<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
Commission file number 1-13093
Meritor Automotive, Inc.
(Exact name of registrant as specified in its charter)
Delaware 38-3354643
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2135 West Maple Road, Troy, Michigan 48084-7186
(Address of principal executive offices) (Zip Code)
(248) 435-1000
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
69,025,123 shares of registrant's Common Stock, $1.00 par value, were
outstanding on April 30, 1998.
<PAGE> 2
MERITOR AUTOMOTIVE, INC.
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
No.
Consolidated Balance Sheet - -
March 31, 1998 and September 30, 1997................... 2
Statement of Consolidated Income - - Three Months
and Six Months Ended March 31, 1998 and 1997............ 3
Statement of Consolidated Cash Flows - -
Six Months Ended March 31, 1998 and 1997................ 4
Notes to Consolidated Financial Statements.............. 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations........ 10
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds............... 15
Item 4. Submission of Matters to a Vote of Security Holders..... 16
Item 5. Other Information....................................... 17
Item 6. Exhibits and Reports on Form 8-K........................ 17
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
MERITOR AUTOMOTIVE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31,
1998 September 30,
(unaudited) 1997
------- -------
ASSETS (In millions)
<S> <C> <C>
Current assets:
Cash .................................................... $ 67 $ 133
Receivables (less allowance for doubtful accounts:
March 31, 1998, $10; September 30, 1997, $9) ........ 622 563
Inventories ............................................. 350 327
Other current assets .................................... 128 128
------- -------
Total current assets ................................. 1,167 1,151
------- -------
Net property ............................................... 626 635
Other assets ............................................... 220 216
------- -------
TOTAL ....................................... $ 2,013 $ 2,002
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt ......................................... $ 54 $ 21
Accounts payable ........................................ 538 501
Accrued compensation and benefits ....................... 135 129
Accrued income taxes .................................... 12 88
Other current liabilities ............................... 195 177
------- -------
Total current liabilities ............................ 934 916
Long-term debt ............................................. 428 465
Accrued retirement benefits ................................ 381 387
Other liabilities .......................................... 45 46
Minority interests ......................................... 40 37
Shareowners' equity:
Common Stock
(shares issued and outstanding: March 31, 1998, 69.0;
September 30, 1997, 68.9) ........................... 69 69
Additional paid-in-capital .............................. 156 154
Retained earnings ....................................... 62 --
Cumulative currency translation adjustments ............. (102) (72)
------- -------
Total shareowners' equity ...................... 185 151
------- -------
TOTAL ....................................... $ 2,013 $ 2,002
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
MERITOR AUTOMOTIVE, INC.
STATEMENT OF CONSOLIDATED INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------------------------
1998 1997 1998 1997
------- ------- ------- -------
(In millions, except (In millions, except
per share amounts) per share amounts)
<S> <C> <C> <C> <C>
Sales .............................. $ 968 $ 822 $ 1,879 $ 1,578
Cost of sales ...................... 823 708 1,614 1,371
------- ------- ------- -------
Gross margin ....................... 145 114 265 207
Selling, general and
administrative ................... 64 57 121 110
------- ------- ------- -------
Operating earnings ................. 81 57 144 97
Other income-net ................... 6 2 7 9
Interest expense ................... (11) (3) (21) (4)
------- ------- ------- -------
Income before income taxes ......... 76 56 130 102
Provision for income taxes ......... (31) (22) (53) (40)
------- ------- ------- -------
Net income ......................... $ 45 $ 34 $ 77 $ 62
======= ======= ======= =======
Basic and diluted earnings per
share ............................ $ .64 $ 1.11
======= =======
Cash dividends per common share .... $ .105 $ .21
======= =======
Average common shares outstanding -
basic and diluted ............... 69.0 69.0
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
MERITOR AUTOMOTIVE, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------
1998 1997
----- -----
(In millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................... $ 77 $ 62
Adjustments to net income to arrive at cash provided
by operating activities:
Depreciation and amortization ......................... 51 48
Deferred income taxes ................................. 4 (4)
Net pension expense ................................... 10 12
Pension contributions ................................. (10) --
Changes in assets and liabilities, excluding
effects of acquisitions, divestitures and foreign
currency adjustments:
Receivables ......................................... (83) (52)
Inventories ......................................... (27) --
Accounts payable .................................... 35 11
Other assets and liabilities ........................ 5 (21)
----- -----
CASH PROVIDED BY OPERATING ACTIVITIES .............. 62 56
----- -----
INVESTING ACTIVITIES
Capital expenditures ..................................... (49) (37)
Acquisition of businesses (net of cash acquired) ......... (7) (16)
Proceeds from disposition of property and businesses ..... 2 6
----- -----
CASH USED FOR INVESTING ACTIVITIES ................. (54) (47)
----- -----
FINANCING ACTIVITIES
Increase in short-term borrowings ........................ 36 17
Payments of long-term debt ............................... (110) (5)
Long-term borrowings ..................................... 73 --
----- -----
Net (decrease) increase in debt ....................... (1) 12
Dividends ................................................ (15) --
Payment of Distribution tax obligation ................... (72) --
Net transfers from (to) Rockwell ......................... 14 (25)
----- -----
CASH USED FOR FINANCING ACTIVITIES ................. (74) (13)
----- -----
DECREASE IN CASH ......................................... (66) (4)
CASH AT BEGINNING OF PERIOD .............................. 133 74
----- -----
CASH AT END OF PERIOD .................................... $ 67 $ 70
===== =====
</TABLE>
Income tax payments, excluding the payment of the Distribution tax obligation,
were $46 million and $8 million in the six months ended March 31, 1998 and 1997,
respectively.
See notes to consolidated financial statements.
4
<PAGE> 6
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Meritor Automotive, Inc. (the company or Meritor) became an independent,
publicly-held company on September 30, 1997 (the Distribution Date), when
Rockwell International Corporation (Rockwell) spun off its automotive
businesses as an independent publicly-traded company by distributing all
of the issued and outstanding shares of the company to Rockwell's
shareowners on the basis of one share of the company's common stock for
every three shares of Rockwell common stock outstanding (the
Distribution). Rockwell and the company have entered into a number of
agreements to facilitate the transition of Meritor to an independent
company.
The financial statements for periods prior to September 30, 1997 present the
combined historical financial position, results of operations and cash flows
of the ongoing automotive businesses of Rockwell that were spun off. The
company's financial statements prior to September 30, 1997 include all of
the related costs of doing business, including an allocation for certain
general corporate expenses of Rockwell which were not directly related to
the automotive businesses, including costs for corporate oversight,
financial, legal, tax, corporate communications and human resources. The
amounts allocated for the three- and six-months ended March 31, 1997 were $7
million and $14 million, respectively. These costs were allocated to the
company based on Meritor's sales in proportion to total Rockwell sales.
Management believes those allocations were made on a reasonable basis. The
financial information included herein for periods prior to September 30,
1997 may not necessarily be indicative of the results of operations or cash
flows of the company if it had been a separate, independent company during
such periods. The consolidated financial statements for periods after
September 30, 1997 are those of the company and its subsidiaries.
In the opinion of the company the unaudited financial statements contain all
adjustments, consisting solely of adjustments of a normal recurring nature,
necessary to present fairly the financial position, results of operations
and cash flows for the periods presented. These statements should be read in
conjunction with the company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, including the financial statements
incorporated by reference in the Form 10-K. The results of operations for
the three- and six-month periods ended March 31, 1998 are not necessarily
indicative of the results for the full year.
It is the company's practice at the end of each interim reporting period to
make an estimate of the effective tax rate expected to be applicable for the
full fiscal year. The rate so determined is used in providing for income
taxes on a year-to-date basis.
5
<PAGE> 7
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Inventories are summarized as follows (in millions):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---- ----
<S> <C> <C>
Finished goods .................................... $125 $117
Work in process ................................... 141 146
Raw materials, parts and supplies ................. 136 116
---- ----
Total .......................................... 402 379
Less allowance to adjust the carrying value of
certain inventories to a last in, first-out
(LIFO) basis ................................... 52 52
---- ----
Inventories .................................... $350 $327
==== ====
</TABLE>
3. Other current assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---- ----
<S> <C> <C>
Current deferred income taxes ..................... $ 86 $ 85
Customer tooling .................................. 23 20
Prepaid expenses .................................. 17 13
Other ............................................. 2 10
---- ----
Other current assets ........................... $128 $128
==== ====
</TABLE>
4. Other assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---- ----
<S> <C> <C>
Net deferred income taxes ......................... $ 66 $ 71
Goodwill .......................................... 42 42
Investments in affiliates ......................... 47 43
Prepaid pension costs ............................. 30 29
Other ............................................. 35 31
---- ----
Other assets ................................... $220 $216
==== ====
</TABLE>
6
<PAGE> 8
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Other current liabilities are summarized as follows (in millions):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---- ----
<S> <C> <C>
Accrued product warranties ........................ $101 $ 95
Accrued taxes other than income taxes ............. 33 28
Accrued restructuring ............................. 23 26
Other ............................................. 38 28
---- ----
Other current liabilities ...................... $195 $177
==== ====
</TABLE>
Long-term debt consisted of the following (in millions):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---- ----
<S> <C> <C>
Bank revolving credit facility .................... $388 $447
Other obligations, principally foreign ............ 40 18
---- ----
Long-term debt ................................. $428 $465
==== ====
</TABLE>
On April 9, 1998 the company filed a shelf registration statement with the
Securities and Exchange Commission covering up to $500 million aggregate
principal amount of debt securities that may be offered after the
registration statement becomes effective in one or more series on terms to
be determined at the time of sale. The net proceeds of any offering would be
added to the company's general funds which would be available for general
corporate purposes, including the repayment of existing indebtedness,
working capital needs, capital expenditures and acquisitions.
7. The company's financial instruments include cash, short- and long-term debt
and foreign currency forward exchange contracts. At March 31, 1998, the
carrying values of the company's financial instruments approximated their
fair values based on current market prices and rates.
7
<PAGE> 9
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
It is the policy of the company not to enter into derivative financial
instruments for speculative purposes. The company does enter into foreign
currency forward exchange contracts to minimize risk of loss from currency
rate fluctuations on foreign currency commitments entered into in the
ordinary course of business. These commitments relate to purchase and sales
transactions and are generally for terms of less than one year. The gains
and losses relating to these foreign currency forward exchange contracts are
deferred and included in the measurement of the foreign currency transaction
subject to the hedge. The amount of any deferred gain or loss on these
contracts is immaterial.
The foreign currency forward exchange contracts are executed with
creditworthy banks and are denominated in currencies of major industrial
countries. The notional amount of outstanding foreign currency forward
exchange contracts aggregated $225 million at March 31, 1998 and $194
million at September 30, 1997. The company does not anticipate any material
adverse effect on its results of operations or financial position relating
to these foreign currency forward exchange contracts.
Concurrent with the filing of the registration statement described in Note
6, and in connection with a possible offering of debt securities pursuant
thereto, the company entered into forward treasury lock agreements with
creditworthy financial institutions pursuant to which the company will make
or receive, respectively, payments in respect of an aggregate notional
principal amount of $200 million depending upon whether certain interest
rates fall or rise during the term of the agreements, which are due to
expire on June 15, 1998, unless earlier terminated or extended. The company
does not anticipate any material adverse effect on its results of operations
or financial position in respect of these agreements.
8. Accrued retirement benefits consisted of the following (in millions):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---- ----
<S> <C> <C>
Accrued retirement medical costs .................. $295 $299
Accrued pension costs ............................. 108 110
Other ............................................. 13 13
---- ----
Total ...................................... 416 422
Amount classified as current liability ............ 35 35
---- ----
Accrued retirement benefits ................ $381 $387
==== ====
</TABLE>
8
<PAGE> 10
9. Other income - net consisted of the following (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Equity in earnings of affiliates ...... $ 7 $ 3 $ 10 $ 5
Minority interests .................... (3) (4) (7) (6)
Gain on the sale of property and
businesses ......................... -- -- 2 --
Interest income ....................... 1 1 2 2
Insurance settlement .................. -- -- -- 5
Other ................................. 1 2 -- 3
---- ---- ---- ----
Other income - net .............. $ 6 $ 2 $ 7 $ 9
==== ==== ==== ====
</TABLE>
10. Various lawsuits, claims and proceedings have been or may be instituted
or asserted against the company relating to the conduct of its business,
including those pertaining to product liability, intellectual property,
environmental, safety and health and employment matters. Although the
outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to the
company, management believes the disposition of matters which are
pending or asserted will not have a material adverse effect on the
company's financial statements.
9
<PAGE> 11
MERITOR AUTOMOTIVE, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
1998 Second Quarter Compared to 1997 Pro Forma Second Quarter
The following sets forth the sales, operating earnings and net income of the
company for the second quarter of fiscal 1998 and 1997 pro forma (in millions,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
Historical Pro Forma Pro Forma
1998 1997 Adjustments(1) 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales
Heavy Vehicle Systems $ 592 $ 481 $ -- $ 481
Light Vehicle Systems 376 341 -- 341
----- ----- ----- -----
Total sales $ 968 $ 822 $ -- $ 822
===== ===== ===== =====
Gross margin $ 145 $ 114 $ -- $ 114
Selling, general and administrative 64 57 (4) 53
----- ----- ----- -----
Operating earnings $ 81 $ 57 $ 4 $ 61
Other income-net 6 2 -- 2
Interest expense (11) (3) (7) (10)
----- ----- ----- -----
Income before income taxes 76 56 (3) 53
Provision for income taxes (31) (22) 2 (20)
----- ----- ----- -----
Net income $ 45 $ 34 $ (1) $ 33
===== ===== ===== =====
Earnings per share $ .64 $ .48
===== =====
</TABLE>
(1) Pro forma adjustments reflect (a) the 68.9 million shares of common stock
issued at the date of the spin-off from Rockwell, (b) management's estimate
that corporate costs would have been $4 million lower on a stand-alone basis
for the quarter than those allocated to the automotive businesses by
Rockwell and (c) $7 million of interest expense at an annual rate of 6.0%
for the quarter ended March 31, 1997 related to the debt incurred by the
company in connection with the $445 million pre-Distribution payment to
Rockwell.
10
<PAGE> 12
MERITOR AUTOMOTIVE, INC.
RESULTS OF OPERATIONS (Cont'd)
Sales of $968 million for the 1998 second quarter were up $146 million, or 18
percent, from the 1997 second quarter. The sales growth for the quarter was
primarily driven by ongoing strong demand in the company's major markets and
penetration gains across most of the company's businesses. The North American
heavy truck market was up about 20% compared to last year's quarter, while light
vehicle markets in North America and Europe were up slightly over last year's
period. The company also experienced higher penetration rates across most of its
Heavy Vehicle Systems businesses in North America and Light Vehicle Systems
businesses in both North America and Europe.
Net income for the 1998 second quarter was $45 million, or 64 cents per share,
compared to $33 million, or 48 cents per share, pro forma results last year,
representing a 33 percent increase in earnings per share. The increases in net
income and earnings per share were due primarily to the impact of productivity
and cost improvement programs, higher incremental sales and an increase in other
income. Other income for the second quarter was up $4 million over the second
quarter last year, primarily due to higher equity income from joint ventures
pertaining to the heavy truck and trailer markets.
The company's productivity and cost improvement programs related to (i)
purchasing, which includes outsourcing non-core manufacturing and using lower
cost global sourcing of materials and supply base management; and (ii)
manufacturing, which includes shifting production to lower cost facilities,
consolidating common processes, improving material flow and investing in capital
and systems.
Operating earnings of $81 million increased 33 percent for the 1998 second
quarter as compared to $61 million pro forma for the 1997 second quarter. Second
quarter operating margins improved to 8.4 percent from last year's 7.4 percent,
with gross margins improving to 15.0 percent from 13.9 percent in last year's
quarter, driven by the ongoing impact of productivity and cost improvement
programs (discussed above) and higher incremental sales. Selling, general and
administrative expenses, as a percentage of sales, increased slightly, primarily
due to investments in information technology planned for fiscal 1998.
Heavy Vehicle Systems sales were $592 million in the second quarter of fiscal
1998, an increase of $111 million, or 23 percent, compared to the second quarter
of fiscal 1997. Sales increased across all of the company's heavy truck and
trailer products, including axles, transmissions, clutches, drivelines and brake
systems, primarily as a result of the strong North American heavy truck market,
greater market penetration in North America and improved volumes in the
aftermarket. Sales also increased in Heavy Vehicle Systems' off-highway,
specialty and military product lines.
11
<PAGE> 13
RESULTS OF OPERATIONS (Cont'd)
Light Vehicle Systems sales improved by 10 percent in the second quarter to $376
million, an increase of $35 million over the second quarter of fiscal 1997. The
sales growth was driven by penetration gains in the door, suspension, access
control and seat adjusting systems and wheel product lines and somewhat higher
industry volumes. This growth was partially offset by the negative impact on
European sales of currency translation and lower European sunroof demand.
Six Months Ended March 31, 1998 Compared to Pro Forma Six Months Ended
March 31, 1997
The following sets forth the sales, operating earnings and net income of the
company for the six months of fiscal 1998 and 1997 pro forma (in millions,
except per share amounts):
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------------------------------
Historical Pro Forma Pro Forma
1998 1997 Adjustments(1) 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales
Heavy Vehicle Systems $ 1,149 $ 894 $ -- $ 894
Light Vehicle Systems 730 684 -- 684
------- ------- ------- -------
Total sales $ 1,879 $ 1,578 $ -- $ 1,578
======= ======= ======= =======
Gross margin $ 265 $ 207 $ -- $ 207
Selling, general and administrative 121 110 (6) 104
------- ------- ------- -------
Operating earnings $ 144 $ 97 $ 6 $ 103
Other income-net 7 9 -- 9
Interest expense (21) (4) (13) (17)
------- ------- ------- -------
Income before income taxes 130 102 (7) 95
Provision for income taxes (53) (40) 3 (37)
------- ------- ------- -------
Net income $ 77 $ 62 $ (4) $ 58
======= ======= ======= =======
Earnings per share $ 1.11 $ .84
======= =======
</TABLE>
(1) Pro forma adjustments reflect (a) the 68.9 million shares of common stock
issued at the date of the spin-off from Rockwell, (b) management's estimate
that corporate costs would have been $6 million lower on a stand-alone basis
for the six months than those allocated to the automotive businesses by
Rockwell and (c) $13 million of interest expense at an annual rate of 6.0%
for the six months ended March 31, 1997 related to the debt incurred by the
company in connection with the $445 million pre-Distribution payment to
Rockwell.
12
<PAGE> 14
RESULTS OF OPERATIONS (Cont'd)
Sales of $1,879 million for the first six months of 1998 were up $301 million,
or 19 percent, from the first six months of 1997. The strong sales growth for
the six months was driven by a robust North American heavy truck market, which
was up substantially compared to last year, and higher penetration across most
product lines of Heavy Vehicle and Light Vehicle Systems.
Net income for the first six months of 1998 was $77 million, or $1.11 per share,
up $19 million over last year's pro forma net income of $58 million, or 84 cents
per share. This was an improvement of 32 percent in earnings per share. The
increase in net income and earnings per share was a result of higher sales and
savings generated from cost and productivity improvement programs (described
previously). Other income was lower in the first half of fiscal 1998, as
compared to 1997, primarily as a result of a one-time insurance recovery of $5
million recorded in the first quarter of fiscal 1997.
Operating earnings of $144 million increased 40 percent for the first six months
of 1998, from $103 million in the first six months of 1997 pro forma. Operating
margins increased to 7.7 percent for the first six months, from 6.5 percent in
last year's period on a pro forma basis, reflecting higher sales and savings
generated from cost and productivity improvement programs (described
previously).
Heavy Vehicle Systems sales were $1,149 million in the first six months of
fiscal 1998, an increase of $255 million, or 29 percent, compared to the first
six months of fiscal 1997. This sales increase was the result of the strong
North American heavy truck and trailer market, greater market penetration in
North America and increased volumes in Heavy Vehicle Systems' product lines. If
current market conditions continue, the company anticipates a growth rate of
about 20 percent in the North American heavy truck market for fiscal 1998. The
company estimates that the heavy truck market was up in excess of 30 percent
for the first six months of fiscal 1998 over the same period last year, but
expects to see a more moderate growth rate going forward - in the 10 percent
range - for the second half of 1998 in contrast to last year's environment.
Light Vehicle Systems sales were reported at $730 million, an increase of $46
million, or 7 percent, over the first six months of fiscal 1997. The sales
growth was driven by penetration gains in the door, suspension, access control
and seat adjusting systems and wheel product lines. This growth was partially
offset by the negative impact on European sales of a stronger U.S. dollar this
year compared to last year and lower European sunroof demand.
Performance for the first six months of fiscal 1998 provides continued momentum
for the achievement of the company's stated long-term financial goals to grow,
on an average annual basis, sales by 8 percent and earnings per share by 15
percent. At the same time, the company continues to assess the economic
situation in the Asia/Pacific region and its potential effect on the company's
businesses and served markets.
13
<PAGE> 15
FINANCIAL CONDITION
Cash provided by operating activities for the first six months of fiscal 1998
was $62 million, an increase of $6 million as compared to the first six months
of fiscal 1997. The increase was due primarily to the increase in net income,
partially offset by pension contributions and higher working capital
requirements, particularly in receivables and inventories, to support the higher
sales levels experienced in the first half of 1998. Pension contributions of $10
million were made in the first six months of 1998. Management expects that
pension plan funding during fiscal 1998 will approximate $20 million.
Capital expenditures of $49 million included equipment for continued new product
introductions, capacity expansion and new production processes. The company
anticipates full year fiscal 1998 capital expenditures of approximately $140
million.
The company's second quarterly dividend of 10.5 cents per share was paid on
March 9, 1998 to shareowners of record on February 23, 1998. On April 8, 1998,
the board of directors declared a quarterly dividend of 10.5 cents per share on
the company's common stock, payable June 1, 1998, to shareowners of record on
May 11, 1998.
Cash used for financing activities includes a $72 million payment of a Rockwell
Distribution tax obligation related to Canadian taxes incurred in connection
with the transfer of assets prior to the Distribution. Rockwell agreed to
indemnify the company for such Canadian income taxes and provided $58 million at
September 30, 1997, as well as an additional $14 million during the quarter
ended December 31, 1997 to pay for such taxes.
The cumulative currency translation adjustments increased $30 million, primarily
due to the strength of the U.S. dollar, principally in relation to the Canadian,
French, Italian, Mexican and Australian currencies.
The company's long-term debt to capitalization ratio improved to 66 percent at
March 31, 1998 from 71 percent at September 30, 1997. Although the company
currently expects this trend of improvement to continue and is consistent with
the company's long-term financial goal for its long-term debt to capitalization
ratio of 45 percent, the ratio may vary depending on several factors, including
the company's results of operations and any acquisitions, dispositions or
financings by the company. Based on the closing price of the company's common
stock of $26.5625 on March 31, 1998, the long-term debt to capitalization ratio
on a market value basis was 19 percent at that date. The company's pre-tax
interest coverage increased to 7.5x for the first six months of 1998, as
compared to 6.9x for the first six months of 1997 pro forma.
14
<PAGE> 16
FINANCIAL CONDITION (Cont'd)
On April 9, 1998 the company filed a shelf registration statement with the
Securities and Exchange Commission covering up to $500 million aggregate
principal amount of debt securities that may be offered after the registration
statement becomes effective in one or more series on terms to be determined at
the time of sale. The net proceeds of any offering would be added to the
company's general funds which would be available for general corporate purposes,
including the repayment of existing indebtedness, working capital needs, capital
expenditures and acquisitions. Concurrent with the filing of the registration
statement, and in connection with a possible offering of debt securities
pursuant thereto, the company entered into forward treasury lock agreements with
creditworthy financial institutions pursuant to which the company will make or
receive, respectively, payments in respect of an aggregate notional principal
amount of $200 million depending upon whether certain interest rates fall or
rise during the term of the agreements, which are due to expire on June 15,
1998, unless earlier terminated or extended. The company does not anticipate any
material adverse effect on its results of operations or financial position in
respect of these agreements.
Information with respect to the effect on the company and its manufacturing
operations of compliance with environmental protection requirements and
resolution of environmental claims is contained under the caption Environmental
Matters in Chief Financial Officer's Review, Management's Discussion and
Analysis in the company's 1997 Annual Report to Shareowners, incorporated by
reference into the company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997. Management believes that at March 31, 1998 there has
been no material change to such information on environmental matters.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On January 2, 1998, the company issued 411 and 205 shares of Common
Stock to Donald R. Beall and Martin D. Walker, respectively,
non-employee directors of the company, pursuant to the terms of the
company's Directors Stock Plan, in lieu of cash payment of all or a
portion of the quarterly retainer fees for board service. In addition,
on February 11, 1998, the company issued 1,000 shares of Common Stock to
each of the six non-employee directors of the company pursuant to the
terms of the Directors Stock Plan. In each case, the issuance of these
securities was exempt from registration under the Securities Act of
1933, as a transaction not involving a public offering under Section
4(2).
15
<PAGE> 17
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareowners of the company was held February 11,
1998. The following matters were voted on and received the specified
number of votes in favor, votes withheld or against, abstentions and
broker non-votes:
(i) Election of directors: The following two individuals were
elected to the Board of Directors, with terms expiring at the annual
meeting of shareowners in 2001. The number of shares noted below voted
in favor of their election or were withheld. Abstentions and broker
non-votes were not applicable.
Votes in Favor Votes Withheld
-------------- --------------
Name of Nominee
----------------
Charles H. Harff 59,662,953 1,042,741
Larry D. Yost 59,683,577 1,022,117
The other members of the Board of Directors, whose terms continued after
the annual meeting, were Joseph B. Anderson, Jr., Donald R. Beall, John
J. Creedon, Harold A. Poling and Martin D. Walker.
(ii) Appointment of auditors: The shareowners approved the selection
of Deloitte & Touche LLP as the company's auditors. A total of
60,091,213 votes were cast in favor, 255,118 votes were cast against and
359,363 abstained from voting. Broker non-votes were not applicable.
(iii) Approval of compensation plans: In three separate matters, the
shareowners voted to approve the company's 1997 Long-Term Incentives
Plan, Directors Stock Plan and Incentive Compensation Plan. The
following table summarizes the numbers of votes cast in favor of and
against approval of these plans, abstentions from voting and broker
non-votes:
<TABLE>
<CAPTION>
Matter Votes Votes Broker
Voted On In Favor Against Abstentions Non-Votes
-------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C>
1997 Long-Term 43,438,376 9,834,493 1,144,170 6,288,655
Incentives Plan
Directors Stock Plan 39,647,077 13,709,720 1,060,242 6,288,655
Incentive Com- 45,305,160 8,052,118 1,059,742 6,288,674
pensation Plan
</TABLE>
16
<PAGE> 18
Item 5. Other Information
(a) Cautionary Statement
This Quarterly Report on Form 10-Q contains statements relating to
future results of the company (including certain projections and
business trends) that are "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from those projected as a result of certain
risks and uncertainties, including but not limited to global
economic and market conditions; the demand for commercial, specialty
and light vehicles for which the company supplies products; risks
inherent in operating abroad; OEM program delays; demand for and
market acceptance of new and existing products; successful
development of new products; reliance on major OEM customers; labor
relations of the company, its customers and suppliers; and
competitive product and pricing pressures, as well as other risks
and uncertainties, including but not limited to those detailed from
time to time in the filings of the company with the Securities and
Exchange Commission.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4 Indenture, dated as of April 1, 1998, between the company and
The Chase Manhattan Bank as trustee (filed as Exhibit 4 to the
Registration Statement on Form S-3 in Registration No.
333-49777, and incorporated in this Form 10-Q by reference).
10(a) Form of Option Agreement under the company's 1997 Long-Term
Incentives Plan.
10(b) Form of Option Agreement under the company's Directors
Stock Plan.
12 Computation of Ratio of Earnings to Fixed Charges for the Six
Months Ended March 31, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
March 31, 1998.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERITOR AUTOMOTIVE, INC.
-------------------------------
(Registrant)
Date May 12, 1998 By /s/ L. J. Lockwood
-------------------------------
L. J. Lockwood
Vice President and Controller
(Principal Accounting Officer)
Date May 12, 1998 By /s/ D. W. Greenfield
-------------------------------
D. W. Greenfield
Senior Vice President,
General Counsel and Secretary
18
<PAGE> 1
Exhibit 10(a)
________ __, 199_
Dear [name of optionee]:
We are pleased to notify you that the Compensation and Management Development
Committee ("Compensation Committee") granted you stock option(s) in the numbers
and at the option price indicated below under the 1997 Long-Term Incentives Plan
("Plan").
Date of Grant Type of Grant Type of Options Number of Shares Option Price
__/__/9_ _____________ _______________ ________________ ____________
These stock option(s) have been granted and may be exercised only upon the terms
and conditions of this Stock Option Agreement, subject in all respects to the
provisions of the Plan, as it may be amended. The attached Stock Option Terms
and Conditions are incorporated in and are part of this Stock Option Agreement.
You should also note that your previously executed Mutual Agreement to Arbitrate
Claims has been assumed by Meritor in connection with the spin-off from Rockwell
and your execution of this Stock Option Agreement will acknowledge the
assignment and assumption of that agreement by Meritor.
Enclosed are copies of a prospectus related to the Plan. Also enclosed, as
attachments to the Stock Option Terms and Conditions, are an option exercise
form and a brochure prepared by First Chicago Trust Company of New York,
administrator of Meritor's stock option program, providing information on how to
exercise Meritor's stock. PLEASE READ THIS FORM AND BROCHURE CAREFULLY AND
RETAIN THEM FOR FUTURE REFERENCE.
Please confirm that you have read and agree to be bound by this Agreement by
signing one copy of this letter on the line below and returning the signed copy
to:
Office of the Secretary
Meritor Automotive, Inc.
2135 West Maple Road
Troy, Michigan 48084-7186.
<PAGE> 2
These stock options will lapse and be of no effect if a copy of this Stock
Option Agreement, properly signed by you, is not received by the Secretary of
Meritor on or before _______ __, 199_, unless Meritor (in its sole discretion)
elects in writing to extend that date.
Agreed to: MERITOR AUTOMOTIVE, INC.
_________________ By:___________________________
[Optionee's Name] Senior Vice President, General
Social Security Number: Counsel and Secretary
2
<PAGE> 3
MERITOR AUTOMOTIVE, INC.
1997 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words
and phrases shall have the respective meanings ascribed to them below unless the
context in which any of them is used clearly indicates a contrary meaning:
(A) APPROVED OPTION EXERCISE FORM: An exercise form in the form of
Attachment 1, or any other form subsequently adopted by First Chicago and
approved by the Secretary of Meritor to replace Attachment 1.
(B) FIRST CHICAGO: First Chicago Trust Company of New York, as
administrator of Meritor's stock option program.
(C) MERITOR: Meritor Automotive, Inc., a Delaware corporation.
(D) OPTIONS: The stock option or stock options listed in the first
paragraph of the letter dated as of ____ __, 199_, to which these Stock
Option Terms and Conditions are attached and which together with these
Stock Option Terms and Conditions constitutes the Stock Option Agreement.
(E) OPTION SHARES: The shares of Meritor Common Stock issuable or
transferable on exercise of the Options.
(F) PLAN: Meritor's 1997 Long-Term Incentives Plan, as it may be
amended and in effect at the relevant time.
(G) SHARES: Shares of Meritor Common Stock.
(H) STOCK OPTION AGREEMENT: These Stock Option Terms and Conditions
together with the letter dated as of ____ __, 199_ to which they are
attached.
(I) STOCK OPTION EXERCISE GUIDE: The First Chicago Stock Option
Exercise Guide (Attachment 2 to these Stock Option Terms and Conditions).
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole
number of shares) and at one time or from time to time, as to one-third (rounded
to the nearest
3
<PAGE> 4
whole number) of the aggregate Option Shares during the period beginning on ____
__ , ____ and ending on ____ __ , ____, as to an additional one-third (rounded
to the nearest whole number) of the aggregate Option Shares during the period
beginning on ____ __ , ____ and ending on ____ __ , ____, and as to the balance
of the Option Shares during the period beginning on ____ __ , ____ and ending on
____ __ , ____, and only during those periods, provided, that:
(i) if you die while an Employee of the Corporation (as defined in
the Plan), your estate, or any person who acquires the Options by bequest
or inheritance, may exercise all the Options not theretofore exercised
within (and only within) the period beginning on your date of death (even
if you die before you have become entitled to exercise all or any part of
the Options) and ending three years thereafter (or until the expiration
date specified in the grant, if earlier); and
(ii) if your employment by the Corporation terminates other than by
death:
(a) if your employment by the Corporation terminates on or
after ____ __ , ____, by reason of your retirement under a
retirement plan of the Corporation, you (or if you die after your
retirement date, your estate or any person who acquires the Options
by bequest or inheritance) may thereafter exercise the Options
within (and only within) the period starting on the date you would
otherwise have become entitled to exercise the part of the Options
so exercised and ending five years after your retirement date (or
until the expiration date specified in the grant, if earlier);
(b) if your employment by the Corporation terminates for any
reason not specified in subparagraph (i) or in clause (a) of this
subparagraph (ii), you (or if you die after your termination date,
your estate or any person who acquires the Options by bequest or
inheritance) may thereafter exercise the Options within (and only
within) the period ending three months after your termination date
(or until the expiration date specified in the grant, if earlier)
but only to the extent they were exercisable on your termination
date, unless and except to the extent the Committee (as defined in
the Plan) may otherwise determine;
provided, that in no event shall the provisions of the foregoing
subparagraphs (i) and (ii) extend to a date after ____ __ , ____, the date
of expiration of the period during which the Options may be exercised;
and provided further, that notwithstanding any other provision of the
Stock Option Agreement, if a Change of Control (as defined in the Plan)
shall occur, then unless prior to the occurrence thereof the Board of
Directors shall determine otherwise by vote of at least two-thirds of its
members, all remaining Options shall forthwith become fully exercisable,
whether or not otherwise then
4
<PAGE> 5
exercisable, and remain exercisable until the expiration date of the
applicable exercise period provided in this section 2.
3. Exercise Procedure
(A) To exercise all or any part of the Options, you (or after your death,
your estate or any person who has acquired the Options by bequest or
inheritance) must (i) deliver to First Chicago a notice of exercise on an
Approved Option Exercise Form properly completed, dated and signed by you (or
after your death, by the person entitled to exercise the Options), or instruct
First Chicago with respect to the exercise by means of its integrated voice
response system, as described in the Stock Option Exercise Guide; and in the
case of an exercise of the Options by any person other than you seeking to
exercise the Options, such documents as First Chicago shall require to establish
to its satisfaction that the person seeking to exercise the Options is entitled
to do so. Each such exercise shall be subject to the terms, conditions and
procedures specified in the Stock Option Exercise Guide.
(B) A notice of exercise or instructions with respect to exercise of
Options, when given pursuant to subsection (A) and received by First Chicago,
whether or not full payment of the exercise price for the Option Shares has been
received by First Chicago and whether any Approved Option Exercise Form is dated
on or prior to the date of receipt by First Chicago or a later date, shall
constitute a binding contractual obligation by you (or the other person entitled
to exercise the Options) to proceed with and complete that exercise of the
Options (but only so long as you continue, or the other person entitled to
exercise the Options continues, to be entitled to exercise the Options on that
date). By your acceptance of this Stock Option Agreement, you agree (for
yourself and on behalf of any other person who becomes entitled to exercise the
Options) to deliver or cause to be delivered to First Chicago any balance of the
exercise price for the Option Shares to be purchased upon the exercise that is
required to pay in full the exercise price for those Option Shares, in
accordance with the terms of the Stock Option Exercise Guide; and you (for
yourself and on behalf of any other person who becomes entitled to exercise the
Options) authorize Meritor, and First Chicago on behalf of Meritor, forthwith to
set off against any amounts due or which may become due you (or the person
entitled to exercise the Options) any balance of the exercise price for those
Option Shares that has not been so paid.
4. Transferability
The Options are not transferable by you otherwise than by will or by the
laws of descent and distribution. During your lifetime, only you are entitled to
exercise the Options.
5
<PAGE> 6
5. Withholding
Meritor, and First Chicago on behalf of Meritor, shall have the right, in
connection with the exercise of the Options in whole or in part, to deduct from
any payment to be made by Meritor, or First Chicago on behalf of Meritor, under
the Plan an amount equal to the taxes required to be withheld by law with
respect to such exercise or to require you (or any other person entitled to
exercise the Options) to pay to it an amount sufficient to provide for any such
taxes so required to be withheld. By your acceptance of this Stock Option
Agreement, you agree (for yourself and on behalf of any other person who becomes
entitled to exercise the Options) that if Meritor elects to require you (or such
other person) to remit an amount sufficient to pay such withholding taxes, you
(or such other person) must remit that amount within ten business days after the
date of the statement for such amount rendered by Meritor or First Chicago,
failing which Meritor shall have the right, and you (for yourself and on behalf
of any other person who becomes entitled to exercise the Options) authorize
Meritor forthwith, to set off against salary payments or other amounts due or
which may become due you (or the other person entitled to exercise the Options)
any such amount.
6. Headings
The section headings contained in these Stock Option Terms and
Conditions are solely for the purpose of reference, are not part of the
agreement of the parties and shall in no way affect the meaning or
interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to sections,
paragraphs, subparagraphs or clauses shall be deemed to be references to
sections, paragraphs, subparagraphs and clauses of these Stock Option Terms and
Conditions unless otherwise specifically provided.
8. Applicable Laws and Regulations; Conflicts with the Plan
This Stock Option Agreement and Meritor's obligation to issue Option
Shares hereunder are subject to the terms and conditions of the Plan and
applicable laws and regulations. In the event of a conflict between the terms of
this Stock Option Agreement and the terms of the Plan, the terms of the Plan
shall govern.
Attachment 1 - Exercise Form
Attachment 2 - First Chicago Stock Option Exercise Guide
6
<PAGE> 1
Exhibit 10(b)
_____ __, 199_
TO: [NAME]
In accordance with the Corporation's Directors Stock Plan, on ______ __, 199_,
you were granted options to purchase ____ shares of the Corporation's Common
Stock at a price of $____ per share, on the terms and conditions set forth in
the attached Stock Option Terms and Conditions, which comprise a part of this
Stock Option Agreement.
Please confirm your acceptance of these grants, including the attached Stock
Option Terms and Conditions, by signing one copy of this Stock Option Agreement
at the place indicated and returning it to the Corporation's Office of the
Secretary in the enclosed return envelope.
MERITOR AUTOMOTIVE, INC.
By:________________________
David W. Greenfield
Senior Vice President,
General Counsel and Secretary
ACCEPTED AND AGREED TO:
___________________________
Date: ______________, 199_
<PAGE> 2
MERITOR AUTOMOTIVE, INC.
DIRECTORS STOCK PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words
and phrases shall have the respective meanings ascribed to them below unless the
context in which any of them is used clearly indicates a contrary meaning:
(A) APPROVED OPTION EXERCISE FORM: An exercise form in the form of
Attachment 1, or any other form subsequently adopted by First Chicago and
approved by the Secretary of Meritor.
(B) COMMITTEE: The Compensation and Management Development
Committee of the Board of Directors of Meritor.
(C) DIRECTOR: A member of the Board of Directors of Meritor.
(D) FIRST CHICAGO: First Chicago Trust Company of New York, as
administrator of Meritor's stock option program.
(E) MERITOR: Meritor Automotive, Inc., a Delaware corporation.
(F) OPTIONS: The stock option or stock options listed in the first
paragraph of the letter dated as of _____ __, 199_, to which these Stock
Option Terms and Conditions are attached and which together with these
Stock Option Terms and Conditions constitutes the Stock Option Agreement.
(G) OPTION SHARES: The shares of Meritor Common Stock issuable or
transferable on exercise of the Options.
(H) PLAN: Meritor's Directors Stock Plan, as it may be amended and
in effect at the relevant time.
(I) SHARES: Shares of Meritor Common Stock.
(J) STOCK OPTION AGREEMENT: These Stock Option Terms and Conditions
together with the letter dated as of _____ __, 199_ to which they are
attached.
(K) STOCK OPTION EXERCISE GUIDE: The First Chicago Stock Option
Exercise Guide (Attachment 2 to these Stock Option Terms and Conditions).
2
<PAGE> 3
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole
number of shares) and at one time or from time to time, as to one-third of the
aggregate Option Shares during the period beginning on _____ __, ____ and ending
on _____ __, ____, as to an additional one-third of the aggregate Option Shares
during the period beginning on _____ __, ____ and ending on _____ __, ____ and
as to the balance of the Option Shares during the period beginning on _____ __,
____ and ending on _____ __, ____, and only during those periods;
provided, that:
(i) if you die while a Director, your estate, any person who
acquires the Options by bequest or inheritance or any person to whom you
have transferred the Options during your lifetime as permitted by section
4, may exercise all the Options not theretofore exercised within (and only
within) the period beginning on your date of death (even if you die before
you have become entitled to exercise all or any part of the Options) and
ending three years thereafter;
(ii) if you retire from service as a Director after reaching age 72
and having served at least three years as a Director, you (or if you die
after your retirement date, your estate or any person who acquires the
Options by bequest or inheritance) or any person to whom you have
transferred the Options during your lifetime as permitted by section 4 may
thereafter exercise the Options not theretofore exercised within (and only
within) the period beginning on your retirement date (even if you retire
before you have become entitled to exercise all or any part of the
Options) and ending five years after your retirement date;
(iii) if your service as a Director terminates as a result of your
disability or as a result of your resignation for reasons of the antitrust
laws, compliance with Meritor's conflict of interest policies or other
circumstances that the Committee may determine as serving the best
interests of Meritor, you (or if you die after termination of your service
as a Director, your estate or any person who acquires the Options by
bequest or inheritance) or any person to whom you have transferred the
Options during your lifetime as permitted by section 4, may thereafter
exercise the Options not theretofore exercised that are exercisable on the
date your service as a Director terminates within (and only within) such
period, if any, after your termination date as the Committee may determine
by action taken not more than 60 days after your termination date, which
period shall in no event end more than five years after your termination
date;
(iv) if your service as a Director terminates for any other reason,
all unexercised Options shall terminate forthwith on the date of
termination of your service as a Director and shall not be exercised
thereafter;
3
<PAGE> 4
provided, that in no event shall the provisions of the foregoing
subparagraphs (i), (ii) and (iii) extend to a date subsequent to the
expiration date of the applicable exercise period provided in this section
2 (_____ __, ____); and
provided further, that, notwithstanding any other provision of the Stock
Option Agreement, if a Change of Control (as defined in the Plan) shall
occur, then unless prior to the occurrence thereof the Board of Directors
shall determine otherwise by vote of at least two-thirds of its members,
all remaining Options shall forthwith become fully exercisable, whether or
not otherwise then exercisable, and remain exercisable until the
expiration date of the applicable exercise period provided in this section
2.
3. Exercise Procedure
(A) To exercise all or any part of the Options, you (or after your death,
your estate or any person who has acquired the Options by bequest or
inheritance), or any person to whom you have transferred the Options during your
lifetime as permitted by section 4, must (i) deliver to First Chicago a notice
of exercise on an Approved Option Exercise Form properly completed, dated and
signed by you (or after your death, by the person entitled to exercise the
Options), or instruct First Chicago with respect to the exercise by means of its
integrated voice response system, as described in the Stock Option Exercise
Guide; and in the case of an exercise of the Options by any person other than
you seeking to exercise the Options, such documents as First Chicago shall
require to establish to its satisfaction that the person seeking to exercise the
Options is entitled to do so. Each such exercise shall be subject to the terms,
conditions and procedures specified in the Stock Option Exercise Guide.
(B) A notice of exercise or instructions with respect to exercise of
Options, when given pursuant to subsection (A) and received by First Chicago,
whether or not full payment of the exercise price for the Option Shares has been
received by First Chicago and whether any Approved Option Exercise Form is dated
on or prior to the date of receipt by First Chicago or a later date, shall
constitute a binding contractual obligation by you (or the other person entitled
to exercise the Options) to proceed with and complete that exercise of the
Options (but only so long as you continue, or the other person entitled to
exercise the Options continues, to be entitled to exercise the Options on that
date). By your acceptance of this Stock Option Agreement, you agree (for
yourself and on behalf of any other person who becomes entitled to exercise the
Options) to deliver or cause to be delivered to First Chicago any balance of the
exercise price for the Option Shares to be purchased upon the exercise that is
required to pay in full the exercise price for those Option Shares, in
accordance with the terms of the Stock Option Exercise Guide; and you (for
yourself and on behalf of any other person who becomes entitled to exercise the
Options) authorize Meritor, and First Chicago on behalf of Meritor, forthwith to
set off against any amounts due or which may become due you (or the person
entitled to exercise the Options) any balance of the exercise price for those
Option Shares that has not been so paid.
4
<PAGE> 5
4. Transferability
The Options are not transferable by you otherwise than: (A) by will or by
the laws of descent and distribution; or (B) by gift to a member of your
immediate family, to a trust for the benefit of one or more members of your
immediate family or to a family charitable trust established by you or a member
of your family; provided, however, that no transfer pursuant to this clause (B)
shall be effective unless you have notified First Chicago and the Corporation's
Office of the Secretary in writing, specifying the Option or Options
transferred, the date of the gift and the name and Social Security or other
Taxpayer Identification Number of the transferee. During your lifetime, only you
are entitled to exercise the Options unless you have transferred any Option in
accordance with this paragraph to a member of your immediate family, a trust for
the benefit of one or more members of your immediate family, or a family
charitable trust established by you or a member of your family, in which case
only that transferee (or the legal representative of the estate or the heirs or
legatees of that transferee) shall be entitled to exercise that Option. For
purposes of this paragraph, your "immediate family" shall mean your spouse and
natural, adopted or step children and grandchildren.
5. Withholding
Meritor, and First Chicago on behalf of Meritor, shall have the right, in
connection with the exercise of the Options in whole or in part, to deduct from
any payment to be made by Meritor, or First Chicago on behalf of Meritor, under
the Plan an amount sufficient to provide for any taxes required to be withheld
by law with respect to such exercise or to require you (or any other person
entitled to exercise the Options) to pay to it an amount sufficient to provide
for any such taxes so required to be withheld. By your acceptance of this Stock
Option Agreement, you agree (for yourself and on behalf of any other person who
becomes entitled to exercise the Options) that if Meritor elects to require you
(or such other person) to remit an amount sufficient to pay such withholding
taxes, you (or such other person) must remit that amount within ten business
days after the date of the statement for such amount rendered by Meritor or
First Chicago, failing which Meritor and First Chicago shall have the right, and
you (for yourself and on behalf of any other person who becomes entitled to
exercise the Options) authorize Meritor and First Chicago forthwith, to set off
against any amounts due or which may become due you (or the other person
entitled to exercise the Options) any balance of the amount sufficient to
provide for such taxes.
6. Federal Securities Law Compliance
Meritor shall have the right, in connection with the exercise of the
Options in whole or in part, to require that you (or any other person entitled
to exercise the Options), as a condition to any exercise of the Options, deliver
a written representation that the shares to be delivered upon such exercise are
being acquired for investment and not with
5
<PAGE> 6
a view to their resale in a distribution within the meaning of the Securities
Act of 1933, as amended, if the shares to be delivered have not been registered
under that Act.
7. Headings
The section headings contained in these Stock Option Terms and Conditions
are solely for the purpose of reference, are not part of the agreement of the
parties and shall in no way affect the meaning or interpretation of this Stock
Option Agreement.
8. References
All references in these Stock Option Terms and Conditions to sections,
paragraphs, subparagraphs or clauses shall be deemed to be references to
sections, paragraphs, subparagraphs and clauses of these Stock Option Terms and
Conditions unless otherwise specifically provided.
9. Applicable Laws and Regulations; Conflicts with the Plan
This Stock Option Agreement and Meritor's obligation to issue Option
Shares hereunder are subject to the terms and conditions of the Plan and all
applicable laws and regulations. In the event of a conflict between the terms of
this Stock Option Agreement and the terms of the Plan, the terms of the Plan
shall govern.
Attachment 1 - Exercise Form
Attachment 2 - First Chicago Stock Option Exercise Guide
6
<PAGE> 1
Exhibit 12
MERITOR AUTOMOTIVE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED MARCH 31, 1998
(In millions, except ratio)
<TABLE>
<S> <C>
Earnings available for fixed charges:
Pre-tax income from continuing operations .................... $ 130
Adjustments:
Undistributed income of affiliates ........................ (10)
Minority interest in loss of subsidiaries ................. 7
-----
127
-----
Add fixed charges included in earnings:
Interest expense ........................................... 21
Interest element of rentals ................................ 4
-----
Total ................................................... 25
-----
Total earnings available for fixed charges: ................ $ 152
-----
Fixed charges:
Fixed charges included in earnings ........................ $ 25
Capitalized interest ...................................... --
-----
Total fixed charges ....................................... $ 25
-----
Ratio of Earnings to Fixed Charges(1) ..................... 6.1
=====
</TABLE>
(1) "Earnings" are defined as pre-tax income from continuing operations,
adjusted for income or loss attributable to minority interest in
subsidiaries, undistributed earnings of less than majority owned
subsidiaries, and fixed charges excluding capitalized interest. "Fixed
charges" are defined as interest on borrowings (whether expensed or
capitalized) and that portion of rental expense applicable to interest.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1996
<CASH> 67
<SECURITIES> 0
<RECEIVABLES> 622
<ALLOWANCES> 10
<INVENTORY> 128
<CURRENT-ASSETS> 1,167
<PP&E> 626
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,013
<CURRENT-LIABILITIES> 934
<BONDS> 428
0
0
<COMMON> 69
<OTHER-SE> 116
<TOTAL-LIABILITY-AND-EQUITY> 2,013
<SALES> 1,879
<TOTAL-REVENUES> 1,886
<CGS> 1,614
<TOTAL-COSTS> 1,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 130
<INCOME-TAX> 53
<INCOME-CONTINUING> 77
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
