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 on a joint and several basis. Similar subsidiary guarantees were provided for the benefit of the holders of the publicly-held notes outstanding under the company's indentures (see Note 16).

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, 2015, 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, 2015 the amount of the net assets restricted from transfer by law was $36 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, 2015
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Sales
External	$	—		$	1,734		$	1,771		$	—		$	3,505
Subsidiaries	—			129			71			(200		)	—
Total sales	—			1,863			1,842			(200		)	3,505
Cost of sales	(52		)	(1,579		)	(1,612		)	200			(3,043		)
GROSS MARGIN	(52		)	284			230			—			462
Selling, general and administrative	(53		)	(118		)	(72		)	—			(243		)
Pension settlement loss	—			—			(59		)	—			(59		)
Restructuring costs	(2		)	(5		)	(9		)	—			(16		)
Goodwill impairment	—			(15		)	—			—			(15		)
Other operating income (expense), net	(2		)	(2		)	3			—			(1		)
OPERATING INCOME (LOSS)	(109		)	144			93			—			128
Other income (expense), net	36			18			(49		)	—			5
Equity in earnings of affiliates	—			36			3			—			39
Interest income (expense), net	(138		)	26			7			—			(105		)
INCOME (LOSS) BEFORE INCOME TAXES	(211		)	224			54			—			67
Provision for income taxes	(2		)	2			(1		)	—			(1		)
Equity income from continuing operations of subsidiaries	278			38			—			(316		)	—
INCOME FROM CONTINUING OPERATIONS	65			264			53			(316		)	66
LOSS FROM DISCONTINUED OPERATIONS, net of tax	(1		)	(2		)	(3		)	5			(1		)
NET INCOME	64			262			50			(311		)	65
Less: Net income attributable to noncontrolling interests	—			—			(1		)	—			(1		)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	64		$	262		$	49		$	(311	)	$	64

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


	Fiscal Year Ended September 30, 2015
	Parent			Guarantors			Non- Guarantors			Elims			Consolidated
Net income	$	64		$	262		$	50		$	(311	)	$	65
Other comprehensive loss	(19		)	(61		)	(16		)	77			(19		)
Total comprehensive income	45			201			34			(234		)	46
Less: Comprehensive income attributable to noncontrolling interests	2			—			(1		)	—			1
Comprehensive income attributable to Meritor, Inc.	$	47		$	201		$	33		$	(234	)	$	47

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 (loss)	$	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		)
Restructuring costs	(3		)	(8		)	(12		)	—			(23		)
Pension Settlement losses	(73		)	—			(36		)	—			(109		)
Other operating expense, net	(2		)	(1		)	—			—			(3		)
OPERATING INCOME (LOSS)	(204		)	110			101			—			7
Other income (expense), 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 FROM CONTINUING OPERATIONS	(15		)	289			75			(362		)	(13		)
LOSS FROM DISCONTINUED OPERATIONS, net of tax	(7		)	(8		)	(237		)	245			(7		)
NET INCOME	(22		)	281			(162		)	(117		)	(20		)
Less: Net income attributable to noncontrolling interests	—			—			(2		)	—			(2		)
NET INCOME 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	$	(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 BALANCE SHEET (In millions)


	September 30, 2015
	Parent			Guarantors			Non- Guarantors		Elims			Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	73		$	6		$	114	$	—		$	193
Receivables, trade and other, net	1			40			420		—			461
Inventories	—			159			179		—			338
Other current assets	4			20			26		—			50
TOTAL CURRENT ASSETS	78			225			739		—			1,042
NET PROPERTY	15			183			221		—			419
GOODWILL	—			219			183		—			402
OTHER ASSETS⁽¹⁾	61			129			142		—			332
INVESTMENTS IN SUBSIDIARIES	2,354			313			—		(2,667		)	—
TOTAL ASSETS	$	2,508		$	1,069		$	1,285	$	(2,667	)	$	2,195
CURRENT LIABILITIES
Short-term debt	$	1		$	4		$	10	$	—		$	15
Accounts and notes payable	55			213			306		—			574
Other current liabilities	93			83			103		—			279
TOTAL CURRENT LIABILITIES	149			300			419		—			868
LONG-TERM DEBT⁽¹⁾	1,017			6			13		—			1,036
RETIREMENT BENEFITS	603			—			29		—			632
INTERCOMPANY PAYABLE (RECEIVABLE)	1,365			(1,886		)	521		—			—
OTHER LIABILITIES	45			217			43		—			305
EQUITY (DEFICIT) ATTRIBUTABLE TO MERITOR, INC.	(671		)	2,432			235		(2,667		)	(671		)
NONCONTROLLING INTERESTS	—			—			25		—			25
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	2,508		$	1,069		$	1,285	$	(2,667	)	$	2,195


(1)	Prior year amounts have been recast to reflect the early adoption of ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.

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⁽¹⁾	58			128			152		—			338
INVESTMENTS IN SUBSIDIARIES	2,185			267			—		(2,452		)	—
TOTAL ASSETS	$	2,337		$	1,049		$	1,551	$	(2,452	)	$	2,485
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⁽¹⁾	899			10			39		—			948
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)	$	2,337		$	1,049		$	1,551	$	(2,452	)	$	2,485


(1)	Prior year amounts have been recast to reflect the early adoption of ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.

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


	Fiscal Year Ended September 30, 2015
	Parent			Guarantors			Non- Guarantors			Elims		Consolidated
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES	$	57		62			(22		)	$	—	$	97
INVESTING ACTIVITIES
Capital expenditures	(4		)	(41		)	(34		)	—		(79		)
Proceeds from sale of property	—			—			4			—		4
Cash paid for acquisition of Morganton	—			(16		)	—			—		(16		)
Net investing cash flows provided by discontinued operations	—			1			3			—		4
CASH USED FOR INVESTING ACTIVITIES	(4		)	(56		)	(27		)	—		(87		)
FINANCING ACTIVITIES
Proceeds from debt issuances	225			—			—			—		225
Repayment of notes and term loan	(199		)	—			—			—		(199		)
Other financing cash flows	—			(5		)	(4		)	—		(9		)
Repurchase of common stock	(55		)	—			—			—		(55		)
Debt issuance costs	(4		)	—			—			—		(4		)
Intercompany advances	—			—			—			—		—
CASH USED FOR FINANCING ACTIVITIES	(33		)	(5		)	(4		)	—		(42		)
EFFECT OF CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	—			—			(22		)	—		(22		)
CHANGE IN CASH AND CASH EQUIVALENTS	2			1			(57		)	—		(54		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	71			5			171			—		247
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	73		$	6		$	114		$	—	$	193

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 issuance	225			—			—			—		225
Repayment of notes and term loan	(439		)	—			—			—		(439		)
Debt issuance costs	(10		)	—			—			—		(10		)
Other financing cash flows	—			(2		)	14			—		12
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 FOREIGN 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

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, 2015 and 2014, parent company only obligations included $631 million and $684 million, respectively, of pension and retiree medical benefits (see Notes 20 and 21). All debt is debt of the parent company other than $33 million and $55 million at September 30, 2015, and 2014 respectively (see Note 16) 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 $37 million, $5 million, $54 million for 2015, 2014, and 2013, respectively.