SUPPLEMENTAL PARENT AND GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Article 3-10 of Regulation S-X (S-X Rule 3-10) requires that separate financial information for issuers and guarantors of registered securities be filed in certain circumstances. Certain of the company's 100% owned subsidiaries, as defined in the credit agreement (the Guarantors) irrevocably and unconditionally guarantee amounts outstanding under the senior secured revolving credit facility. Similar subsidiary guarantees were provided for the benefit of the holders of the publicly-held notes outstanding under the company's indentures (see Note 15).

Schedule I of Article 5-04 of Regulation S-X (S-X Rule 5-04) requires that condensed financial information of the registrant (Parent) be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. As of September 30, 2014, net assets that exceed 25 percent of the consolidated net assets of Meritor, Inc. of certain subsidiaries in China and India and certain unconsolidated subsidiaries are restricted by law from transfer by cash dividends, loans or advances to Meritor, Inc. As of September 30, 2014 the amount of the net assets restricted from transfer by law was $57 million.

In lieu of providing separate audited financial statements for the Parent and Guarantors, the company has included the accompanying condensed consolidating financial statements as permitted by S-X Rules 3-10 and 5-04. These condensed consolidating financial statements are presented on the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the parent's share of the subsidiary's cumulative results of operations, capital contributions and distribution and other equity changes. The Guarantor subsidiaries are combined in the condensed consolidated financial statements.

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In millions)


	Fiscal Year Ended September 30, 2014
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Sales
External	$	—		$	1,467		$	2,299		$	—		$	3,766
Subsidiaries	—			142			62			(204		)	—
Total sales	—			1,609			2,361			(204		)	3,766
Cost of sales	(56		)	(1,343		)	(2,084		)	204			(3,279		)
GROSS MARGIN	(56		)	266			277			—			487
Selling, general and administrative	(65		)	(102		)	(91		)	—			(258		)
Restructuring costs	—			(1		)	(9		)	—			(10		)
Other operating expense, net	(1		)	(1		)	—			—			(2		)
OPERATING INCOME (LOSS)	(122		)	162			177			—			217
Other income (expense), net	35			23			(58		)	—			—
Equity in earnings of ZF Meritor	—			190			—			—			190
Equity in earnings of affiliates	—			30			8			—			38
Interest income (expense), net	(159		)	35			(6		)	—			(130		)
INCOME (LOSS) BEFORE INCOME TAXES	(246		)	440			121			—			315
Provision for income taxes	—			(1		)	(30		)	—			(31		)
Equity income from continuing operations of subsidiaries	525			71			—			(596		)	—
INCOME FROM CONTINUING OPERATIONS	279			510			91			(596		)	284
LOSS FROM DISCONTINUED OPERATIONS, net of tax	(30		)	$	(31	)	$	(12	)	$	43		$	(30	)
NET INCOME	249			479			79			(553		)	254
Less: Net income attributable to noncontrolling interests	—			—			(5		)	—			(5		)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	249		$	479		$	74		$	(553	)	$	249

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In millions)


	Fiscal Year Ended September 30, 2014
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Net income	$	249		$	479		$	79		$	(553	)	$	254
Other comprehensive income (loss)	(15		)	(54		)	25			29			(15		)
Total comprehensive income	234			425			104			(524		)	239
Less: Comprehensive income attributable to noncontrolling interests	—			—			(5		)	—			(5		)
Comprehensive income attributable to Meritor, Inc.	$	234		$	425		$	99		$	(524	)	$	234

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In millions)


	Fiscal Year Ended September 30, 2013
	Parent			Guarantors			Non-Guarantors			Elims			Consolidated
Sales
External	$	—		$	1,409		$	2,263		$	—		$	3,672
Subsidiaries	—			136			56			(192		)	—
Total sales	—			1,545			2,319			(192		)	3,672
Cost of sales	(54		)	(1,339		)	(2,076		)	192			(3,277		)
GROSS MARGIN	(54		)	206			243			—			395
Selling, general and administrative	(72		)	(87		)	(94		)	—			(253		)
Pension Settlement losses	(73		)	—			(36		)	—			(109		)
Restructuring	(3		)	(8		)	(12		)	—			(23		)
Other operating expense, net	(2		)	(1		)	—			—			(3		)
OPERATING INCOME (LOSS)	(204		)	110			101			—			7
Other income (loss), net	39			21			(57		)	—			3
Gain on sale of equity investment	—			60			65			—			125
Equity in earnings of affiliates	—			24			18			—			42
Interest income (expense), net	(154		)	34			(6		)	—			(126		)
INCOME (LOSS) BEFORE INCOME TAXES	(319		)	249			121			—			51
Provision for income taxes	(1		)	(17		)	(46		)	—			(64		)
Equity income from continuing operations of subsidiaries	305			57			—			(362		)	—
INCOME (LOSS) FROM CONTINUING OPERATIONS	(15		)	289			75			(362		)	(13		)
LOSS FROM DISCONTINUED OPERATIONS, net of tax	(7		)	$	(8	)	$	(237	)	$	245		$	(7	)
NET INCOME (LOSS)	(22		)	281			(162		)	(117		)	(20		)
Less: Net income attributable to noncontrolling interests	—			—			(2		)	—			(2		)
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC.	$	(22	)	$	281		$	(164	)	$	(117	)	$	(22	)

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In millions)


	Fiscal Year Ended September 30, 2013
	Parent			Guarantors		Non- Guarantors			Elims			Consolidated
Net income (loss)	$	(22	)	$	281	$	(162	)	$	(117	)	$	(20	)
Other comprehensive income (loss)	181			13		(12		)	(1		)	181
Total comprehensive income (loss)	159			294		(174		)	(118		)	161
Less: Comprehensive income attributable to noncontrolling interests	—			—		(2		)	—			(2		)
Comprehensive income (loss) attributable to Meritor, Inc.	$	159		$	294	$	(176	)	$	(118	)	$	159

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In millions)


	Fiscal Year Ended September 30, 2012
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Sales
External	$	—		$	1,679		$	2,705		$	—		$	4,384
Subsidiaries	—			149			71			(220		)	—
Total sales	—			1,828			2,776			(220		)	4,384
Cost of sales	(50		)	(1,579		)	(2,493		)	220			(3,902		)
GROSS MARGIN	(50		)	249			283			—			482
Selling, general and administrative	(75		)	(102		)	(105		)	—			(282		)
Restructuring costs	—			—			(39		)	—			(39		)
Gain on sale of property	—			—			16			—			16
Other operating income (expense), net	(2		)	—			(2		)	—			(4		)
OPERATING INCOME (LOSS)	(127		)	147			153			—			173
Other income (expense), net	42			27			(62		)	—			7
Equity in earnings of affiliates	—			34			18			—			52
Interest income (expense), net	(121		)	22			4			—			(95		)
INCOME (LOSS) BEFORE INCOME TAXES	(206		)	230			113			—			137
Provision for income taxes	—			(5		)	(52		)	—			(57		)
Equity income from continuing operations of subsidiaries	275			35			—			(310		)	—
INCOME FROM CONTINUING OPERATIONS	69			260			61			(310		)	80
LOSS FROM DISCONTINUED OPERATIONS, net of tax	(17		)	(5		)	(1		)	6			(17		)
NET INCOME	52			255			60			(304		)	63
Less: Net income attributable to noncontrolling interests	—			—			(11		)	—			(11		)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	52		$	255		$	49		$	(304	)	$	52

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In millions)


	Fiscal Year Ended September 30, 2012
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Net income	$	52		$	255		$	60		$	(304	)	$	63
Other comprehensive loss	(86		)	(41		)	(1		)	41			(87		)
Total comprehensive income (loss)	(34		)	214			59			(263		)	(24		)
Less: Comprehensive income attributable to noncontrolling interests	—			—			(10		)	—			(10		)
Comprehensive income (loss) attributable to Meritor, Inc.	$	(34	)	$	214		$	49		$	(263	)	$	(34	)

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING BALANCE SHEET (In millions)


	September 30, 2014
	Parent			Guarantors			Non- Guarantors		Elims			Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	71		$	5		$	171	$	—		$	247
Receivables, trade and other, net	1			45			564		—			610
Inventories	—			151			228		—			379
Other current assets	9			18			29		—			56
TOTAL CURRENT ASSETS	81			219			992		—			1,292
NET PROPERTY	13			158			253		—			424
GOODWILL	—			277			154		—			431
OTHER ASSETS	75			128			152		—			355
INVESTMENTS IN SUBSIDIARIES	2,185			267			—		(2,452		)	—
TOTAL ASSETS	$	2,354		$	1,049		$	1,551	$	(2,452	)	$	2,502
CURRENT LIABILITIES
Short-term debt	$	1		$	3		$	3	$	—		$	7
Accounts and notes payable	46			230			404		—			680
Other current liabilities	97			87			167		—			351
TOTAL CURRENT LIABILITIES	144			320			574		—			1,038
LONG-TERM DEBT	916			10			39		—			965
RETIREMENT BENEFITS	656			—			119		—			775
INTERCOMPANY PAYABLE (RECEIVABLE)	1,198			(1,736		)	538		—			—
OTHER LIABILITIES	52			208			49		—			309
EQUITY (DEFICIT) ATTRIBUTABLE TO MERITOR, INC.	(612		)	2,247			205		(2,452		)	(612		)
NONCONTROLLING INTERESTS	—			—			27		—			27
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	2,354		$	1,049		$	1,551	$	(2,452	)	$	2,502

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING BALANCE SHEET (In millions)


	September 30, 2013
	Parent			Guarantors			Non- Guarantors		Elims			Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	144		$	6		$	168	$	—		$	318
Receivables, trade and other, net	1			24			571		—			596
Inventories				164			250		—			414
Other current assets	4			17			35		—			56
TOTAL CURRENT ASSETS	149			211			1,024		—			1,384
NET PROPERTY	10			145			262		—			417
GOODWILL	—			277			157		—			434
OTHER ASSETS	77			134			124		—			335
INVESTMENTS IN SUBSIDIARIES	1,718			109			—		(1,827		)	—
TOTAL ASSETS	$	1,954		$	876		$	1,567	$	(1,827	)	$	2,570
CURRENT LIABILITIES
Short-term debt	$	5		$	7		$	1	$	—		$	13
Accounts and notes payable	51			199			444		—			694
Other current liabilities	95			76			168		—			339
TOTAL CURRENT LIABILITIES	151			282			613		—			1,046
LONG-TERM DEBT	1,088			8			29		—			1,125
RETIREMENT BENEFITS	775			—			111		—			886
INTERCOMPANY PAYABLE (RECEIVABLE)	723			(1,412		)	689		—			—
OTHER LIABILITIES	67			204			64		—			335
EQUITY (DEFICIT) ATTRIBUTABLE TO MERITOR, INC.	(850		)	1,794			33		(1,827		)	(850		)
NONCONTROLLING INTERESTS	—			—			28		—			28
TOTAL LIABILITIES AND EQUITY(DEFICIT)	$	1,954		$	876		$	1,567	$	(1,827	)	$	2,570

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In millions)


	Fiscal Year Ended September 30, 2014
	Parent			Guarantors			Non- Guarantors			Elims		Consolidated
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES	$	245		34			(64		)	$	—	$	215
INVESTING ACTIVITIES
Capital expenditures	(4		)	(37		)	(36		)	—		(77		)
Net investing cash flows provided by discontinued operations	—			4			3			—		7
CASH USED FOR INVESTING ACTIVITIES	(4		)	(33		)	(33		)	—		(70		)
FINANCING ACTIVITIES
Proceeds from debt issuances	225			—			—			—		225
Repayment of notes and term loan	(439		)	—			—			—		(439		)
Other financing cash flows	—			(2		)	14			—		12
Debt issuance costs	(10		)	—			—			—		(10		)
Intercompany advances	(90		)	—			90			—		—
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES	(314		)	(2		)	104			—		(212		)
EFFECT OF CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	—			—			(4		)	—		(4		)
CHANGE IN CASH AND CASH EQUIVALENTS	(73		)	(1		)	3			—		(71		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	144			6			168			—		318
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	71		$	5		$	171		$	—	$	247

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In millions)


	Fiscal Year Ended September 30, 2013
	Parent			Guarantors			Non- Guarantors			Elims		Consolidated
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES	$	34		$	(63	)	$	(67	)	$	—	$	(96	)
INVESTING ACTIVITIES
Capital expenditures	(3		)	(26		)	(25		)	—		(54		)
Proceeds from sale of equity investment	—			87			95			—		182
Other investing activities	2			1			—			—		3
Net investing cash flows provided by discontinued operations	—			3			3			—		6
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES	(1		)	65			73			—		137
FINANCING ACTIVITIES
Proceeds from debt issuance	500			—			—			—		500
Repayment of notes and term loan	(475		)	—			—			—		(475		)
Debt issuance costs	(12		)	—			—			—		(12		)
Other financing cash flows	—			1			10			—		11
Intercompany advances	7			—			(7		)	—		—
CASH PROVIDED BY FINANCING ACTIVITIES	20			1			3			—		24
EFFECT OF CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	—			—			(4		)	—		(4		)
CHANGE IN CASH AND CASH EQUIVALENTS	53			3			5			—		61
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	91			3			163			—		257
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	144		$	6		$	168		$	—	$	318

MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In millions)


	Fiscal Year Ended September 30, 2012
	Parent			Guarantors			Non- Guarantors			Elims		Consolidated
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES	$	(13	)	$	31		$	59		$	—	$	77
INVESTING ACTIVITIES
Capital expenditures	(3		)	(33		)	(53		)	—		(89		)
Proceeds from sale of property	—			—			18			—		18
Other investing activities	—			1			2			—		3
Net investing cash flows provided by discontinued operations	—			—			28			—		28
CASH USED FOR INVESTING ACTIVITIES	(3		)	(32		)	(5		)	—		(40		)
FINANCING ACTIVITIES
Proceeds from debt issuance	100			—			—			—		100
Repayment of notes and term loan	(86		)	—			—			—		(86		)
Debt issuance costs	(12		)	—			—			—		(12		)
Intercompany advances	13			—			(13		)	—		—
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES	15			—			(13		)	—		2
EFFECT OF FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	—			—			1			—		1
CHANGE IN CASH AND CASH EQUIVALENTS	(1		)	(1		)	42			—		40
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	92			4			121			—		217
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	91		$	3		$	163		$	—	$	257

Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the SEC. As of September 30, 2014 and 2013, parent company only obligations included $684 million and $805 million, respectively, of pension and retiree medical benefits (see Notes 19 and 20). All debt is debt of the parent company other than $55 million and $45 million at September 30, 2014, and 2013 respectively (see Note 15) and is primarily related to capital lease obligations and lines of credit. Cash dividends paid to the parent by subsidiaries and investments accounted for by the equity method were $5 million, $54 million, $19 million for 2014, 2013, and 2012, respectively.