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. 3rd Quarter Fiscal Year 
2019 Results Our sales for the third quarter of fiscal year 2019 were $1,166 
million, an increase compared to $1,129 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 net income year over year was 
primarily attributable to conversion on increased revenue and lower income tax 
expense. Adjusted EBITDA (see Non-GAAP Financial Measures below) for the third 
quarter of fiscal year 2019 was $146 million compared to $135 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 was 12.5 
percent compared to 12.0 percent in the same period in the prior fiscal year. 
The increase in adjusted EBITDA and adjusted EBITDA margin year over year was 
driven primarily by conversion on higher revenue and the impact of Aftermarket 
pricing actions implemented earlier this year, partially offset by higher 
material costs. Net income from continuing operations attributable to the 
company for the third quarter of fiscal year 2019 was $85 million compared to 
$66 million in the same period in the prior fiscal year. Adjusted income from 
continuing operations attributable to the company (see Non-GAAP Financial 
Measures below) for the third quarter of fiscal year 2019 was $103 million 
compared to $80 million in the same period in the prior fiscal year. Cash 
provided by operating activities was $143 million in the third quarter of 
fiscal year 2019 compared to $119 million in the third quarter of fiscal year 
2018. Higher earnings helped drive cash flow performance in 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 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 below. 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.

North America: During the fourth quarter of fiscal year 2019, we expect 
production volumes to remain relatively consistent with the levels experienced 
in the first nine months of fiscal year 2019.

Western Europe: During the fourth quarter of fiscal year 2019, we expect 
production volumes in Western Europe to decrease slightly from the levels 
experienced in the first nine months of fiscal year 2019, due to the normal 
impact of the European summer holidays.

South America: During the fourth quarter of fiscal year 2019, we expect 
production volumes to remain relatively consistent with the levels experienced 
in the first nine months of fiscal year 2019.

China: During the fourth quarter of fiscal year 2019, we expect production 
volumes to decrease from the levels experienced in the first nine months of 
fiscal year 2019.

India: During the fourth quarter of fiscal year 2019, we expect production 
volumes to decrease from the levels experienced in the first nine months of 
fiscal year 2019.

Industry-Wide Issues Our business continues to address a number of challenging 
industry-wide issues, including the following:

•

Uncertainty around the global market outlook;

•

Volatility in price and availability of steel, components and other 
commodities;

•

Potential for disruptions in the financial markets and their impact on the 
availability and cost of credit;

•

Volatile energy and transportation costs;

•

Impact of currency exchange rate volatility; and

•

Consolidation and globalization of OEMs and their suppliers. Other Other 
significant factors that could affect our results and liquidity include:

•

Significant contract awards or losses of existing contracts or failure to 
negotiate acceptable terms in contract renewals;

•

Ability to successfully launch a significant number of new products, including 
potential product quality issues, and obtain new business;

•

Ability to manage possible adverse effects on European markets or our European 
operations, or financing arrangements related thereto, following the United 
Kingdom's decision to exit the European Union, or in the event one or more 
other countries exit the European monetary union;

•

Ability to further implement planned productivity, cost reduction, and other 
margin improvement initiatives;

•

Ability to successfully execute and implement strategic initiatives;

•

Ability to work with our customers to manage rapidly changing production 
volumes;

•

Ability to recover, and timing of recovery of, steel price and other cost 
increases from our customers;

•

Any unplanned extended shutdowns or production interruptions by us, our 
customers or our suppliers;

•

A significant deterioration or slowdown in economic activity in the key markets 
in which we operate;

•

Competitively driven price reductions to our customers;

•

Potential price increases from our suppliers;

•

Additional restructuring actions and the timing and recognition of 
restructuring charges, including any actions associated with prolonged softness 
in markets in which we operate;

•

Higher-than-planned warranty expenses, including the outcome of known or 
potential recall campaigns;

•

Uncertainties of asbestos claim, environmental and other legal proceedings, the 
long-term solvency of our insurance carriers, and the potential for 
higher-than-anticipated costs resulting from environmental liabilities, 
including those related to site remediation;

•

Significant pension costs; and

•

Restrictive government actions (such as restrictions on transfer of funds and 
trade protection measures, including import and export duties, quotas and 
customs duties and tariffs).

NON-GAAP FINANCIAL MEASURES In addition to the results reported in accordance 
with accounting principles generally accepted in the United States ("GAAP"), we 
have provided information regarding non-GAAP financial measures. These non-GAAP 
financial measures include adjusted income (loss) from continuing operations 
attributable to the company, adjusted diluted earnings (loss) per share from 
continuing operations, adjusted EBITDA, adjusted EBITDA margin, segment 
adjusted EBITDA, segment adjusted EBITDA margin, free cash flow and net debt. 
Adjusted income (loss) from continuing operations attributable to the company 
and adjusted diluted earnings (loss) per share from continuing operations are 
defined as reported income (loss) from continuing operations and reported 
diluted earnings (loss) per share from continuing operations before 
restructuring expenses, asset impairment charges, non-cash tax expense related 
to the use of deferred tax assets in jurisdictions with net operating loss 
carry forwards or tax credits, and other special items as determined by 
management. Adjusted EBITDA is defined as income (loss) from continuing 
operations before interest, income taxes, depreciation and amortization, 
non-controlling interests in consolidated joint ventures, loss on sale of 
receivables, restructuring expenses, asset impairment charges and other special 
items as determined by management. Adjusted EBITDA margin is defined as 
adjusted EBITDA divided by consolidated sales from continuing operations. 
Segment adjusted EBITDA is defined as income (loss) from continuing operations 
before interest expense, income taxes, depreciation and amortization, 
noncontrolling interests in consolidated joint ventures, loss on sale of 
receivables, restructuring expense, asset impairment charges and other special 
items as determined by management. Segment adjusted EBITDA excludes unallocated 
legacy and corporate expense (income), net. Segment adjusted EBITDA margin is 
defined as segment adjusted EBITDA divided by consolidated sales from 
continuing operations, either in the aggregate or by segment as applicable. 
Free cash flow is defined as cash flows provided by (used for) operating 
activities less capital expenditures. Net debt is defined as total debt less 
cash and cash equivalents.

Management believes these non-GAAP financial measures are useful to both 
management and investors in their analysis of the company's financial position 
and results of operations. In particular, adjusted EBITDA, adjusted EBITDA 
margin, segment adjusted EBITDA, segment adjusted EBITDA margin, adjusted 
income (loss) from continuing operations attributable to the company and 
adjusted diluted earnings (loss) per share from continuing operations are 
meaningful measures of performance to investors as they are commonly utilized 
to analyze financial performance in our industry, perform analytical 
comparisons, benchmark performance between periods and measure our performance 
against externally communicated targets. Free cash flow is used by investors 
and management to analyze our ability to service and repay debt and return 
value directly to shareholders. Net debt over adjusted EBITDA is a specific 
financial measure in our current M2019 plan used to measure the company’s 
leverage in order to assist management in its assessment of appropriate 
allocation of capital. Management uses the aforementioned non-GAAP financial 
measures for planning and forecasting purposes, and segment adjusted EBITDA is 
also used as the primary basis for the Chief Operating Decision Maker ("CODM") 
to evaluate the performance of each of our reportable segments. Our Board of 
Directors uses adjusted EBITDA margin, free cash flow, adjusted diluted 
earnings (loss) per share from continuing operations and net debt over adjusted 
EBITDA as key metrics to determine management’s performance under our 
performance-based compensation plans. Adjusted income (loss) from continuing 
operations attributable to the company, adjusted diluted earnings (loss) per 
share from continuing operations, adjusted EBITDA, adjusted EBITDA margin, 
segment adjusted EBITDA and segment adjusted EBITDA margin should not be 
considered a substitute for the reported results prepared in accordance with 
GAAP and should not be considered as an alternative to net income as an 
indicator of our financial performance. Free cash flow should not be considered 
a substitute for cash provided by (used for) operating activities, or other 
cash flow statement data prepared in accordance with GAAP, or as a measure of 
financial position or liquidity. In addition, this non-GAAP cash flow measure 
does not reflect cash used to repay debt or cash received from the divestitures 
of businesses or sales of other assets and thus does not reflect funds 
available for investment or other discretionary uses. Net debt should not be 
considered a substitute for total debt as reported on the balance sheet. These 
non-GAAP financial measures, as determined and presented by the company, may 
not be comparable to related or similarly titled measures reported by other 
companies. Set forth below are reconciliations of these non-GAAP financial 
measures to the most directly comparable financial measures calculated in 
accordance with GAAP.


Three Months Ended June 30,


Nine Months Ended June 30,


The nine months ended June 30, 2019 includes $12 million of non-cash tax 
benefit related to the one time deemed repatriation of accumulated foreign 
earnings and $3 million of non-cash tax expense related to other adjustments. 
The nine months ended June 30, 2018 includes $43 million of non-cash tax 
expense related to the revaluation of our deferred tax assets and liabilities 
as a result of the U.S. tax reform and $34 million of non-cash tax expense 
related to the one time deemed repatriation of accumulated foreign earnings. 
The nine months ended June 30, 2019 includes $31 million related to the 
remeasurement of the Maremont net asbestos liability based on the Maremont 
prepackaged plan of reorganization. The nine months ended June 30, 2019 
includes $6 million of income tax expense related to the remeasurement of the 
Maremont net asbestos liability based on the Maremont prepackaged plan of 
reorganization.

Three Months Ended June 30,

Nine Months Ended June 30,

Adjusted EBITDA margin equals adjusted EBITDA divided by consolidated sales 
from continuing operations. Unallocated legacy and corporate expense (income), 
net represents items that are not directly related to the company's business 
segments. These items primarily include asbestos-related charges and 
settlements, pension and retiree medical costs associated with sold businesses, 
and other legacy costs for environmental and product liability. Amounts for the 
three and nine months ended June 30, 2018 have been recast to reflect 
reportable segment changes. Segment adjusted EBITDA margin equals segment 
adjusted EBITDA divided by consolidated sales from continuing operations, 
either in the aggregate or by segment as applicable


Results of Operations

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018 
Sales

Amounts for the three months ended June 30, 2018 have been recast to reflect 
reportable segment changes. Commercial Truck sales were $869 million in the 
third quarter of fiscal year 2019, up 2 percent compared to the third quarter 
of fiscal year 2018. The increase in sales was driven primarily by increased 
production in North America, partially offset by the strengthening of the U.S. 
dollar against most currencies. Aftermarket, Industrial and Trailer sales were 
$340 million in the third quarter of fiscal year 2019, up 7 percent compared to 
the third quarter of fiscal year 2018. Higher sales were driven by increased 
industrial volumes and pricing actions within our Aftermarket business. Cost of 
Sales and Gross Profit Cost of sales primarily represents materials, labor and 
overhead production costs associated with the company’s products and production 
facilities. Cost of sales for the three months ended June 30, 2019 was $987 
million compared to $959 million in the same period in the prior fiscal year, 
representing an increase of 3 percent, primarily driven by increased volumes. 
Total cost of sales was 84.6 and 84.9 percent of sales for the three-month 
periods ended June 30, 2019 and 2018, respectively.

Material costs represent the majority of our cost of sales and include raw 
materials, composed primarily of steel, and purchased components. Material 
costs for the three months ended June 30, 2019 increased $38 million compared 
to the same period in the prior fiscal year primarily due to higher volumes and 
higher year-over-year steel prices. Labor and overhead costs decreased by $8 
million compared to the same period in the prior fiscal year. Gross margin was 
$179 million and $170 million for the three-month periods ended June 30, 2019 
and 2018, respectively. Gross margin as a percentage of sales was 15.4 and 15.1 
percent for the three-month periods ended June 30, 2019 and 2018, respectively. 
Gross margin as a percentage of sales increased primarily due to conversion on 
higher revenue which was partially offset by higher material costs. Other 
Income Statement Items Selling, general and administrative expenses ("SG&A") 
for the three months ended June 30, 2019 and 2018 are summarized as follows 
(dollars in millions):

We recognized $3 million related to previous cash settlements with insurance 
companies for recoveries of defense and indemnity costs associated with 
asbestos liabilities in the third quarter of fiscal year 2018, which is 
included in 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).


Other operating expense was $3 million in the third quarter of fiscal year 2019 
and insignificant in the third quarter of fiscal year 2018. During the three 
months ended June 30, 2019, these costs primarily related to environmental 
remediation. Operating income increased by $13 million from $91 million in the 
third quarter of fiscal year 2018 to $104 million in the same period in fiscal 
year 2019. Key items affecting operating income are discussed above. 
Non-operating income increased by $1 million from $9 million in the third 
quarter of fiscal year 2018 to $10 million in the same period in fiscal year 
2019. Amounts for the three months ended June 30, 2018 have been recast for ASU 
2017-07, Compensation Retirement Benefits (Topic 715). For the three months 
ended June 30, 2018, $7 million was reclassified out of Cost of goods sold and 
into Non-operating income. Equity in earnings of affiliates was $9 million in 
the third quarter of fiscal years 2019 and 2018. Interest expense, net was $14 
million in the third quarter of fiscal years 2019 and 2018. Provision for 
income taxes was $21 million in the third quarter of fiscal year 2019 compared 
to $26 million in the same period in the prior fiscal year. Higher pre-tax 
income during the third quarter of fiscal year 2019 compared to the same 
quarter in the prior year was offset by a reduction in the current year 
annualized effective tax rate. Additionally, we recorded a $4 million tax 
charge related to a tax accrual recorded in the third quarter of fiscal year 
2018, that did not repeat. 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.

Segment Adjusted EBITDA and Segment Adjusted EBITDA Margins

Amounts for the three months ended June 30, 2018 have been recast to reflect 
reportable segment changes. Commercial Truck segment adjusted EBITDA was $93 
million in the third quarter of fiscal year 2019, down $7 million from the same 
period in the prior fiscal year. Segment adjusted EBITDA margin decreased from 
11.7 percent in the third quarter of fiscal year 2018 to 10.7 percent in the 
third quarter of fiscal year 2019. The decrease in segment adjusted EBITDA and 
segment adjusted EBITDA margin were driven primarily by higher material costs, 
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 in the past. 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 $54 million in 
the third quarter of fiscal year 2019, up $16 million from the same period in 
the prior fiscal year. Segment adjusted EBITDA margin increased from 11.9 
percent in the third quarter of fiscal year 2018 to 15.9 percent in the third 
quarter of fiscal year 2019. The increase in segment adjusted EBITDA and 
segment adjusted EBITDA margin was driven primarily by pricing actions within 
our Aftermarket business.


Nine Months Ended June 30, 2019 Compared to Nine Months Ended June 30, 2018 
Sales

Amounts for the nine months ended June 30, 2018 have been recast to reflect 
reportable segment changes. Commercial Truck sales were $2,524 million in the 
first nine months of fiscal year 2019, up 7 percent compared to the first nine 
months of fiscal year 2018. The increase in sales was driven primarily by 
higher truck production in North America and increased market share, partially 
offset by the strengthening of the U.S. dollar against most currencies. 
Aftermarket, Industrial and Trailer sales were $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. 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 was $2,866 
million compared to $2,625 million in the same period in the prior fiscal year, 
representing an increase of 9 percent, primarily driven by increased volumes. 
Total cost of sales was 85.3 and 84.7 percent of sales for the nine-month 
periods ended June 30, 2019 and 2018, respectively.

Material costs represent the majority of our cost of sales and include raw 
materials, composed primarily of steel, and purchased components. Material 
costs for the nine months ended June 30, 2019 increased $229 million compared 
to the same period in the prior fiscal year primarily due to higher volumes and 
higher year-over-year steel prices. Labor and overhead costs increased $13 
million compared to the same period in the prior fiscal year primarily due to 
higher volumes. Gross margin was $494 million and $473 million for the 
nine-month periods ended June 30, 2019 and 2018, respectively. Gross margin, as 
a percentage of sales, was 14.7 and 15.3 percent for the nine-month periods 
ended June 30, 2019 and 2018, respectively. Gross margin as a percentage of 
sales decreased primarily due to higher freight and other layered capacity 
costs driven by significant production levels, which more than offset the 
impact of conversion on higher revenue. Other Income Statement Items SG&A for 
the nine months ended June 30, 2019 and 2018 are summarized as follows (dollars 
in millions):

Amounts for the nine months ended June 30, 2018 have been recast for ASU 
2017-07, Compensation Retirement Benefits (Topic 715). We recognized $31 
million related to remeasuring the Maremont asbestos liability based on the 
Maremont plan of reorganization in the first quarter of fiscal year 2019 (see 
Note 21 of the Notes to the Condensed Consolidated Financial Statements in Part 
I of this Quarterly Report). We recognized $7 million related to previous cash 
settlements with insurance companies for recoveries of defense and indemnity 
costs associated with asbestos liabilities in the first nine months of fiscal 
year 2018, which is included in Asbestos-related expense, net of 
asbestos-related insurance recoveries.

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 
was $3 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 compared to $131 million in the 
same period in the prior fiscal year. The nine months ended June 30, 2018 
included $43 million of non-cash tax expense related to the remeasurement of 
our deferred tax attributes as a result of the U.S. tax reform and $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 stronger earnings in certain 
jurisdictions that do not have a tax valuation allowance compared to the prior 
year. 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– Nine months ended June 30, 2018

Commercial Truck segment adjusted EBITDA was $258 million in the first nine 
months of fiscal year 2019, down $5 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 percent in the first nine months 
of fiscal year 2019. The decrease in segment adjusted EBITDA and segment 
adjusted EBITDA margin was driven primarily by higher net steel, freight and 
other layered capacity costs, 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 in the first nine months 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 EBITDA and segment adjusted EBITDA margin was driven primarily 
by pricing actions within our Aftermarket business.

Financial Condition

Nine Months Ended June 30,

OPERATING CASH FLOWS

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


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

Cash used for financing activities was $147 million in the first nine months of 
fiscal year 2019 compared to $336 million in the same period of fiscal year 
2018. The decrease in cash used for financing activities is primarily related 
to the redemption of our 6.75 percent notes due 2021 (the "6.75 Percent Notes") 
in the first quarter 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.

Liquidity

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 capital expenditures for our business segments to be 
approximately $105 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 and fund future growth, including actions required to improve our 
market share and further diversify our global operations, through the term of 
our revolving credit facility, which matures in June 2024.


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

Cash and Liquidity Needs – At June 30, 2019, we had $111 million in cash and 
cash equivalents, of which $30 million was held in jurisdictions outside of the 
U.S. that, if repatriated, could result in withholding taxes. It is our intent 
to reinvest those cash balances in our foreign operations as we expect 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, we were in 
compliance with this covenant under our credit agreement. Equity Repurchase 
Authorization – On July 21, 2016, our Board of Directors authorized the 
repurchase of up to $100 million of our common stock from time to time through 
open market purchases, privately negotiated transactions or otherwise, until 
September 30, 2019, subject to compliance with legal and regulatory 
requirements and our debt covenants. During the second quarter of fiscal year 
2018, we repurchased 1.4 million shares of common stock for $33 million 
(including commission costs) pursuant to this authorization. During the third 
quarter of fiscal year 2018, we repurchased 1.4 million shares of common stock 
for $30 million (including commission costs) pursuant to this authorization. 
During the fourth quarter of fiscal year 2018, we repurchased 1.7 million 
shares of our common stock for $37 million (including commission costs) 
pursuant to this authorization. The repurchases under this authorization were 
complete as of September 30, 2018.

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

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, 2019.

Redemption of 6.75 Percent Notes - 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 in the Condensed Consolidated Statement of Operations 
within Interest expense, net during fiscal year 2017.

On November 2, 2017, we redeemed the remaining $175 million aggregate principal 
amount outstanding of the 6.75 Percent Notes at a price of $1,033.75 per $1,000 
of principal amount, plus accrued and unpaid interest. As a result, a loss on 
debt extinguishment of $8 million was recorded in the Condensed Consolidated 
Statement of Operations within Interest expense, net. The redemption was made 
pursuant to a special authorization from the Board of Directors in connection 
with the sale of Meritor WABCO. Redemption of 4.0 Percent Notes - On February 
15, 2019, we redeemed $19 million aggregate principal amount outstanding of the 
4.0 Percent Convertible Notes at a price of 100 percent of the accreted 
principal amount, plus accrued and unpaid interest. On June 7, 2019, we 
redeemed the remaining $5 million aggregate principal amount outstanding of the 
4.0 Percent Convertible Notes at a price equal to 100 percent of the accreted 
principal amount, plus accrued and unpaid interest. The 4.0 Percent Convertible 
Notes were classified as current as of September 30, 2018 as the securities 
were redeemable at the option of the holder on February 15, 2019, at a 
repurchase price in cash equal to 100 percent of the accreted principal amount 
of the securities to be repurchased, plus accrued and unpaid interest.

Revolving Credit Facility – On June 7, 2019, we amended and restated our 
revolving credit facility. Pursuant to the revolving credit agreement, as 
amended, we have a $625 million revolving credit facility and a $175 million 
term loan facility 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.

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 of the Notes to the Condensed Consolidated 
Financial Statements in 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. Other – One of our consolidated joint ventures in China participates in a 
bills of exchange program to settle its obligations with its trade suppliers. 
These programs are common in China and generally require the participation of 
local banks. Under these programs, our joint venture issues notes payable 
through the participating banks to its trade suppliers. If the issued notes 
payable remain unpaid on their respective due dates, this could constitute an 
event of default under our revolving credit facility if the defaulted amount 
exceeds $35 million per bank. As of June 30, 2019 and September 30, 2018, we 
had $25 million and $22 million, respectively, outstanding under this program 
at more than one bank. Credit Ratings – At July 30, 2019, our Standard & Poor’s 
corporate credit rating and senior unsecured credit rating were BB and BB-, 
respectively, and our Moody’s Investors Service corporate credit rating and 
senior unsecured credit rating were Ba3 and B1, respectively. Any lowering of 
our credit ratings could increase our cost of future borrowings and could 
reduce our access to capital markets and result in lower trading prices for our 
securities. Off-Balance Sheet Arrangements

Accounts Receivable Factoring Arrangements – We participate in accounts 
receivable factoring programs with a total amount utilized at June 30, 2019 of 
$294 million, of which $230 million was attributable to committed factoring 
facilities involving the sale of AB Volvo accounts receivables. The remaining 
amount of $64 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 liquidity commitment from Nordea Bank, which 
was renewed through January 10, 2020. Commitments under all of our factoring 
facilities are subject to standard terms and conditions for these types of 
arrangements (including, in 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).

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 June 30, 2019 and September 30, 2018, respectively.

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, we entered into multiple 
cross-currency swaps. These swaps hedged a portion of the net investment in a 
certain European subsidiary against volatility in the euro/U.S. dollar foreign 
exchange rate. In the third quarter of fiscal year 2019, the company unwound 
these cross-currency swaps and received proceeds of $19 million, $2 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.


Cash flow

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

At June 30, 2019, the fair value of outstanding debt was $857 million. A 50 
basis points decrease in quoted interest rates would result in an increase of 
$35 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 million in the fair 
value of fixed rate debt.