization was $5 million. As of September 30, 2018, the gross carrying value was $22 million and the accumulated amortization was $4 million. The weighted average amortization periods for customer relationships is approximately 19 years.


	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, 2019			September 30, 2018
3.25 percent convertible notes due 2037⁽¹⁾⁽³⁾	$	319		$	318
4.0 percent convertible notes due 2027⁽¹⁾⁽⁴⁾	—			24
7.875 percent convertible notes due 2026⁽¹⁾⁽⁵⁾	22			22
6.25 percent notes due 2024⁽²⁾⁽⁶⁾	444			444
Capital lease obligation	7			7
Borrowings and securitization	—			46
Unamortized discount on convertible notes⁽⁷⁾	(34		)	(37		)
Subtotal	758			824
Less: current maturities	(24		)	(94		)
Long-term debt	$	734		$	730


	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, 2019				September 30, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and cash equivalents	$	111	$	111	$	115	$	115
Short-term debt	24		51		94		116
Long-term debt	734		806		730		776
Foreign exchange forward contracts (other assets)	1		1		2		2
Foreign exchange forward contracts (other liabilities)	1		1		—		—
Foreign currency option contracts (other assets)	—		—		—		—
Cross-currency swaps (other assets)	—		—		6		6
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 costs	$	(9	)	^(a)
Actuarial losses	10			^(a)
	1			Total before tax
	—			Tax benefit
Total reclassifications for the period	$	1		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 20 for additional details), which is recorded in other operating income (expense).



	Commercial Truck		Aftermarket, Industrial and Trailer		Eliminations			Total
Three Months Ended June 30, 2019
External Sales	$	835	$	331	$	—		$	1,166
Intersegment Sales	34		9		(43		)	—
Total Sales	$	869	$	340	$	(43	)	$	1,166
Three Months Ended June 30, 2018⁽¹⁾
External Sales	$	819	$	310	$	—		$	1,129
Intersegment Sales	35		9		(44		)	—
Total Sales	$	854	$	319	$	(44	)	$	1,129

	Commercial Truck		Aftermarket, Industrial and Trailer		Eliminations			Total
Nine Months Ended June 30, 2019
External Sales	$	2,416	$	944				$	3,360
Intersegment Sales	108		28		(136		)	—
Total Sales	$	2,524	$	972	$	(136	)	$	3,360
Nine Months Ended June 30, 2018 ⁽¹⁾
External Sales	$	2,254	$	844	$	—		$	3,098
Intersegment Sales	102		25		(127		)	—
Total Sales	$	2,356	$	869	$	(127	)	$	3,098


⁽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, 2018 have been recast to reflect reportable segment changes.~~



	June 30, 2019			September 30, 2018⁽³⁾
Segment Assets:
Commercial Truck	$	1,846		$	1,764
Aftermarket, Industrial and Trailer	609			589
Total segment assets	2,455			2,353
Corporate ⁽¹⁾	567			633
Less: Accounts receivable sold under off-balance sheet factoring programs ⁽²⁾	(294		)	(260		)
Total assets	$	2,728		$	2,726



	Three Months Ended June 30, 2019
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Sales
External	$	—		$	696		$	470		$	—		$	1,166
Subsidiaries	—			24			46			(70		)	—
Total sales	—			720			516			(70		)	1,166
Cost of sales	(17		)	(599		)	(441		)	70			(987		)
GROSS MARGIN	(17		)	121			75			—			179
Selling, general and administrative	(30		)	(28		)	(15		)	—			(73		)
Restructuring	—			1			—			—			1
Other operating expense, net	(3		)	—			—			—			(3		)
OPERATING INCOME (LOSS)	(50		)	94			60			—			104
Other income (expense), net	14			(2		)	(2		)	—			10
Equity in earnings of affiliates	—			6			3			—			9
Interest income (expense), net	(32		)	11			7			—			(14		)
INCOME (LOSS) BEFORE INCOME TAXES	(68		)	109			68			—			109
Benefit (provision) for income taxes	19			(18		)	(22		)	—			(21		)
Equity income from continuing operations of subsidiaries	134			37			—			(171		)	—
INCOME FROM CONTINUING OPERATIONS	85			128			46			(171		)	88
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax	1			—			—			—			1
NET INCOME	86			128			46			(171		)	89
Less: Net income attributable to noncontrolling interests	—			—			(3		)	—			(3		)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	86		$	128		$	43		$	(171	)	$	86



	Three Months Ended June 30, 2018 ⁽¹⁾
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Sales
External	$	—		$	629		$	500		$	—		$	1,129
Subsidiaries	—			40			61			(101		)	—
Total sales	—			669			561			(101		)	1,129
Cost of sales	(20		)	(559		)	(481		)	101			(959		)
GROSS MARGIN	(20		)	110			80			—			170
Selling, general and administrative	(30		)	(27		)	(19		)	—			(76		)
Restructuring	(2		)	(1		)	—			—			(3		)
OPERATING INCOME (LOSS)	(52		)	82			61			—			91
Other income (expense), net	28			(15		)	(4		)	—			9
Equity in earnings of affiliates	—			6			3			—			9
Interest income (expense), net	(26		)	6			6			—			(14		)
INCOME (LOSS) BEFORE INCOME TAXES	(50		)	79			66			—			95
Benefit (provision) for income taxes	7			(13		)	(20		)	—			(26		)
Equity income from continuing operations of subsidiaries	109			39			—			(148		)	—
INCOME FROM CONTINUING OPERATIONS	66			105			46			(148		)	69
LOSS FROM DISCONTINUED OPERATIONS, net of tax	(2		)	(2		)	(2		)	4			(2		)
NET INCOME	64			103			44			(144		)	67
Less: Net income attributable to noncontrolling interests	—			—			(3		)	—			(3		)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	64		$	103		$	41		$	(144	)	$	64



	Three Months Ended June 30, 2018
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Net income	$	64		$	103		$	44		$	(144	)	$	67
Other comprehensive loss, net of tax	(48		)	(57		)	(8		)	63			(50		)
Total comprehensive income	16			46			36			(81		)	17
Less: Comprehensive income attributable to noncontrolling interests	—			—			(1		)	—			(1		)
Comprehensive income attributable to Meritor, Inc.	$	16		$	46		$	35		$	(81	)	$	16