Financial Overview

(in million USD)

	FY2009	FY2008	Rate of change(%)	Factors
Overall
Sales	4,108	6,390	(35.7)	-
EBITDA	(167)	360	-	-
Net Income	(1,212)	(101)	-	-
Commercial Truck
Sales	1,566	2,922	(46.4)	1)
EBITDA	(98)	117	-	-
Light Vehicle Systems
Sales	1,033	1,571	(34.2)	2)
EBITDA	(281)	5	-	-

* EBITDA: Earnings Before Interest, Tax, Depreciation, and Amortization

Factors
1)
Commercial Truck
-The effect of foreign currency translation decreased sales by $204 million.
-Excluding the effects of foreign currency, sales decreased by $1,152 million or 39 percent, primarily due to significantly lower OE production volumes in substantially all of the markets in which the Company participates.

2)
Light Vehicle Systems
-The effect of foreign currency translation decreased sales by $100 million.
-Excluding the impact of foreign currency translation, sales decreased by $438 million or 28 percent compared to the prior year. The global economic downturn and the current climate in the U.S. and other economies impacted the demand for light vehicles in the fiscal year.
-Sales from remaining Chassis businesses were $106 million in fiscal year 2009.

Contracts

-The Company has signed a long-term axle supply agreement with US-based Navistar International Corporation. Effective July 2009, its axles will be standard equipment on medium-duty trucks, for both International and IC Bus brands, in addition to International's Class 8 trucks. The Company has been a supplier of Class 8 trucks for more than 10 years. (From a press release on Jul. 23, 2009)

<North America>
-Signed 7-year axle agreement with Navistar in March 2009
-The Company will continue to be the standard drive axle supplier for the Volvo and Mack truck brands for the next three years.
-Continues supply of axles, brakes and drivelines to Freightliner and Western Star
-Meritor WABCO awarded standard position with DTNA for new SS1200 plus air dryer beginning January 2010

<Western Europe>
-Successfully launched 17-X drive axle for European applications
-Increasing the scale of on-highway hub reduction technology with the 610 product platform

Divestitures

Chassis businesses
-On June 5, 2009, the Company sold its 51 percent interest in Gabriel de Venezuela to its joint venture partner. Gabriel de Venezuela, a consolidated subsidiary prior to the divestiture, supplies shock absorbers, struts, exhaust systems and suspension modules to light vehicle customers, primarily in Venezuela and Colombia.

-On June 24, 2009, the Company entered into a binding letter of intent to sell its 57 percent interest in Meritor Suspension Systems Company (MSSC), a joint venture that manufactures and sells automotive coil springs, torsion bars and stabilizer bars in North America, to its joint venture partner, a subsidiary of Mitsubishi Steel Mfg. Co., Ltd. The Company completed the transaction on October 30, 2009.

-During fiscal year 2009, the Company completed the sale of its Gabriel Ride Control Products North America (Gabriel Ride Control) business to Ride Control, Llc, a wholly owned subsidiary of OpenGate Capital, a private equity firm. Gabriel Ride Control supplies motion control products, shock absorbers, struts, ministruts and corner modules, as well as other automotive parts to the passenger car, light truck and sport utility vehicle and related aftermarket industries.

Remaining Chassis Businesses
-The Company's remaining Chassis businesses are primarily composed of module assembly operations in the United States and certain European operations. Module assembly operations in the United States are expected to continue through the term of existing supply contracts ending in March 2010 and December 2011 at which time operations are expected to cease or be transitioned to other suppliers.

-The Company's remaining European Chassis operations include a facility in Bonneval, France that makes ride control parts (shock absorbers) for aftermarket sales in Europe and one in Leicester, England that makes and distributes gas springs for sale to automotive customers and industrial applications.

Wheels business
-On September 21, 2009, the Company completed the sale of its Wheels business to Iochpe-Maxion S.A., a Brazilian producer of wheels and frames for commercial vehicles, railway freight cars and castings.

Plant Closure

-The Company said it will idle its Carrollton, Kentucky facility. The Company met with UAW officials and employees to announce the closure plans which will impact all 129 employees.The Company plans to move its wheel-end assembly operations to other facilities in Kentucky and Ohio and to outsource its machining operations. The casting center operation will also be outsourced. The Company anticipates the phased closure to be complete by the end of 2009. (From a press release on May 13, 2009)

Business Partnership

-The Company announced that it has signed a strategic partnership with Yutong Group Co., Ltd., one of China's leading bus manufacturers, to produce drivetrain components for buses and coaches in China. In addition to supplying non-drive and drive axles to Yutong, the Company will manufacture differential carriers and brake callipers at its facility in Wuxi, Jiangsu, for application on Yutong's axles. The final product will be assembled at Yutong's plant in Zhenzhou, Henan. Production is expected to begin at the end of 2009. (From a press release on July 20, 2009)

Recent Developments outside USA

<Brazil>
-The Company announced that the Company is planning to invest up to 10 million USD for its commercial vehicle business operations in Brazil. This growth strategy involves bringing new products to South American market. (From a press release on Aug 10, 2009)

<India>
-The Company announced that it has opened a new technical center in Bangalore, India.
>>>See R&D for more details

R&D Expenditure

(in million USD)

	FY2009	FY2008	FY2007
Overall	103	122	116

R&D Facilities

Name	Location
Technical Center	Detroit, Michigan, USA Bangalore, India
Engineering Center	USA, Brazil, China, France, Germany, India and UK

-The Company announced that it has opened a new technical center in Bangalore, India. The facility will engage in product development activities for its axles and brakes for the vehicle applications in the Asia Pacific region. (From a press release on September 24, 2009)

R&D Activities

The Hybrid Class 8 Line-haul Powertrain Concept
-The Company delivered a concept hybrid drivetrain system to Walmart Transportation in January 2009. While most hybrid systems today are best suited for start-stop applications, its concept hybrid drivetrain is specifically designed for linehaul, over-the-road trucks, the largest segment of the commercial vehicle population and the greatest consumer of diesel fuel on the road. Its concept hybrid drivetrain, the Meritor Multi-Mode Hybrid Powertrain, combines both mechanical and electrical drive systems. Under 48 miles-per-hour, vehicle propulsion is delivered entirely through an electric motor with power from lithium ion batteries. These batteries are recharged through regenerative braking and/or an engine-driven generator. As the vehicle approaches highway speed, the drivetrain phases to a diesel-powered system with the electric motor providing power, only as required, allowing for total system optimization. The concept hybrid drivetrain in the Walmart tractor was developed by the Company as project leader and in collaboration with Navistar and Cummins.

Meritor Lubrication Management System (MLMS)
-MLMS adjusts the axle lubricant level according to vehicle operating conditions. It is estimated that linehaul vehicles spend up to 90% of their operation at highway speeds. Under these conditions, when oil churning losses are most significant, the lube level is automatically reduced, with an attendant reduction in viscous drag. By reducing oil churning during high speed operation, axle efficiency is improved by up to 1%, with a corresponding reduction in fuel consumption.

Next Generation Technology

MT-14X Tandem Axle (Start of production March 2010)
-Improved vehicle efficiency
-Optimized driveline angularity
-Higher torque/HP capability
-Faster axle ratios

Dual Mode Hybrid
-Regenerative braking and energy recovery
-Emission-free idling
-Electrified engine accessories
-Narrow-mode engine operation
-Improved fuel economy (15%+)

High Efficiency SMART Tandem
-High-efficiency carrier
-Significantly lighter weight
-Less parasitic losses
-Automated traction control

Capital Expenditure

(in million USD)

	FY2009	FY2008	FY2007
Overall	111	138	86
Commercial Truck	68	80	31
Light Vehicle Systems	29	40	32

 

Manufacturing Investment 2007- 2009

(in million USD)

Geographic area
US
-Specialty	29
-Footprint optimization	24
-Other	14
Mexico	52
Brazil	9
Europe	72
Asia Pacific	18