Meritor Download

Table of Contents

These reports were compiled using a product of Thomson Reuters www.thomsonreuters.com

1

Rpt. 26628803 MERITOR INC 2 - 1029-Jul-2015 PIPER JAFFRAY - COMPANY REPORT

- POTTER, ALEXANDER

Rpt. 26627627 MERITOR INC 11 - 1829-Jul-2015 KEYBANC CAPITAL MARKETS

- HOSELTON, BRETT D

Rpt. 26624661 MERITOR INC 19 - 2129-Jul-2015 KEYBANC CAPITAL MARKETS

- HOSELTON, BRETT D

Rpt. 26492588 MERITOR INC 22 - 4813-Jul-2015 BUYSELLSIGNALS RESEARCH

- RESEARCH TEAM, ET AL

Rpt. 26260797 MERITOR INC 49 - 5914-Jun-2015 KEYBANC CAPITAL MARKETS

- HOSELTON, BRETT D

Rpt. 25943897 MERITOR INC 60 - 6829-Apr-2015 PIPER JAFFRAY - COMPANY REPORT

- POTTER, ALEXANDER

C O M P A N Y N O T EJ u l y 2 9 , 2 0 1 5

Meritor, Inc. (MTOR) NeutralUpping Price Target by $1 to Reflect a Stronger Margin Outlook, Staying Neutral

PRICE: US$13.79Price as of the close July 29, 2015

TARGET: US$14.007.0x 2016E EV/EBITDA (EBITDA $393.2m,$1.36bn net debt, 100.3m shares)

Alexander E. PotterSr Research Analyst, Piper Jaffray & Co.612 303-6709, [email protected] DongResearch Analyst, Piper Jaffray & Co.212 284-9338, [email protected]

Changes Previous CurrentRating NeutralPrice Tgt US$13.00 US$14.00FY15E Rev (mil) US$3,528.5 US$3,541.9FY16E Rev (mil) US$3,801.8 US$3,803.1FY15E EPS US$1.36 US$1.47FY16E EPS US$1.74 US$1.80

52-Week High / Low US$15.65 / US$9.46Shares Out (mil) 100.3Market Cap. (mil) US$1,383.1Avg Daily Vol (000) 1,210Book Value/Share US$(6.16)Net Cash Per Share US$(7.50)Debt to Total Capital 151.0%Div (ann) US$0.00Fiscal Year End Sep

Price Performance - 1 Year

Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15

16

15

14

13

12

11

10

9

USD

Source: Bloomberg

CONCLUSIONWe are reiterating our Neutral rating on MTOR following a solid Q3 characterized byimpressive margins. MTOR increased margin and EPS guidance, reflecting continuedcost control measures and operational efficiency. Revenue guidance for the yearremained intact at $3.5B-$3.55B (inclusive of new incremental revenue from truck makerPCAR). MTOR's margin performance under the M2016 initiative speaks for itself - andwe are raising our price target to $14 (from $13) thanks to a higher margin outlook- but we still think MTOR lacks the growth drivers necessary to offset ~60% revenueexposure to North America, where the truck cycle seems likely to fade in 2016/2017.

Strong Q3 results marked by solid sales and EPS performance. Revenue of $909Mmissed our estimate of $919M but bested consensus of $908M (though revenue wouldhave been a strong "beat" if not for continued FX headwinds). Q3 adjusted EBITDAmargin of 9.6% topped our estimate of 8.9%, and management guided this metricup to 9.3% for the full year (up from 9.0%-9.2% previously). Adjusted EPS was$0.41 which was well above PJC/street estimates of $0.33/$0.32. Full year EPS is nowguided at $1.40-$1.50 (up from $1.30-$1.40), thanks to higher margins and an equityrepurchase program that will last through the end of 2016.

Growth drivers needed to leverage M2016 cost cuts. For evidence that MTOR hasused the M2016 initiative to deliver higher margins, one need look no further thanthe company's operational performance over the last several quarters. We are nowfirmly convinced that a 10% adjusted EBITDA margin is achievable in 2016, evenat revenue levels far below those originally envisioned by the plan. But as always,revenue growth remains our primary sticking point. An expanded relationship withPCAR does suggest that MTOR is finding ways to grow despite a peaking truck cyclein North America, but it's unclear whether these wins can be replicated, or whethervertical integration at other OEMs might erode the impact of these new revenuestreams.

Staying Neutral, raising price target to $14 (from $13). We're maintaining our Neutralstance on the shares but raising our price target to $14, due primarily to strongermargins and a recovering truck cycle in Europe. Our price target remains based on 7x2016 EV/EBITDA. We think cost-cutting and operational efficiency are positives, butevidence of sustainable top-line growth will be needed before these cost savings canbe fully leveraged. We will remain Neutral on MTOR until such evidence materializes(or until the stock's multiple contracts).

3

RISKS TO ACHIEVEMENT OF PRICE TARGETSteel price fluctuations, macroeconomic sluggishness, competition from independentand captive suppliers, customer concentration, high leverage

COMPANY DESCRIPTIONMTOR makes axles, drivelines, suspensions, and brakes for trucks & machinery.

YEAR

2014A2015E2016E

REVENUE (US$ m)Dec Mar Jun Sep FY CY FY RM CY RM

900.0 954.0 979.0 933.0 3,751.0 3,752.0 0.4x 0.4x879.0A 864.0A 909.0A 889.9 3,541.9 3,604.6 0.4x 0.4x941.8 955.5 985.0 920.8 3,803.1 3,768.0 0.4x 0.4x

EARNINGS PER SHARE (US$)Dec Mar Jun Sep FY CY FY P/E CY P/E0.12 0.22 0.28 0.35 1.02 1.21 13.5x 11.4x

0.35A 0.41A 0.41A 0.30 1.47 1.52 9.4x 9.1x0.40 0.45 0.51 0.43 1.80 1.73 7.7x 8.0x

Page 1 of 9Meritor, Inc.

Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be awarethat the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report asonly a single factor in making their investment decisions. This report should be read in conjunction with important disclosureinformation, including an attestation under Regulation Analyst certification, found on pages 8 - 9 of this report or at the followingsite: http://www.piperjaffray.com/researchdisclosures.

2

Piper Jaffray Co.

Alexander E. Potter

(612) 303-6709

[email protected]

MERITOR Inc. (MTOR)Income Statement

(millions, except per share amount)

Date: 7/29/2015

Current disclosure information for this company can be found at:

http://www.piperjaffray.com/researchdisclosures

1Q 2Q 3Q 4Q 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4Q 1Q 2Q 3Q 4Q FY2012 FY2013 FY2014 FY2015E FY2016E

Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Net sales 891.0 908.0 993.0 902.0 900.0 954.0 979.0 933.0 879.0 864.0 909.0 889.9 941.8 955.5 985.0 920.8 4,418.0 3,694.0 3,751.0 3,541.9 3,803.1

Cost of sales 808.0 813.0 884.0 803.0 795.0 836.0 855.0 793.0 764.0 749.0 785.0 774.2 819.3 831.3 856.9 801.1 3,933.0 3,308.0 3,261.0 3,072.2 3,308.7

Gross profit 83.0 95.0 109.0 99.0 105.0 118.0 124.0 140.0 115.0 115.0 124.0 115.7 122.4 124.2 128.0 119.7 485.0 386.0 490.0 469.7 494.4

Selling, general and administrative 62.0 65.0 67.0 60.0 59.0 66.0 53.0 80.0 65.0 57.0 65.0 - - - - - 285.0 254.0 257.0 187.0 -

Other expenses 7.0 12.0 48.0 (54.0) 2.0 2.0 1.0 7.0 2.0 3.0 8.0 - - - - - 27.0 13.0 12.0 13.0 -

Operating Income from con. Op. 14.0 18.0 (6.0) 93.0 44.0 50.0 70.0 53.0 48.0 55.0 51.0 - - - - - 173.0 119.0 221.0 154.0 -

Equity share unconsolidated affiliates 9.0 10.0 15.0 8.0 8.0 9.0 201.0 10.0 9.0 9.0 10.0 - - - - - 52.0 42.0 228.0 28.0 -

Other income(expense) - - - 3.0 - - - - 2.0 2.0 (1.0) - - - - - 7.0 3.0 - 3.0 -

EBIT 23.0 28.0 9.0 111.0 52.0 59.0 271.0 63.0 59.0 66.0 60.0 56.0 71.7 76.9 82.4 72.9 232.0 171.0 449.0 241.0 304.0

Net interest income (expense) (29.0) (25.0) (45.0) (27.0) (27.0) (48.0) (22.0) (33.0) (19.0) (21.0) (38.0) (22.7) (22.5) (22.3) (22.1) (21.8) (95.0) (126.0) (130.0) (100.7) (88.7)

Income before income taxes (6.0) 3.0 (36.0) 84.0 25.0 11.0 249.0 30.0 40 45 22 33 49 55 60 51 137.0 45.0 319.0 140.3 215.3

Income taxes 10.0 7.0 1.0 45.0 11.0 8.0 12.0 - 7.0 6.0 6.0 2.3 8.6 9.6 10.6 8.9 56.0 63.0 32.0 21.3 37.7

Income from continuing operations (16.0) (4.0) (37.0) 39.0 14.0 3.0 237.0 30.0 33 39 16 31 41 45 50 42 81.0 (18.0) 287.0 118.9 177.6

Minority interest - - - 2.0 2.0 2.0 - 1.0 1.0 - 1.0 1.0 1.0 1.0 1.0 1.0 11.0 2.0 5.0 3.0 4.0

Earnings from discontinued ops (5.0) - (1.0) 4.0 (1.0) 3.0 (3.0) (26.0) (3.0) 4.0 (2.0) - - - - - (18.0) (2.0) (32.0) (1.0) -

Net income (loss) attributed to MTOR (21.0) (4.0) (38.0) 41.0 11.0 4.0 234.0 3.0 29.0 43.0 13.0 29.9 39.6 44.1 48.8 41.2 52.0 (22.0) 252.0 114.9 173.6

Adjustments 5.0 10.0 70.0 (26.0) 1.0 23.0 (208.0) 6.0 3.0 3.0 26.0 - - - - - 41.0 59.0 (178.0) 32.0 -

Adjusted net income (loss) from cont. OP (11.0) 6.0 33.0 11.0 13.0 24.0 29.0 35.0 35 42 41 30 40 44 49 41 111.0 39.0 106.0 147.9 173.6

Diluted income per common share:

Reported EPS (GAAP) ($0.22) ($0.04) ($0.39) $0.42 $0.11 $0.04 $2.31 $0.03 $0.29 $0.42 $0.13 $0.30 $0.40 $0.45 $0.51 $0.43 $0.54 ($0.22) $2.54 $1.14 $1.80

Operating EPS (Non-GAAP) ($0.11) $0.06 $0.34 $0.11 $0.13 $0.25 $0.29 $0.35 $0.35 $0.41 $0.41 $0.30 $0.40 $0.45 $0.51 $0.43 $1.14 $0.40 $1.06 $1.47 $1.80

Weighted average diluted shares 96.7 97.2 97.2 98.7 98.7 97.6 101.1 101.3 101.2 102.9 100.3 99.2 98.1 97.0 95.9 94.7 97.2 97.1 99.7 100.9 96.4

EBITDA 46.0 58.0 87.0 70.0 72.0 80.0 82.0 80.0 79.0 87.0 87.0 78.1 93.9 99.2 104.7 95.4 345.0 261.0 320.0 331.1 393.2

Growth Rates:

Total Sales -23.1% -21.7% -10.8% -8.5% 1.0% 5.1% -1.4% 3.4% -2.3% -9.4% -7.2% -4.6% 7.1% 10.6% 8.4% 3.5% -4.4% -16.4% 1.5% -5.6% 7.4%

EBIT -34.3% -61.6% -89.9% 217.1% 126.1% 110.7% 2911.1% -43.2% 13.5% 11.9% -77.9% -11.2% 21.6% 16.5% 37.3% 30.3% -8.7% -26.3% 162.6% -46.3% 26.1%

EBITDA -41.8% -38.9% -7.4% -11.4% 56.5% 37.9% -5.7% 14.3% 9.7% 8.7% 6.1% -2.4% 18.8% 14.0% 20.4% 22.2% NA -24.3% 22.6% 3.5% 18.8%

Net income -4.5% -120.0% -177.6% 720.0% -152.4% -200.0% -715.8% -92.7% 163.6% 975.0% -94.4% 897.6% 36.6% 2.5% 275.2% 37.5% -17.5% -142.3% -1245.5% -54.4% 51.1%

EPS (operating) -197.7% -81.3% -10.8% -65.1% -215.8% 298.4% -15.5% 210.0% 162.6% 66.0% 42.5% -12.7% 16.8% 11.3% 24.5% 44.0% 34.1% -64.9% 165.0% 38.7% 22.4%

Margins & Ratios:

GPM 9.3% 10.5% 11.0% 11.0% 11.7% 12.4% 12.7% 15.0% 13.1% 13.3% 13.6% 13.0% 13.0% 13.0% 13.0% 13.0% 11.0% 10.4% 13.1% 13.3% 13.0%

SG&A 7.0% 7.2% 6.7% 6.7% 6.6% 6.9% 5.4% 8.6% 7.4% 6.6% 7.2% 0.0% 0.0% 0.0% 0.0% 0.0% 6.5% 6.9% 6.9% 5.3% 0.0%

EBITDA 5.2% 6.4% 8.8% 7.8% 8.0% 8.4% 8.4% 8.6% 9.0% 10.1% 9.6% 8.8% 10.0% 10.4% 10.6% 10.4% 7.8% 7.1% 8.5% 9.3% 10.3%

Tax rate -166.7% 233.3% -2.8% 53.6% 44.0% 72.7% 4.8% 0.0% 17.5% 13.3% 27.3% 7.0% 17.5% 17.5% 17.5% 17.5% 40.9% 140.0% 10.0% 15.2% 17.5%

FY2016EFY2014A FY2015EFY2013

Page 2 of 9Meritor, Inc. 3

MERITOR Inc. (MTOR)Segment & Regional Revenue Analysis

(PJC est) (PJC est) (PJC est)



Revenue by Segment & Geography 30.0

North America - - - - - - - - - - - - - - - - 1,836.4 1,468.6 1,527.8 1,722.8 1,845.3

Europe - - - - - - - - - - - - - - - - 712.7 616.8 640.3 610.9 659.7

S. America (mostly Brazil) - - - - - - - - - - - - - - - - 484.0 463.2 422.5 144.5 151.7

China - - - - - - - - - - - - - - - - 262.6 142.4 151.2 98.3 103.2

Other Asia Pacific (Includes India) - - - - - - - - - - - - - - - - 317.2 229.0 238.2 202.5 263.2

Total Commercial Truck & Industrial 715 712 784 709 727 763 761 729 703 681 705 690 765 762 777 720 3,613.0 2,920.0 2,980.0 2,778.9 3,023.2

Aftermarket & Trailer 203 224 238 233 208 225 253 240 208 212 233 230 209 226 242 232 937.0 898.0 920.0 883.2 909.7

Total Revenue (Before Intersegment) 918 936 1,022 942 935 988 1,014 969 911 893 938 920 974 988 1,019 952 4,550.0 3,818.0 3,900.0 3,662.1 3,932.9

Intersegment Eliminations (27.0) (28.0) (29.0) (33.0) (28.0) (34.0) (35.0) (36.0) (32.0) (29.0) (29.0) (30.2) (32.1) (32.6) (33.6) (31.4) (132.0) (117.0) (134.0) (120.2) (129.8)

Total Consolidated Revenue 891 908 993 909 907 954 979 933 879 864 909 890 942 955 985 921 4,418.0 3,701.0 3,766.0 3,541.9 3,803.1

Sales Growth (y/y%) by Segment & Geography

North America - - - - - - - - - - - - - - - - 20.4% -20.0% 4.0% 12.8% 7.1%

Europe - - - - - - - - - - - - - - - - -17.0% -13.5% 3.8% -4.6% 8.0%

S. America (mostly Brazil) - - - - - - - - - - - - - - - - -37.2% -4.3% -8.8% -65.8% 5.0%

China - - - - - - - - - - - - - - - - -18.6% -45.8% 6.2% -35.0% 5.0%

Other Asia Pacific (Includes India) - - - - - - - - - - - - - - - - -9.7% -27.8% 4.0% -15.0% 30.0%

Total Commercial Truck & Industrial -26.7% -25.2% -13.2% -9.5% 1.7% 7.2% -2.9% 2.8% -3.3% -10.7% -7.4% -5.4% 8.8% 11.9% 10.2% 4.3% -5.6% -19.2% 2.1% -6.7% 8.8%

Aftermarket & Trailer -6.9% -7.8% -2.5% 0.4% 2.5% 0.4% 6.3% 3.0% 0.0% -5.8% -7.9% -4.1% 0.6% 6.6% 3.9% 1.0% -1.3% -4.2% 2.4% -4.0% 3.0%

Total Revenue (Before Intersegment) -23.1% -21.7% -10.9% -7.2% 1.9% 5.6% -0.8% 2.9% -2.6% -9.6% -7.5% -5.1% 6.9% 10.6% 8.6% 3.5% -4.8% -16.1% 2.1% -6.1% 7.4%

Intersegment Eliminations -20.6% -20.0% -14.7% 13.8% 3.7% 21.4% 20.7% 9.1% 14.3% -14.7% -17.1% -16.2% 0.4% 12.4% 15.9% 4.1% -14.8% -11.4% 14.5% -10.3% 8.0%

Total Consolidated Revenue -23.1% -21.7% -10.8% -7.8% 1.8% 5.1% -1.4% 2.6% -3.1% -9.4% -7.2% -4.6% 7.1% 10.6% 8.4% 3.5% -4.4% -16.2% 1.8% -6.0% 7.4%

Revenue Seasonality Assumptions

Commercial Truck & Industrial 24.5% 24.4% 26.8% 24.3% 24.4% 25.6% 25.5% 24.5% 25.3% 24.5% 25.4% 24.8% 25.3% 25.2% 25.7% 23.8%

Aftermarket & Trailer 22.6% 24.9% 26.5% 25.9% 22.6% 24.5% 27.5% 26.1% 23.6% 24.0% 26.4% 26.1% 23.0% 24.8% 26.6% 25.6%

FY2015E FY2016EFY2014AFY2013


Piper Jaffray Co.

Alexander E. Potter

(612) 303-6709

[email protected]

MERITOR Inc. (MTOR)Segment Analysis


Segment Analysis Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Revenue by Segment

Commercial Truck & Industrial 715.0 712.0 784.0 709.0 727.0 763.0 761.0 729.0 703.0 681.0 705.0 689.9 764.6 762.2 776.6 719.8 3,613.0 2,920.0 2,980.0 2,778.9 3,023.2

Aftermarket & Trailer 203.0 224.0 238.0 227.0 202.0 225.0 253.0 240.0 208.0 212.0 233.0 230.2 209.3 225.9 242.0 232.4 937.0 892.0 907.0 883.2 909.7

Intersegment Eliminations (27.0) (28.0) (29.0) (34.0) (29.0) (34.0) (35.0) (36.0) (32.0) (29.0) (29.0) (30.2) (32.1) (32.6) (33.6) (31.4) (132.0) (118.0) (136.0) (120.2) (129.8)

Total Consolidated Revenue 891.0 908.0 993.0 902.0 900.0 954.0 979.0 933.0 879.0 864.0 909.0 889.9 941.8 955.5 985.0 920.8 4,418.0 3,694.0 3,751.0 3,541.9 3,803.1

Segment EBITDA & EBIT

Commercial Truck & Industrial 34.0 37.0 67.0 54.0 53.0 57.0 55.0 53.0 56.0 57.0 58.0 49.7 68.1 70.9 74.6 66.2 270.0 192.0 218.0 220.7 279.7

Aftermarket & Trailer 13.0 22.0 25.0 24.0 21.0 24.0 28.0 34.0 25.0 30.0 31.0 30.4 27.8 30.3 32.2 31.1 81.0 84.0 112.0 116.4 121.4

Total segment EBITDA 47.0 59.0 92.0 78.0 74.0 81.0 83.0 87.0 81.0 87.0 89.0 80.1 95.9 101.2 106.7 97.4 351.0 276.0 330.0 337.1 401.2

Unallocated costs, net (1.0) (1.0) (5.0) (8.0) (2.0) (1.0) (1.0) (7.0) (2.0) - (2.0) (2.0) (2.0) (2.0) (2.0) (2.0) (6.0) (15.0) (10.0) (6.0) (8.0)

Adjusted EBITDA 46.0 58.0 87.0 70.0 72.0 80.0 82.0 80.0 79.0 87.0 87.0 78.1 93.9 99.2 104.7 95.4 345.0 261.0 320.0 331.1 393.2

Depreciation and Amortization (16.0) (17.0) (16.0) (17.0) (16.0) (17.0) (17.0) (17.0) (15.0) (17.0) (17.0) (17.1) (17.2) (17.3) (17.3) (17.4) (63.0) (66.0) (67.0) (66.1) (69.2)

Other costs (7.0) (13.0) (62.0) 58.0 (4.0) (4.0) 206.0 - (5.0) (4.0) (10.0) (5.0) (5.0) (5.0) (5.0) (5.0) (61.0) (23.0) 198.0 (24.0) (20.0)

EBIT 23.0 28.0 9.0 111.0 52.0 59.0 271.0 63.0 59.0 66.0 60.0 56.0 71.7 76.9 82.4 72.9 221.0 172.0 445.0 241.0 304.0

EBITDA Margins

Commercial Truck & Industrial 4.8% 5.2% 8.5% 7.6% 7.3% 7.5% 7.2% 7.3% 8.0% 8.4% 8.2% 7.2% 8.9% 9.3% 9.6% 9.2% 7.5% 6.6% 7.3% 7.9% 9.3%

Aftermarket & Trailer 6.4% 9.8% 10.5% 10.6% 10.4% 10.7% 11.1% 14.2% 12.0% 14.2% 13.3% 13.2% 13.3% 13.4% 13.3% 13.4% 8.6% 9.4% 12.3% 13.2% 13.4%

Total segment EBITDA 5.3% 6.5% 9.3% 8.6% 8.2% 8.5% 8.5% 9.3% 9.2% 10.1% 9.8% 9.0% 10.2% 10.6% 10.8% 10.6% 7.9% 7.5% 8.8% 9.5% 10.5%

Adjusted EBITDA 5.2% 6.4% 8.8% 7.8% 8.0% 8.4% 8.4% 8.6% 9.0% 10.1% 9.6% 8.8% 10.0% 10.4% 10.6% 10.4% 7.8% 7.1% 8.5% 9.3% 10.3%

EBIT 2.6% 3.1% 0.9% 12.3% 5.8% 6.2% 27.7% 6.8% 6.7% 7.6% 6.6% 6.3% 7.6% 8.0% 8.4% 7.9% 5.0% 4.7% 11.9% 6.8% 8.0%

Incremental Margins

Commercial Truck & Industrial (y/y) 10.4% 15.8% 3.4% 12.2% 158.3% 39.2% 52.2% -5.0% -12.5% 0.0% -5.4% 8.5% 19.6% 17.1% 23.1% 55.2% 11.3% 43.3% -1.3% 24.2%

Aftermarket & Trailer (y/y) 26.7% 10.5% -50.0% -120.0% -800.0% 200.0% 20.0% 76.9% 66.7% -46.2% -15.0% 36.9% 218.1% 2.0% 13.2% 34.0% -6.7% 186.7% -18.4% 19.1%

Total Adjusted EBITDA (y/y) 12.3% 14.7% 5.8% 10.7% 288.9% 47.8% 35.7% 32.3% -33.3% -7.8% -7.1% 4.5% 23.7% 13.3% 23.3% 55.9% 11.6% 103.5% -5.3% 23.8%

Total Adjusted EBITDA (q/q) 34.7% 70.6% 34.1% 18.7% -100.0% 14.8% 8.0% 4.3% 1.9% -53.3% 0.0% 46.8% 30.5% 38.4% 18.9% 14.6%

FY2013 FY2016EFY2014A FY2015E


Piper Jaffray Co.

Alexander E. Potter

(612) 303-6709

[email protected]

MERITOR Inc. (MTOR)Balance Sheet

(millions, except per share amount)

1Q 2Q 3Q 4Q 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4Q 1Q 2Q 3Q 4Q


ASSETS

Cash and cash equivalents 139.0 117.0 228.0 318.0 300.0 233.0 303.0 247.0 214.0 207.0 345.0 364.5 364.3 366.6 374.9 379.0

Accounts receivable 483.0 555.0 596.0 596.0 534.0 618.0 644.0 610.0 511.0 545.0 530.0 506.5 515.5 528.5 539.4 543.8

Inventories 463.0 420.0 411.0 414.0 432.0 436.0 441.0 379.0 379.0 365.0 365.0 361.3 367.7 377.0 384.8 387.9

Other current assets 56.0 54.0 51.0 56.0 57.0 58.0 56.0 56.0 58.0 55.0 52.0 52.0 52.0 52.0 52.0 52.0

Total current assets 1,141.0 1,146.0 1,286.0 1,384.0 1,323.0 1,345.0 1,444.0 1,292.0 1,162.0 1,172.0 1,292.0 1,284.2 1,299.4 1,324.2 1,351.0 1,362.8

PP&E 407.0 395.0 384.0 417.0 410.0 410.0 411.0 424.0 407.0 387.0 393.0 410.6 414.6 418.9 423.7 427.0

Goodwill 433.0 427.0 427.0 434.0 436.0 437.0 439.0 431.0 423.0 414.0 420.0 420.0 420.0 420.0 420.0 420.0

Other assets 360.0 369.0 380.0 335.0 328.0 339.0 516.0 355.0 354.0 344.0 348.0 348.0 348.0 348.0 348.0 348.0

Total Assets 2,341.0 2,337.0 2,477.0 2,570.0 2,497.0 2,531.0 2,810.0 2,502.0 2,346.0 2,317.0 2,453.0 2,462.9 2,482.0 2,511.1 2,542.7 2,557.8

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable, deferred revenues and other 597.0 616.0 657.0 694.0 651.0 696.0 715.0 680.0 597.0 618.0 611.0 614.4 625.5 642.0 656.3 661.7

Other current liabilities 297.0 297.0 328.0 339.0 323.0 345.0 351.0 351.0 292.0 281.0 303.0 303.0 303.0 303.0 303.0 303.0

Short-term debt (incl. curr. port. of LT debt) 23.0 25.0 23.0 13.0 12.0 6.0 5.0 7.0 5.0 5.0 18.0 18.0 18.0 18.0 18.0 18.0

Total current liabilities 917.0 938.0 1,008.0 1,046.0 986.0 1,047.0 1,071.0 1,038.0 894.0 904.0 932.0 935.4 946.5 963.0 977.3 982.7

Long term debt 1,032.0 1,030.0 1,144.0 1,125.0 1,126.0 1,082.0 1,086.0 965.0 962.0 945.0 1,079.0 1,061.5 1,044.0 1,026.5 1,009.0 991.5

Retirement benefits 1,070.0 1,056.0 1,043.0 886.0 875.0 868.0 861.0 775.0 759.0 737.0 729.0 729.0 729.0 729.0 729.0 729.0

Others 333.0 327.0 341.0 335.0 318.0 316.0 319.0 309.0 307.0 301.0 304.0 313.0 314.0 315.0 316.0 317.0

Total Liabilities 3,352.0 3,351.0 3,536.0 3,392.0 3,305.0 3,313.0 3,337.0 3,087.0 2,922.0 2,887.0 3,044.0 3,038.9 3,033.5 3,033.5 3,031.3 3,020.2

Total equity (deficit) (1,041.0) (1,042.0) (1,086.0) (850.0) (838.0) (813.0) (558.0) (612.0) (603.0) (596.0) (618.0) (603.1) (578.5) (549.4) (515.6) (489.5)

Noncontrolling interests 30.0 28.0 27.0 28.0 30.0 31.0 31.0 27.0 27.0 26.0 27.0 27.0 27.0 27.0 27.0 27.0

% sales analysis:

LTM sales 4,150.0 3,898.0 3,778.0 3,694.0 3,703.0 3,749.0 3,735.0 3,766.0 3,745.0 3,655.0 3,585.0 3,541.9 3,604.6 3,696.1 3,772.1 3,803.1

LTM COGS 3,688.0 3,475.0 3,378.0 3,308.0 3,295.0 3,318.0 3,289.0 3,279.0 3,248.0 3,161.0 3,091.0 3,072.2 3,127.5 3,209.8 3,281.7 3,308.7

AR 11.6% 14.2% 15.8% 16.1% 14.4% 16.5% 17.2% 16.2% 13.6% 14.9% 14.8% 14.3% 14.3% 14.3% 14.3% 14.3%

Inventory 11.2% 10.8% 10.9% 11.2% 11.7% 11.6% 11.8% 10.1% 10.1% 10.0% 10.2% 10.2% 10.2% 10.2% 10.2% 10.2%

AP as % of COGS 16.2% 17.7% 19.4% 21.0% 19.8% 21.0% 21.7% 20.7% 18.4% 19.6% 19.8% 20.0% 20.0% 20.0% 20.0% 20.0%

Net Working Capital as % of Sales 8.0% 8.7% 8.8% 9.0% 9.1% 9.1% 9.2% 8.9% 8.8% 8.9% 8.6% 8.1% 7.7% 7.3% 7.0% 6.9%

FY2014A FY2015EFY2013 FY2016E


Piper Jaffray Co.

Alexander E. Potter

(612) 303-6709

[email protected]

MERITOR Inc. (MTOR)Statement of Cash Flows



Cash flows from operating activities:

Net income (loss) (16.0) (4.0) (37.0) 39.0 14.0 3.0 237.0 30.0 33.0 39.0 16.0 30.9 40.6 45.1 49.8 42.2 81.0 (18.0) 284.0 118.9 177.6

Depreciation and amortization 16.0 17.0 16.0 18.0 16.0 17.0 17.0 17.0 15.0 17.0 17.0 17.1 17.2 17.3 17.3 17.4 63.0 67.0 67.0 66.1 69.2

Exp assoc. with share-based comp, stock option - - - - - - - - - - - - - - - - - - - - -

Deferred income taxes - - - - - - - - - - - - - - - - - - - - -

Other 32.0 (97.0) 62.0 41.0 81.0 (44.0) (203.0) 10.0 46.0 (114.0) 174.0 - - - - - 108.0 38.0 (156.0) 106.0 -

Loss on sale of assets - - - - - - - - - - - - - - - - - - - - -

Changes in assets and liabilities: -

Receivables 59.0 (72.0) (41.0) - 62.0 (84.0) (26.0) 34.0 99.0 (34.0) 15.0 23.5 (9.0) (13.1) (10.9) (4.4) 170.0 (54.0) (14.0) 103.5 (37.4)

Inventories (25.0) 43.0 9.0 (3.0) (18.0) (4.0) (5.0) 62.0 - 14.0 - 3.7 (6.4) (9.3) (7.8) (3.2) 22.0 24.0 35.0 17.7 (26.6)

Accounts payable (100.0) 19.0 41.0 37.0 (43.0) 45.0 19.0 (35.0) (83.0) 21.0 (7.0) 3.4 11.1 16.5 14.4 5.4 (144.0) (3.0) (14.0) (65.6) 47.3

Accrued expenses - - - - - - - - - - - - - - - - - - - - -

Other assets and liabilities (47.0) 66.0 (14.0) (140.0) (116.0) 89.0 46.0 (6.0) (119.0) 95.0 (122.0) 8.0 - - - - (211.0) (135.0) 13.0 (138.0) -

Net cash provided by operating activities (81.0) (28.0) 36.0 (8.0) (4.0) 22.0 85.0 112.0 (9.0) 38.0 93.0 86.7 53.5 56.4 62.9 57.4 89.0 (81.0) 215.0 208.7 230.1

Cash flows from investing activities:

Cash payments for PPE (15.0) (8.0) (8.0) (23.0) (12.0) (13.0) (14.0) (38.0) (12.0) (11.0) (22.0) (34.7) (21.2) (21.5) (22.2) (20.7) (89.0) (54.0) (77.0) (79.7) (85.6)

Proceeds from sale PPE - - - 1.0 - - - - - - 4.0 - - - - - 18.0 1.0 - 4.0 -

Acquisitions, net of cash - - - 182.0 - - - - - - - - - - - - - 182.0 - - -

Other - 6.0 (5.0) 1.0 - 3.0 - 4.0 - 4.0 - - - - - - 3.0 2.0 7.0 4.0 -

Net cash used by investing activities (15.0) (2.0) (13.0) 161.0 (12.0) (10.0) (14.0) (34.0) (12.0) (7.0) (18.0) (34.7) (21.2) (21.5) (22.2) (20.7) (68.0) 131.0 (70.0) (71.7) (85.6)

Cash flows from financing activities:

Principal payment on debt (233.0) (3.0) (191.0) (48.0) (4.0) (304.0) - (131.0) - (16.0) (143.0) - - - - - (86.0) (475.0) (439.0) (159.0) -

Proceeds from debt 225.0 - 275.0 - - 225.0 - - - - 225.0 (17.5) (17.5) (17.5) (17.5) (17.5) 100.0 500.0 225.0 207.5 (70.0)

Dividend - - - - - - - - - - (4.0) - - - - - - - - (4.0) -

Issuance of common stock - - - - - - - - - - - - - - - - - - - - -

Repurchase of common stock - - - - - - - - - (16.0) (14.0) (15.0) (15.0) (15.0) (15.0) (15.0) - - - (45.0) (60.0)

Others (4.0) - 2.0 1.0 3.0 1.0 (3.0) 1.0 (4.0) (2.0) (1.0) - - - - - (12.0) (1.0) 2.0 (7.0) -

Net cash provided (used) by financing activities (12.0) (3.0) 86.0 (47.0) (1.0) (78.0) (3.0) (130.0) (4.0) (34.0) 63.0 (32.5) (32.5) (32.5) (32.5) (32.5) 2.0 24.0 (212.0) (7.5) (130.0)

Effect of exchange rate changes - 1.0 (4.0) (1.0) (1.0) (1.0) 2.0 (4.0) (8.0) (4.0) - - - - - - 1.0 (4.0) (4.0) (12.0) -

Discontinued Operations - net cash used (10.0) 10.0 6.0 (15.0) (3.0) 3.0 - - - - - - - - - - 16.0 (9.0) - - -

Net increase (decrease) in cash (118.0) (22.0) 111.0 90.0 (21.0) (64.0) 70.0 (56.0) (33.0) (7.0) 138.0 19.5 (0.2) 2.4 8.2 4.2 40.0 61.0 (71.0) 117.5 14.5

Free cash flow - before acquisitions (96.0) (36.0) 28.0 (31.0) (16.0) 9.0 71.0 74.0 (21.0) 27.0 71.0 52.0 32.3 34.9 40.7 36.7 - (135.0) 138.0 129.0 144.5

EBITDA 39.0 45.0 25.0 129.0 68.0 76.0 288.0 80.0 74.0 83.0 77.0 73.1 88.9 94.2 99.7 90.4 236.0 238.0 512.0 307.1 373.2

FY2014A FY2015EFY2013 FY2016E


Piper Jaffray Co.

Alexander E. Potter

(612) 303-6709

[email protected]

MERITOR Inc. (MTOR)Financial Ratios


WORKING CAPITAL MGMT

DSO 52.4 54.8 54.5 54.8 54.5 56.4 58.4 58.2 56.9 58.5 57.8 55.7 52.8 51.9 50.7 50.6 51.8 56.2 58.7 57.5 50.4

DIO 46.2 47.7 47.4 47.4 47.4 46.5 47.4 46.8 46.5 46.2 45.6 43.9 42.9 41.8 41.3 41.4 41.7 47.0 44.4 44.0 41.3

DPO 72.2 73.4 72.2 72.0 71.2 72.9 75.8 76.5 75.0 76.3 76.1 74.1 71.6 70.8 70.1 70.6 71.4 76.7 76.9 76.9 70.4

CCC 26.4 29.1 29.7 30.2 30.7 30.0 30.0 28.5 28.3 28.3 27.3 25.5 24.2 22.9 21.9 21.4 22.1 26.5 26.2 24.6 21.3

Inventory Turns 7.9 7.6 7.7 7.7 7.7 7.9 7.7 7.8 7.9 7.9 8.0 8.3 8.5 8.7 8.8 8.8 8.8 7.8 8.2 8.3 8.8

Payables Turns 5.1 5.0 5.1 5.1 5.1 5.0 4.8 4.8 4.9 4.8 4.8 4.9 5.1 5.2 5.2 5.2 5.1 4.8 4.7 4.7 5.2

Recivable Turns 7.0 6.7 6.7 6.7 6.7 6.5 6.3 6.3 6.4 6.2 6.3 6.6 6.9 7.0 7.2 7.2 7.0 6.5 6.2 6.3 7.2

LEVERAGE

Debt to Total Capital 196% 197% 197% 172% 171% 171% 140% 154% 154% 155% 151% 150% 148% 145% 142% 139% 2865% 395% 270% 227% 194%

Debt to EBITDA 3.3x 3.8x 4.0x 4.2x 3.9x 3.6x 3.7x 3.5x 3.3x 3.1x 3.0x 3.1x 3.0x 2.9x 2.8x 2.7x 355% 462% 204% 334% 280%

Interest Coverage 1.3 1.8 0.6 4.8 2.5 1.6 13.1 -3.9 3.9 4.0 2.0 3.2 4.0 4.2 4.5 4.1 3.1 1.9 4.0 3.0 4.2

Net Cash -1,986 -1,994 -1,982 -1,706 -1,713 -1,723 -1,649 -1,500 -1,512 -1,480 -1,481 -1,444 -1,427 -1,407 -1,381 -1,359 -803 -820 -725 -715 -630

RETURNS

ROS 5% 3% 1% 2% 1% 3% 9% 4% 5% 6% 0% 6% 6% 6% 6% 7% 0% 2.3% 4.2% 5.7% 6.6%

ROE -19% -11% -5% -8% -5% -11% -43% -21% -26% -34% -1% -33% -35% -37% -42% -46% 0% 14.4% 17.0% 16.5% 18.8%

ROA 8% 5% 2% 3% 2% 4% 14% 6% 7% 9% 0% 8% 9% 9% 10% 10% 0% 3.3% 6.2% 8.1% 10.0%

ROIC 13% 7% 3% 5% 3% 5% 17% 7% 8% 9% 0% 9% 9% 9% 10% 11% 0.0% 5.0% 7.9% 9.0% 10.6%

CASH MANAGEMENT

CAPEX/FCF -100% -135% -74% -40% -93% -560% 188% 56% 58% 50% 55% 62% 49% 52% 62% 59% N/M -40.0% 55.8% 61.8% 59.2%

FCF Yield -15% -10% -15% -24% -8% -1% 3% 13% 11% 12% 12% 0.0% -23.0% 15.0%

Dividend Yield 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0.0% 0.0% 0.0%

Dividend (total) ($USD) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.00 0.00 0.00 0.00 0.00

Dividend Per Share ($USD) - - - - - - - - - - - - - - - - 0.00 0.00 0.00 0.00 0.00

Share Buybacks ($USD) - - - - - - - - - 16.00 14.00 15.00 15.00 15.00 15.00 15.00 0.00 0.00 0.00 45.00 60.00

FY2016EFY2013 FY2014A FY2015E



IMPORTANT RESEARCH DISCLOSURES

Notes: The boxes on the Rating and Price Target History chart above indicate the date of the Research Note, the rating, and the price target. Eachbox represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first Notewritten during the past three years.

Legend:I: Initiating CoverageR: Resuming CoverageT: Transferring CoverageD: Discontinuing CoverageS: Suspending CoverageOW: OverweightN: NeutralUW: UnderweightNA: Not AvailableUR: Under Review

Distribution of Ratings/IB ServicesPiper Jaffray

IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [OW] 427 60.06 103 24.12HOLD [N] 266 37.41 13 4.89SELL [UW] 18 2.53 0 0.00

Note: Distribution of Ratings/IB Services shows the number of companies currently in each rating category from which Piper Jaffray and its affiliatesreceived compensation for investment banking services within the past 12 months. FINRA rules require disclosure of which ratings most closelycorrespond with "buy," "hold," and "sell" recommendations. Piper Jaffray ratings are not the equivalent of buy, hold or sell, but instead representrecommended relative weightings. Nevertheless, Overweight corresponds most closely with buy, Neutral with hold and Underweight with sell. SeeStock Rating definitions below.

Analyst Certification Alexander E. Potter, Sr Research AnalystAnalyst Certification Winnie Dong, Research AnalystThe views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part ofmy compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.



Research DisclosuresPiper Jaffray was making a market in the securities of Meritor, Inc. at the time this research report was published. Piper Jaffray will buy and sellMeritor, Inc. securities on a principal basis.

Affiliate disclosures: This report has been prepared by Piper Jaffray & Co. and/or its affiliate Piper Jaffray Ltd., both of which are subsidiaries ofPiper Jaffray Companies (collectively Piper Jaffray). Piper Jaffray & Co. is regulated by FINRA, NYSE and the United States Securities and ExchangeCommission, and its headquarters are located at 800 Nicollet Mall, Minneapolis, MN 55402. Piper Jaffray Ltd. is authorized and regulated by theFinancial Conduct Authority, and is located at 88 Wood Street, 13th Floor, London EC2V 7RS. Disclosures in this section and in the Other ImportantInformation section referencing Piper Jaffray include all affiliated entities unless otherwise specified.Piper Jaffray research analysts receive compensation that is based, in part, on overall firm revenues, which include investment banking revenues.

Rating DefinitionsStock Ratings: Piper Jaffray ratings are indicators of expected total return (price appreciation plus dividend) within the next 12 months. At timesanalysts may specify a different investment horizon or may include additional investment time horizons for specific stocks. Stock performanceis measured relative to the group of stocks covered by each analyst. Lists of the stocks covered by each are available at www.piperjaffray.com/researchdisclosures. Stock ratings and/or stock coverage may be suspended from time to time in the event that there is no active analyst opinionor analyst coverage, but the opinion or coverage is expected to resume. Research reports and ratings should not be relied upon as individualinvestment advice. As always, an investors decision to buy or sell a security must depend on individual circumstances, including existing holdings,time horizons and risk tolerance. Piper Jaffray sales and trading personnel may provide written or oral commentary, trade ideas, or otherinformation about a particular stock to clients or internal trading desks reflecting different opinions than those expressed by the research analyst.In addition, Piper Jaffray offers technical research products that are based on different methodologies, may contradict the opinions contained infundamental research reports, and could impact the price of the subject security. Recommendations based on technical analysis are intended forthe professional trader, while fundamental opinions are typically suited for the longer-term institutional investor.

Overweight (OW): Anticipated to outperform relative to the median of the group of stocks covered by the analyst. Neutral (N): Anticipated to perform in line relative to the median of the group of stocks covered by the analyst. Underweight (UW): Anticipated to underperform relative to the median of the group of stocks covered by the analyst.

Other Important InformationThe material regarding the subject company is based on data obtained from sources we deem to be reliable; it is not guaranteed as to accuracy anddoes not purport to be complete. This report is solely for informational purposes and is not intended to be used as the primary basis of investmentdecisions. Piper Jaffray has not assessed the suitability of the subject company for any person. Because of individual client requirements, it is not, andit should not be construed as, advice designed to meet the particular investment needs of any investor. This report is not an offer or the solicitationof an offer to sell or buy any security. Unless otherwise noted, the price of a security mentioned in this report is the market closing price as of theend of the prior business day. Piper Jaffray does not maintain a predetermined schedule for publication of research and will not necessarily updatethis report. Piper Jaffray policy generally prohibits research analysts from sending draft research reports to subject companies; however, it should bepresumed that the fundamental equity analyst(s) who authored this report has had discussions with the subject company to ensure factual accuracyprior to publication, and has had assistance from the company in conducting diligence, including visits to company sites and meetings with companymanagement and other representatives.

Notice to customers: This material is not directed to, or intended for distribution to or use by, any person or entity if Piper Jaffray is prohibited orrestricted by any legislation or regulation in any jurisdiction from making it available to such person or entity. Customers in any of the jurisdictionswhere Piper Jaffray and its affiliates do business who wish to effect a transaction in the securities discussed in this report should contact their localPiper Jaffray representative. Europe: This material is for the use of intended recipients only and only for distribution to professional and institutionalinvestors, i.e. persons who are authorised persons or exempted persons within the meaning of the Financial Services and Markets Act 2000 ofthe United Kingdom, or persons who have been categorised by Piper Jaffray Ltd. as professional clients under the rules of the Financial ConductAuthority. United States: This report is distributed in the United States by Piper Jaffray & Co., member SIPC, FINRA and NYSE, Inc., which acceptsresponsibility for its contents. The securities described in this report may not have been registered under the U.S. Securities Act of 1933 and, in suchcase, may not be offered or sold in the United States or to U.S. persons unless they have been so registered, or an exemption from the registrationrequirements is available.

This report is produced for the use of Piper Jaffray customers and may not be reproduced, re-distributed or passed to any other person or publishedin whole or in part for any purpose without the prior consent of Piper Jaffray & Co. Additional information is available upon request.

Copyright 2015 Piper Jaffray. All rights reserved.


For analyst certification and important disclosures, please refer to the Disclosure Appendix.

KeyBanc Capital Markets Inc. | Member NYSE/FINRA/SIPC

EstimatesFY ends 9/30 F2014A 1Q15A 2Q15A 3Q15A 4Q15E F2015E F2016EEPS (Net) $0.96 $0.35 $0.41 $0.41 $0.29 $1.46 $1.76

Cons. EPS -- $0.35 $0.41 $0.33 $0.29 $1.39 $1.67

Previous -- -- -- $0.34 $0.30 $1.40 $1.69

ValuationP/E 14.4x -- -- -- -- 9.4x 7.8x

EV/EBITDA -- -- -- -- -- 6.6x 6.0x

Sources: Company reports, FactSet, KeyBanc Capital Markets Inc.

July 29, 2015

INDUSTRIAL: Construction & Farm Machinery & HeavyTrucks (Ind'l)

Earnings Recap / Estimates Change

Meritor, Inc.MTOR: Increasingly Optimistic on LT EBITDAMargin Potential

Maintaining SW: 1) we are increasingly optimistic the next 3-year plan to beannounced in December could introduce an EBITDA margin target as high as12%; 2) FY15 FCF guidance increased 10% to $110M, and we believe annualFCF of $100M+ is sustainable into 2016 and will fund small bolt-on acquisitionsand share repurchases; and 3) mixed end markets outlook keeps us on thesidelines as strong North American outlook and a stable Europe are offset bychallenging China and South American commercial vehicle outlook.

Key Investment PointsFollowing 3Q15 earnings release and conference call, we are maintaining our SW rating:

1) We are increasingly optimistic the next 3-year plan to be announced in Decembercould introduce an EBITDA margin target as high as 12%. We are incrementallyconfident MTOR will meet the M16 EBITDA margin objective of 10.0%. Managementis now preparing the next 3-year plan to be announced in December. The new marginobjective could be as high as 12% as competition in the on-highway and off-highwaymarkets, ~75% of MTOR mix, averages 10-14%, and MTOR's remaining 25% of sales,Aftermarket & Trailer, runs at 13%+ with upside potential.

2) FY15 FCF guidance increased 10% to $110M, and we believe annual FCF of$100M+ is sustainable into 2016 and will fund small bolt-on acquisitions andshare repurchases. NOLs, valued at $1.50-$2.00/share based on our calculations,are expected to provide a cash tax shield of $25M-$30M annually for an estimated 10years. We expect capital deployment will continue to be allocated to share buybacks andpotentially small bolt-on acquisitions as M16 balance sheet objectives have been met.$161M remains outstanding under the current buyback authorization, which expires atthe end of 2016.

3) Mixed end markets outlook keeps us on the sidelines as strong North Americanoutlook and a stable Europe are offset by challenging China and South Americancommercial vehicle outlook. North American commercial vehicle outlook is strong, andmanagement increased FY15 guidance to 325K from prior 305K-315K, in line with theindustry average. A run rate above 300K is expected to continue into FY16. Europeanproduction outlook continues, stable with positive indicators. China's outlook deteriorated,and management lowered its guidance to -35% from prior -20%, in line with consensus.The South American outlook deteriorated, and management lowered its guidance to85K-90K units from prior 90K-100K.

Brett D. Hoselton, CFA / (216) [email protected] Hodakovsky / (216) [email protected] Deem / (216) [email protected]

NYSE: MTORRating: Sector WeightPrice Target: NAPrice: $13.79

17

16

15

14

13

12

11

10

9Jul-15May-15Mar-15Jan-15Nov-14Sep-14

8

7

6

5

4

3

2

1

0

MTORVol (mil)

Sources: Company reports, FactSet, KeyBanc CapitalMarkets Inc.

Company Data52-week range $9 - $16

Market Cap. (M) $1,396.9

Shares Out. (M) 101.30

Enterprise Value (M) $2,160.9

Avg. Daily Volume (30D) 1,148,890.0

SI as % of Float 5.2%

SI % Chg. from Last Per. (27.6)%

Book Value/Share $(5.87)

Total Debt/Cap NA

Cash (mm) $247.0

Sources: Company reports, FactSet, KeyBanc CapitalMarkets Inc.

11

Valuation MTOR is currently trading at an EV/EBITDA of 5.7x our 2015 EBITDA estimate of $327M. From 2005-2009,MTOR has traded at an average EV/EBITDA of 5.5x. MTOR is currently trading at 9.4x our 2015 EPS estimateof $1.46. From 2005-2009, MTOR has traded at an average 12-month forward P/E of 9x.

Investment Risks We believe the largest risk to our earnings is a decline in global vehicle production.

Estimate Revisions We are maintaining our FY15 EBITDA estimate at $327M (FactSet consensus $320M) and our FY16 EBITDAestimate at $360M (FactSet consensus $359M), and we are increasing our FY15 EPS estimate to $1.46 from$1.40 (FactSet consensus $1.39) and our FY16 EPS estimate to $1.79 from $1.69 (FactSet consensus $1.67)on lower interest expense outlook.

Meritor - MTOR Earnings Recap

July 29, 2015Brett D. Hoselton

Pg.2(216) 689-0237 / [email protected]

12

Meritor, Inc. Earnings Brett D. Hoselton, CFA (216) 689-0237($ in millions, except per share data; FY ends September 30)

1Q14 2Q14 3Q14 4Q14 2014 1Q15 2Q15 3Q15 4Q15E 2015E 2016E

Revenue Assumptions

NA Prd-M/H Trk (000) 112 118 133 137 500 135 137 147 144 563 545

Year/Year % Chg. 6% 18% 10% 20% 14% 21% 16% 10% 5% 13% -3%

Europe-M/H Trk (000) 114 89 95 95 394 118 100 100 97 414 416

Year/Year % Chg. 18% 9% 8% 9% 11% 3% 12% 5% 2% 5% 0%

Aftermarket 2.5% 3.6% 8.8% 3.0% 4.5% 0.0% -8.6% -10.0% -10.0% -7.2% 3.0%

Military -30.0% -50.0% -70.0% -70.0% -55.0% -50.0% -50.0% -50.0% -50.0% -50.0% 0.0%

ROW 0.0% 0.0% 1.5% 1.5% 0.8% 1.5% 1.5% 0.0% 0.0% 0.8% 2.5%

Organic Growth 1.5% 1.5% 1.5% 1.5% 1.5% 1.0% 1.0% 1.0% 1.0% 1.0% 5.5%

Price Reductions 1.5% 1.5% 1.5% 1.5% 1.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

FX-Euro ($/100) $136.13 $137.03 $136.00 $132.51 $135.42 $124.86 $112.65 $110.65 $110.00 $114.54 $110.00

Revenue Calculation

Ttl. Sgmt. Prior Year $891.0 $908.0 $993.0 $909.0 $3,701.0 $907.0 $962.0 $986.0 $933.0 $3,788.0 $3,501.6

Prod/Demand Chg 19.6 30.0 2.1 21.0 72.8 27.4 4.1 (31.8) (50.5) (50.8) 2.5

Pricing (13.7) (14.1) (14.9) (14.0) (56.6) (9.3) (9.7) (9.5) (8.8) (37.4) (35.0)

Org Growth, Mix, etc. (14.8) 5.2 14.9 14.0 19.2 9.3 9.7 9.5 8.8 37.4 192.7

FX-Euro 9.9 7.9 9.0 (0.0) 26.8 (17.0) (37.8) (39.1) (33.0) (126.9) (30.6)

LVS & Other Divestitures 0.0 0.0

Other 15.0 25.0 (18.1) 3.0 24.8 (38.4) (64.3) (6.1) 0.0 (108.8) 0.0

Sales $907 $962 $986 $933 $3,788 $879 $864 $909 $850 $3,502 $3,631

Gross Profit Calculation

COGS-Estimate $798.2 $846.6 $867.7 $821.0 $3,333.4 $769.1 $756.0 $795.4 $743.4 $3,063.9 $3,159.1

COGS-Adjustment 5.8 (0.6) (4.7) (28.0) (27.4) (5.1) (7.0) (10.4) (5.5) (28.0) (24.0)

COGS-Total 804.0 846.0 863.0 793.0 3,306.0 764.0 749.0 785.0 737.9 3,035.9 3,135.1

Gross Profit 103.0 116.0 123.0 140.0 482.0 115.0 115.0 124.0 111.7 465.7 496.0

SG&A-Estimate 68.0 72.2 74.0 70.0 284.1 61.5 60.5 63.6 59.5 245.1 254.2

SG&A-Adjustment (9.0) (6.1) (20.0) 8.0 (27.1) 3.5 (3.5) 1.4 (2.0) (0.6) (10.0)

SG&A-Total 59.0 66.0 54.0 78.0 257.0 65.0 57.0 65.0 57.5 244.5 244.2

Amortization & Other 1.0 0.0 1.0 0.0 2.0 (1.0) 0.0 (1.0) 0.0 (2.0) 0.0

Operating Income 43.0 50.0 68.0 62.0 223.0 51.0 58.0 60.0 54.2 223.2 251.9

Interest Exp. (Inc.), Net 27.0 27.0 22.0 33.0 109.0 19.0 21.0 19.0 19.0 78.0 76.0

Equity & Other (Inc.) Exp. (8.0) (9.0) 7.0 (10.0) (20.0) (11.0) (11.0) (9.0) 0.0 (31.0) (30.0)

Inc. Before Tax 24.0 32.0 39.0 39.0 134.0 43.0 48.0 50.0 35.2 176.2 205.9

Taxes 10.0 9.0 11.0 3.0 33.0 7.0 6.0 8.0 5.5 26.5 34.0

Minority Interest 2.0 2.0 0.0 1.0 5.0 1.0 0.0 1.0 1.0 3.0 3.1

Net Income, Recurring 12.0 21.0 28.0 35.0 96.0 35.0 42.0 41.0 28.8 146.8 168.8

Nonrecurring Items (20.0) 208.0 (6.0) 182.0 (3.0) (3.0) (26.0) (32.0)

Discontinued Ops 0.0 (2.0) (26.0) (28.0) (3.0) 4.0 (2.0) (1.0)

Net Income, Reported $12.0 $1.0 $234.0 $3.0 $250.0 $29.0 $43.0 $13.0 $28.8 $113.8 $168.8

Avg. Shrs Out., Basic (Mil.) 98.7 97.6 101.1 101.3 99.7 101.2 102.9 100.3 98.4 100.7 96.0

Avg. Shrs Out., Diluted (Mil.) 98.7 97.6 101.1 101.3 99.7 101.2 102.9 100.3 98.4 100.7 96.0

EPS, Dil., Recurring $0.12 $0.22 $0.28 $0.35 $0.96 $0.35 $0.41 $0.41 $0.29 $1.46 $1.76

EPS, Dil., Reported $0.12 $0.01 $2.31 $0.03 $2.51 $0.29 $0.42 $0.13 $0.29 $1.13 $1.76

Adjusted EBITDA, $70.0 $78.0 $80.0 $80.0 $308.0 $79.0 $87.0 $87.0 $74.2 $327.2 $360.3

EBITDA/Share $0.72 $0.80 $0.82 $0.82 $3.09 $0.79 $0.87 $0.87 $0.74 $3.25 $3.75

Memo: Pro Forma FASB 142

Estimated Goodwill Adj.

EPS, Dil., Post Adjustment

% of Sales

Gross Margin 11.4% 12.1% 12.5% 15.0% 12.7% 13.1% 13.3% 13.6% 13.1% 13.3% 13.7%

SG&A 6.6% 6.9% 5.6% 8.4% 6.8% 7.3% 6.6% 7.0% 6.8% 6.9% 6.7%

Operating Margin 4.7% 5.2% 6.9% 6.6% 5.9% 5.8% 6.7% 6.6% 6.4% 6.4% 6.9%

Net Margin 1.3% 2.2% 2.8% 3.8% 2.5% 4.0% 4.9% 4.5% 3.4% 4.2% 4.6%

Adjusted EBITDA 7.7% 8.1% 8.1% 8.6% 8.1% 9.0% 10.1% 9.6% 8.7% 9.3% 9.9%

Tax Rate 41.7% 28.1% 28.2% 7.7% 24.6% 16.3% 12.5% 16.0% 15.5% 15.0% 16.5%

% Change Year-Over-Year

Sales 1.8% 5.9% -0.7% 2.6% 2.4% -3.1% -10.2% -7.8% -8.9% -7.6% 3.7%

Operating Income 115.0% 72.4% 25.9% -38.0% 9.9% 18.6% 16.0% -11.8% -12.5% 0.1% 12.8%

Net Income 250.0% -15.2% 218.2% 146.2% 191.7% 100.0% 46.4% -17.8% 52.9% 15.0%

EPS, Diluted, Recurring 248.6% -18.4% 210.0% 140.0% 184.5% 89.7% 47.6% -15.4% 51.3% 20.7%

Source: Company data; KeyBanc Capital Markets Inc. estimates.




13

Meritor, Inc. Earnings Brett D. Hoselton, CFA (216) 689-0237($ in millions, except per share data; FY ends September 30)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Revenue Assumptions

NA Prd-M/H Trk (000) 463 582 621 484 377 231 257 381 476 440 500 563 545

Year/Year % Chg. 32% 26% 7% -22% -22% -39% 11% 48% 25% -7% 14% 13% -3%

Europe-M/H Trk (000) 376 421 439 479 562 266 260 383 379 354 394 414 416

Year/Year % Chg. 3% 12% 4% 9% 17% -53% -2% 47% -1% -7% 11% 5% 0%

Aftermarket 2.0% 2.0% 0.0% 0.0% 4.5% -7.2% 3.0%

Military -13.8% -2.5% 28.0% -33.8% -55.0% -50.0% 0.0%

ROW 37.0% 10.0% -20.0% 0.7% 0.8% 0.8% 2.5%

Organic Growth 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -1.7% -2.4% -4.8% -0.5% 1.5% 1.0% 5.5%

Price Reductions 1.5% 1.5% 1.5% 1.5% 1.5% 1.0% 1.0%

FX-Euro ($/100) $121.70 $125.47 $123.08 $132.55 $150.31 $135.47 $135.65 $139.46 $129.84 $131.22 $135.42 $114.54 $110.00

Revenue Calculation

Ttl. Sgmt. Prior Year $4,457.0 $4,584.0 $4,667.0 $4,418.0 $3,701.0 $3,788.0 $3,501.6

Prod/Demand Chg 673.5 1,271.9 318.0 (351.1) 72.8 (50.8) 2.5

Pricing (77.0) (87.8) (74.8) (61.0) (56.6) (37.4) (35.0)

Org Growth, Mix, etc. (83.8) (150.5) (240.9) (19.8) 19.2 37.4 192.7

FX-Euro 3.3 43.4 (76.3) 9.8 26.8 (126.9) (30.6)

LVS & Other Divestitures (965.0) (389.0) (994.0) (45.0) 0.0 0.0 0.0

Other 0.0 0.0 (130.0) (295.0) 24.8 (108.8) 0.0

Sales $6,882 $7,788 $8,836 $8,903 $9,150 $7,221 $7,167 $4,457 $4,584 $4,667 $4,418 $3,701 $3,788 $3,502 $3,631

Gross Profit Calculation

COGS-Estimate $8,197.8 $8,511.8 $6,695.7 $6,644.8 $4,093.4 $4,212.9 $4,107.0 $3,887.8 $3,256.9 $3,333.4 $3,063.9 $3,159.1

COGS-Adjustment 70.2 7.2 14.3 (130.8) 42.6 (128.9) 86.0 45.2 39.1 (27.4) (28.0) (24.0)

COGS-Total 6,130.0 7,064.0 8,072.0 8,263.0 8,519.0 6,710.0 6,514.0 4,136.0 4,084.0 4,193.0 3,933.0 3,296.0 3,306.0 3,035.9 3,135.1

Gross Profit 752.0 724.0 764.0 640.0 631.0 511.0 653.0 321.0 500.0 474.0 485.0 405.0 482.0 465.7 496.0

SG&A-Estimate 391.3 381.4 370.6 370.3 355.1 355.8 294.6 257.4 214.7 284.1 245.1 254.2

SG&A-Adjustment (2.3) (1.4) 15.4 67.7 (45.1) (9.8) (12.6) 9.6 39.3 (27.1) (0.6) (10.0)

SG&A-Total 400.0 435.0 471.0 394.0 380.0 386.0 438.0 310.0 346.0 282.0 267.0 254.0 257.0 244.5 244.2

Amortization & Other 4.0 (52.0) 2.0 (2.0) 0.0

Operating Income 352.0 289.0 293.0 246.0 251.0 125.0 215.0 11.0 154.0 192.0 214.0 203.0 223.0 223.2 251.9

Interest Exp. (Inc.), Net 105.0 104.0 107.0 127.0 124.0 104.0 89.0 88.0 99.0 95.0 95.0 107.0 109.0 78.0 76.0

Equity & Other (Inc.) Exp. 3.0 (24.0) (10.0) (28.0) (36.0) (36.0) (43.9) (19.0) (46.0) (73.0) (59.0) (19.0) (20.0) (31.0) (30.0)

Inc. Before Tax 244.0 209.0 196.0 147.0 163.0 57.0 169.9 (58.0) 101.0 170.0 178.0 115.0 134.0 176.2 205.9

Taxes 78.0 68.0 53.4 34.0 33.0 5.0 37.9 48.0 62.0 77.0 56.0 74.0 33.0 26.5 34.0

Minority Interest 11.0 5.0 10.0 3.0 12.0 15.0 15.0 (3.0) 14.0 17.0 11.0 2.0 5.0 3.0 3.1

Net Income, Recurring 155.0 136.0 132.6 110.0 118.0 37.0 117.0 (103.0) 25.0 76.0 111.0 39.0 96.0 146.8 168.8

Nonrecurring Items (48.0) (172.6) (98.0) (293.0) (191.4) (208.0) (1,109.0) (10.0) (23.0) (59.0) (57.0) 182.0 (32.0)

Discontinued Ops (28.0) (1.0)

Net Income, Reported $107.0 $136.0 ($40.0) $12.0 ($175.0) ($154.4) ($91.0) ($1,212.0) $15.0 $53.0 $52.0 ($18.0) $250.0 $113.8 $168.8

Avg. Shrs Out., Basic (Mil.) 67.2 67.9 68.6 69.9 69.3 71.1 72.4 72.6 87.2 96.8 97.2 97.2 99.7 100.7 96.0

Avg. Shrs Out., Diluted (Mil.) 67.2 67.9 68.6 69.9 69.3 71.1 72.4 72.6 87.2 96.8 97.2 97.2 99.7 100.7 96.0

EPS, Dil., Recurring $2.31 $2.00 $1.93 $1.57 $1.69 $0.52 $1.60 ($1.42) $0.29 $0.79 $1.14 $0.40 $0.96 $1.46 $1.76

EPS, Dil., Reported $1.59 $2.00 ($0.58) $0.17 ($2.51) ($2.17) ($1.26) ($16.70) $0.17 $0.55 $0.53 ($0.19) $2.51 $1.13 $1.76

Adjusted EBITDA, $534.0 $522.0 $476.0 $453.0 $447.0 $275.0 $388.9 $114.0 $266.0 $342.0 $345.0 $261.0 $308.0 $327.2 $360.3

EBITDA/Share $7.95 $7.69 $6.94 $6.48 $6.45 $3.87 $5.37 $1.57 $3.05 $3.53 $3.55 $2.69 $3.09 $3.25 $3.75

Memo: Pro Forma FASB 142

Estimated Goodwill Adj.

EPS, Dil., Post Adjustment

% of Sales

Gross Margin 10.9% 9.3% 8.6% 7.2% 6.9% 7.1% 9.1% 7.2% 10.9% 10.2% 11.0% 10.9% 12.7% 13.3% 13.7%

SG&A 5.8% 5.6% 5.3% 4.4% 4.2% 5.3% 6.1% 7.0% 7.5% 6.0% 6.1% 5.5% 6.8% 6.9% 6.7%

Operating Margin 5.1% 3.7% 3.3% 2.8% 2.7% 1.7% 3.0% 0.2% 3.4% 4.1% 4.8% 5.5% 5.9% 6.4% 6.9%

Net Margin 2.3% 1.7% 1.5% 1.2% 1.3% 0.5% 1.6% 0.5% 1.6% 2.5% 1.1% 2.5% 4.2% 4.6%

Adjusted EBITDA 7.8% 6.7% 5.4% 5.1% 4.9% 3.8% 5.4% 2.6% 5.8% 7.3% 7.8% 7.1% 8.1% 9.3% 9.9%

Tax Rate 32.0% 32.5% 27.2% 23.1% 20.2% 8.8% 22.3% -82.8% 61.4% 45.3% 31.5% 64.3% 24.6% 15.0% 16.5%

% Change Year-Over-Year

Sales 1.1% 13.2% 13.5% 0.8% 2.8% -21.1% -0.7% -37.8% 2.8% 1.8% -5.3% -16.2% 2.4% -7.6% 3.7%

Operating Income 26.2% -17.9% 1.4% -16.0% 2.0% -50.2% 72.0% -94.9% 1300.0% 24.7% 11.5% -5.1% 9.9% 0.1% 12.8%

Net Income 69.7% -12.3% -2.5% -17.0% 7.3% -68.6% 216.2% -188.0% 204.0% 46.1% -64.9% 146.2% 52.9% 15.0%

EPS, Diluted, Recurring 67.3% -13.2% -3.5% -18.6% 7.6% -69.2% 207.6% -188.6% 173.9% 45.4% -64.9% 140.0% 51.3% 20.7%Source: Company data; KeyBanc Capital Markets Inc. estimates.




14

Meritor, Inc. Balance Sheet Brett D. Hoselton, CFA (216) 689-0237($ in millions, except per share data; FY ends September 30)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Cash & Equivalents $56.0 $103.0 $132.0 $187.0 $350.0 $409.0 $497.0 $95.0 $343.0 $217.0 $257.0 $318.0 $247.0 $508.8 $642.3

Accounts Receivable 1,251.0 1,327.0 1,478.0 1,655.0 1,645.0 1,223.0 1,114.0 694.0 579.0 712.0 542.0 596.0 610.0 563.9 584.7

Inventories 458.0 543.0 523.0 541.0 596.0 541.0 623.0 374.0 382.0 460.0 438.0 414.0 379.0 348.0 359.4

Other Current Assets 211.0 266.0 218.0 787.0 502.0 216.0 218.0 97.0 417.0 70.0 61.0 56.0 56.0 56.0 56.0

Total Current Assets 1,976.0 2,239.0 2,351.0 3,170.0 3,093.0 2,389.0 2,452.0 1,260.0 1,721.0 1,459.0 1,298.0 1,384.0 1,292.0 1,476.7 1,642.4

Property, Plant & Equip.-Net 1,179.0 1,332.0 1,032.0 1,013.0 988.0 738.0 775.0 445.0 389.0 421.0 417.0 417.0 424.0 447.5 471.0

Goodwill - Net 808.0 951.0 808.0 801.0 503.0 520.0 522.0 438.0 432.0 431.0 433.0 434.0 431.0 431.0 431.0

Other Assets 688.0 731.0 1,369.0 886.0 929.0 1,142.0 925.0 365.0 337.0 352.0 353.0 335.0 355.0 205.0 205.0

Total Assets $4,651 $5,253 $5,560 $5,870 $5,513 $4,789 $4,674 $2,508 $2,879 $2,663 $2,501 $2,570 $2,502 $2,560 $2,749

Short-term Debt $15.0 $20.0 $3.0 $131.0 $56.0 $18.0 $240.0 $97.0 $84.0 $18.0 $13.0 $7.0 $7.0 $7.0

Accounts Payable 1,150.0 1,311.0 1,366.0 1,483.0 1,649.0 1,342.0 1,287.0 674.0 670.0 841.0 697.0 694.0 680.0 624.4 644.8

Other Current Liabilities 578.0 547.0 602.0 909.0 844.0 719.0 610.0 518.0 720.0 328.0 313.0 339.0 351.0 351.0 351.0

Total Current Liabilities 1,743.0 1,878.0 1,971.0 2,523.0 2,549.0 2,079.0 2,137.0 1,289.0 1,390.0 1,253.0 1,028.0 1,046.0 1,038.0 982.4 1,002.8

Long-term Debt 1,435.0 1,541.0 1,487.0 1,451.0 1,184.0 1,130.0 1,063.0 1,080.0 1,029.0 950.0 1,042.0 1,125.0 965.0 965.0 965.0

Preferred Securities 39.0 39.0 39.0 58.0 0.0 0.0

Other Long-term Liabilities 635.0 832.0 1,075.0 963.0 771.0 1,037.0 1,012.0 1,416.0 1,483.0 1,421.0 1,413.0 1,221.0 1,084.0 1,084.0 1,084.0

Shareholders' Equity 799.0 963.0 988.0 875.0 1,009.0 543.0 462.0 (1,277.0) (1,023.0) (961.0) (982.0) (822.0) (585.0) (471.2) (302.4)

Total Liab. & Shr. Eqty. $4,651 $5,253 $5,560 $5,870 $5,513 $4,789 $4,674 $2,508 $2,879 $2,663 $2,501 $2,570 $2,502 $2,560 $2,749

Activity Ratios

Inventory Turnover 13.4 14.1 15.1 15.5 15.0 11.8 11.2 8.3 10.8 10.0 8.8 7.7 8.3 8.4 8.9

Receivable Turnover 6.2 6.0 6.3 5.7 5.5 5.0 6.1 4.9 7.2 7.2 7.0 6.5 6.3 6.0 6.3

Total Asset Turnover 1.5 1.6 1.6 1.6 1.6 1.4 1.5 1.2 1.7 1.7 1.7 1.5 1.5 1.4 1.4

Liquidity Ratios

Quick Ratio 0.7 0.8 0.8 0.7 0.8 0.8 0.8 0.6 0.7 0.7 0.8 0.9 0.8 1.1 1.2

Current Ratio 1.1 1.2 1.2 1.3 1.2 1.1 1.1 1.0 1.2 1.2 1.3 1.3 1.2 1.5 1.6

Debt Ratios

EBIT Interest Coverage 3.2 2.9 2.7 2.1 2.1 1.4 2.5 0.4 1.8 2.5 2.7 2.0 2.1 3.0 3.2

EBITDA Interest Coverage 5.0 4.9 4.3 3.5 3.4 2.5 4.0 1.3 2.5 3.2 3.3 2.6 2.7 3.8 3.9

Funds from Ops./Total Debt 24.2% 22.4% 21.2% 18.5% 23.4% 14.5% 20.1% -1.9% 9.2% 13.7% 16.4% 9.3% 16.8% 21.9% 24.2%

Free Oper. CF/Total Debt 11.8% 3.9% 22.0% 0.6% 20.6% 1.5% -4.1% -6.3% 8.3% -3.1% 11.7% -0.9% 10.8% 14.9% 13.7%

Long Term Debt/Capital 63.1% 60.6% 59.1% 60.9% 54.0% 67.5% 69.7% 1736.7% 371.3% 253.9% 195.4% 145.6%

Total Debt/Capital 63.4% 60.9% 59.2% 62.9% 55.1% 67.9% 73.8% 1359.0% 360.1% 251.2% 194.1% 145.2%

Return On Investment Ratios

Return On Avg. Total Assets 5.0% 4.2% 3.9% 3.6% 3.8% 2.6% 3.9% 1.6% 2.3% 4.6% 6.8% 3.0% 7.0% 8.4% 8.7%

Return On Average Equity 20.4% 15.4% 13.6% 11.8% 12.5% 4.8% 23.3%

Return On Total Capital 15.4% 12.3% 11.2% 10.5% 11.5% 7.2% 13.5%





15

Meritor, Inc. Cash Flow Brett D. Hoselton, CFA (216) 689-0237($ in millions, except per share data; FY ends September 30)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Net Income, Reported $107.0 $136.0 ($40.0) $12.0 ($175.0) ($154.4) ($91.0) ($1,077.0) $12.0 $82.0 $52.0 ($18.0) $250.0 $113.8 $168.8

Depreciation & Amortization 196.0 214.0 183.0 182.0 172.0 129.0 145.0 81.0 70.0 66.0 63.0 67.0 67.0 66.5 66.5

Net Chg. In Working Capital 4.0 (96.0) 164.0 (136.0) 116.0 (29.0) (144.0) 59.0 46.0 (69.0) 39.0 (62.0) 19.0 21.5 (11.8)

Other -Pension, etc. (123.0) 1.0 (88.0) (90.0) 327.0 90.4 265.0 642.0 83.0 (38.0) (77.0) (83.0) (89.0) (10.0) 0.0

Operating Cash Flow $184 $255 $219 ($32) $440 $36 $163 ($295) $211 $41 $77 ($96) $247 $192 $223

Capital Expenditures (184.0) (193.0) (152.0) (146.0) (150.0) (120.0) (172.0) (111.0) (56.0) (105.0) (89.0) (54.0) (77.0) (90.0) (90.0)

Sale of Prop., Plant & Equip. 65.0 12.0 9.0 18.0 1.0

Acquisitions/Divestitures 11.0 21.0 82.0 18.0 (6.0) 199.0 (57.0) (69.0) 28.0 182.0

Other (25.0) 0.0 (50.0) 153.0 201.0 5.0 5.0 125.0 (8.0) 2.0 3.0 8.0 160.0 160.0

Investing Cash Flow ($198) ($172) ($120) $25 $110 $96 ($160) $14 ($64) ($172) ($40) $137 $83 $70 ($90)

Net Changes In Stock 4.0 6.0 1.0 28.0 209.0 6.0

Net Changes In ST Debt 112.0 (37.0) (9.0) 0.0 0.0 14.0

Net Changes In LT Debt (9.0) (29.0) (55.0) (26.0) (264.0) (49.0) 132.0 (83.0) (54.0) 0.0 25.0

Dividends Paid (27.0) (27.0) (28.0) (28.0) (28.0) (29.0) (29.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other (4.0) (100.0) (11.0) (6.0) (14.0) (58.0) 0.0 (12.0) (1.0)

Financing Cash Flow ($32) ($56) ($77) $54 ($391) ($98) $97 ($106) $97 $6 $2 $24 $0 $0 $0

Exchange Rate Gain/(Loss) 1.0 20.0 7.0 8.0 4.0 25.0 (12.0) (15.0) 4.0 (1.0) 1.0 (4.0)

Net Incr./Decr. In Cash ($45) $47 $29 $55 $163 $59 $88 ($402) $248 ($126) $40 $61 $330 $262 $133

Beginning Cash Balance 101.0 56.0 103.0 132.0 187.0 350.0 409.0 497.0 95.0 343.0 217.0 257.0 318.0 648.0 909.8

Ending Cash Balance $56.0 $103.0 $132.0 $187.0 $350.0 $409.0 $497.0 $95.0 $343.0 $217.0 $257.0 $318.0 $648.0 $909.8 $1,043.3

EBITDA & Enterprise Value

Net Income $155.0 $136.0 $132.6 $110.0 $118.0 $37.0 $117.0 ($103.0) $25.0 $76.0 $111.0 $39.0 $96.0 $146.8 $168.8

Net Interest Exp. (Inc.) 105.0 104.0 107.0 127.0 124.0 104.0 89.0 88.0 99.0 95.0 95.0 107.0 109.0 78.0 76.0

Taxes 78.0 68.0 53.4 34.0 33.0 5.0 37.9 48.0 62.0 77.0 56.0 74.0 33.0 26.5 34.0

Depreciation & Amortization 196.0 214.0 183.0 182.0 172.0 129.0 145.0 81.0 70.0 66.0 63.0 67.0 67.0 66.5 66.5

MTOR Adjustments 10.0 28.0 20.0 (26.0) 3.0 9.5 15.0

EBITDA $534 $522 $476 $453 $447 $275 $389 $114 $266 $342 $345 $261 $308 $327 $360

EBITDA/Share $7.95 $7.69 $6.94 $6.48 $6.45 $3.87 $5.37 $1.57 $3.05 $3.53 $3.55 $2.69 $3.09 $3.25 $3.75

Stock Price $22.67 $17.05 $20.46 $18.05 $15.50 $18.64 $13.17 $4.65 $12.56 $16.55 $6.50 $5.68 $11.19 $13.79 $13.79

Average Comm. Shares Out 67.2 67.9 68.6 69.9 69.3 71.1 72.4 72.6 87.2 96.8 97.2 97.2 99.7 100.7 96.0

Short & Long Term Debt 1,450.0 1,561.0 1,490.0 1,582.0 1,240.0 1,148.0 1,303.0 1,177.0 1,029.0 1,034.0 1,060.0 1,138.0 972.0 972.0 972.0

Preferred Securities 39.0 39.0 39.0 58.0 0.0 0.0

Cash & Equivalents 56.0 103.0 132.0 187.0 350.0 409.0 497.0 95.0 343.0 217.0 257.0 318.0 247.0 508.8 642.3

Enterprise Value $2,956 $2,654 $2,800 $2,715 $1,964 $2,063 $1,759 $1,419 $1,781 $2,418 $1,435 $1,372 $1,840 $1,852 $1,653

Enterprise Value/EBITDA 5.5 5.1 5.9 6.0 4.4 7.5 4.5 12.5 6.7 7.1 4.2 5.3 6.0 5.7 4.6Enterprise Value = (Price x Shares) + LTD + Preferred Equity/Convertible Debt - Cash / Marketable Securities.





16

Meritor, Inc. - MTORWe expect to receive or intend to seek compensation for investment banking services from Meritor, Inc. within the next three months.As of the date of this report, we make a market in Meritor, Inc..For the three-year history represented in this chart, this stock has been rated Sector Weight.

Reg A/C CertificationThe research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressedin this research report accurately reflect the research analyst's personal views about any and all of the subjectsecurities or issuers; and (2) no part of the research analyst's compensation was, is, or will be directly or indirectlyrelated to the specific recommendations or views expressed by the research analyst(s) in this research report.

Three-Year Rating and Price Target History

Rating Disclosures

Distribution of Ratings/IB Services Firmwide and by Sector

KeyBanc Capital MarketsIB Serv/Past 12 Mos.


Overweight [OW] 356 45.76 84 23.60Sector Weight [SW] 406 52.19 66 16.26Underweight [UW] 16 2.06 0 0.00

INDUSTRIALIB Serv/Past 12 Mos.



Disclosure Appendix



17

Rating System

Overweight - We expect the stock to outperform the analyst's coverage sector over the coming 6-12 months.

Sector Weight - We expect the stock to perform in line with the analyst's coverage sector over the coming 6-12months.

Underweight - We expect the stock to underperform the analyst's coverage sector over the coming 6-12 months.

Note: KeyBanc Capital Markets changed its rating system after market close on February 27, 2015. The previousratings were Buy, Hold and Underweight. Additionally, Pacific Crest Securities changed its rating system to matchKeyBanc Capital Markets rating system after market close on April 10, 2015, in conjunction with the merger ofthe broker dealers. The previous ratings were Outperform, Sector Perform and Underperform.

Other DisclosuresKeyBanc Capital Markets is a trade name under which corporate and investment banking products and services ofKeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC (KBCMI), and KeyBank NationalAssociation (KeyBank N.A.), are marketed. Pacific Crest Securities is a division of KeyBanc Capital Markets Inc.

KeyBanc Capital Markets Inc. (KBCMI) does and seeks to do business with companies covered in its research reports. Asa result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.

This report has been prepared by KBCMI. The material contained herein is based on data from sources considered to bereliable; however, KBCMI does not guarantee or warrant the accuracy or completeness of the information. It is published forinformational purposes only and should not be used as the primary basis of investment decisions. Neither the informationnor any opinion expressed constitutes an offer, or the solicitation of an offer, to buy or sell any security. The opinions andestimates expressed reflect the current judgment of KBCMI and are subject to change without notice. This report may containforward-looking statements, which involve risk and uncertainty. Actual results may differ significantly from the forward-lookingstatements. This report is not intended to provide personal investment advice and it does not take into account the specificinvestment objectives, financial situation and the specific needs of any person or entity.

No portion of an analysts compensation is based on a specific banking transaction; however, part of his/her compensationmay be based upon overall firm revenue and profitability, of which investment banking is a component. Individuals associatedwith KBCMI (other than the research analyst(s) listed on page 1 of this research report) may have a position (long or short) inthe securities covered in this research report and may make purchases and/or sales of those securities in the open marketor otherwise without notice. As required by NASD Rule 2711(h)(1)(A), financial interest, if any, by any research analystslisted on page 1 of this report will be disclosed in Important Disclosures, Company-specific regulatory disclosures locatedabove in the Disclosure Appendix. KBCMI itself may have a position (long or short) in the securities covered in this researchreport and may make purchases and/or sales of those securities in the open market or otherwise without notice. As requiredby NASD Rule 2711(h)(1)(B), if KBCMI beneficially owns 1% or more of any class of common equity securities of the subjectcompany(ies) in this research report as of the end of the month immediately preceding the date of publication of this researchreport will be disclosed in Important Disclosures, Company-specific regulatory disclosures located above in the DisclosuresAppendix. This communication is intended solely for use by KBCMI clients. The recipient agrees not to forward or copy theinformation to any other person without the express written consent of KBCMI.

Disclosure Appendix (cont'd)



18

For analyst certification and important disclosures, please refer to the Disclosure Appendix.

KeyBanc Capital Markets Inc. | Member NYSE/FINRA/SIPC

AlertJuly 29, 2015

INDUSTRIAL: Construction & Farm Machinery &Heavy Trucks (Ind'l)

NYSE: MTOR

Meritor, Inc. (Sector Weight)MTOR - ALERT: First Look: 9% EBITDA Beat; Increased 2015 FCF Guidance by 10%and EBITDA to 3% Above ConsensusBrett D. Hoselton, CFA / (216) 689-0237 / [email protected] Hodakovsky / (216) 689-5374 / [email protected] Deem / (216) 689-0294 / [email protected]

Key Investment PointsWe believe investors will view the earnings release favorably as:

1) adjusted earnings of $0.41 were 24% above the Streets expectations of $0.33, adjusted EBITDA of $87M was 9% above the Streetsexpectations of $80M and EBITDA margin of 9.6% was 80 bps above the Streets expectations of 8.8%, on in line revenue results of $909M;

2) Management revised FY15 guidance above consensus, as follows:

increased free cash flow by 10% to $110M from prior ~ $100M implied adjusted EBITDA increased to a range of $326M-$330M from prior range of $319M-$327M, ~3% above consensus of $318M at

mid-point increased adjusted EBITDA margin to ~9.3% from prior range of 9.0-9.2%, or 30 bps above consensus of 9.0% increased adjusted EPS to a range of $1.40-$1.50 from $1.30-$1.40, ~4% above consensus of $1.40 at mid-point maintained revenue outlook in the range of $3.50B-$3.55B, in line with consensusEPS:

$0.41: Recurring $0.34: KBCM $0.33: FactSet $0.28: Prior YearRevenue:

$909M Recurring $864M KeyBanc $908M FactSet $986M Prior Year

Adjusted EBITDA

$87M: Recurring $83M: KBCM $80M: FactSet $80M: Prior YearEBITDA Margin:

9.6%: Recurring 9.0%: KBCM 8.8%: FactSet 8.1%: Prior Year

19

Meritor, Inc. - MTORWe expect to receive or intend to seek compensation for investment banking services from Meritor, Inc. within the next three months.As of the date of this report, we make a market in Meritor, Inc..For the three-year history represented in this chart, this stock has been rated Sector Weight.

Reg A/C CertificationThe research analyst(s) responsible for the preparation of this research report certifies that:(1) all the views expressedin this research report accurately reflect the research analyst's personal views about any and all of the subjectsecurities or issuers; and (2) no part of the research analyst's compensation was, is, or will be directly or indirectlyrelated to the specific recommendations or views expressed by the research analyst(s) in this research report.

Three-Year Rating and Price Target History

Rating Disclosures

Distribution of Ratings/IB Services Firmwide and by Sector

KeyBanc Capital MarketsIB Serv/Past 12 Mos.



INDUSTRIALIB Serv/Past 12 Mos.



Disclosure Appendix



20

Rating System

Overweight - We expect the stock to outperform the analyst's coverage sector over the coming 6-12 months.

Sector Weight - We expect the stock to perform in line with the analyst's coverage sector over the coming 6-12months.

Underweight - We expect the stock to underperform the analyst's coverage sector over the coming 6-12 months.

Note: KeyBanc Capital Markets changed its rating system after market close on February 27, 2015. The previousratings were Buy, Hold and Underweight. Additionally, Pacific Crest Securities changed its rating system to matchKeyBanc Capital Markets rating system after market close on April 10, 2015, in conjunction with the merger ofthe broker dealers. The previous ratings were Outperform, Sector Perform and Underperform.

Other DisclosuresKeyBanc Capital Markets is a trade name under which corporate and investment banking products and services ofKeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC (KBCMI), and KeyBank NationalAssociation (KeyBank N.A.), are marketed. Pacific Crest Securities is a division of KeyBanc Capital Markets Inc.

KeyBanc Capital Markets Inc. (KBCMI) does and seeks to do business with companies covered in its research reports. Asa result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.

This report has been prepared by KBCMI. The material contained herein is based on data from sources considered to bereliable; however, KBCMI does not guarantee or warrant the accuracy or completeness of the information. It is published forinformational purposes only and should not be used as the primary basis of investment decisions. Neither the informationnor any opinion expressed constitutes an offer, or the solicitation of an offer, to buy or sell any security. The opinions andestimates expressed reflect the current judgment of KBCMI and are subject to change without notice. This report may containforward-looking statements, which involve risk and uncertainty. Actual results may differ significantly from the forward-lookingstatements. This report is not intended to provide personal investment advice and it does not take into account the specificinvestment objectives, financial situation and the specific needs of any person or entity.

No portion of an analysts compensation is based on a specific banking transaction; however, part of his/her compensationmay be based upon overall firm revenue and profitability, of which investment banking is a component. Individuals associatedwith KBCMI (other than the research analyst(s) listed on page 1 of this research report) may have a position (long or short) inthe securities covered in this research report and may make purchases and/or sales of those securities in the open marketor otherwise without notice. As required by NASD Rule 2711(h)(1)(A), financial interest, if any, by any research analystslisted on page 1 of this report will be disclosed in Important Disclosures, Company-specific regulatory disclosures locatedabove in the Disclosure Appendix. KBCMI itself may have a position (long or short) in the securities covered in this researchreport and may make purchases and/or sales of those securities in the open market or otherwise without notice. As requiredby NASD Rule 2711(h)(1)(B), if KBCMI beneficially owns 1% or more of any class of common equity securities of the subjectcompany(ies) in this research report as of the end of the month immediately preceding the date of publication of this researchreport will be disclosed in Important Disclosures, Company-specific regulatory disclosures located above in the DisclosuresAppendix. This communication is intended solely for use by KBCMI clients. The recipient agrees not to forward or copy theinformation to any other person without the express written consent of KBCMI.

Disclosure Appendix (cont'd)



21

United States EditionJuly 13, 2015

www.BuySellSignals.com Page 1

Meritor (MTOR : US$13.60)

Meritor increases 7.9% in trailingyearMeritor, Inc., NYSE's 3rd largest Commercial Vehicles &Trucks sector company by market cap, increased 99.40c (or7.9%) in the trailing 12 months to July 13, 2015 to close atUS$13.60. Compared with the S&P 500 Index which has risen6.7% over the same period, this is a relative price increase of1.2%. Average daily volume of 1.3 million shares in thetrailing year was 0.9 times average daily volume in theprevious year. In the trailing 12 months the market cap hasjumped US$80.8 million.

Introduction with TrendsWe are currently bullish on this stock in theshort-term based on technical indicators, butare neutral in the long-term based onfundamental metricsWhat makes us bullish on the stock is the following:

In the last three months the number of risesoutnumbered falls 32:31 or 1.03:1.

The price to 200-day MAP ratio is 1.02, a bullishindicator.

However, there are some reasons why we remainneutral on the stock for the long-term:

Price/Earnings of 5.3 versus sector average of 15.0 andmarket average of 20.4.

Return on Assets of 10% versus sector average of 6.9%and market average of 2.6%.

Fig 1: Stock Summary

52-Week Range US$9.46-US$15.65

Sector Commercial Vehicles &

Trucks

Market Cap US$1.3 billion

EPS Growth % (q.o.q) 45.8

Shares Outstanding 96,551,713

ISIN US0433531011

PermID 1-4295912004

Relative Strength (3 mo) 87

Fig 2: Financial SummaryYear ended Sep 2014 Sep 2013 Sep 2012Sales (USD B) 4 3.8 4.5

Pretax (USD M) 315 51 137

Net (

Meritor Download

Documents

Transcript of Meritor Download