<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 December 31, 1997
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
69,030,996 shares of registrant's Common Stock, $1.00 par value, were
outstanding on January 31, 1998.
<PAGE> 2
MERITOR AUTOMOTIVE, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Page
No.
<S> <C> <C>
Consolidated Balance Sheet - -
December 31, 1997 and September 30, 1997 ............................ 2
Statement of Consolidated Income - - Three Months
Ended December 31, 1997 and 1996..................................... 3
Statement of Consolidated Cash Flows - -
Three Months Ended December 31, 1997 and 1996 ....................... 4
Notes to Consolidated Financial Statements .......................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations .................... 9
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings.................................................... 12
Item 5. Other Information.................................................... 12
Item 6. Exhibits and Reports on Form 8-K..................................... 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
MERITOR AUTOMOTIVE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997 September 30,
(unaudited) 1997
----------- ----
ASSETS (In millions)
<S> <C> <C>
Current assets:
Cash ........................................................ $ 117 $ 133
Receivables (less allowance for doubtful accounts:
December 31, 1997 and September 30, 1997, $9) ............ 509 563
Inventories ................................................. 342 327
Other current assets ........................................ 121 128
------- -------
Total current assets ............................... 1,089 1,151
------- -------
Net property ..................................................... 626 635
Other assets ..................................................... 212 216
------- -------
TOTAL ...................................... $ 1,927 $ 2,002
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt ............................................. $ 57 $ 21
Accounts payable ............................................ 482 501
Accrued compensation and benefits ........................... 113 129
Accrued income taxes ........................................ 19 88
Other current liabilities ................................... 189 177
------- -------
Total current liabilities ............................... 860 916
Long-term debt ................................................... 434 465
Accrued retirement benefits ...................................... 391 387
Other liabilities ................................................ 46 46
Minority interests ............................................... 39 37
Shareowners' equity:
Common Stock
(shares issued and outstanding: December 31, 1997, 69.0;
September 30, 1997, 68.9) .............................. 69 69
Additional paid-in-capital .................................. 156 154
Retained earnings ........................................... 25 --
Cumulative currency translation adjustments ................. (93) (72)
------- -------
Total shareowners' equity ...................... 157 151
------- -------
TOTAL ...................................... $ 1,927 $ 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
December 31,
1997 1996
---- ----
(In millions, except
per share amount)
<S> <C> <C>
Sales ................................. $ 911 $ 756
Cost of sales ......................... 791 663
----- -----
Gross margin .......................... 120 93
Selling, general and administrative ... 57 53
----- -----
Operating earnings .................... 63 40
Other income-net ...................... 1 7
Interest expense ...................... (10) (1)
----- -----
Income before income taxes ............ 54 46
Provision for income taxes ............ (22) (18)
----- -----
Net income ............................ $ 32 $ 28
===== =====
Basic and diluted earnings per share... $ .47
=====
Average shares outstanding ............ 69.0
=====
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 5
MERITOR AUTOMOTIVE, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
---- ----
(In millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................................... $ 32 $ 28
Adjustments to net income to arrive at cash provided by operating
activities:
Depreciation and amortization ....................................... 24 25
Deferred income taxes ............................................... 1 2
Net pension expense ................................................. 5 6
Pension contributions ............................................... (5) --
Changes in assets and liabilities, excluding effects of acquisitions,
divestitures and foreign currency adjustments:
Receivables ....................................................... 35 19
Inventories ....................................................... (18) (5)
Accounts payable .................................................. (21) (29)
Other assets and liabilities ...................................... 11 (20)
----- ----
CASH PROVIDED BY OPERATING ACTIVITIES ....................... 64 26
----- ----
INVESTING ACTIVITIES
Capital expenditures ..................................................... (23) (16)
Acquisition of businesses (net of cash acquired) ......................... (4) (12)
Proceeds from disposition of property and businesses ..................... 1 2
----- ----
CASH USED FOR INVESTING ACTIVITIES ..................... (26) (26)
----- ----
FINANCING ACTIVITIES
Increase in short-term borrowings ........................................ 39 6
Payments of long-term debt ............................................... (80) --
Long-term borrowings ..................................................... 52 --
----- ----
Net increase in debt ................................................ 11 6
Dividends ................................................................ (7) --
Payment of Distribution tax obligation ................................... (72) --
Net transfers from (to) Rockwell ......................................... 14 (11)
----- ----
CASH USED FOR FINANCING ACTIVITIES ..................... (54) (5)
----- ----
DECREASE IN CASH ......................................................... (16) (5)
CASH AT BEGINNING OF PERIOD .............................................. 133 74
----- ----
CASH AT END OF PERIOD .................................................... $ 117 $ 69
===== ====
</TABLE>
Income tax payments, excluding the payment of the Distribution tax obligation,
were $9 million and $4 million in the three months ended December 31, 1997 and
1996, 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 amount allocated for the three months ended December
31, 1996 was $7 million. These costs have been 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.
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-month period ended December 31, 1997 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>
December 31, September 30,
1997 1997
---- ----
<S> <C> <C>
Finished goods.............................................. $ 121 $ 117
Work in process............................................. 145 146
Raw materials, parts and supplies........................... 128 116
--------- ----------
Total.................................................. 394 379
Less allowance to adjust the carrying value of
certain inventories to a last in, first-out
(LIFO) basis........................................... 52 52
--------- ----------
Inventories............................................ $ 342 $ 327
========= ==========
</TABLE>
3. Other current assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
---- ----
<S> <C> <C>
Current deferred income taxes............................... $ 81 $ 85
Customer tooling............................................ 22 20
Prepaid expenses............................................ 14 13
Other....................................................... 4 10
--------- ----------
Other current assets................................... $ 121 $ 128
========= ==========
</TABLE>
4. Other assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
---- ----
<S> <C> <C>
Net deferred income taxes................................... $ 65 $ 71
Goodwill.................................................... 40 42
Investments in affiliates................................... 44 43
Prepaid pension costs....................................... 29 29
Other....................................................... 34 31
--------- ----------
Other assets........................................... $ 212 $ 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>
December 31, September 30,
1997 1997
---- ----
<S> <C> <C>
Accrued product warranties.................................. $ 95 $ 95
Accrued taxes other than income taxes 27 28
Accrued restructuring....................................... 23 26
Other....................................................... 44 28
--------- ----------
Other current liabilities.............................. $ 189 $ 177
========= =========
</TABLE>
7. Long-term debt consisted of the following (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
---- ----
<S> <C> <C>
Bank revolving credit facility.............................. $ 417 $ 447
Other obligations, principally foreign 17 18
--------- ----------
Long-term debt......................................... $ 434 $ 465
========= ==========
</TABLE>
8. The company's financial instruments include cash, short- and long-term debt
and foreign currency forward exchange contracts. At December 31, 1997, the
carrying values of the company's financial instruments approximated their
fair values based on current market prices and rates.
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 $224 million at December 31, 1997 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.
-7-
<PAGE> 9
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Accrued retirement benefits consisted of the following (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
---- ----
<S> <C> <C>
Accrued retirement medical costs............................ $ 298 $ 299
Accrued pension costs....................................... 115 110
Other....................................................... 13 13
--------- ----------
Total 426 422
Amount classified as current liability...................... 35 $ 35
--------- ----------
Accrued retirement benefits $ 391 $ 387
========= ==========
</TABLE>
10. Other income - net consisted of the following (in millions):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Equity in earnings of affiliates $ 3 $ 2
Minority interests (4) (2)
Gain on the sale of property and businesses 2 -
Interest income 1 1
Insurance settlement - 5
Other (1) 1
--------- ---------
Other income - net $ 1 $ 7
========= =========
</TABLE>
12. 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.
-8-
<PAGE> 10
MERITOR AUTOMOTIVE, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
1998 First Quarter Compared to 1997 Pro Forma First Quarter
The following sets forth the sales, operating earnings and net income of the
company for the first quarter of fiscal 1998 and 1997 pro forma (in millions):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
Historical Pro Forma Pro Forma
1997 1996 Adjustments (1) 1996
---- ---- --------------- ----
<S> <C> <C> <C> <C>
Sales
Heavy Vehicle Systems $ 557 $ 413 $-- $ 413
Light Vehicle Systems 354 343 -- 343
----- ----- --- -----
Total Sales $ 911 $ 756 $-- $ 756
===== ===== === =====
Gross Margin $ 120 $ 93 $-- $ 93
Selling, General and Administrative 57 53 (2) 51
----- ----- --- -----
Operating Earnings $ 63 $ 40 $ 2 $ 42
Other Income-net 1 7 -- 7
Interest Expense (10) (1) (6) (7)
----- ----- --- -----
Income Before Income Taxes 54 46 (4) 42
Provision for Income Taxes (22) (18) 1 (17)
----- ----- --- -----
Net Income $ 32 $ 28 $(3) $ 25
===== ===== === =====
Earnings Per Share $ .47 $ .36
===== =====
</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 $2 million lower on a stand-alone
basis for the quarter than those allocated to the automotive businesses by
Rockwell and (c) $6 million of interest expense at an annual rate of 6.0%
for the quarter ended December 31, 1996 related to the debt incurred by the
company in connection with the $445 million pre-Distribution payment to
Rockwell.
-9-
<PAGE> 11
MERITOR AUTOMOTIVE, INC.
RESULTS OF OPERATIONS (Cont'd)
Sales of $911 million for the 1998 first quarter were up $155 million, or 21
percent, from the 1997 first quarter. The strong sales growth for the quarter
was driven by a robust North American heavy truck market, which was up
substantially compared to a modestly weak first quarter last year and higher
penetration across most product lines of Heavy Vehicle and Light Vehicle
Systems.
Net income for the 1998 first quarter was $32 million, or 47 cents per share,
compared to $25 million, or 36 cents per share, pro forma results last year.
This represents a 31 percent increase in earnings per share for the first
quarter of 1998 as compared to 1997 pro forma first quarter results. The
increase in net income and earnings per share over the prior period was
achieved even with a decrease of $6 million in other income and an increase of
$3 million in interest expense. The decrease in other income was due primarily
to a $5 million one-time gain in the first quarter of fiscal 1997, related to
an environmental insurance settlement. The increase in interest expense was a
result of higher working capital financing levels as compared to the prior
first quarter.
Operating earnings of $63 million increased 50 percent for the 1998 first
quarter as compared to the 1997 first quarter primarily due to the higher sales
levels and the impact of the ongoing productivity and cost improvement programs.
Quarterly operating margins improved from 5.6 percent in last year's first
quarter to 6.9 percent in this year's first quarter.
Heavy Vehicle Systems sales were $557 million in the first quarter of fiscal
1998, an increase of $144 million, or 35 percent, compared to the first quarter
of fiscal 1997. This sales increase was the result of the strong North America
heavy truck market, greater market penetration in North America by the
company's truck axle, brake and transmission products, and increased volumes in
its off-highway and specialty vehicle product lines. If current market
conditions continue, the company expects the North American heavy truck market
to grow by 10 percent in fiscal 1998. The company's Brazilian business was
stable, while its European trailer axle business, based in the UK, experienced
pricing pressure due to the strength of the British pound compared to other
European currencies.
Light Vehicle Systems sales were reported at $354 million, an increase of $11
million, or 3 percent, over the first quarter of fiscal 1997. The sales growth
was driven by strong market penetration in the door, suspension, access control,
seat adjusting systems and wheel product lines. This growth was substantially
offset by a $24 million decline in European sales due to lower sunroof demand
and the currency translation impact of a stronger U.S. dollar in the first
quarter of this year compared to the first quarter of last year.
Although the company's sales in the Asia-Pacific region represent only 3 percent
of annual sales volumes, the company is closely watching the economic situation
in the Asia-Pacific region to assess its effect on the North American, European
and other economies.
-10-
<PAGE> 12
RESULTS OF OPERATIONS (Cont'd)
Performance for the first quarter of fiscal 1998 provides strong 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.
Assuming generally favorable economic conditions and the anticipated benefits of
the company's restructuring programs, these objectives should be achievable in
fiscal 1998.
FINANCIAL CONDITION
Cash provided by operating activities for the fiscal 1998 first quarter was $64
million, an increase of $38 million as compared to the first quarter of fiscal
1997. The increase was due primarily to the increase in net income and
decreased working capital levels. Pension contributions of $5 million were made
in the 1998 first quarter. Management expects that pension plan funding during
fiscal 1998 will approximate $25 million.
Capital expenditures of $23 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 first quarterly dividend of $.105 cents per share was paid on
December 15, 1997 to shareowners of record on November 24, 1997. On February 11,
1998, the board of directors declared a quarterly dividend of $.105 cents per
share on its common stock, payable March 9, 1998, to shareowners of record on
February 23, 1998.
Cash used for financing activities includes a $72 million payment of a
Distribution tax obligation related to Canadian taxes incurred in connection
with the transfer of assets prior to the Distribution. Rockwell has agreed to
indemnify the company for such Canadian income taxes and had provided $58
million at September 30, 1997, as well as an additional $14 million during the
quarter ended December 31, 1997.
The cumulative currency translation adjustments increased $21 million, primarily
due to the strength of the U.S. dollar, principally in relation to the Canadian,
French and Australian currencies.
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 December 31, 1997 there
has been no material change to this information.
-11-
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As discussed on page 11 of the company's Annual Report on Form 10-K
for the Fiscal Year Ended September 30, 1997, incorporated herein by
reference, Eaton Corporation filed suit against Rockwell on July 17,
1997 in the U.S. District Court in Wilmington, Delaware, asserting
infringement of an Eaton patent covering certain aspects of
heavy-duty truck transmissions, and seeking damages and injunctive
relief. Trial has been set to begin on June 23, 1998.
Item 5. Other Information
(a) As discussed on pages 14-15 of the company's Proxy Statement for
the 1998 Annual Meeting of Shareowners, incorporated herein by
reference, the Compensation and Management Development Committee
of the Board of Directors ("Compensation Committee") has
developed a "pay for performance" compensation philosophy for
executive officers, to be carried out through a strategy using
base salaries, annual incentives and long-term incentives.
Long-term incentives may be granted under the company's 1997
Long-Term Incentives Plan ("LTIP") in a variety of forms,
including performance units, stock options, stock appreciation
rights and restricted stock. The Committee's original intention
was to provide long-term incentives one-half through stock
option grants and one-half through awards under long-term
performance plans.
On February 11, 1998, the Compensation Committee approved a
performance plan pursuant to and subject to the provisions of
the LTIP, under which officers of the company will be provided
long-term incentives two-thirds through stock option grants and
one-third through awards under long-term performance plans.
(b) 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.
-12-
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10 - Consulting Agreement between the company and
Robert A. Calder.
27 - Financial Data Schedule
99-a - The company's Annual Report on Form 10-K for the
Fiscal Year Ended September 30, 1997 (including
portions of the company's 1997 Annual Report to
Shareowners filed as Exhibit 13 to the Form 10-K),
portions of which are incorporated herein by reference
(filed with the Commission in File No. 1-13093 and
incorporated herein by reference).
99-b - The company's Proxy Statement, dated December 29,
1997, portions of which are incorporated herein by
reference (filed with the Commission in File No.
1-13093 and incorporated herein by reference).
(b) Reports on Form 8-K.
A Current Report on Form 8-K, dated October 10, 1997 was filed by the
company, reporting under Item 5, Other Events, the consummation of
the Distribution, and filing under Item 7, Financial Statements, Pro
Forma Financial Information and Exhibits, the company's Restated
Certificate of Incorporation, amended By-laws and Rights Agreement,
and various agreements between Rockwell and the company in connection
with the Distribution.
-13-
<PAGE> 15
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 February 12, 1998 By L. J. Lockwood
----------------------- ---------------------------------
L. J. Lockwood
Vice President and Controller
(Principal Accounting Officer)
Date February 12, 1998 By D. W. Greenfield
----------------------- ---------------------------------
D. W. Greenfield
Senior Vice President,
General Counsel and Secretary
-14-
<PAGE> 16
MERITOR AUTOMOTIVE, INC.
INDEX OF EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Page
No.
<S> <C> <C> <C>
Exhibit 10 Consulting Agreement between the
Company and Robert A. Calder........................................16
Exhibit 27 Financial Data Schedule.............................................19
</TABLE>
-15-
<PAGE> 1
Exhibit 10
September 30, 1997
Mr. Robert A. Calder
1707 Stony Creek Drive
Rochester, MI 48307
Dear Bob:
This letter confirms the substance of our recent conversations wherein you
agreed to a mutual separation effective December 31, 1997. Rockwell
International, and its successor, Meritor, (collectively as "Rockwell") agree to
provide you the following:
1. You will continue in your present position through December 31, 1997.
2. Beginning January 1, 1998 and continuing for the 27 months ending March 21,
2000, you will remain on the Rockwell payroll and be paid $21,667 per
month. During this time, you will continue to earn credited service which
will be used to calculate pension benefits. Your compensation checks will
be mailed to your home unless you specify otherwise. Please advise us in
writing if you change your address.
3. On October 1, 1997 you will receive a closure payment of $100,000. There
will be no stock options granted to you associated with the spin-off.
4. You will receive ICP payments for fiscal years ending 1998 and 1999. Such
payments will be made under the applicable formulas, and awards will not
exceed 150% of target.
5. You will receive Long Term Incentive Plan (LTIP) payments for FY1996-98 and
FY1997-99 plan years as follows:
- FY1996-98 LTIP will be paid in cash in December, 1998, pending Board of
Directors approval, based on Light Vehicle Systems performance measured
against the applicable plan formulas.
-16-
<PAGE> 2
Mr. Robert A. Calder
September 30, 1997
Page 2
FY1997-99 LTIP will be terminated and you will receive a cash payment
for the FY1997 portion of this plan in January, 1998. You will also
receive Meritor stock options equivalent to the remaining portion (FY
1998 and 1999), adjusted to present value, in January, 1998. These
options will have a special two year cliff vesting period. Actual
FY1997 performance, along with forecasted FY1998 and 1999 performance
will be used to determine the overall Light Vehicle Systems performance
to be measured against the applicable plan formulas.
6. You will retain your Company sponsored country club membership until such
time as you relocate from the Detroit area but not later than March 31,
2000. At that time, the membership will revert back to Rockwell.
7. Your present Company vehicle may be replaced with a 1998 model which may be
driven at Company expense until December 31, 1998, at which time you may
purchase it at its book or wholesale value, whichever is less.
8. You will continue to be provided financial counseling assistance until
March 31, 2000.
9. Medical and dental coverage will remain in force through March 31, 2000.
10. Short and long term disability coverage will continue through December 31,
1997.
11. You will be eligible to continue to participate in the Company savings plan
through March 31, 2000. If you wish to receive information concerning your
options, contact the Savings Plan Administration Center at 800/269-7600.
In consideration of the above, you agree to consult with Rockwell's senior
executives in areas of commercial interest to the company. Such services might
include, for example, providing industry insight and knowledge or developing
access to key customer executives and markets. The consultation shall be
performed from time-to-time on an as needed basis at the discretion of Rockwell,
which would, of course, cover the appropriate expenses involved in your travel
and associated assignments. You also agree as follows:
1. You will keep confidential and not disclose to any person other than your
spouse and/or your accountant or attorney the existence of this agreement,
its substance or any discussions or information relating to it. If asked
you will simply state that all matters have been resolved. You will not
make disparaging remarks concerning the Company or its employees.
-17-
<PAGE> 3
Mr. Robert A. Calder
September 30, 1997
Page 2
You agree to and hereby release and waive any and all claims and rights you
may have or believe you may have against Rockwell, its successors, assigns,
officers, directors, employees or agents relating to or arising out of your
employment or your separation including any claim or right in contract,
tort and based on or arising under any federal or state statutes, including
the Age Discrimination in Employment Act. This agreement does not extend to
your rights under any retirement benefit plan of Rockwell or other future
rights.
2. Rockwell shall have the right to terminate this agreement at any time if
you breach any of the obligations stated herein under this agreement.
3. You acknowledge that you have been advised to consult with an attorney
prior to signing this agreement. You also acknowledge, understand and agree
that this agreement is voluntarily entered into by you in consideration of
the undertakings by Rockwell as set forth herein and is consistent in all
respect with the discussions by Rockwell personnel with you relating to
your separation.
4. This agreement is a complete and final agreement between Rockwell and you
and supersedes all other offers, agreements and negotiations except for the
Invention Assignment Agreement which remains in full force.
5. You understand that you have 21 days within which to consider this
agreement, and that you may revoke the agreement within 7 days of signing
it. However, the agreement will not become effective until the revocation
period has expired.
Sincerely,
/s/ Gary Collins
Gary L. Collins
Senior Vice President
Human Resources
ACCEPTED AND AGREED TO:
/s/ Robert A. Calder
- ------------------------------
Robert A. Calder
Date: Oct. 1, 1997
- ------------------------------
-18-
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