MTOR 10-K Fiscal year ended Sept. 29, 2019

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•	The Commercial Truck segment supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, primarily for medium- and heavy-duty trucks and other applications in North America, South America, Europe and Asia Pacific. This segment also includes our aftermarket businesses in Asia Pacific and South America.

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The Aftermarket, Industrial and Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement parts to commercial vehicle and industrial aftermarket customers, primarily in North America and Europe. In addition, this segment supplies drivetrain systems and certain components, including axles, drivelines, brakes and suspension systems for military, construction, bus and coach, fire and emergency and other applications in North America and Europe. It also supplies a variety of undercarriage products and systems for trailer applications in North America.

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•	Uncertainty around the global market outlook;

•	Volatility in price and availability of steel, components and other commodities;

•	Potential for disruptions in the financial markets and their impact on the availability and cost of credit;

•	Volatile energy and transportation costs;

•	Impact of currency exchange rate volatility; and

•	Consolidation and globalization of OEMs and their suppliers.

•	Significant contract awards or losses of existing contracts or failure to negotiate acceptable terms in contract renewals;

•	Ability to successfully launch a significant number of new products, including potential product quality issues, and obtain new business;

•	Ability to manage possible adverse effects on our European operations, or financing arrangements related thereto, following the United Kingdom's decision to exit the European Union, or in the event one or more other countries exit the European monetary union;

•	Ability to further implement planned productivity, cost reduction, and other margin improvement initiatives;

•	Ability to successfully execute and implement strategic initiatives;

•	Ability to work with our customers to manage rapidly changing production volumes;

•	Ability to recover, and timing of recovery of, steel price and other cost increases from our customers;

•	Any unplanned extended shutdowns or production interruptions by us, our customers or our suppliers;

•	A significant deterioration or slowdown in economic activity in the key markets in which we operate;

•	Competitively driven price reductions to our customers;

•	Potential price increases from our suppliers;

•	Additional restructuring actions and the timing and recognition of restructuring charges, including any actions associated with prolonged softness in markets in which we operate;

•	Higher-than-planned warranty expenses, including the outcome of known or potential recall campaigns;

•	Uncertainties of asbestos claim, environmental and other legal proceedings, the long-term solvency of our insurance carriers, and the potential for higher-than-anticipated costs resulting from environmental liabilities, including those related to site remediation;

•	Significant pension costs; and

•	Restrictive government actions (such as restrictions on transfer of funds and trade protection measures, including import and export duties, quotas and customs duties and tariffs).

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•	Grow revenue at 20 percent cumulatively above market levels, measured from the end of fiscal year 2015.

•	Increase adjusted diluted earnings per share ("EPS") from continuing operations by $1.25, measured from fiscal year 2015.

•	Reduce the ratio of net debt to adjusted EBITDA to less than 1.5 times.

•	Exceeding customer expectations.

•	Transforming to a growth-oriented organization.

•	Continuing to invest in employees.

•	With a target of 20 percent, the company achieved market outperformance of 16 percent or $604 million through diversified growth in the off-highway, specialty, defense and trailer businesses.

•	The company increased its adjusted diluted EPS by $2.25 against its $1.25 target for a 142-percent increase (compared to an 80-percent target increase). This was achieved a year earlier than planned.

•	Meritor achieved a ratio of net debt to EBITDA of 1.6 compared to the objective of 1.5 net debt to EBITDA. This result was slightly short of target due to the strategic acquisition of AxleTech in fiscal year 2019.

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•	P5271 Axle - Produced for Volvo in Thailand.

•	Slipper Suspension - Launched with Ashok Leyland in India to replace the bell crank suspension typically used in the region. Suspension is lighter, easier to align, requires less maintenance and improves fuel efficiency.

•	13X Axle - Developed specifically for the India market targeting the medium commercial vehicle segment. It is 59 lbs. lighter and 1 percent more efficient than the current axle being used by Meritor.

•	DuaLite 146 Axle - Lighter weight fabricated housing versus slot forged housing used for Meritor’s local 146 carrier in China.

•	17X HE Solo with Superfast Ratio - Launched with Volvo in Europe. Axle is 1 percent more efficient than Meritor’s 17X EVO. It has extended ratio coverage including superfast ratios to enable higher system efficiency.

•	17X HE Solo with Superfast Ratio - Introduced for the heavy 6x2 market in North America and is 1 percent more efficient than previous axle.

•	Twenty-two electrification programs with global manufacturers for a total of 130 fully electric medium- and heavy-duty commercial trucks to be on the road through 2020.

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Completion of two multi-year projects for the development, testing and evaluation of advanced, zero-emission electric yard tractors and Class 8 trucks supported with grants from the California Energy Commission. The electric yard tractors are operating at Dole Fresh Fruit’s terminal at the Port of San Diego, as well as other locations in California. The electric trucks are operating at the Port of San Diego.

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•	A contract to supply all-electric drivetrain systems for 38 terminal tractors to be used at the Port of Long Beach and the Port of Oakland, California.

•	An award to supply drivetrain components including front- and rear-drive steer axles, air disc brakes and an innovative right angle gear box for an electric urban bus developed by Alstom. Production for the manufacturer’s first orders of the all-electric Aptis buses for cities such as Paris and Strasbourg in France are scheduled to begin this summer.

•	Participation in VWCO’s (Volkswagen Caminhões e Ônibus) e-Consortium to collaborate in the development of electric commercial vehicles in Brazil, beginning with the launch of the OEM’s 11-ton e-Delivery truck equipped with Meritor’s 12X™ drive axle with eOptimized™ gearing, in 2020.

•	Expansion of its electric drivetrain solutions to include the 12Xe™ for Class 4-7 and the 17Xe™ for heavy duty 4x2 and 6x2 trucks.

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•	risks with respect to currency exchange rate fluctuations (as more fully discussed above);

•	risks to our liquidity if the European monetary union were to dissolve and we were unable to renegotiate European factoring agreements or find alternative sources of liquidity;

•	risks arising from the United Kingdom's decision to exit the European Union, or in the event one or more other countries exit the European monetary union;

•	local economic and political conditions;

•	disruptions of capital and trading markets;

•	possible terrorist attacks or acts of aggression that could affect vehicle production or the availability of raw materials or supplies;

•	restrictive governmental actions (such as restrictions on transfer of funds and trade protection measures, including import and export duties, quotas and customs duties and tariffs);

•	changes in legal or regulatory requirements;

•	import or export licensing requirements;

•	limitations on the repatriation of funds;

•	difficulty in obtaining distribution and support;

•	nationalization;

•	the laws and policies of the United States and foreign governments affecting trade, foreign investment and loans;

•	the ability to attract and retain qualified personnel;

•	tax laws; and

•	labor disruptions.

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•	cease the manufacture, use or sale of the infringing products or technology;

•	pay substantial damages for infringement;

•	expend significant resources to develop non-infringing products or technology;

•	license technology from the third-party claiming infringement, which license may not be available on commercially reasonable terms, or at all;

•	enter into cross-licenses with our competitors, which could weaken our overall intellectual property portfolio;

•	lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others;

•	pay substantial damages to our customers or end users to discontinue use or replace infringing technology with non-infringing technology; or

•	relinquish rights associated with one or more of our patent claims, if our claims are held invalid or otherwise unenforceable.

•	any of our present or future patents will not lapse or be invalidated, circumvented, challenged, abandoned or, in the case of third-party patents licensed or sub-licensed to us, be licensed to others;

•	any of our pending or future patent applications will be issued or have the coverage originally sought;

•	our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak; or

•	any of the trademarks, trade secrets or other intellectual property rights that we presently employ in our business will not lapse or be invalidated, circumvented, challenged, abandoned or licensed to others.

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•	See Note 25 of the Notes to Consolidated Financial Statements under Item 8. Financial Statements and Supplementary Data for information with respect to litigation related to asbestos and product liability, which is incorporated herein by reference thereto.

•	See Item 1. Business , "Environmental Matters" and Note 25 of the Notes to Consolidated Financial Statements under Item 8. Financial Statements and Supplementary Data for information relating to environmental proceedings, which is incorporated herein by reference thereto.

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In March 2016, two virtually identical complaints were filed against our company and other defendants in the United States District Court for the Eastern District of Michigan. The complaints are proposed class actions alleging that we violated federal and state antitrust and other laws in connection with a former business of ours that manufactured and sold exhaust systems for automobiles. The first proposed class is composed of persons and entities that purchased or leased a passenger vehicle during a specified time period; the second is a purported class of automobile dealers. We accepted service of these complaints in July 2016. We settled both of these lawsuits for a total of $1 million. The settlements were preliminarily approved by the court in June and September 2018. A third complaint on behalf of a proposed class of direct purchasers was filed against our company and other defendants in the same court in November 2016; we accepted service in April 2017. In December 2017, we were served with a similar suit naming the company as a defendant on behalf of a purported class of purchasers in Alberta, Canada, and were served with a nearly identical complaint in British Columbia, Canada in March 2018. In August 2017, our subsidiary, Meritor do Brasil Sistema Automotivos Ltda., received notice that it was made a formal party to an investigation by the antitrust authority of the Brazilian government relating to the alleged existence of a cartel in the exhaust systems and components market in Brazil. In September 2019, the Brazilian antitrust authority issued a non-binding opinion imputing the conduct of the cartel to Meritor. We do not know when a binding ruling will be issued by the Brazilian antitrust authority. We intend to defend ourselves vigorously against the unsettled claims and currently believe the risk of loss would not be material to our financial statements.

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Various other lawsuits, claims and proceedings have been or may be instituted or asserted against Meritor or our subsidiaries relating to the conduct of our business, including those pertaining to product liability, tax, warranty or recall claims, intellectual property, safety and health, contract 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 Meritor, management believes, after consulting with Meritor's Chief Legal Officer, that the disposition of matters that are pending will not have a material effect on our business, financial condition or results of operations.

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•	if a default on the notes, as defined in the indentures, has not occurred and is not continuing or shall not occur as a consequence of the payment;

•	if the interest coverage ratio, as defined in the indentures, is greater than 2.00 to 1.00 after giving effect to the dividend;

•	if the cumulative amount of the dividends paid does not exceed certain cumulative cash and earnings measurements;

•	if the dividends are less than $60 million per fiscal year (with a carryover to the next fiscal year of up to $60 million if unused in the current fiscal year); and

•	if after giving effect to the dividend, the total leverage ratio, as defined in the indenture, would not exceed 4.00 to 1.00.

(1)

On November 2, 2018, our Board of Directors authorized the repurchase of up to $200 million of our common stock and up to $100 million aggregate principal amount of any of our debt securities (including convertible debt securities), in each case from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and our debt covenants. These authorizations superseded the prior July 2016 repurchase authorizations. On July 26, 2019, the Board of Directors authorized the repurchase of up to $250 million of our common stock from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and our debt covenants. This authorization supersedes the remaining authority under the prior November 2018 equity repurchase authorization.

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(1)	The peer group consists of representative commercial vehicle suppliers of approximately comparable products to Meritor. The peer group consists of Commercial Vehicle Group, Inc., Cummins Inc., Dana Incorporated, Haldex AB, Modine Manufacturing Company, SAF-Holland SA, Stoneridge, Inc., and Wabco Holdings Inc.

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(1)

The fiscal year ended September 30, 2019 includes $3 million decrease in valuation allowances for certain U.S. state jurisdictions. The fiscal year ended September 30, 2018 includes a $9 million reversal of a Brazil valuation allowance, partially offset by a $2 million increase in valuation allowances for certain U.S. state jurisdictions. The fiscal year ended September 30, 2017 includes non-cash income tax benefit (expense) of $52 million related to the partial reversal of the U.S. valuation allowance, $15 million related to capital losses associated with the sale of an equity investment and $1 million related to other correlated tax relief. The fiscal year ended September 30, 2016 includes non-cash income tax benefit (expense) of $438 million related to the partial reversal of the U.S. valuation allowance, ($9) million related to the establishment of a valuation allowance in Brazil and $25 million related to other correlated tax relief. The fiscal year ended September 30, 2015 includes non-cash income tax benefit of $16 million related to the reversal of valuation allowances in Germany, Italy, Mexico and Sweden.

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•	Uncertainty around the global market outlook;

•	Volatility in price and availability of steel, components and other commodities;

•	Potential for disruptions in the financial markets and their impact on the availability and cost of credit;

•	Volatile energy and transportation costs;

•	Impact of currency exchange rate volatility; and

•	Consolidation and globalization of OEMs and their suppliers.

•	Significant contract awards or losses of existing contracts or failure to negotiate acceptable terms in contract renewals;

•	Ability to successfully launch a significant number of new products, including potential product quality issues, and obtain new business;

•	Ability to manage possible adverse effects on our European operations, or financing arrangements related thereto, following the United Kingdom's decision to exit the European Union, or in the event one or more other countries exit the European monetary union;

•	Ability to further implement planned productivity, cost reduction, and other margin improvement initiatives;

•	Ability to successfully execute and implement strategic initiatives;

•	Ability to work with our customers to manage rapidly changing production volumes;

•	Ability to recover, and timing of recovery of, steel price and other cost increases from our customers;

•	Any unplanned extended shutdowns or production interruptions by us, our customers or our suppliers;

•	A significant deterioration or slowdown in economic activity in the key markets in which we operate;

•	Competitively driven price reductions to our customers;

•	Potential price increases from our suppliers;

•	Additional restructuring actions and the timing and recognition of restructuring charges, including any actions associated with prolonged softness in markets in which we operate;

•	Higher-than-planned warranty expenses, including the outcome of known or potential recall campaigns;

•	Uncertainties of asbestos claim, environmental and other legal proceedings, the long-term solvency of our insurance carriers, and the potential for higher-than-anticipated costs resulting from environmental liabilities, including those related to site remediation;

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•	Restrictive government actions (such as restrictions on transfer of funds and trade protection measures, including import and export duties, quotas and customs duties and tariffs); and

•	Significant pension costs.

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(1)	Amounts for the year ended September 30, 2018 have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715). For the year ended September 30, 2018, $29 million was reclassified out of Cost of goods sold and into Non-operating income.

(1)	Amounts for the year ended September 30, 2018 have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715). For the year ended September 30, 2018, $4 million was reclassified out of SG&A and into Other income.

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(1)	Amounts for the years ended September 30, 2018 and September 30, 2017 have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715). For the years ended September 30, 2018 and 2017, $4 million and $2 million were reclassified out of SG&A and into Other income (expense), respectively.

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(1)	Total debt excludes unamortized discount on convertible notes of $34 million , unamortized issuance costs of $12 million , and original issuance discount of an insignificant amount .

(2)	Includes the 6.25 percent senior notes, which contain a call feature that allows for early redemption

(3)	Includes the 3.25 Percent Convertible Notes and 7.875 Percent Convertible Notes, which contain a put and call feature that allows for earlier redemption beginning in 2025 and 2020, respectively (refer to Note 18 of the Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data ).

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(1)	The availability under the revolving credit facility is subject to a collateral test and a priority debt-to-EBITDA ratio covenant. The facility will expire in November 2023 if the outstanding amount of the 6.25 percent notes due 2024 is greater than $75 million at that time.

(4)	There is no explicit facility size under the factoring agreement, but the counterparty approves the purchase of receivable tranches at its discretion.

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(1)	The assumed return on plan assets for fiscal year 2020 is 7.75 percent for the U.S. plan and 5.75 percent for the U.K. plan.

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•	Past claims experience;

•	Sales history;

•	Product manufacturing and industry developments; and

•	Recoveries from third parties, where applicable.

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•	Pending and future claims were estimated for a 41-year period ending in fiscal year 2059;

•	The litigation environment remains consistent throughout the forecast horizon;

•	On a per claim basis, defense and indemnity costs for pending and future claims will be at the level consistent with our recent experience;

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•	An assessment as to whether an adverse event or circumstance has triggered the need for an impairment review;

•	Undiscounted future cash flows generated by the asset; and

•	Probability and estimated future cash flows associated with alternative courses of action that are being considered to recover the carrying amount of a long-lived asset.

•	Historical operating results;

•	Expectations of future earnings;

•	Tax planning strategies; and

•	The extended period of time over which retirement medical and pension liabilities will be paid.

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(1)	Includes only the risk related to the derivative instruments and does not include the risk related to the underlying exposure. The analysis assumes overall derivative instruments and debt levels remain unchanged for each hypothetical scenario.

(2)	At September 30, 2019 , the fair value of outstanding foreign currency denominated debt was $4.9 million . A 10% decrease in quoted currency exchange rates would result in a decrease of $0.5 million in foreign currency denominated debt. At September 30, 2019 , a 10% increase in quoted currency exchange rates would result in an increase of $0.5 million in foreign currency denominated debt.

(3)	At September 30, 2019 , the fair value of outstanding debt was $1,013 million . A 50 basis points decrease in quoted interest rates would result in an increase of $31.3 million in the fair value of fixed rate debt. A 50 basis points increase in quoted interest rates would result in a decrease of $31.7 million in the fair value of fixed rate debt.

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•	We tested the effectiveness of controls related to asbestos-related reserves, including management’s controls over estimating projected indemnity and defense costs of pending and future asbestos-related claims.

•	We assessed the qualifications, experience, and objectivity of management’s third-party advisor.

•	We tested the underlying data that served as the basis for the actuarial analysis, including historical claims, to test the inputs to the actuarial estimate for completeness and accuracy.

•	We compared management’s prior-year projected indemnity and defense costs of pending and future asbestos-related claims to actuals incurred during the current year to identify potential bias in the determination of the reserve, as well as to assess management’s ability to estimate the reserve.

•	With the assistance of our actuarial specialists that have experience in the area of asbestos-related reserves, we assessed the reasonableness of the valuation methodology, significant assumptions, and the range of probable outcomes estimated by management.

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Meritor, Inc. (the "company" or "Meritor"), headquartered in Troy, Michigan, is a premier global supplier of a broad range of integrated systems, modules and components to original equipment manufacturers ("OEMs") and the aftermarket for the commercial vehicle, transportation and industrial sectors. The company serves commercial truck, trailer, military, bus and coach, construction and other industrial OEMs and certain aftermarkets. The Consolidated Financial Statements are those of the company and its consolidated subsidiaries.

The company’s fiscal year ends on the Sunday nearest September 30. The 2019 , 2018 and 2017 fiscal years ended on September 29, 2019 , September 30, 2018 and October 1, 2017 , respectively. All year and quarter references relate to the company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, September 30 is used consistently throughout this report to represent the fiscal year end.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses and related disclosures. Actual results could differ from these estimates. Significant estimates and assumptions were used to review goodwill and other long-lived assets for impairment (see Notes 7 and 13), environmental liabilities (see Notes 16 and 17), product warranty liabilities (see Note 16), long-term incentive compensation plan obligations (see Note 21), retiree medical and pension obligations (see Notes 22 and 23), income taxes (see Note 24), and contingencies including asbestos (see Note 25).

Concentration of Credit Risk

In the normal course of business, the company provides credit to customers. The company limits its credit risk by performing ongoing credit evaluations of its customers and maintaining reserves for potential credit losses and through accounts receivable factoring programs. The company’s accounts receivables are generally due from medium- and heavy-duty truck OEMs, specialty vehicle manufacturers, aftermarket customers, and trailer producers. The company’s ten largest customers accounted for 77 percent , 75 percent and 74 percent of sales in fiscal years 2019 , 2018 and 2017 , respectively. Sales to the company's top three customers were 54 percent , 52 percent and 49 percent of total sales in fiscal years 2019 , 2018 and 2017 , respectively. At September 30, 2019 and 2018 , 26 percent and 23 percent of the company's trade accounts receivable were from the company's three largest customers.

Consolidation and Joint Ventures

The Consolidated Financial Statements include the accounts of the company and those subsidiaries in which the company has control. All intercompany balances and transactions are eliminated in consolidation. The results of operations of controlled subsidiaries are included in the Consolidated Financial Statements and are offset by a related noncontrolling interest recorded for the noncontrolling partners’ ownership. Investments in affiliates that are not controlled are reported using the equity method of accounting (see Note 15).

Foreign Currency

Local currencies are generally considered the functional currencies for operations outside the U.S. For operations reporting in local currencies, assets and liabilities are translated at year-end exchange rates with cumulative currency translation adjustments included as a component of Accumulated Other Comprehensive Loss in the Consolidated Balance Sheet. Income and expense items are translated at average rates of exchange during the year.

Impairment of Long-Lived Assets

Long-lived assets, excluding goodwill, to be held and used are reviewed for impairment whenever adverse events or changes in circumstances indicate a possible impairment. An impairment loss is recognized when a long-lived asset group is not recoverable,

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based on undiscounted cash flows over the remaining useful life of the primary asset of the group, and the long lived asset goup's carrying value exceeds the fair value.

Long-lived assets held for sale are recorded at the lower of their carrying amount or estimated fair value less cost to sell.

Allowance for Doubtful Accounts

An allowance for uncollectible trade receivables is recorded when accounts are deemed uncollectible based on consideration of write-off history, aging analysis, and any specific, known troubled accounts.

Earnings per Share

Basic earnings (loss) per share is calculated using the weighted average number of shares outstanding during each period. The diluted earnings (loss) per share calculation includes the impact of restricted shares, restricted share units, performance share units, and convertible securities, if applicable.

A reconciliation of basic average common shares outstanding to diluted average common shares outstanding is as follows (in millions):

	Year Ended September 30,
	2019			2018			2017
Basic average common shares outstanding	83.2			87.5			88.0
Impact of restricted shares, restricted share units and performance share units	2.2			2.8			1.7
Impact of convertible notes	0.9			0.9			0.5
Diluted average common shares outstanding	86.3			91.2			90.2

In November 2018, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the company's long-term incentive plan. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $ 16.50 , which was the company’s share price on the grant date of December 1, 2018. The Board of Directors also approved a grant of 0.4 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $ 16.50 , which was the company's share price on the grant date of December 1, 2018.

The actual number of performance share units that will vest depends upon the company’s performance relative to the established performance metrics for the three -year performance period of October 1, 2018 to September 30, 2021, measured at the end of the performance period. The number of performance share units that vest will depend on adjusted EBITDA margin and adjusted diluted earnings per share from continuing operations at the following weights: 50 % associated with achieving an adjusted EBITDA margin target and 50 % associated with achieving an adjusted diluted earnings per share from continuing operations target. The number of performance share units that vest will be between 0 % and 200 % of the grant date amount of 0.5 million performance share units.

In November 2017, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the long-term incentive plan. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $ 24.79 , which was the company’s share price on the grant date of December 1, 2017. The Board of Directors also approved a grant of 0.3 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $ 24.79 , which was the company's share price on the grant date of December 1, 2017.

The actual number of performance share units that will vest depends upon the company’s performance relative to the established performance metrics for the three -year performance period of October 1, 2017 to September 30, 2020, measured at the end of the performance period. The number of performance share units that vest will depend on adjusted EBITDA margin and adjusted diluted

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earnings per share from continuing operations at the following weights: 50 % associated with achieving an adjusted EBITDA margin target and 50 % associated with achieving an adjusted diluted earnings per share from continuing operations target. The number of performance share units that vest will be between 0 % and 200 % of the grant date amount of 0.3 million performance share units.

In November 2016, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the long-term incentive plan. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $ 12.77 , which was the company’s share price on the grant date of December 1, 2016. The Board of Directors also approved a grant of 0.5 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $ 12.77 , which was the company's share price on the grant date of December 1, 2016.

The actual number of performance share units that vested depended upon the company’s performance relative to the established M2019 goals for the three -year performance period of October 1, 2016 to September 30, 2019, which was measured at the end of the performance period.

For the years ended September 30, 2019 , 2018 and 2017 , the dilutive impact of previously issued restricted shares, restricted share units, and performance share units was 2.2 million , 2.8 million and 1.7 million , respectively. For the years ended September 30, 2019 , 2018 and 2017 , compensation cost related to restricted shares, restricted share units, performance share units and stock options was $ 18 million , $ 20 million and $ 19 million , respectively.

For the fiscal years ended 2019, 2018 and 2017, 0.9 million , 0.9 million and 0.5 million shares, respectively, were included in the computation of diluted earnings per share because the average stock price exceeded the conversion price for the 7.875 percent convertible notes due 2026.

Other

Other significant accounting policies are included in the related notes, specifically, goodwill (Note 7), inventories (Note 11), property and depreciation (Note 13), capitalized software (Note 14), product warranties (Note 16), financial instruments (Note 19), equity based compensation (Note 21), retirement medical plans (Note 22), retirement pension plans (Note 23), income taxes (Note 24) and environmental and asbestos-related liabilities (Note 25).

Accounting standards implemented during fiscal year 2019

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, followed by various related amendments (ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-05, ASU 2017-06, ASU 2017-13, and ASU 2017-14) collectively referred to as "Topic 606", which requires companies to recognize revenue when a customer obtains control rather than when companies have transferred substantially all risks and rewards of a good or service and requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The company adopted Topic 606 in the first quarter of the fiscal year beginning October 1, 2018. As a result, the company has changed its accounting policy for revenue recognition as detailed below.

The company applied Topic 606 using the modified retrospective approach (i.e., by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity at October 1, 2018). Therefore, the comparative information for periods prior to our adoption date has not been adjusted and continues to be reported under Topic 605. There was no adjustment to the opening balance of equity at October 1, 2018 as there was no significant impact to previously recorded revenue or expense. The guidance has been applied to all existing contracts at the date of initial application. The adoption of Topic 606 had an immaterial impact on our Consolidated Balance Sheet, Consolidated Statement of Operations, and Consolidated Statement of Cash Flows but did require enhanced disclosures to meet the new disclosure requirements; those enhanced disclosures are included in Note 6.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The guidance requires entities to only include the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together

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with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, are to be included in a separate line item(s) outside of any sub-total of operating income. ASU 2017-07 also provides guidance that only the service cost component of net benefit cost is eligible for capitalization. The revisions in this amendment are to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The company adopted this standard in the first quarter of fiscal year 2019. Amounts previously reflected in Operating Income were reclassified to Other income (expense) in accordance with the provisions of ASU 2017-07. For fiscal years 2018 and 2017, the non-service cost components of the net periodic pension and OPEB income were $ 25 million of income and $ 11 million of expense respectively, and are presented in other income. We used the practical expedient for retrospective presentation of the fiscal years 2018 and 2017 other expense components in this disclosure.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in this ASU result from the FASB’s standing project to address suggestions on the Accounting Standards Codification ("ASC") and to make other incremental improvements to GAAP. The amendments include changes to clarify the ASC or correct unintended application of guidance that is not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.

Some of the amendments in this ASU were effective upon issuance. Others have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities, or are conforming amendments that have been made to recently issued guidance that is not yet effective that may require application of the transition and effective date guidance in the original ASU.

The company adopted certain amendments in this ASU in the first quarter of fiscal year 2019. Those certain amendments had effective dates for annual periods beginning after December 15, 2017, for public business entities. The amendments that were adopted in the first quarter of fiscal year 2019 did not have a material impact on the company's Consolidated Financial Statements. The company plans to implement the remaining amendments beginning October 1, 2019 and is currently evaluating the potential impact on its Consolidated Financial Statements.

The company also adopted the following ASUs during fiscal year 2019, none of which had a material impact on the Consolidated Financial Statements or financial statement disclosures:

ASU		Effective Date
2016-01	Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	October 1, 2018
2016-15	Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)	October 1, 2018
2016-16	Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory	October 1, 2018
2016-18	Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)	October 1, 2018
2017-01	Business Combinations (Topic 805): Clarifying the Definition of a Business	October 1, 2018
2017-09	Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting	October 1, 2018
2018-03	Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	October 1, 2018
2018-04	Investments—Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273 (SEC Update)	October 1, 2018

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Accounting standards to be implemented

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update will require lessees to recognize a right-of-use asset and lease liability for substantially all leases. The standard is required to be adopted by public business entities in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The company plans to implement this standard in the first quarter of the fiscal year beginning October 1, 2019, and is currently assessing the potential impact of this guidance on its accounting policies and its Consolidated Financial Statements. The company plans to implement this standard using the additional and optional transition method as provided by ASU 2018-11. Please see discussion of ASU 2018-11 below.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including accounts receivable. The ASU also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The amendments in this update are required to be adopted by public business entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The company is currently evaluating the potential impact of this guidance on its accounting policies and its Consolidated Financial Statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The guidance in ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 ("U.S. tax reform") from accumulated other comprehensive income into retained earnings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The company is currently evaluating the potential impact of this new guidance on its Consolidated Financial Statements.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842. The amendments in this ASU affect narrow aspects of the guidance issued in ASU 2016-02, Leases (Topic 842), which is not yet effective. The effective date and transition requirements for this ASU are the same as those for ASU 2016-02 as described above. Therefore, the company plans to implement this standard in the first quarter of the fiscal year beginning October 1, 2019 in connection with its planned implementation of ASU 2016-02 and is currently assessing the potential impact of this new guidance on its accounting policies and its Consolidated Financial Statements.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The amendments in this ASU affect the guidance issued in ASU 2016-02, Leases (Topic 842), which is not yet effective. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments also provide lessors with a practical expedient to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component in certain circumstances. The effective date for this ASU are the same as those for ASU 2016-02 as described above. Therefore, the company plans to implement this standard in the first quarter of the fiscal year beginning October 1, 2019 in connection with its planned implementation of ASU 2016-02 and is currently assessing the potential impact of this new guidance on its accounting policies and its Consolidated Financial Statements. Based on the company's lease portfolio, the company currently anticipates recognizing a lease liability and related right-of-use asset on its balance sheet between $ 75 million and $ 95 million , with an immaterial impact on it's income statement compared to the current lease accounting model. Additionally, the company is implementing an enterprise-wide lease management system to assist in the accounting and evaluating additional changes to it's processes and internal controls to ensure the company meets the standard’s reporting and disclosure requirements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU add, modify, and eliminate certain disclosure requirements on fair value measurements in Topic 820. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Certain amendments should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. Others should be applied retrospectively. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The company is currently evaluating the potential impact of this new guidance on its Consolidated Financial Statements.

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In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments in this ASU affect a variety of Topics in the Codification (ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities; ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; and ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities).

For the amendments in this ASU that are applicable to ASU 2016-01, which the company has adopted and did not have a material impact on the Consolidated Financial Statements, the effective date is the first quarter of fiscal year 2021 with early adoption permitted. For the amendments in this ASU that are applicable to ASU 2016-13, which the company has not yet adopted, the effective date is the first quarter of fiscal year 2021. For the amendments in this ASU that are applicable to ASU 2017-12, which the company has adopted, the effective date is the first quarter of fiscal year 2020 with early adoption permitted. The company has not yet adopted any of these amendments and is currently evaluating the potential impact of this new guidance on its Consolidated Financial Statements.

Results of the discontinued operations are summarized as follows (in millions):

	Year Ended September 30,
	2019				2018				2017
Sales	$	—			$	—			$	—
Litigation settlement	—				( 2		)		—
Other, net	1				( 2		)		( 1		)
Income (loss) before income taxes	1				( 4		)		( 1		)
Benefit from income taxes	—				1				—
Income (loss) from discontinued operations attributable to Meritor, Inc.	$	1			$	( 3	)		$	( 1	)

Loss from discontinued operations attributable to the company for the twelve months ended September 30, 2018 was primarily related to changes in estimates related to legal costs incurred in connection with a previously divested business.

Acquisition of AxleTech Business

On July 26, 2019, the company acquired 100 percent of the voting equity interest of the AxleTech group companies for approximately $ 179 million in cash, subject to certain purchase price adjustments. The company funded the acquisition with the term loan under the revolving credit agreement (see Note 18). The AxleTech acquisition was accounted for as a business combination.

The addition of AxleTech enhances Meritor’s growth platform with the addition of a complementary product portfolio that includes a full line of independent suspensions, axles, braking solutions and drivetrain components across the off-highway, defense, specialty and aftermarket markets. AxleTech operates within Meritor’s Aftermarket, Industrial and Trailer segment.

Pro forma financial information of the company is presented in the following table for the years ended September 30, 2019 and 2018 as if the AxleTech acquisition had occurred on October 1, 2017. The pro forma financial information is unaudited and is provided for informational purposes only and does not purport to be indicative of the results which would have actually been attained had the acquisition occurred on October 1, 2017 (in millions).

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	Pro Forma Combined
	Year Ended September 30,
	2019				2018
	(Unaudited)
Sales	$	4,590			$	4,413
Net income attributable to Meritor, Inc. (1)	$	360			$	121

(1) Fiscal year 2019 includes the sale of EV Systems

Actual amounts of revenue and earnings included in the consolidated financial statements for the year ended September 30, 2019 were not material.

The purchase price was allocated on a provisional basis as of July 26, 2019. Assets acquired and liabilities assumed were recorded at estimated fair values based on management's estimates, available information, and reasonable and supportable assumptions. Additionally, the Company is utilizing a third-party to assist with certain estimates of fair values. The provisional purchase price allocation, which is subject to change and may be subsequently adjusted to reflect final valuation results and other adjustments, is shown below (in millions).

	July 26, 2019
Purchase price	$	179
Assets acquired and liabilities assumed
Cash	11
Receivables	37
Inventories	70
Identifiable intangible assets	46
Other assets	9
PP&E	26
Accounts payable	( 33		)
Other liabilities	( 48		)
Identifiable net assets acquired	118
Goodwill resulting from the acquisition of AxleTech	61
	$	179

The company recorded provisional goodwill in the amount of $ 61 million for the excess of consideration paid over the fair value of the individual assets acquired and liabilities assumed. This recorded goodwill consists largely of the synergies and economies of scale expected from combining the operations of the company and AxleTech. All of the goodwill was provisionally assigned to the Aftermarket, Industrial and Trailer reportable segment. The assignment of goodwill to reporting units is not complete. The company incurred acquisition related costs of $ 6 million as of September 30, 2019, which were recorded as incurred and have been classified as selling, general, and administrative expenses in the Consolidated Statement of Operations for the year ended September 30, 2019.

Acquisition of AAG Business

On April 30, 2018, the company acquired substantially all of the assets of AA Gear & Manufacturing, Inc. ("AAG") for a cash purchase price of approximately $ 35 million and the assumption of certain liabilities. AAG provides low-to-medium volume batch manufacturing for complex gear and shaft applications, as well as quick-turnaround prototyping solutions and emergency plant support. The AAG acquisition was accounted for as a business combination. Of the $ 35 million , $ 11 million was recorded in

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various tangible assets acquired and liabilities assumed, and $ 12 million related to amortizable intangibles and $ 12 million of goodwill were recorded.

Acquisition of Fabco Business

On August 31, 2017, the company acquired certain assets of Fabco Holdings, Inc. ("FABCO"), including the product portfolio and related technologies, for a cash purchase price of $ 34 million and the assumption of certain liabilities. The Fabco acquisition was accounted for as a business combination.

As of September, 30, 2018, the company finalized all measurement period adjustments related to the Fabco acquisition. Since completion of initial estimates in the fourth quarter of fiscal year 2017, the company recorded a net $ 1 million measurement period adjustment to decrease the fair value of identifiable net assets acquired in the Fabco transaction, resulting in a corresponding $ 1 million increase to goodwill. These adjustment were made to reflect additional available information and updated valuation results, which included valuation of trademarks, technology and customer relationships. All goodwill resulting from the Fabco acquisition was assigned to the Aftermarket, Industrial and Trailer reportable segment (see Note 7).

		Estimated Fair Value
		As of September 30, 2017				Measurement Period Adjustments				As of September 30, 2018
Purchase price		$	34			$	—			$	34
Assets acquired and liabilities assumed
	Receivables	5				—				5
	Inventories	13				( 1		)		12
	Property, plant and equipment	9				( 2		)		7
	Intangible assets	—				3				3
	Accounts payable	( 6		)		—				( 6		)
	Other current liabilities	( 6		)		( 1		)		( 7		)
Total identifiable net assets acquired		15				( 1		)		14
Goodwill resulting from the acquisition of Fabco		19				1				20
		$	34			$	—			$	34

Sale of Ownership Interest in Meritor WABCO JV

In the fourth quarter of fiscal year 2017, Meritor, Inc. closed on the sale of its interest in Meritor WABCO Vehicle Control Systems ("Meritor WABCO") to a subsidiary of its joint venture partner, WABCO Holdings Inc. The total purchase price for the sale was $ 250 million . The Company also received a final partnership distribution of $ 8 million in the fourth quarter of fiscal year 2017, immediately prior to closing.

As of September 30, 2019, there were $ 1 million of assets held for sale, all within the Aftermarket, Industrial and Trailer reporting segment. The company expects to sell the assets within one year. In fiscal year 2018, management approved plans to sell $ 2 million of property in various locations, of which $ 1 million was within the Aftermarket, Industrial and Trailer reporting

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segment and $ 1 million was within corporate locations. The assets met the criteria for presentation as held for sale as of September 30, 2019 and 2018.

Meritor Huayang Vehicle Braking Company Ltd.

During the first quarter of fiscal year 2017, management approved a plan to sell Meritor Huayang Vehicle Braking Company Ltd. within the Commercial Truck reporting segment. The company expected to sell the business within one year from management's approval of the plan. The business and its associated assets and liabilities met the criteria for presentation as held for sale as of September 30, 2017.

Assets and liabilities held for sale are measured at the lower of the carrying value or fair value less costs to sell. Upon meeting the held for sale criteria, the company determined the carrying value of the business exceeded the fair value less costs to sell. As a result, an impairment charge of $ 3 million was recorded within other operating expense, net in the company’s Consolidated Statement of Operations during fiscal year 2017.

On February 7, 2018, Meritor completed the sale of its equity interest in Meritor Huayang Vehicle Braking Company Ltd. All assets and liabilities of the business were transferred at closing.

Revenue is measured based on the consideration to which the company expects to be entitled, and is presented net of any estimates of customer sales allowances, incentives, rebates, and returns. The company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost, as opposed to a distinct performance obligation, and are included in cost of sales.

Nature of goods and services

The following is a description of principal activities - separated by reportable segments - from which the company generates its revenue.

The Commercial Truck segment supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, primarily for medium- and heavy-duty trucks and other applications in North America, South America, Europe and Asia Pacific. This segment also includes the company's aftermarket businesses in Asia Pacific and South America.

The Aftermarket, Industrial and Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement parts to commercial vehicle and industrial aftermarket customers, primarily in North America and Europe. In addition, this segment supplies drivetrain systems and certain components, including axles, drivelines, brakes and suspension systems for military, construction, bus and coach, fire and emergency and other applications in North America and Europe. It also supplies a variety of undercarriage products and systems for trailer applications in North America.

Although the company may enter into long-term supply arrangements with its major customers, the prices and volumes are not fixed over the term of the arrangements and a contract does not exist under the scope of Topic 606 until prices and volumes are known. As such, individual customer releases or purchase orders represent the contract with the customer.

The company accounts for individual products and services separately if they are distinct (i.e., if a product or service is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The company has identified certain performance obligations related to brake pad fitting and axle dressing where it is acting as an agent and, therefore, recognizes revenue on a net basis for satisfaction of those performance obligations.

The company recognizes revenue for the sale of goods at the point in time when the customer takes control of the goods. As such, revenue is recognized upon shipment of product and transfer of ownership to the customer. The amount of revenue recognized is based on the purchase order price and adjusted for variable consideration (i.e., customer sales allowances, incentives, rebates,

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and returns). Provisions for customer sales allowances, incentives, rebates, and returns are recorded as a reduction of sales at the time of revenue recognition based primarily on historical experience. The company’s payment terms with customers are customary and vary by customer and geography but typically range from 30 to 90 days.

The company provides warranties on some of its products. The company records estimated product warranty costs at the time of shipment of products to customers (see Notes 16 and Note 17).

Disaggregation of revenue

In the following tables, revenue is disaggregated for each of our reportable segments by primary geographical market for the year ended September 30, 2019.

		Twelve Months Ended September 30, 2019
Primary Geographical Market		Commercial Truck				Aftermarket, Industrial and Trailer				Total
U.S.		$	1,569			$	1,053			$	2,622
Canada		—				69				69
Mexico		200				49				249
Total North America		1,769				1,171				2,940
Sweden		276				—				276
Italy		218				16				234
United Kingdom		155				10				165
Other Europe		10				81				91
Total Europe		659				107				766
Brazil		248				—				248
China		153				—				153
India		197				—				197
Other Asia-Pacific		84				—				84
Total sales		$	3,110			$	1,278			$	4,388

Contract balances

As of September 30, 2019 and September 30, 2018 , Trade receivables, net, which are included in Receivables, trade and other, net, on the Consolidated Balance Sheet, were $ 517 million and $ 566 million , respectively.

For the year ended September 30, 2019 , the company had no material bad-debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheet as of September 30, 2019 .

Contract costs

The company applies the practical expedient provided in Topic 606 and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the company otherwise would have recognized is one year or less. The costs which are not capitalized are included in cost of sales.

In accordance with ASC Topic 350-20, "Intangibles – Goodwill and Other", goodwill is reviewed for impairment annually during the fourth quarter of the fiscal year or more frequently if certain indicators arise. If business conditions or other factors cause the operating results and cash flows of a reporting unit to decline, the company may be required to record impairment charges

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for goodwill at that time. The company tests goodwill for impairment at a level of reporting referred to as a reporting unit, which is an operating segment or one level below an operating segment (referred to as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. When two or more components of an operating segment have similar economic characteristics, the components are aggregated and deemed a single reporting unit. An operating segment is deemed to be a reporting unit if all of its components are similar, if none of its components are a reporting unit, or if the segment comprises only a single component.

Annual Impairment Analysis

ASC Topic 350 allows entities to perform an initial qualitative evaluation to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of this qualitative assessment determine whether it is necessary to perform the quantitative impairment test. As allowed by the revised guidance, the company has elected to bypass the qualitative assessment for fiscal year 2019 and proceed directly to the quantitative impairment test.

Excluding the qualitative evaluation discussed above, the quantitative goodwill impairment review is a comparison of the fair value of a reporting unit with its carrying amount. Estimates of fair value are primarily determined by using discounted cash flows and market multiples on earnings. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge based on that difference will be recorded. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.

The impairment review is highly judgmental and involves the use of significant estimates and assumptions. These estimates and assumptions have a significant impact on the amount of any impairment charge recorded. Discounted cash flow methods are dependent upon assumptions of future sales trends, market conditions and cash flows of each reporting unit over several years. Actual cash flows in the future may differ significantly from those previously forecasted.

For fiscal year 2019, the fair value of all of the company’s reporting units exceeded their carrying values.

Realignment of Reporting Units

As discussed in Note 26, the company realigned its operations in the second quarter of fiscal year 2019, resulting in a change to its reportable segments. The company's reporting units did not change as a result of the change in reportable segments. The Commercial Truck segment contains one reporting unit. The Aftermarket, Industrial and Trailer segment contains five reporting units.

Acquisition of AxleTech Business

On July 26, 2019, the company acquired 100 percent of the voting equity interest of the AxleTech group companies for approximately $ 179 million in cash, subject to certain purchase price adjustments. The AxleTech acquisition was accounted for as a business combination. The company recorded a provisional amount of goodwill of $ 61 million for the excess of consideration paid over the fair value of the individual assets acquired and liabilities assumed, excluding identifiable intangible assets. This recorded goodwill consists largely of the synergies and economies of scale from combining the operations of the company and AxleTech. All of the goodwill was assigned to the Aftermarket, Industrial and Trailer reportable segment.

Acquisition of AA Gear & Manufacturing, Inc. Business

On April 30, 2018, the company acquired substantially all of the assets of AAG for a cash purchase price of approximately $ 35 million and the assumption of certain liabilities. The AAG acquisition was accounted for as a business combination. The company recorded goodwill in the amount of $ 12 million for the excess of consideration paid over the fair value of the individual assets acquired and liabilities assumed. This recorded goodwill consists largely of the synergies and economies of scale expected from combining the operations of the company and AAG. All of the goodwill was assigned to the Aftermarket, Industrial and Trailer reportable segment. All goodwill recognized is expected to be deductible for income tax purposes over the next 15 years .

Acquisition of Fabco Holdings, Inc. Business

On August 31, 2017, the company acquired certain assets of Fabco, including its product portfolio and related technologies, for a cash purchase price of $ 34 million and the assumption of certain liabilities. The Fabco acquisition was accounted for as a business combination. As a result, we recorded goodwill in the amount of $ 20 million for the excess of consideration paid over the fair value of the individual assets acquired and liabilities assumed. This recorded goodwill consists largely of the synergies

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and economies of scale expected from combining the operations of the company and Fabco. All of the goodwill was assigned to the Aftermarket, Industrial and Trailer reportable segment.

A summary of the changes in the carrying value of goodwill is presented below (in millions):

	Commercial Truck				Aftermarket, Industrial and Trailer				Total
Goodwill (1)	$	269			$	160			$	429
Accumulated impairment losses (1)	—				( 15		)		( 15		)
Balance at September 30, 2017 (1)	269				145				414
Adjustment due to sale of a business (1)	( 1		)		—				( 1		)
Fabco measurement period adjustment (1)	—				1				1
Goodwill acquired from acquisition (1)	—				9				9
Foreign currency translation (1)	( 2		)		—				( 2		)
Balance at September 30, 2018 (1)	266				155				421
AAG measurement period adjustment (see Note 4)	—				3				3
Goodwill acquired from acquisition (see Note 4)	—				61				61
Foreign currency translation	( 5		)		( 2		)		( 7		)
Balance at September 30, 2019	$	261			$	217			$	478

⁽¹⁾ Amounts have been recast to reflect reportable segment changes (see Note 26).

At September 30, 2019 and 2018 , $ 8 million and $ 4 million , respectively, of restructuring reserves primarily related to unpaid employee termination benefits remained in the Consolidated Balance Sheet.

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The following table summarizes changes in restructuring reserves (in millions):

	Employee Termination Benefits				Plant Shutdown & Other				Total
Balance at September 30, 2016	$	15			$	1			$	16
Activity during the period:
Charges to continuing operations	5				1				6
Cash payments – continuing operations	( 14		)		( 1		)		( 15		)
Other	( 1		)		—				( 1		)
Balance at September 30, 2017	5				1				6
Activity during the period:
Charges to continuing operations	6				—				6
Cash payments – continuing operations	( 7		)		( 1		)		( 8		)
Balance at September 30, 2018	4				—				4
Activity during the period:
Charges to continuing operations	8				—				8
Cash payments – continuing operations	( 5		)		—				( 5		)
Other	1				—				1
Total restructuring reserves, end of year	8				—				8
Less: non-current restructuring reserves	—				—				—
Restructuring reserves – current, at September 30, 2019	$	8			$	—			$	8

Restructuring costs attributable to the company’s business segments during fiscal years 2019 , 2018 and 2017 are as follows (in millions):

	Commercial Truck				Aftermarket, Industrial and Trailer				Corporate				Total
Fiscal year 2019:
Global Restructuring Program	$	4			$	3			$	—			$	7
AxleTech	—				3				—				3
Other	( 1		)		( 1		)		—				( 2		)
Total restructuring costs	$	3			$	5			$	—			$	8
Fiscal year 2018 (1) :
Segment Realignment Program	—				3				—				3
Other	1				1				1				3
Total restructuring costs	$	1			$	4			$	1			$	6
Fiscal year 2017 (1) :
Aftermarket actions	—				4				—				4
Other	2				—				—				2
Total restructuring costs	$	2			$	4			$	—			$	6

(1)	Fiscal years 2018 and 2017 have been recast to reflect reportable segment changes.

Global Restructuring Programs: On September 27, 2019, the company approved and began executing a restructuring plan to reduce salaried and hourly headcount globally. This restructuring plan is intended to reduce labor costs in response to an anticipated decline in most global truck and trailer market volumes. With this restructuring plan, the company expects to incur

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approximately $ 20 million in employee severance costs in the aggregate across both of its reportable segments. During the fourth quarter of fiscal year 2019, the company incurred $ 4 million in restructuring costs in the Commercial Truck segment and $ 3 million in the Aftermarket, Industrial and Trailer segment. Restructuring actions associated with this plan are expected to be substantially complete by the end of the first quarter of fiscal year 2020.

AxleTech: On July 29, 2019, shortly after acquiring AxleTech, the company approved a restructuring plan related to the integration of the business. This restructuring plan is intended to realize certain targeted synergies, primarily from the elimination of cost overlap. With this restructuring plan, the company expects to incur $ 11 million of total costs in the Aftermarket, Industrial and Trailer segment with approximately $ 7 million related to employee severance charges and approximately $ 4 million related to asset impairment. During the fourth quarter of fiscal year 2019, the company recorded $ 3 million of severance related restructuring costs in the Aftermarket, Industrial and Trailer segment. Restructuring associated with severance actions is expected to be substantially completed during fiscal year 2020.

Segment Realignment Program: On March 12, 2018, the company announced a realignment of operations to further drive long-term strategic objectives while also assigning new responsibilities as part of its commitment to leadership development. As a part of this program, the company approved various labor restructuring actions in the Aftermarket, Industrial and Trailer segment. The company recorded $ 3 million of restructuring costs during fiscal year 2018, in connection with this program. These actions were substantially complete as of fiscal year 2018.

Other Restructuring Actions: During fiscal year 2018, the company recorded restructuring costs of $ 3 million primarily associated with labor reduction programs in the Commercial Truck segment and Aftermarket, Industrial and Trailer segment.

The company has a U.S. accounts receivable securitization facility with PNC Bank and participates in various accounts receivable factoring programs, primarily with Nordea Bank for trade receivables from AB Volvo as follows (in millions):

		Current Expiration		Total Facility Size as of 9/30/19								Utilized as of 9/30/19								Utilized as of 9/30/18
				EUR				USD				EUR				USD				EUR				USD
On-balance sheet arrangement:
Committed U.S. accounts receivable securitization (1)		December 2022		N/A				$	115			N/A				$	13			N/A				$	57
Total on-balance sheet arrangement: (1)				N/A				$	115			N/A				$	13			N/A				$	57
Off-balance sheet arrangements:
Committed Swedish factoring facility (2)(3)		March 2020		€	155			$	169			€	109			$	119			€	136			$	158
Committed U.S. factoring facility (2)		February 2023		N/A				75				N/A				58				45				53
Uncommitted U.K. factoring facility		February 2022		25				27				6				6				8				9
Uncommitted Italy factoring facility		June 2022		30				33				21				23				24				28
Other uncommitted factoring facilities (4)		None		N/A				N/A				18				20				11				12
Total off-balance sheet arrangements				€	210			€	304			€	154			$	226			€	224			$	260

⁽¹⁾ Availability subject to adequate eligible accounts receivable available for sale. The utilized amount includes $ 4 million and $ 11 million of letters of credit as of September 30, 2019 and September 30, 2018, respectively.

⁽²⁾ Actual amounts may exceed the bank's commitment at the bank's discretion.

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⁽³⁾ The facility is backed by a 364 -day liquidity commitment from Nordea Bank which extends through January 10, 2020.

⁽⁴⁾ There is no explicit facility size under the factoring agreement, but the counterparty approves the purchase of receivable tranches at its discretion.

On-balance sheet arrangement

U.S. Securitization Facility: As of September 30, 2018, the U.S. accounts receivables securitization facility with PNC bank had a facility size of $ 100 million . On September 16, 2019, the company entered into an amendment that increased the size of the facility to $ 115 million and extended its expiration date to December 2022. The maximum permitted priority debt-to-EBITDA ratio as of the last day of each fiscal quarter under the facility is 2.25 to 1.00 . This program is provided by PNC Bank, National Association, as Administrator and Purchaser, and the other Purchasers and Purchaser Agents party to the agreement from time to time (participating lenders). Under this program, the company has the ability to sell an undivided percentage ownership interest in substantially all of its trade receivables (excluding the receivables due from AB Volvo and subsidiaries eligible for sale under the U.S. accounts receivable factoring facility) of certain U.S. subsidiaries to ArvinMeritor Receivables Corporation ("ARC"), a wholly-owned, special purpose subsidiary. ARC funds these purchases with borrowings from participating lenders under a loan agreement. This program also includes a letter of credit facility pursuant to which ARC may request the issuance of letters of credit issued for the company’s U.S. subsidiaries (originators) or their designees, which when issued will constitute a utilization of the facility for the amount of letters of credit issued. Amounts outstanding under this agreement are collateralized by eligible receivables purchased by ARC and are reported as short-term debt in the Consolidated Balance Sheet. As of September 30, 2019 , $ 9 million was outstanding under this program, and $ 4 million was outstanding under related letters of credit. As of September 30, 2018 , $ 46 million was outstanding under this program, and $ 11 million was outstanding under related letters of credit. This securitization program contains a cross-default to the revolving credit facility. At certain times during any given month, the company may sell eligible accounts receivable under this program to fund intra-month working capital needs. In such months, the company would then typically utilize the cash received from customers throughout the month to repay the borrowings under the program. Accordingly, during any given month, the company may borrow under this program in amounts exceeding the amounts shown as outstanding at fiscal year ends.

Off-balance sheet arrangements

Total costs associated with all of the off-balance sheet arrangements described above were $ 6 million in fiscal year 2019 and $ 5 million in both fiscal years 2018 and 2017 , and are included in selling, general and administrative expenses in the Consolidated Statement of Operations.

Other operating expense, net for fiscal year 2019 primarily relates to asset impairment. In fiscal years 2018 and 2017, this primarily relates to environmental remediation costs incurred by the company (see Note 25).

Inventories are stated at the lower of cost (using FIFO or average methods) or market (determined on the basis of estimated realizable values) and are summarized as follows (in millions):

	September 30,
	2019				2018
Finished goods	$	153			$	170
Work in process	39				41
Raw materials, parts and supplies	334				266
Total	$	526			$	477

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Other current assets are summarized as follows (in millions):

	September 30,
	2019				2018
Asbestos-related recoveries (see Note 25)	$	6			$	16
Prepaid and other	25				30
Other current assets	$	31			$	46

Property is stated at cost. Depreciation of property is based on estimated useful lives, generally using the straight-line method. Estimated useful lives for buildings and improvements range from 10 to 50 years and estimated useful lives for machinery and equipment range from 3 to 20 years. Significant improvements are capitalized, and disposed or replaced property is written off. Maintenance and repairs are charged to expense in the period they are incurred. Company-owned tooling is classified as property and depreciated over the shorter of its expected life or the life of the production contract, generally not to exceed three years .

In accordance with the FASB guidance on property, plant and equipment, the company reviews the carrying value of long-lived assets, excluding goodwill, to be held and used, for impairment whenever events or changes in circumstances indicate a possible impairment. An impairment loss is recognized when a long-lived asset’s carrying value is not recoverable and exceeds estimated fair value.

Net property is summarized as follows (in millions):

	September 30,
	2019				2018
Property at cost:
Land and land improvements	$	31			$	29
Buildings	224				228
Machinery and equipment	935				914
Company-owned tooling	136				130
Construction in progress	74				81
Total	1,400				1,382
Less: accumulated depreciation	( 885		)		( 899		)
Net property	$	515			$	483

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Other assets are summarized as follows (in millions):

	September 30,
	2019				2018
Investments in non-consolidated joint ventures (see Note 15)	$	110			$	102
Asbestos-related recoveries (see Note 25)	55				76
Unamortized revolver debt issuance costs	7				7
Capitalized software costs, net (1)	20				26
Deferred income tax assets (see Note 24)	122				140
Assets for uncertain tax positions (see Note 24)	55				53
Prepaid pension costs (see Note 23)	149				152
Intangible assets (2)	50				18
Other	38				22
Other assets	$	606			$	596

(1)	In accordance with FASB ASC Topic 350-40, costs relating to internally developed or purchased software in the preliminary project stage and the post-implementation stage are expensed as incurred. Costs in the application development stage that meet the criteria for capitalization are capitalized and amortized using the straight-line basis over the estimated economic useful life of the software.

(2)	Primarily relates to customer relationships. As of September 30, 2019, the gross carrying value was $ 56 million and the accumulated amortization was $ 6 million . As of September 30, 2018, the gross carrying value was $ 22 million and the accumulated amortization was $ 4 million . The weighted average amortization periods for customer relationships is approximately 15 years.

The company holds a variable interest in a joint venture that is a variable interest entity ("VIE") accounted for under the equity method of accounting. The joint venture manufactures components for commercial vehicle applications primarily on behalf of the company. The variable interest relates to a supply arrangement between the company and the joint venture whereby the company supplies certain components to the joint venture on a cost-plus basis. The company is not the primary beneficiary of the joint venture, as the joint venture partner has shared or absolute control over key manufacturing operations, labor relationships, financing activities and certain other functions of the joint venture. Therefore, the company does not consolidate the joint venture. At September 30, 2019 and September 30, 2018, the company’s investment in the joint venture was $ 69 million and $ 63 million , respectively.

AAG Business

During fiscal year 2019, the company determined it had an impairment trigger related to its AAG business, and by performing the recoverability test, the company concluded that the undiscounted future cash flows could not recover the net assets of the business. The company then determined that the carrying value of the business exceeded its fair value. As a result, an impairment charge of $ 9 million was recorded within Other operating expense, net in the Aftermarket, Industrial and Trailer reportable segment. Earlier in fiscal year 2019, an unrelated $ 1 million of other long-lived asset impairment charges were recorded.

TransPower

Meritor completed $ 3 million strategic investments in Transportation Power, Inc. ("TransPower") in each of the first and third quarters of fiscal year 2019. Investments of $ 3 million in TransPower were also made in each of the first and third quarters of fiscal year 2018. The company holds a variable interest in TransPower, a VIE. TransPower develops electrical drive solutions and supplies integrated drive systems, full electric truck solutions and energy-storage subsystems to major manufacturers of trucks, school buses, refuse vehicles and terminal tractors. The company is not the primary beneficiary of TransPower, as other owners have control over the significant activities of TransPower, including the development of intellectual property and manufacturing.

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Therefore, the company does not consolidate TransPower. At September 30, 2019 and 2018, the company’s investment in TransPower was $ 12 million and $ 6 million , respectively, representing the company’s maximum exposure to loss.

The company’s non-consolidated joint ventures and related direct ownership interest are as follows:

	September 30,
	2019			2018			2017
Master Sistemas Automotivos Ltda. (Commercial Truck)	49	%		49	%		49	%
Sistemas Automotrices de Mexico S.A. de C.V. (Commercial Truck)	50	%		50	%		50	%
Ege Fren Sanayii ve Ticaret A.S. (Commercial Truck)	49	%		49	%		49	%
Automotive Axles Limited (Commercial Truck)	36	%		36	%		36	%

The company’s investments in non-consolidated joint ventures are as follows (in millions):

	September 30,
	2019				2018 (1)
Commercial Truck	$	110			$	102
Aftermarket, Industrial and Trailer	—				—
Total investments in non-consolidated joint ventures	$	110			$	102

⁽¹⁾ Amounts for the year ended September 30, 2018 have been recast to reflect reportable segment changes.

The company’s equity in earnings of non-consolidated joint ventures is as follows (in millions):

	Year Ended September 30,
	2019				2018 (1)
Commercial Truck	$	31			$	27
Aftermarket, Industrial and Trailer	—				—
Total equity in earnings of affiliates	$	31			$	27

⁽¹⁾ Amounts for the year ended September 30, 2018 have been recast to reflect reportable segment changes.

The summarized financial information presented below represents the combined accounts of the company’s non-consolidated joint ventures related to its continuing operations (in millions):

	September 30,
	2019				2018
Current assets	$	427			$	390
Non-current assets	211				163
Total assets	$	638			$	553
Current liabilities	$	305			$	282
Non-current liabilities	109				66
Total liabilities	$	414			$	348

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	Year Ended September 30,
	2019				2018				2017
Sales	$	1,231			$	1,101			$	1,156
Gross profit	147				154				200
Net income	63				59				101

Dividends received from the company’s non-consolidated joint ventures were $ 23 million in fiscal year 2019 , $ 17 million in fiscal year 2018 and $ 44 million in fiscal year 2017 . Dividends from Meritor WABCO were $ 36 million in fiscal year 2017, which includes a $ 8 million final partnership distribution received immediately prior to closing of the sale transaction on October 1, 2017.

The company had sales to its non-consolidated joint ventures of approximately $ 9 million , $ 7 million and $ 2 million in fiscal years 2019 , 2018 and 2017 , respectively. These sales exclude sales of $ 193 million , $ 196 million and $ 138 million in fiscal years 2019 , 2018 and 2017 , respectively, to a joint venture in the company’s Commercial Truck segment, which are eliminated as the company purchases these components back after value add provided by the joint venture. The company had purchases from its non-consolidated joint ventures of approximately $ 940 million , $ 843 million and $ 787 million in fiscal years 2019 , 2018 and 2017 , respectively. Additionally, the company leases space and provides certain administrative and technical services to various non-consolidated joint ventures. The company collected $ 12 million , $ 11 million and $ 6 million for such leases and services during fiscal years 2019 , 2018 and 2017 , respectively.

Amounts due from the company’s non-consolidated joint ventures were $ 34 million and $ 43 million at September 30, 2019 and 2018 , respectively, and are included in Receivables, trade and other, net in the Consolidated Balance Sheet. Amounts due to the company’s non-consolidated joint ventures were $ 80 million and $ 110 million at September 30, 2019 and 2018 , respectively, and are included in Accounts payable in the Consolidated Balance Sheet.

The fair value of the company’s investment in its Automotive Axles Limited joint venture was approximately $ 75 million and $ 91 million at September 30, 2019 and 2018 , respectively, based on quoted market prices as this joint venture is listed and publicly traded on the Bombay Stock Exchange in India.

Other current liabilities are summarized as follows (in millions):

	September 30,
	2019				2018
Compensation and benefits	$	125			$	122
Income taxes	24				27
Taxes other than income taxes	14				25
Accrued interest	11				11
Product warranties	18				19
Environmental reserves (see Note 25)	3				8
Restructuring (see Note 8)	8				3
Asbestos-related liabilities (see Note 25)	9				18
Indemnity obligations (see Note 25)	1				1
Other	72				56
Other current liabilities	$	285			$	290

The company records estimated product warranty costs at the time of shipment of products to customers. Warranty reserves are primarily based on factors that include past claims experience, sales history, product manufacturing and engineering changes

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and industry developments. Liabilities for product recall campaigns are recorded at the time the company’s obligation is probable and can be reasonably estimated. Policy repair actions to maintain customer relationships are recorded as other liabilities at the time an obligation is probable and can be reasonably estimated. Product warranties, including recall campaigns, not expected to be paid within one year are recorded as a non-current liability.

A summary of the changes in product warranties is as follows (in millions):

	September 30,
	2019				2018				2017
Total product warranties – beginning of year	$	54			$	45			$	44
Accruals for product warranties	23				22				14
Payments	( 20		)		( 16		)		( 17		)
Change in estimates and other	( 7		)		3				4
Total product warranties – end of year	50				54				45
Less: non-current product warranties (see Note 17)	( 32		)		( 35		)		( 27		)
Product warranties – current	$	18			$	19			$	18

Other liabilities are summarized as follows (in millions):

	September 30,
	2019				2018
Asbestos-related liabilities (see Note 25)	$	82			$	193
Restructuring (see Note 8)	—				1
Deferred income tax liabilities (see Note 24)	15				16
Liabilities for uncertain tax positions (see Note 24)	46				48
Product warranties (see Note 16)	32				35
Environmental (see Note 25)	12				9
Indemnity obligations (see Note 25)	7				9
Other	32				21
Other liabilities	$	226			$	332

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Long-Term Debt, net of discounts where applicable, is summarized as follows (in millions):

	September 30,
	2019				2018
3.25 percent convertible notes due 2037 (1)(3)	$	319			$	318
4.0 percent convertible notes due 2027 (1)(4)	—				24
7.875 percent convertible notes due 2026 (1)(5)	23				22
Term loan	175				—
6.25 percent notes due 2024 (2)(6)	444				444
Capital lease obligation	7				7
Borrowings and securitization	9				46
Unamortized discount on convertible notes (7)	( 34		)		( 37		)
Subtotal	943				824
Less: current maturities	( 41		)		( 94		)
Long-term debt	$	902			$	730

⁽¹⁾ The 3.25 percent, 4.0 percent and 7.875 percent convertible notes contain a put and call feature, which allows for earlier redemption beginning in 2025, 2019 and 2020, respectively.

⁽²⁾ The 6.25 percent notes contain a call option, which allows for early redemption by Meritor.

⁽³⁾ The 3.25 percent convertible notes due 2037 are presented net of $ 6 million and $ 7 million unamortized issuance costs as of September 30, 2019 and September 30, 2018 , respectively.

⁽⁴⁾ The 4.0 percent convertible notes due 2027 are presented net of unamortized issuance costs of an insignificant amount as of September 30, 2018 .

⁽⁵⁾ The 7.875 percent convertible notes due 2026 are presented net of unamortized issuance costs of an insignificant amount as of September 30, 2019 and September 30, 2018 , an d an insignificant amount and $ 1 million original issuance discount as of September 30, 2019 and September 30, 2018 , respectively.

⁽⁶⁾ The 6.25 percent notes due 2024 are presented net of $ 6 million unamortized issuance costs as of September 30, 2019 and September 30, 2018 .

⁽⁷⁾ The carrying amount of the equity component related to convertible debt.

Repurchase of Debt Securities

On February 15, 2019, the company redeemed $ 19 million aggregate principal amount outstanding of the company's 4.0 percent convertible notes due 2027 (the " 4.0 Percent Convertible Notes") at a price of 100 percent of the accreted principal amount, plus accrued and unpaid interest. On June 7, 2019, the company redeemed the remaining $ 5 million aggregate principal amount outstanding of the 4.0 Percent Convertible Notes at a price equal to 100 percent of the accreted principal amount, plus accrued and unpaid interest.

On September 28, 2017, the company redeemed $ 100 million of the $ 275 million aggregate principal amount outstanding of the company's 6.75 percent notes due 2021 (the " 6.75 Percent Notes") at a price of $ 1,033.75 per $1,000 of principal amount, plus accrued and unpaid interest. As a result, a loss on debt extinguishment of $ 5 million was recorded in the Consolidated Statement of Operations within Interest expense, net. The redemption was made under the company's July 2016 debt repurchase authorization (see Note 20). On November 2, 2017, the company redeemed the remaining $ 175 million aggregate principal amount outstanding of the company's 6.75 Percent Notes at a price of $ 1,033.75 per $ 1,000 of principal amount, plus accrued and unpaid interest. The redemption resulted in a loss on debt extinguishment of approximately $ 8 million . The loss on debt extinguishment is included in Interest expense, net in the Consolidated Statement of Operations. The redemption was made pursuant to a special authorization from the Board of Directors in connection with the sale of the company's interest in Meritor WABCO in the fourth quarter of fiscal year 2017.

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The company used the net proceeds, after issuance costs and discounts, of approximately $ 317 million from the offering of the 3.25 percent convertible notes due 2037 (the " 3.25 Percent Convertible Notes") to acquire portions of its outstanding 7.875 percent convertible notes due 2026 (the " 7.875 Percent Convertible Notes") and its 4.0 Percent Convertible Notes in transactions that settled concurrently with the closing of the 3.25 Percent Convertible Note offering on September 22, 2017. In total, the company repurchased $ 117 million of the $ 140 million principal amount of its 7.875 Percent Convertible Notes and $ 119 million of the $ 143 million principal amount of its 4.0 Percent Convertible Notes. The 7.875 Percent Convertible Notes and 4.0 Percent Convertible Notes were repurchased at premiums equal to 130 percent and 16 percent , respectively, above their principal amount. These repurchases were accounted for as extinguishments of debt, and accordingly the company recognized a loss on debt extinguishment of $ 31 million in the aggregate ( $ 23 million with respect to the 7.875 Percent Convertible Notes and $ 8 million with respect to the 4.0 Percent Convertible Notes). The loss on extinguishment was recorded in the Consolidated Statement of Operations within Interest expense, net during fiscal year 2017.

Current Classification of 7.875 Percent Convertible Notes

The 7.875 Percent Convertible Notes were classified as current as of September 30, 2019 as the holders are entitled to convert all or a portion of their 7.875 Percent Convertible Notes at any time beginning October 1, 2019 and prior to the close of business on December 31, 2019 at a rate of 83.3333 shares of common stock per $ 1,000 principal amount at maturity of the 7.875 Percent Convertible Notes (representing a conversion price of approximately $ 12.00 per share). The 7.875 Percent Convertible Notes are convertible as the closing price of shares of the company's common stock for at least 20 trading days during the 30 consecutive trading-day period ending on September 30, 2019 was greater than 120 percent of the $ 12.00 conversion price associated with the 7.875 Percent Convertible Notes.

The 7.875 Percent Convertible Notes were classified as current as of September 30, 2018 as the holders were entitled to convert all or a portion of their 7.875 Percent Convertible Notes at any time beginning October 1, 2018 and prior to the close of business on December 31, 2018 at a rate of 83.3333 shares of common stock per $ 1,000 principal amount at maturity of the 7.875 Percent Convertible Notes (representing a conversion price of approximately $ 12.00 per share). The 7.875 Percent Convertible Notes are convertible as the closing price of shares of the company's common stock for at least 20 trading days during the 30 consecutive trading-day period ending on September 28, 2018 was greater than 120 percent of the $ 12.00 conversion price associated with the 7.875 Percent Convertible Notes.

The 7.875 Percent Convertible Notes surrendered for conversion, if any, would be settled in cash up to the principal amount at maturity of the 7.875 Percent Convertible Notes and cash, stock or a combination of cash and stock, at the company’s election, for the remainder of the conversion value of the 7.875 Percent Convertible Notes in excess of the principal amount at maturity and cash in lieu of any fractional shares, subject to and in accordance with the provisions of the indenture that governs the 7.875 Percent Convertible Notes.

As a result of the 7.875 Percent Convertible Notes becoming currently convertible for cash up to the principal amount of $ 23 million at the holder's option, $ 1 million of permanent equity was reclassified as mezzanine equity as of September 30, 2018.

Revolving Credit Facility

On June 7, 2019, the company amended and restated its revolving credit facility. Pursuant to the revolving credit agreement, as amended, the company has a $ 625 million revolving credit facility and a $ 175 million term loan facility, which was utilized for the company's acquisition of AxleTech, that mature in June 2024 (with a springing maturity in November 2023 if the outstanding amount of the 6.25 percent notes due 2024 is greater than $ 75 million at that time). The availability under this facility is dependent upon various factors, including performance against certain financial covenants as highlighted below.

The availability under the revolving credit facility is subject to a financial covenant based on the ratio of the company’s priority debt (consisting principally of amounts outstanding under the revolving credit facility, the U.S. accounts receivable securitization and factoring programs, and third-party non-working capital foreign debt) to EBITDA. The company is required to maintain a total priority-debt-to-EBITDA ratio, as defined in the agreement, of 2.25 to 1.00 or less as of the last day of each fiscal quarter throughout the term of the agreement.

Borrowings under the revolving credit facility are subject to interest based on quoted LIBOR rates plus a margin and a commitment fee on undrawn amounts, both of which are based upon the company's current corporate credit rating. At September 30, 2019 , the margin over LIBOR rate was 200 basis points , and the commitment fee was 30 basis points . Overnight revolving credit loans are at the prime rate plus a margin of 100 basis points .

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Certain of the company's subsidiaries, as defined in the revolving credit agreement, irrevocably and unconditionally guarantee amounts outstanding under the revolving credit facility. Similar subsidiary guarantees are provided for the benefit of the holders of the publicly held notes outstanding under the company's indentures (see Note 29).

No borrowings were outstanding under the revolving credit facility at September 30, 2019 and September 30, 2018 . The amended and extended revolving credit facility includes $ 100 million of availability for the issuance of letters of credit. At September 30, 2019 and September 30, 2018, there were no letters of credit outstanding under the revolving credit facility.

Debt Securities

In December 2017, the company filed a shelf registration statement with the SEC, registering an indeterminate amount of debt and/or equity securities that the company may offer in one or more offerings on terms to be determined at the time of sale. The December 2017 shelf registration statement superseded and replaced the shelf registration statement filed in December 2014, as amended.

3.25 Percent Convertible Notes

On September 22, 2017, the company issued $ 325 million principal amount of the 3.25 Percent Convertible Notes. The 3.25 Percent Convertible Notes were sold in an underwritten offering to qualified institutional buyers in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The 3.25 Percent Convertible Notes were issued in minimum denominations of $ 1,000 principal amount per note and multiples of $ 1,000 in excess thereof. Net proceeds received by the company, after issuance costs and discounts, were approximately $ 317 million .

The company pays 3.25 percent cash interest per year on the principal amount of the 3.25 Percent Convertible Notes, payable semi-annually in arrears on April 15 and October 15 of each year, beginning April 15, 2018, to holders of record at the close of business on the preceding April 1 or October 1, respectively. Interest accrues on the principal amount of the 3.25 Percent Convertible Notes from and including the date the 3.25 Percent Convertible Notes were issued or from and including the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date.

The 3.25 Percent Convertible Notes are fully and unconditionally guaranteed on a senior unsecured basis by the company’s wholly-owned subsidiaries that guarantee the company’s amended and restated revolving credit facility. The 3.25 Percent Convertible Notes are the company’s senior unsecured obligations and rank equally in right of payment with all of the company’s existing and future senior unsecured indebtedness and effectively junior to any of the company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness. The guarantee by each subsidiary guarantor will rank equally with existing and future senior unsecured indebtedness of such subsidiary and effectively junior to all of the existing and future secured indebtedness of such subsidiary, to the extent of the value of the assets securing such indebtedness.

The 3.25 Percent Convertible Notes will be convertible into cash up to the principal amount of the 3.25 Percent Convertible Notes surrendered for conversion and the company will pay or deliver, as the case may be, cash, shares of the company’s common stock or a combination of cash and shares of the company’s common stock, at the company’s election, in respect of the remainder, if any, of the company’s conversion obligation in excess of the principal amount of the notes being converted. The initial conversion rate, subject to adjustment, is 25.0474 shares of common stock per $ 1,000 principal amount of the 3.25 Percent Convertible Notes (which represents an initial conversion price of $ 39.92 per share). Holders may convert their notes, at their option, only under the following circumstances prior to the close of business on the business day immediately preceding July 15, 2037, other than during the period from and including July 15, 2025 to the close of business on the business day immediately preceding October 15, 2025:

• during any calendar quarter after the calendar quarter ending on December 31, 2017, if the closing sale price of the company’s common stock for 20 or more trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding calendar quarter equals or exceeds 130 percent of the applicable conversion price on each applicable trading day;

• during the five business day period after any five consecutive trading day period in which the trading price per $ 1,000 principal amount of the 3.25 Percent Convertible Notes for each trading day during such five consecutive trading day period was less than 98 percent of the product of the closing price of the company’s common stock and the conversion rate on each such trading day;

• if the company calls any of the 3.25 Percent Convertible Notes for redemption, at any time from the delivery of the redemption notice through the close of business on the scheduled trading day immediately preceding the redemption date; or

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• upon the occurrence of specified corporate transactions.

During the period from and including July 15, 2025 to the close of business on the business day immediately preceding October 15, 2025, and on or after July 15, 2037 until the close of business on the business day immediately preceding the maturity date, holders may convert 3.25 Percent Convertible Notes at any time, regardless of the foregoing circumstances.

On or after October 15, 2025, but prior to July 15, 2037, the company may redeem the 3.25 Percent Convertible Notes at the company’s option, in whole or in part, at a redemption price in cash equal to 100 percent of the principal amount of the 3.25 Percent Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Further, holders may require the company to purchase all or a portion of their 3.25 Percent Convertible Notes at a purchase price in cash equal to 100 percent of the principal amount of the 3.25 Percent Convertible Notes to be purchased, plus accrued and unpaid interest to, but excluding, the repurchase date, on October 15, 2025 or upon certain fundamental changes. The maximum number of shares of common stock into which the 3.25 Percent Convertible Notes are convertible is approximately 8 million shares.

Accounting guidance requires that cash-settled convertible debt, such as the 3.25 Percent Convertible Notes, be separated into debt and equity components at issuance and a value be assigned to each. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar bond without the conversion feature. The difference between the bond cash proceeds and this estimated fair value, representing the value assigned to the equity component, is recorded as a debt discount. The company measures the debt component at fair value by utilizing a discounted cash flow model. This model utilizes observable inputs such as contractual repayment terms, benchmark forward yield curves, yield curves and quoted market prices of its own nonconvertible debt. The yield curves are acquired from an independent source that is widely used in the financial industry and reviewed internally by personnel with appropriate expertise in valuation methodologies.

6.25 Percent Notes

On February 13, 2014, the company completed a public offering of debt securities consisting of the issuance of $ 225 million principal amount of 10 -year, 6.25 percent notes due 2024 (the "Initial 6.25 Percent Notes"). The offering and sale were made pursuant to the company's February 2012 shelf registration statement. The Initial 6.25 Percent Notes were issued under the company's indenture dated as of April 1, 1998, as supplemented. The Initial 6.25 Percent Notes were issued at 100 percent of their principal amount. The proceeds from the sale of the Initial 6.25 Percent Notes were $ 225 million and, together with cash on hand, were primarily used to repurchase $ 250 million principal amount of the company’s previously outstanding 10.625 percent notes due 2018.

On June 11, 2015, the company completed a public offering of an additional $ 225 million aggregate principal amount of 6.25 percent notes due 2024 (the "Additional 6.25 Percent Notes") in an underwritten public offering pursuant to the company's December 2014 shelf registration statement. The proceeds from the sale of the Additional 6.25 Percent Notes were used to replenish available cash used to pay $ 179 million , including premium and fees, to repurchase $ 110 million principal amount at maturity of the company's 7.875 Percent Convertible Notes. The company used the remaining net proceeds to purchase an annuity to satisfy its obligations under the Canadian and German pension plans for its employees and for general corporate purposes. The Additional 6.25 Percent Notes constitute a further issuance of, and are fungible with, the $ 225 million aggregate principal amount of Initial 6.25 Percent Notes that the company issued on February 13, 2014 and form a single series with the Initial 6.25 Percent Notes (collectively, the " 6.25 Percent Notes"). The Additional 6.25 Percent Notes have terms identical to the Initial 6.25 Percent Notes, other than issue date and offering price, and have the same CUSIP number as the Initial 6.25 Percent Notes. Upon completion of the offering, the aggregate principal amount of outstanding 6.25 Percent Notes was $ 450 million .

The 6.25 Percent Notes bear interest at a fixed rate of 6.25 percent per annum. The company pays interest on the 6.25 Percent Notes semi-annually in arrears on February 15 and August 15 of each year. The 6.25 Percent Notes constitute senior unsecured obligations of the company and rank equally in right of payment with existing and future senior unsecured indebtedness and effectively junior to existing and future secured indebtedness. The 6.25 Percent Notes are guaranteed on a senior unsecured basis by each of the company's subsidiaries from time to time guaranteeing its senior secured credit facility. The guarantees rank equally with existing and future senior unsecured indebtedness of the guarantors and will be effectively subordinated to all of the existing and future secured indebtedness of the guarantors, to the extent of the value of the assets securing such indebtedness.

Prior to February 15, 2019, the company could redeem, at its option, from time to time, the 6.25 Percent Notes, in whole or in part, at a redemption price equal to 100 percent of the principal amount of the 6.25 Percent Notes to be redeemed, plus an applicable make-whole premium (as defined in the indenture under which the 6.25 Percent Notes were issued) and any accrued and unpaid interest. On or after February 15, 2019, the company may redeem, at its option, from time to time, the 6.25 Percent Notes, in whole or in part, at the redemption prices (expressed as percentages of the principal amount of the 6.25 Percent Notes

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to be redeemed) set forth below, plus accrued and unpaid interest, if any, if redeemed during the 12-month period beginning on February 15 of the years indicated below:

Year		Redemption Price
2019		103.125 %
2020		102.083 %
2021		101.042 %
2022 and thereafter		100.000 %

If a Change of Control (as defined in the indenture under which the 6.25 Percent Notes were issued) occurs, unless the company has exercised its right to redeem the 6.25 Percent Notes, each holder of 6.25 Percent Notes may require the company to repurchase some or all of such holder's 6.25 Percent Notes at a purchase price equal to 101 percent of the principal amount of the 6.25 Percent Notes to be repurchased, plus accrued and unpaid interest, if any.

6.75 Percent Notes

On May 31, 2013, the company completed an offering of debt securities consisting of the issuance of $ 275 million principal amount of the 6.75 Percent Notes. The offering and sale were made pursuant to the company's February 2012 shelf registration statement. The 6.75 Percent Notes were issued under the company's indenture dated as of April 1, 1998, as supplemented. The 6.75 Percent Notes were issued at 100 percent of their principal amount. The proceeds from the sale of the 6.75 Percent Notes were $ 275 million and were primarily used to complete a cash tender offer for $ 167 million of the 8.125 percent notes due 2015.

The 6.75 Percent Notes bore interest at a fixed rate of 6.75 percent per annum. The company paid interest on the 6.75 Percent Notes semi-annually in arrears on June 15 and December 15 of each year. The 6.75 Percent Notes constituted senior unsecured obligations of the company and ranked equally in right of payment with existing and future senior unsecured indebtedness and effectively junior to existing and future secured indebtedness to the extent of the security therefor. The 6.75 Percent Notes were guaranteed on a senior unsecured basis by each of the company's subsidiaries from time to time guaranteeing its senior secured credit facility. The guarantees ranked equally with existing and future senior unsecured indebtedness of the guarantors and were effectively subordinated to all of the existing and future secured indebtedness of the guarantors, to the extent of the value of the assets securing such indebtedness.

Prior to June 15, 2016, the company could redeem, at its option, from time to time, the 6.75 Percent Notes, in whole or in part, at a redemption price equal to 100 percent of the principal amount of the 6.75 Percent Notes to be redeemed plus an applicable make-whole premium (as defined in the indenture under which the 6.75 Percent Notes were issued) and any accrued and unpaid interest. On or after June 15, 2016, the company could redeem, at its option, from time to time, the 6.75 Percent Notes, in whole or in part, at the redemption prices (expressed as percentages of the principal amount of the 6.75 Percent Notes to be redeemed) set forth below, plus accrued and unpaid interest, if any, had they been redeemed during the 12-month period beginning on June 15 of the years indicated below:

Year		Redemption Price
2016		105.063 %
2017		103.375 %
2018		101.688 %
2019 and thereafter		100.000 %

Prior to June 15, 2016, the company could also redeem, at its option, from time to time, up to 35 percent of the aggregate principal amount of the 6.75 Percent Notes with the net cash proceeds of one or more public sales of the company's common stock at a redemption price equal to 106.75 percent of the principal amount, plus accrued and unpaid interest, if any, so long as at least 65 percent of the aggregate principal amount of 6.75 Percent Notes originally issued remained outstanding after each such redemption and notice of any such redemption was mailed within 90 days after any such sale of common stock.

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If a Change of Control (as defined in the indenture under which the 6.75 Percent Notes were issued) occurred, unless the company had exercised its right to redeem the 6.75 Percent Notes, each holder of 6.75 Percent Notes could have required the company to repurchase some or all of such holder's 6.75 Percent Notes at a purchase price equal to 101 percent of the principal amount of the 6.75 Percent Notes to be repurchased, plus accrued and unpaid interest, if any.

As of September 30, 2018, the 6.75 Percent Notes were fully redeemed. As of September 30, 2017, $ 173 million principal amount of the 6.75 Percent Notes remained outstanding.

7.875 Percent Convertible Notes

In December 2012, the company issued $ 250 million principal amount of 7.875 Percent Convertible Notes. The 7.875 Percent Convertible Notes were sold by the company to qualified institutional buyers in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The 7.875 Percent Convertible Notes have an initial principal amount of $ 900 per note and will accrete to $ 1,000 per note on December 1, 2020 at an effective interest rate of 10.9 percent . Net proceeds received by the company, after issuance costs and discounts, were approximately $ 220 million .

The company pays 7.875 percent cash interest on the principal amount of the 7.875 Percent Convertible Notes semi-annually in arrears on June 1 and December 1 of each year to holders of record at the close of business on the preceding May 15 and November 15, respectively, and at maturity to the holders that present the 7.875 Percent Convertible Notes for payment. Interest accrues on the principal amount thereof from and including the date the 7.875 Percent Convertible Notes were issued or from and including the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date.

The 7.875 Percent Convertible Notes are fully and unconditionally guaranteed on a senior unsecured basis by certain of the company's subsidiaries. The 7.875 Percent Convertible Notes are senior unsecured obligations and rank equally in right of payment with all of the company's existing and future senior unsecured indebtedness and are junior to any of the company's existing and future secured indebtedness.

The 7.875 Percent Convertible Notes will be convertible into cash up to the principal amount at maturity of the 7.875 Percent Convertible Note surrendered for conversion and, if applicable, shares of the company's common stock (subject to a conversion share cap as described below), based on an initial conversion rate, subject to adjustment, equivalent to 83.3333 shares per $ 1,000 principal amount at maturity of 7.875 Percent Convertible Notes (which represents an initial conversion price of $ 12.00 per share), only under the following circumstances:

•

prior to June 1, 2025, during any calendar quarter after the calendar quarter ending December 31, 2012, if the closing sale price of the company's common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120 percent of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter;

•	prior to June 1, 2025, during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount at maturity of 7.875 Percent Convertible Notes was equal to or less than 97 percent of the conversion value of the 7.875 Percent Convertible Notes on each trading day during such five consecutive trading day period;

•	prior to June 1, 2025, if the company has called the 7.875 Percent Convertible Notes for redemption;

•	prior to June 1, 2025, upon the occurrence of specified corporate transactions; or

•	at any time on or after June 1, 2025.

On or after December 1, 2020, the company may redeem the 7.875 Percent Convertible Notes at its option, in whole or in part, at a redemption price in cash equal to 100 percent of the principal amount at maturity of the 7.875 Percent Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Further, holders may require the company to purchase all or a portion of their 7.875 Percent Convertible Notes at a purchase price in cash equal to 100 percent of the principal amount at maturity of the 7.875 Percent Convertible Notes to be purchased, plus accrued and unpaid interest, on December 1, 2020 or upon certain fundamental changes. The maximum number of shares of common stock into which the 7.875 Percent Convertible Notes are convertible is approximately 2 million shares.

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The company used the net proceeds of approximately $ 220 million from the offering of the 7.875 Percent Convertible Notes (after discounts and issuance costs) and additional cash to acquire a portion of its outstanding 4.625 Percent Convertible Notes in transactions that settled concurrently with the closing of the 7.875 Percent Convertible Note offering. Approximately $ 245 million of $ 300 million principal amount of the 4.625 Percent Convertible Notes were repurchased for an aggregate purchase price of approximately $ 236 million (including accrued interest).

Accounting guidance requires that cash-settled convertible debt, such as the 7.875 Percent Convertible Notes, be separated into debt and equity components at issuance and a value be assigned to each. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar bond without the conversion feature. The difference between the bond cash proceeds and this estimated fair value, representing the value assigned to the equity component, is recorded as a debt discount. The company measures the debt component at fair value by utilizing a discounted cash flow model. This model utilizes observable inputs such as contractual repayment terms, benchmark forward yield curves, yield curves and quoted market prices of its own nonconvertible debt. The yield curves are acquired from an independent source that is widely used in the financial industry and reviewed internally by personnel with appropriate expertise in valuation methodologies.

Approximately $ 23 million principal amount of the 7.875 Percent Convertible Notes remained outstanding as of September 30, 2019 and September 30, 2018 .

4.0 Percent Convertible Notes

In February 2007, the company issued $ 200 million principal amount of 4.0 Percent Convertible Notes. The 4.0 Percent Convertible Notes bore cash interest at a rate of 4.0 percent per annum from the date of issuance through February 15, 2019, payable semi-annually in arrears on February 15 and August 15 of each year. After February 15, 2019, the principal amount of the notes was subject to accretion at a rate that provided holders with an aggregate annual yield to maturity of 4.0 percent.

The 4.0 Percent Convertible Notes were convertible into shares of the company’s common stock at an initial conversion rate, subject to adjustment, equivalent to 37.4111 shares of common stock per $ 1,000 initial principal amount of notes, which represented an initial conversion price of approximately $ 26.73 per share. If converted, the accreted principal amount would be settled in cash and the remainder of the company’s conversion obligation, if any, in excess of such accreted principal amount would be settled in cash, shares of common stock, or a combination thereof, at the company’s election. Holders could convert their 4.0 Percent Convertible Notes at any time on or after February 15, 2025. The maximum number of shares of common stock into which the 4.0 Percent Convertible notes were convertible was approximately 1 million shares.

Prior to February 15, 2025, holders could convert their notes only under the following circumstances:

•	during any calendar quarter, if the closing sale price of the company’s common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeded 120 percent of the applicable conversion price;

•	during the five business day period after any five consecutive trading day period in which the average trading price per $1,000 initial principal amount of notes was equal to or less than 97 percent of the average conversion value of the notes during such five consecutive trading day period;

•	upon the occurrence of specified corporate transactions; or

•	if the notes were called by the company for redemption.

On or after February 15, 2019, the company could redeem the 4.0 Percent Convertible Notes, in whole or in part, for cash at a redemption price equal to 100 percent of the accreted principal amount, plus any accrued and unpaid interest. On each of February 15, 2019 and 2022, or upon certain fundamental changes, holders may require the company to purchase all or a portion of their 4.0 Percent Convertible Notes at a purchase price in cash equal to 100 percent of the accreted principal amount, plus any accrued and unpaid interest.

The 4.0 Percent Convertible Notes were fully and unconditionally guaranteed by certain subsidiaries of the company that currently guaranteed the company’s obligations under its senior secured credit facility and other publicly held notes (see Revolving Credit Facility above).

As of September 30, 2019, the 4.0 Percent Notes were fully redeemed. Approximately $ 24 million principal amount of the 4.0 Percent Convertible Notes remained outstanding as of September 30, 2018.

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Accounting guidance requires that cash-settled convertible debt, such as the 4.0 Percent Convertible Notes, be separated into debt and equity components at issuance and a value be assigned to each. The value assigned to the debt component is the estimated fair value, as of the issuance date, of a similar bond without the conversion feature. The difference between the bond cash proceeds and this estimated fair value, representing the value assigned to the equity component, is recorded as a debt discount. The company measures the debt component at fair value by utilizing a discounted cash flow model. This model utilizes observable inputs such as contractual repayment terms, benchmark forward yield curves, yield curves and quoted market prices of its own nonconvertible debt. The yield curves are acquired from an independent source that is widely used in the financial industry and reviewed internally by personnel with appropriate expertise in valuation methodologies.

The following table summarizes the principal amounts and related unamortized discount on all convertible notes (in millions):

	September 30, 2019				September 30, 2018
Principal amount of convertible notes	$	348			$	372
Unamortized discount on convertible notes and issuance costs	( 40		)		( 45		)
Net carrying value	$	308			$	327

The following table summarizes other information related to the convertible notes:

	Convertible Notes
			7.875%			3.25%
Total amortization period for debt discount (in years):			8			8
Remaining amortization period for debt discount (in years):			1			6
Effective interest rates on convertible notes:			10.9	%		5.6	%

The following table summarizes interest costs recognized on convertible notes (in millions):

	Year Ended September 30,
	2019				2018				2017
Contractual interest coupon	$	17			$	17			$	17
Amortization of debt discount	2				2				8
Repurchase of convertible notes	—				—				31
Total	$	19			$	19			$	56

Debt Maturities

As of September 30, 2019 , the company is contractually obligated to make payments as follows (in millions):

	Total				2020				2021				2022				2023				2024 (2)				Thereafter (3)
Total debt (1)	$	989			$	10			$	11			$	19			$	28			$	573			$	348

(1)	Total debt excludes unamortized discount on convertible notes of $ 34 million , unamortized issuance costs of $ 12 million , and original issuance discount of an insignificant amount .

(2)	Includes the 6.25 Percent Notes, which contains a call feature that allows for early redemption

(3)	Includes the 3.25 Percent Convertible Notes and 7.875 Percent Convertible Notes, which contain a put and call feature that allows for earlier redemption beginning in 2025 and 2020, respectively.

Capital Leases

The company had $ 7 million of outstanding capital lease arrangements as of September 30, 2019 and 2018.

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As of September 30, 2019, the future minimum lease payments for noncancelable capital leases with initial terms in excess of one year were as follows:

	Total				2020				2021				2022				2023				2024				Thereafter
Capital lease obligation	$	8			$	2			$	3			$	2			$	1			$	—			$	—
Less: amounts representing interest	( 1		)		( 1		)		—				—				—				—				—
Principal on capital lease	$	7			$	1			$	3			$	2			$	1			$	—			$	—

Letter of Credit Facilities

On February 21, 2014, the company entered into an arrangement to amend and restate the letter of credit facility with Citicorp USA, Inc., as administrative agent and issuing bank, and the other lenders party thereto. Under the terms of this amended credit agreement, which expired in March 2019, the company had the right to obtain the issuance, renewal, extension and increase of letters of credit up to an aggregate availability of $ 25 million . This facility contained covenants and events of default generally similar to those existing in the company’s public debt indentures. There were $ 1 million of letters of credit outstanding under this facility at September 30, 2018. On March 20, 2019, the company allowed this facility to expire. The letters of credit previously provided under this facility were replaced with letters of credit issued under the company's U.S. accounts receivables securitization facility with PNC Bank. The company had $ 12 million and $ 19 million of letters of credit outstanding through other letter of credit facilities as of September 30, 2019 and 2018, respectively.

Other

One of the company's consolidated joint ventures in China participates in a bills of exchange program to settle its obligations with its trade suppliers. These programs are common in China and generally require the participation of local banks. Under these programs, the company's joint venture issues notes payable through the participating banks to its trade suppliers. If the issued notes payable remain unpaid on their respective due dates, this could constitute an event of default under the company’s revolving credit facility if the unpaid amount exceeds $ 35 million per bank. As of September 30, 2019 and 2018, the company had $ 30 million and $ 22 million , respectively, outstanding under this program at more than one bank.

Operating Leases

The company has various operating leasing arrangements. Future minimum lease payments under these operating leases are $ 18 million in 2020 , $ 15 million in 2021 , $ 14 million in 2022 , $ 13 million in 2023 , $ 13 million in 2024 and $ 25 million thereafter.

The company’s financial instruments include cash and cash equivalents, short-term debt, long-term debt, and foreign exchange forward and options contracts. The company uses derivatives for hedging and non-trading purposes in order to manage its foreign exchange rate exposures.

Foreign Exchange Contracts

As a result of the company’s substantial international operations, it is exposed to foreign currency risks that arise from normal business operations, including in connection with transactions that are denominated in foreign currencies. In addition, the company translates sales and financial results denominated in foreign currencies into U.S. dollars for purposes of its Consolidated Financial Statements. As a result, appreciation of the U.S. dollar against these foreign currencies generally will have a negative impact on reported revenues and operating income, while depreciation of the U.S. dollar against these foreign currencies will generally have a positive effect on reported revenues and operating income.

The company has a foreign currency cash flow hedging program to reduce the company’s exposure to changes in exchange rates on foreign currency purchases and sales. The company uses foreign currency forward contracts to manage the company’s exposures arising from foreign currency exchange risk. Gains and losses on the underlying foreign currency exposures are partially offset with gains and losses on the foreign currency forward contracts. Under this foreign currency cash flow hedging program, the company has designated the foreign exchange contracts as cash flow hedges of underlying forecasted foreign currency purchases

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and sales. Changes in the fair value of these contracts are recorded in accumulated other comprehensive income (AOCI) in the Consolidated Balance Sheet and are recognized in operating income when the underlying forecasted transaction impacts earnings. The terms of these contracts generally require the company to place cash on deposit as collateral if the fair value of these contracts represents a liability for the company and exceeds the collateral threshold. The fair values of the foreign exchange derivative instruments and any related collateral cash deposits are presented on a net basis as the derivative contracts are subject to master netting arrangements.

At September 30, 2019 , 2018 and 2017 , the notional amount of the company's foreign exchange contracts outstanding under its foreign currency cash flow hedging program was $ 110 million , $ 154 million , and $ 126 million , respectively. The company classifies the cash flows associated with these contracts in cash flows from operating activities in the Consolidated Statement of Cash Flows. This is consistent with the classification of the cash flows associated with the underlying hedged item.

From time to time the company hedges against foreign currency exposure related to translations to U.S. dollars of financial results denominated in foreign currencies. Changes in fair value associated with these contracts are recorded in other income (expense), net, in the Consolidated Statement of Operations. The company also uses option contracts to mitigate foreign currency exposure on expected future foreign currency-denominated purchases. Changes in fair value associated with these contracts are recorded in cost of sales in the Consolidated Statement of Operations.

The following table summarizes the impact of the company’s derivatives instruments on comprehensive income for fiscal years ended September 30 (in millions):

	Location of Gain (Loss)		2019				2018				2017
Derivatives designated as hedging instruments:
Amount of gain (loss) recognized in AOCI	AOCI		$	19			$	3			$	( 1	)
Amount of gain (loss) reclassified from AOCI into income	Cost of Sales		4				( 1		)		1
Derivatives not designated as hedging instruments: Amount of gain (loss) recognized in income	Cost of Sales		—				( 2		)		1
Derivatives not designated as hedging instruments: Amount of gain (loss) recognized in income	Other Income (expense)		1				2				—

Fair Value

Fair values of financial instruments are summarized as follows (in millions):

	September 30, 2019								September 30, 2018
	Carrying Value				Fair Value				Carrying Value				Fair Value
Cash and cash equivalents	$	108			$	108			$	115			$	115
Short-term debt	41				60				94				116
Long-term debt	902				953				730				776
Foreign exchange forward contracts (other assets)	—				—				2				2
Cross-currency swap (others assets)	10				10				6				6
Cross-currency swaps (other liabilities)	5				5				—				—

Cash and cash equivalents — All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. The carrying value approximates fair value because of the short maturity of these instruments.

Short- and long-term debt — Fair values are based on transaction prices at public exchange for publicly traded debt. For debt instruments that are not publicly traded, fair values are based on interest rates that would be currently available to the company for issuance of similar types of debt instruments with similar terms and remaining maturities.

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Foreign exchange forward contracts — The company uses foreign exchange forward purchase and sale contracts with terms of 18 months or less to hedge its exposure to changes in foreign currency exchange rates. The fair value of foreign exchange forward contracts is based on a model which incorporates observable inputs including quoted spot rates, forward exchange rates and discounted future expected cash flows utilizing market interest rates with similar quality and maturity characteristics. For derivative instruments that are designated and qualify as cash flow hedges, changes in the fair value of the contracts are recorded in AOCI in the Consolidated Statement of Shareholders’ Equity and is recognized in operating income when the underlying forecasted transaction impacts earnings.

Foreign currency option contracts — The company uses option contracts to mitigate foreign exchange exposure on expected future Indian Rupee-denominated purchases. As of September 30, 2019 and September 30, 2018 , the notional amount of the company's Indian rupee foreign exchange contracts outstanding was $ 92 million and $ 180 million , respectively. The company did not elect hedge accounting for these derivatives. Changes in fair value associated with these contracts are recorded in cost of sales in the Consolidated Statement of Operations.

The company uses option contracts to mitigate foreign exchange exposure on expected future South Korean won-denominated purchases. As of September 30, 2019 and September 30, 2018 , the notional amount of the company’s South Korean won foreign exchange option contracts outstanding was $ 47 million and $ 41 million , respectively. The company did not elect hedge accounting for these derivatives. Changes in fair value associated with these contracts are recorded in cost of sales in the Consolidated Statement of Operations.

The company uses foreign currency option contracts to mitigate foreign currency exposure on expected future Brazilian real-denominated purchases. As of September 30, 2019 , there were no Brazilian real foreign exchange option contracts outstanding. As of September 30, 2018 , the notional amount of the company's Brazilian real foreign exchange option contracts outstanding was $ 16 million . The company did not elect hedge accounting for these derivatives. Changes in fair value associated with these contracts are recorded in cost of sales in the Consolidated Statement of Operations.

The company uses option contracts to mitigate the risk of volatility in the translation of euro earnings to U.S. dollars. As of September 30, 2019 , the the notional amount of the company's euro foreign exchange option contracts outstanding was $ 28 million . As of September 30, 2018 , there were no euro foreign exchange option contracts outstanding. These option contracts did not qualify for a hedge accounting election. Changes in fair value associated with these contracts are recorded in the Consolidated Statement of Operations in other income, net.

The fair value of foreign exchange option contracts is based on third-party proprietary models, which incorporate inputs at varying unobservable weights of quoted spot rates, market volatility, forward rates and time utilizing market instruments with similar quality and maturity characteristics.

Cross-currency swap contracts — The company uses cross-currency swap contracts to hedge a portion of its net investment in a foreign subsidiary against volatility in foreign exchange rates. These derivative instruments are designated and qualify as hedges of net investments in foreign operations using the spot method to assess effectiveness. Settlements and changes in fair values of the instruments are recognized in foreign currency translation adjustments, a component of other comprehensive income (loss) on the Consolidated Statement of Comprehensive Income (Loss), to offset the changes in the values of the net investments being hedged.

In the third quarter of fiscal year 2018, the company entered into multiple cross-currency swaps with a combined notional amount of $ 225 million , which mature in May 2021. As of September 30, 2018, the notional amount of the company's cross-currency swap contracts outstanding was $ 225 million . These swaps hedged a portion of the net investment in a certain European subsidiary against volatility in the euro/U.S. dollar foreign exchange rate.

In the third quarter of fiscal year 2019, the company unwound the cross-currency swaps and received proceeds of $ 19 million , $ 2 million of which related to net accrued interest receivable. The company also entered into new multiple cross-currency swaps with a combined notional amount of $ 225 million , with maturities in October 2022. As of September 30, 2019 , the notional amount of the company's cross-currency swap was $ 225 million . These swaps hedged a portion of the net investment in a certain European subsidiary against volatility in the euro/U.S. dollar foreign exchange rate.

The fair value of cross-currency swap contracts is based on a model which incorporates observable inputs, including quoted spot rates, forward exchange rates and discounted future expected cash flows, utilizing market interest rates with similar quality and maturity characteristics.

The following table reflects the offsetting of derivative assets and liabilities (in millions):

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	September 30, 2019									September 30, 2018
	Gross Amounts Recognized			Gross Amounts Offset			Net Amounts Reported			Gross Amounts Recognized			Gross Amounts Offset			Net Amounts Reported
Derivative Asset
Foreign exchange forward contract	—			—			—			2			—			2
Cross-currency swaps	10			—			10			6			—			6
Derivative Liabilities
Foreign exchange forward contract	—			—			—			—			—			—
Cross-currency swaps	5			—			5			—			—			—

Fair Value

The current FASB guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical instruments (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

•	Level 1 inputs use quoted prices in active markets for identical instruments.

•	Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar instruments in active markets and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

•	Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related instrument.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest priority level input that is significant to the valuation. The company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

Fair value of financial instruments by the valuation hierarchy at September 30, 2019 is as follows (in millions):

	Level 1				Level 2				Level 3
Cash and cash equivalents	$	108			$	—			$	—
Foreign exchange forward contracts (asset)	—				—				—
Foreign exchange forward contracts (liability)	—				—				—
Foreign currency option/collar contracts (other assets)	—				—				—
Cross-currency swaps (other assets)	—				10				—
Cross-currency swaps (other liabilities)	—				5				—

Fair value of financial instruments by the valuation hierarchy at September 30, 2018 is as follows (in millions):

	Level 1				Level 2				Level 3
Cash and cash equivalents	$	115			$	—			$	—
Foreign exchange forward contracts (asset)	—				2				—
Foreign exchange forward contracts (liability)	—				—				—
Foreign currency option/collar contracts (other assets)	—				—				—
Cross-currency swap (other assets)	—				6				—

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The tables below provide a reconciliation of changes in fair value of the Level 3 financial assets and liabilities measured at fair value in the Consolidated Balance Sheet for the twelve months ended September 30, 2019 and September 30, 2018 , respectively. No transfers of assets between any of the Levels occurred during these periods.

Twelve months ended September 30, 2019 (in millions)		Short-term foreign currency option contracts (asset)				Long-term foreign currency option contracts (asset)				Total
Fair Value as of September 30, 2018		$	—			$	—			$	—
Total unrealized gains (losses):
Included in other income		( 1		)		—				( 1		)
Included in cost of sales		1				—				1
Total realized gains (losses):
Included in other income		1				—				1
Included in cost of sales		—				—				—
Purchases, issuances, sales and settlements:
Purchases		—				—				—
Settlements		( 1		)		—				( 1		)
Transfer in and / or out of Level 3 (1)		—				—				—
Reclass between short-term and long-term		—				—				—
Fair Value as of September 30, 2019		$	—			$	—			$	—

⁽¹⁾ Transfers as of the last day of the reporting period

Twelve months ended September 30, 2018 (in millions)		Short-term foreign currency option/collar contracts (asset)				Long-term foreign currency option/collar contracts (asset)				Total
Fair Value as of September 30, 2017		$	2			$	1			$	3
Total unrealized gains (losses):
Included in other income		—				—				—
Included in cost of sales		( 1		)		( 1		)		( 2		)
Total realized gains (losses):
Included in other income		1				—				1
Included in cost of sales		—				—				—
Purchases, issuances, sales and settlements:
Purchases		—				—				—
Settlements		( 2		)		—				( 2		)
Transfer in and / or out of Level 3 (1)		—				—				—
Reclass between short-term and long-term		—				—				—
Fair Value as of September 30, 2018		$	—			$	—			$	—

⁽¹⁾ Transfers as of the last day of the reporting period

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There were no dividends declared or paid by the company in fiscal years 2019, 2018 or 2017. The payment of cash dividends and the amount of any dividend are subject to review and change at the discretion of the company's Board of Directors.

Common Stock

The company is authorized to issue 500 million shares of common stock, with a par value of $ 1 per share, and 30 million shares of Preferred Stock, without par value, of which 2 million shares are designated as Series A Junior Participating Preferred Stock ("Junior Preferred Stock"). No shares of Preferred Stock or Junior Preferred Stock have been issued.

In the first quarter of fiscal year 2018, the company filed a shelf registration statement with the SEC, registering an indeterminate amount of debt and/or equity securities that may be offered in one or more offerings on terms to be determined at the time of sale.

The company has reserved approximately 13 million shares of common stock in connection with its 2010 Long-Term Incentive Plan, as amended ("LTIP") for grants of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, performance shares, restricted share units and stock awards to key employees and directors. At September 30, 2019 , there were 2.9 million shares available for future grants under the LTIP.

Repurchase Authorizations

On July 26, 2019, the Board of Directors authorized the repurchase of up to $ 250 million of the company’s common stock from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and the company’s debt covenants. This authorization supersedes the remaining authority under the prior November 2018 equity repurchase authorization described below. During fiscal year 2019, the company repurchased 1.3 million shares of common stock for $ 25 million (including commission costs) pursuant to the common stock repurchase authorization. As of September 30, 2019 , the amount remaining available for repurchases was $ 225 million under this common stock repurchase authorization. On November 7, 2019, the Board of Directors increased the amount of this repurchase authorization to $ 325 million .

On November 2, 2018, the Board of Directors authorized the repurchase of up to $ 200 million of the company's common stock and up to $ 100 million aggregate principal amount of any of the company's debt securities (including convertible debt securities), in each case from time to time through open market purchases, privately negotiated transactions or otherwise, subject to compliance with legal and regulatory requirements and the company's debt covenants. During fiscal year 2019, the company repurchased 4.0 million shares of common stock for $ 71 million (including commission costs) pursuant to the common stock repurchase authorization. As of September 30, 2019 , the amount remaining available for debt repurchases was $ 76 million under the debt repurchase authorization. This authorization superseded the remaining authority under the prior July 2016 repurchase authorizations.

On July 21, 2016, the Board of Directors authorized the repurchase of up to $ 100 million of the company’s common stock and up to $ 150 million aggregate principal amount of any of the company’s debt securities (including convertible debt securities), in each case from time to time through open market purchases, privately negotiated transactions or otherwise, until September 30, 2019, subject to compliance with legal and regulatory requirements and the company's debt covenants.

During fiscal year 2018, the company repurchased 4.5 million shares of common stock for $ 100 million (including commission costs), pursuant to the July 2016 common stock repurchase authorization. The repurchase program under the July 2016 authorization was complete as of September 30, 2018. The amount remaining available for repurchases under the debt repurchase authorization was $ 50 million as of September 30, 2018. There was an insignificant amount of common stock and $ 100 million in debt security repurchases that were made under these authorizations during fiscal year 2017.

Accumulated Other Comprehensive Income (AOCI)

The components of AOCI as reported in the Consolidated Balance Sheet and Statement of Equity (Deficit), and the changes in AOCI by components, net of tax, are as follows (in millions):

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	Foreign Currency Translation				Employee Benefit Related Adjustments				Unrealized Income (Loss) on cash flow hedges				Total
Balance at September 30, 2018	$	( 90	)		$	( 476	)		$	—			$	( 566	)
Other comprehensive income (loss) before reclassification	( 17		)		( 100		)		2				( 115		)
Amounts reclassified from accumulated other comprehensive income	—				4				( 4		)		—
Net current-period other comprehensive income (loss)	$	( 17	)		$	( 96	)		$	( 2	)		$	( 115	)
Balance at September 30, 2019	$	( 107	)		$	( 572	)		$	( 2	)		$	( 681	)

	Details about Accumulated Other Comprehensive Income Components		Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Consolidated Statement of Operations
	Employee Benefit Related Adjustment
	Amortization of prior service costs		$	( 35	)		(a)
	Amortization of actuarial losses		39				(a)
			4				Total before tax
			—				Tax (benefit) expense
			$	4			Net of tax
	Total reclassifications for the period		$	4			Net of tax
	(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and retiree medical expense (see Notes 22 and 23 for additional details), which is recorded in other income (expense), net.

	Foreign Currency Translation				Employee Benefit Related Adjustments				Unrealized Income (Loss) on cash flow hedges				Total
Balance at September 30, 2017	$	( 41	)		$	( 500	)		$	( 4	)		$	( 545	)
Other comprehensive income (loss) before reclassification	( 49		)		8				3				( 38		)
Amounts reclassified from accumulated other comprehensive income	—				16				1				17
Net current-period other comprehensive income (loss)	$	( 49	)		$	24			$	4			$	( 21	)
Balance at September 30, 2018	$	( 90	)		$	( 476	)		$	—			$	( 566	)

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	Details about Accumulated Other Comprehensive Income Components		Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Consolidated Statement of Operations
	Employee Benefit Related Adjustment
	Amortization of prior service costs		$	( 35	)		(a)
	Amortization of actuarial losses		$	46			(a)
	Recognized prior service costs and actuarial losses due to settlement		6				(a)
			17				Total before tax
			( 1		)		Tax (benefit) expense
			$	16			Net of tax
	Total reclassifications for the period		$	16			Net of tax
	(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and retiree medical expense (see Notes 22 and 23 for additional details), which is recorded in other income (expense), net.

	Foreign Currency Translation				Employee Benefit Related Adjustments				Unrealized Income (Loss) on cash flow hedges				Total
Balance at September 30, 2016	$	( 66	)		$	( 740	)		$	( 3	)		$	( 809	)
Other comprehensive income (loss) before reclassification	25				200				( 1		)		224
Amounts reclassified from accumulated other comprehensive income	—				40				—				40
Net current-period other comprehensive income (loss)	$	25			$	240			$	( 1	)		$	264
Balance at September 30, 2017	$	( 41	)		$	( 500	)		$	( 4	)		$	( 545	)

	Details about Accumulated Other Comprehensive Income Components		Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Consolidated Statement of Operations
	Employee Benefit Related Adjustment
	Amortization of prior service costs		$	( 5	)		(a)
	Amortization of actuarial losses		45				(a)
			40				Total before tax
			( 12		)		Tax (benefit) expense
			$	28			Net of tax
	Total reclassifications for the period		$	28			Net of tax
	(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and retiree medical expense (see Notes 22 and 23 for additional details), which is recorded in other income (expense), net.

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Stock Options

Under the company’s incentive plans, stock options are typically granted at prices equal to the fair value on the grant date and have a maximum term of 10 years . Stock options generally vest over a three -year period from the grant date. There were 0.2 million stock options that were exercised in fiscal year 2017. No stock options were granted or exercised during fiscal year 2018. No stock options were granted in fiscal year 2017. There were no stock options outstanding as of September 30, 2019 and September 30, 2018.

Stock-based compensation is measured at the grant date based on the fair value of the award and is generally recognized as expense ratably on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. No compensation cost is ultimately recognized for awards for which employees do not render the requisite service and that are forfeited.

Compensation expense is recognized for the non-vested portion of previously issued stock options. No compensation expense associated with the expensing of stock options was recognized in fiscal years 2019, 2018 or 2017.

Restricted Stock and Restricted Share Units

The company has granted shares of restricted stock and restricted share units to certain employees and non-employee members of the Board of Directors in accordance with the existing plans. The company measures the grant date fair value of these stock-based awards at the market price of the company’s common stock as of the date of the grant. Employee awards typically vest at the end of three years and are subject to continued employment by the employee. Compensation cost associated with stock-based awards is recognized ratably over the vesting period. Cash dividends on the restricted stock, if any, are reinvested in additional shares of common stock during the vesting period.

The following is a rollforward of the company’s non-vested restricted stock and restricted share units as of September 30, 2019 , and the activity during fiscal year 2019 is summarized as follows (shares in thousands):

	Number of Shares			Weighted-Average Grant-Date Fair Value
Balance at September 30, 2018	1,464			$	14.59
Granted	523			17.24
Vested	( 563	)		9.78
Forfeited	( 104	)		16.86
Balance at September 30, 2019	1,320			17.55

In fiscal years 2019 , 2018 and 2017 , the company granted 0.5 million , 0.4 million , and 0.6 million shares of restricted stock and restricted share units, respectively. The grant date weighted average fair value of these restricted share units was $ 17.24 , $ 24.93 and $ 13.29 for shares of restricted stock and restricted share units granted in fiscal years 2019 , 2018 and 2017 , respectively. The number of non-vested restricted shares and restricted share units as of September 30, 2019 was 1.3 million . The per share weighted average fair value of these non-vested shares was $ 17.55 .

As of September 30, 2019 , there was $ 7 million of total unrecognized compensation costs related to non-vested restricted shares and restricted share units. These costs are expected to be recognized over a weighted average period of 1.69 years. Total compensation expense recognized for restricted stock and restricted share units was $ 8 million , $ 8 million and $ 7 million in fiscal years 2019 , 2018 and 2017 , respectively.

Performance Share Units

The company has granted performance share units to all executives eligible to participate in the LTIP. The company measures the grant date fair value of these units-based awards at the market price of the company’s common stock as of the date of the grant. Compensation cost associated with these stock-based awards is recognized ratably over the vesting period.

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In November 2018, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the LTIP. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $ 16.50 , which was the company’s share price on the grant date of December 1, 2018. The Board of Directors also approved a grant of 0.4 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $ 16.50 , which was the company's share price on the grant date of December 1, 2018.

The actual number of performance share units that will vest depends upon the company’s performance relative to the established performance metrics for the three -year performance period of October 1, 2018 to September 30, 2021, measured at the end of the performance period. The number of performance share units that vest will depend on adjusted EBITDA margin and adjusted diluted earnings per share from continuing operations at the following weights: 50 % associated with achieving an adjusted EBITDA margin target and 50 % associated with achieving an adjusted diluted earnings per share from continuing operations target. The number of performance share units that vest will be between 0 % and 200 % of the grant date amount of 0.5 million performance share units.

In November 2017, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the LTIP. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $ 24.79 , which was the company’s share price on the grant date of December 1, 2017. The Board of Directors also approved a grant of 0.3 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $ 24.79 , which was the company's share price on the grant date of December 1, 2017.

The actual number of performance share units that will vest depends upon the company’s performance relative to the established performance metrics for the three-year performance period of October 1, 2017 to September 30, 2020, measured at the end of the performance period. The actual number of performance share units that will vest will depend on adjusted EBITDA margin and adjusted diluted earnings per share from continuing operations at the following weights: 50 % associated with achieving an adjusted EBITDA margin target and 50 % associated with achieving an adjusted diluted earnings per share from continuing operations target. The number of performance share units that vest will be between 0 % and 200 % of the grant date amount of 0.3 million performance share units.

In November 2016, the Board of Directors approved a grant of performance share units to all executives eligible to participate in the LTIP. Each performance share unit represents the right to receive one share of common stock or its cash equivalent upon achievement of certain performance and time vesting criteria. The fair value of each performance share unit was $ 12.77 , which was the company’s share price on the grant date of December 1, 2016. The Board of Directors also approved a grant of 0.5 million restricted share units to these executives. The restricted share units vest at the earlier of three years from the date of grant or upon termination of employment with the company under certain circumstances. The fair value of each restricted share unit was $ 12.77 , which was the company's share price on the grant date of December 1, 2016.

The actual number of performance share units that vested depended upon the company’s performance relative to the established M2019 goals for the three -year performance period of October 1, 2016 to September 30, 2019, which was measured at the end of the performance period.

The following is a rollforward of the company’s non-vested performance share units as of September 30, 2019 , and the activity during fiscal year 2019 is summarized as follows (shares in thousands):

	Number of Shares			Weighted-Average Grant-Date Fair Value
Balance at September 30, 2018	1,612			$	14.18
Granted	1,172			13.39
Vested	( 1,305	)		10.23
Forfeited	( 154	)		16.75
Balance at September 30, 2019	1,325			17.08

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There were 1.2 million performance share units granted during fiscal 2019 which includes the performance achievement of 0.6 million performance share units related to the fiscal year 2016 to 2018 LTIP cycle. There were 1.3 million of non-vested performance shares as of September 30, 2019 . The per share weighted average fair value of the performance share units was $ 17.08 as of September 30, 2019 .

For the years ended September 30, 2019 , 2018 and 2017 , compensation cost recognized related to the performance share units was $ 10 million , $ 14 million and $ 14 million , respectively. As of September 30, 2019 , there were $ 9 million of total unrecognized compensation costs related to non-vested performance share unit equity compensation arrangements. These costs are expected to be recognized over a weighted average period of 1.69 years .

The company has retirement medical plans that cover certain of its U.S. and non-U.S. employees, including certain employees of divested businesses, and provide for medical payments to eligible employees and dependents upon retirement. These plans are unfunded.

On September 8, 2017, the company determined to modify the benefits provided to certain former union employee retirees. Under these modifications, which may be amended at the company’s discretion at any time, the company expects to provide (i) each retiree over the age of 65 with a defined contribution of $ 4,000 annually and (ii) each retiree under the age of 65 with a level of benefits generally equivalent to those currently provided to the company’s active employees, in each case and as currently contemplated, for a period of seven years. These benefit modifications generated a $ 315 million prior service credit in September 2017, which will be amortized over the retirees’ average life expectancy, which is currently estimated to be 9 years .

On September 23, 2019, the Company notified certain medical plan participants that it will amend the benefits provided to these former union employee retirees. Under these modifications, which may be amended at the company’s discretion at any time, the company reduced the defined contribution to $ 3,000 in 2020, decreasing by $ 600 each year thereafter until 2024. These benefit modifications generated a $ 15 million prior service credit in September 2019, which will be amortized over the retirees’ average life expectancy, which is currently estimated to be 9 years .

The mortality assumptions for participants in the company’s U.S. plans incorporates future mortality improvements from tables published by the Society of Actuaries ("SOA"). The company reviewed the new SOA mortality and mortality improvement tables and utilized an actuary to conduct a study based on the company’s plan participants. The company determined that the best representation of the plans' mortality is to utilize the new SOA mortality and mortality improvement tables as the reference table for credibility-weighted mortality rates, blended with company-specific mortality based on the study conducted by the actuary. . The company considers improvement scales released annually by the SOA

The company’s retiree medical obligations were measured as of September 30, 2019 , 2018 , and 2017 . The following are the assumptions used in the measurement of the accumulated postretirement benefit obligation ("APBO") and retiree medical expense:

	2019			2018			2017
Discount rate	2.98	%		4.05	%		3.32	%
Health care cost trend rate	6.36	%		6.18	%		6.52	%
Ultimate health care trend rate	4.69	%		4.63	%		4.65	%
Year ultimate rate is reached	2028			2024			2024

The assumptions noted above are used to calculate the APBO for each fiscal year end and retiree medical expense for the subsequent fiscal year.

The discount rate is used to calculate the present value of the APBO. This rate is determined based on high-quality fixed income investments that match the duration of expected retiree medical benefits. The company has used the corporate AA/Aa bond rate for this assumption. The health care cost trend rate represents the company’s expected annual rates of change in the cost of health care benefits. The company’s projection for fiscal year 2020 health care cost trend rate is 6.36 percent .

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The APBO as of the September 30, 2019 and 2018 measurement dates are summarized as follows (in millions):

	2019				2018
Retirees	$	67			$	86
Employees eligible to retire	—				—
Total	$	67			$	86

The following reconciles the change in APBO and the amounts included in the Consolidated Balance Sheet for years ended September 30, 2019 and 2018 , respectively (in millions):

	2019				2018
APBO — beginning of year	$	86			$	104
Interest cost	3				3
Actuarial (gain) loss	4				( 5		)
Plan amendment	( 15		)		—
Foreign currency rate changes	—				( 1		)
Benefit payments (1)	( 11		)		( 15		)
APBO — end of year	67				86
Retiree medical liability	$	67			$	86

(1)	Net of subsidies and rebates available under Employer Group Waiver Plan ("EGWP").

Actuarial losses(gains) relate to changes in the discount rate and other actuarial assumptions. In accordance with ASC Topic 715, "Compensation – Retirement Benefits", a portion of the actuarial losses is not subject to amortization. The actuarial losses that are subject to amortization are generally amortized over the average lifetime of inactive participants of approximately 9 years .

The retiree medical liability is included in the Consolidated Balance Sheet as follows (in millions):

	September 30,
	2019				2018
Current — included in compensation and benefits	$	11			$	13
Long-term — included in retirement benefits	56				73
Retiree medical liability	$	67			$	86

The following table summarizes the amounts included in AOCL net of tax related to retiree medical liabilities as of September 30, 2019 and 2018 and changes recognized in Other Comprehensive Income (Loss) net of tax for the years ended September 30, 2019 and 2018 .

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	Net Actuarial Loss				Prior Service Cost (Benefit)				Total
Balance at September 30, 2018	$	76			$	( 178	)		$	( 102	)
Net actuarial loss for the year	4				—				4
Recognized prior service costs due to plan amendment	—				( 15		)		( 15		)
Amortization for the year	( 15		)		35				20
Deferred tax impact	5				( 7		)		( 2		)
Balance at September 30, 2019	$	70			$	( 165	)		$	( 95	)
Balance at September 30, 2017	$	92			$	( 203	)		$	( 111	)
Net actuarial gain for the year	( 5		)		—				( 5		)
Amortization for the year	( 17		)		35				18
Deferred tax impact	6				( 10		)		( 4		)
Balance at September 30, 2018	$	76			$	( 178	)		$	( 102	)

The net actuarial loss and prior service benefit that are estimated to be amortized from AOCL into net periodic retiree medical income in fiscal year 2020 are $ 14 million and $ 36 million , respectively.

The components of retiree medical expense for the years ended September 30 are as follows (in millions):

	2019				2018				2017
Service cost	$	—			$	—			$	—
Interest cost	3				3				14
Amortization of:
Prior service benefit	( 35		)		( 35		)		( 5		)
Actuarial losses	15				17				15
Retiree medical (income) expense	$	( 17	)		$	( 15	)		$	24

A one-percentage point change in the assumed health care cost trend rate for all years to, and including, the ultimate rate would have the following effects (in millions):

	2019				2018
Effect on total service and interest cost
1% Increase	$	—			$	—
1% Decrease	—				—
Effect on APBO
1% Increase	5				4
1% Decrease	( 4		)		( 4		)

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The company expects future benefit payments as follows (in millions):

	Gross Benefit Payments				Gross Receipts (1)
Fiscal 2020	$	11			$	—
Fiscal 2021	9				—
Fiscal 2022	8				—
Fiscal 2023	6				—
Fiscal 2024	5				—
Fiscal 2025 – 2029	14				1

(1)	Consists of subsidies and rebates available under EGWP.

The company sponsors defined benefit pension plans that cover certain of its U.S. and non-U.S. employees. Pension benefits for salaried employees are based on years of credited service and compensation. Pension benefits for hourly employees are based on years of service and specified benefit amounts. The company’s funding policy provides that annual contributions to the pension trusts will be at least equal to the minimum amounts required by ERISA in the U.S. and the actuarial recommendations or statutory requirements in other countries.

The mortality assumptions for participants in the company’s U.S. plans incorporates future mortality improvements from tables published by the SOA. The company reviewed the new SOA mortality and mortality improvement tables and utilized an actuary to conduct a study based on the company’s plan participants. The company determined that the best representation of the plans' mortality is to utilize the new SOA mortality and mortality improvement tables as the reference table for credibility-weighted mortality rates, blended with company specific mortality based on the study conducted by the actuary. .

On August 1, 2010, the company amended its defined benefit pension plan in the United Kingdom to cease the accrual of future benefits for all of its active plan participants. Subsequent to the freeze date, the company began making contributions to its defined contribution savings plan on behalf of the affected employees. The amount of the savings plan contribution is based on a percentage of the employees’ pay. These changes did not affect then-current retirees. The company began recording the impact of the plan freeze in the fourth quarter of fiscal year 2010. Subsequent to the plan freeze, accumulated actuarial losses are being amortized into net periodic pension expense over the average life expectancy of inactive plan participants of approximately 26 years rather than over their remaining average service life.

The U.K. pension program provides participants with the election to receive a lump-sum settlement of their remaining pension benefit that, if accepted, would settle the company's obligation to them. The company recognized a $ 6 million settlement loss during the fourth quarter of fiscal year 2018 associated with these payouts.

In April 2007, the company announced a freeze of its defined benefit pension plan for salaried and non-represented employees in the United States, effective January 1, 2008. The change affected approximately 3,800 employees including certain employees who continued to accrue benefits for an additional transition period, ending June 30, 2011. After these freeze dates, the company started making additional contributions to its defined contribution savings plan on behalf of the affected employees. The amount of the savings plan contribution is based on a percentage of the employees’ pay, with the contribution percentage increasing as a function of employees’ age. These changes do not affect plan participants who had retired prior to the freeze dates or represented employees. Accumulated actuarial losses are being amortized into net periodic pension expense over the average life expectancy of inactive plan participants of approximately 16 years.

In June 2013, the company amended its U.S. Retirement Plan to allow all terminated vested participants with an accrued benefit of $ 5,000 or less to receive a full lump-sum distribution of their benefit. The lump-sum amounts were rolled into individual retirement accounts for those participants that had an accrued benefit of $ 1,000 to $ 5,000 who did not make an affirmative election to receive their benefits. For those participants with an accrued benefit of less than $ 1,000 , the benefits were automatically distributed to the participant.

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Effective October 2014, the company amended the U.S. Retirement Plan to include an additional distribution option in the form of a lump sum benefit from the plan. The majority of plan members are eligible for this distribution option following termination or when making their retirement payment election. The lump sum benefit equals the present value of a member's vested accrued benefit paid in one lump sum payment.

The company’s pension obligations are measured as of September 30, 2019 , 2018 and 2017 . The U.S. plans include qualified and non-qualified pension plans. The company’s only significant remaining non-U.S. plan is located in the United Kingdom.

The following are the significant assumptions used in the measurement of the projected benefit obligation ("PBO") and net periodic pension expense:

	U.S. Plans
	2019				2018				2017
Discount rate	3.10 %	-	3.15 %		4.30 %				3.70 %	—	3.75 %
Assumed return on plan assets (beginning of the year)	7.75 %				7.75 %				7.75 %

	U.K. Plan
	2019				2018				2017
Discount rate	1.80 %				2.90 %				2.80 %
Assumed return on plan assets (beginning of the year)	6.00 %				6.00 %				6.00 %

The discount rate is used to calculate the present value of the PBO at the balance sheet date and net periodic pension expense for the subsequent fiscal year. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments. Generally, the company uses a portfolio of long-term corporate AA/Aa bonds that match the duration of the expected benefit payments, except for the company's U.K. pension plan which uses an annualized yield curve, to establish the discount rate for this assumption.

The assumed return on plan assets is used to determine net periodic pension expense. The rate of return assumptions are based on projected long-term market returns for the various asset classes in which the plans are invested, weighted by the target asset allocations. An incremental amount for active plan asset management and diversification, where appropriate, is included in the rate of return assumption. The return assumption is reviewed annually.

The rate of compensation increase represents the long-term assumption for expected increases to salaries for pay-related plans. The accompanying disclosures include pension obligations associated with businesses classified as discontinued operations.

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The following table reconciles the change in the PBO, the change in plan assets and amounts included in the Consolidated Balance Sheet for the years ended September 30, 2019 and 2018 , respectively (in millions):

	2019												2018
	U.S.				Non- U.S.				Total				U.S.				Non- U.S.				Total
PBO — beginning of year	$	922			$	554			$	1,476			$	1,036			$	599			$	1,635
Interest cost	37				16				53				38				16				54
Actuarial (gain) loss	122				111				233				( 70		)		( 9		)		( 79		)
Prior service cost	—				8				8				—				—				—
Acquisitions	—				1				1				—				—				—
Settlements	—				( 3		)		( 3		)		—				( 18		)		( 18		)
Benefit payments	( 75		)		( 30		)		( 105		)		( 82		)		( 19		)		( 101		)
Foreign currency rate changes	—				( 36		)		( 36		)		—				( 15		)		( 15		)
PBO — end of year	$	1,006			$	621			$	1,627			$	922			$	554			$	1,476
Change in plan assets
Fair value of assets — beginning of year	$	744			$	702			$	1,446			$	821			$	730			$	1,551
Actual return on plan assets	67				139				206				—				32				32
Employer contributions	5				—				5				5				1				6
Settlements	—				( 3		)		( 3		)		—				( 22		)		( 22		)
Benefit payments	( 75		)		( 30		)		( 105		)		( 82		)		( 19		)		( 101		)
Foreign currency rate changes	—				( 44		)		( 44		)		—				( 20		)		( 20		)
Fair value of assets — end of year	$	741			$	764			$	1,505			$	744			$	702			$	1,446
Funded status	$	( 265	)		$	143			$	( 122	)		$	( 178	)		$	148			$	( 30	)

Amounts included in the Consolidated Balance Sheet at September 30, 2019 and 2018 are comprised of the following (in millions):

	2019												2018
	U.S.				Non-U.S.				Total				U.S.				Non-U.S.				Total
Non-current assets	$	—			$	149			$	149			$	—			$	152			$	152
Current liabilities	( 5		)		—				( 5		)		( 5		)		—				( 5		)
Retirement benefits-non-current	( 260		)		( 6		)		( 266		)		( 173		)		( 4		)		( 177		)
Net amount recognized	$	( 265	)		$	143			$	( 122	)		$	( 178	)		$	148			$	( 30	)

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The following tables summarize the amounts included in AOCL net of tax related to pension liabilities as of September 30, 2019 and 2018 and changes recognized in Other Comprehensive Income (Loss) net of tax for the year ended September 30, 2019 .

	Net Actuarial Loss
	U.S.				Non-U.S.				Total
Balance at September 30, 2018	$	394			$	184			$	578
Net actuarial loss for the year	113				20				133
Amortization for the year	( 20		)		( 4		)		( 24		)
Deferred tax impact	( 20		)		—				( 20		)
Balance at September 30, 2019	$	467			$	200			$	667
Balance at September 30, 2017	$	418			$	193			$	611
Net actuarial gain for the year	( 11		)		3				( 8		)
Amortization for the year	( 23		)		( 6		)		( 29		)
Deferred tax impact	10				—				10
Settlements	—				( 6		)		( 6		)
Balance at September 30, 2018	$	394			$	184			$	578

The company estimates that $ 32 million of net actuarial losses will be amortized from AOCL into net periodic pension expense during fiscal year 2020 . The non-current portion of the pension liability is included in Retirement Benefits in the Consolidated Balance Sheet as follows (in millions):

	September 30,
	2019				2018
Pension liability	$	266			$	177
Retiree medical liability — long term (see Note 22)	56				73
Other	14				12
Total retirement benefits	$	336			$	262

In accordance with FASB guidance, the PBO, accumulated benefit obligation ("ABO") and fair value of plan assets are required to be disclosed for all plans where the ABO is in excess of plan assets. The difference between the PBO and ABO is that the PBO includes projected compensation increases.

Additional information is as follows (in millions):

	2019												2018
	ABO Exceeds Assets				Assets Exceed ABO				Total				ABO Exceeds Assets				Assets Exceed ABO				Total
PBO	$	1,012			$	615			$	1,627			$	926			$	550			$	1,476
ABO	1,012				615				1,627				926				550				1,476
Plan Assets	741				764				1,505				744				702				1,446

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The components of net periodic pension expense are as follows (in millions):

	2019				2018				2017
Service cost	$	—			$	—			$	—
Interest cost	53				54				53
Assumed rate of return on plan assets	( 97		)		( 99		)		( 96		)
Amortization of —
Actuarial losses	24				29				30
Settlement loss	—				6				—
Net periodic pension income	$	( 20	)		$	( 10	)		$	( 13	)

Disclosures on investment policies and strategies, categories of plan assets, fair value measurements of plan assets, and significant concentrations of risk are included below.

Investment Policy and Strategy

The company’s primary investment objective for its pension plan assets is to generate a total investment return sufficient to meet present and future benefit payments while minimizing the company’s cash contributions over the life of the plans. In order to accomplish this objective, the company maintains target allocations to identify and manage exposures. The target asset allocation ranges for the U.S. plan are 20 – 50 percent equity investments, 30 – 60 percent fixed income investments and 10 – 25 percent alternative investments. Alternative investments include private equities, real estate, hedge funds, diversified growth funds, and partnership interests. The target asset allocation ranges for the non-U.S. plans are 15 – 35 percent equity investments, 30 – 60 percent fixed income investments, 0 – 10 percent real estate and 10 – 30 percent alternative investments.

Investment strategies and policies for the company’s pension plan assets reflect a balance of risk-reducing and return-seeking considerations. The objective of minimizing the volatility of assets relative to liabilities is addressed primarily through asset diversification. Assets are broadly diversified across several asset classes to achieve risk-adjusted returns that accomplish this objective.

The majority of pension plan assets are externally managed through active managers. Managers are only permitted to invest within established asset classes and follow the strategies for which they have been appointed. The company uses investment guidelines and reviews asset returns and investment decisions made by the managers to ensure that they are in accordance with the company’s strategies.

Concentration of Risk

The company seeks to mitigate risks relative to performance of the plan assets. Assets are invested in various classes with different risk and return characteristics in order to ensure that they are sufficient to pay benefits. The company’s investment strategies incorporate a return-seeking approach through equity and alternative investments, while seeking to minimize the volatility of the plans’ assets relative to its liabilities through investments in fixed income securities. The significant areas of risk related to these strategies include equity, interest rate, and operating risk.

A portion of plan assets is allocated to equity and alternative investments that are expected, over time, to earn higher returns. Within this return-seeking portfolio, asset diversification is utilized to reduce uncompensated risk.

Plan assets are also allocated to fixed income investments, which seek to minimize interest rate risk volatility relative to pension liabilities. The fixed income portfolio partially matches the long-dated nature of the pension liabilities reducing interest rate risk. Interest rate decreases generally increase the value of fixed income assets, partially offsetting the related increase in the liabilities, while interest rate increases generally result in a decline in the value of fixed income assets while reducing the present value of the liabilities.

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Operating risks consist of the risks of inadequate diversification and weak controls. The company has established policies and procedures in order to mitigate this risk by monitoring investment manager performance, reviewing periodic compliance information, and ensuring that the plans’ managers invest in accordance with the company’s investment strategies.

Fair Value of Investments

The current FASB guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

•	Level 1 inputs use quoted prices in active markets for identical assets that the Plan has the ability to access.

•	Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets in active markets and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

•	Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest priority level input that is significant to the valuation. The company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

Following are descriptions, valuation methodologies and other information related to plan assets.

Cash and cash equivalents : The fair value of cash and cash equivalents is valued at cost.

Equity Securities : The overall equity category includes common and preferred stocks issued by U.S. and international companies as well as equity funds that invest in these instruments. All investments generally allow near-term (within 90 days of the measurement date)  liquidity and are held in issues that are actively traded to facilitate transactions at minimum cost. The aggregate equity portfolio is diversified to avoid exposure to any investment strategy, single economic sector, industry group, or individual security.

The fair value of equity securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges.

Most of the equity investments allow daily redemptions, with some providing monthly liquidity or requiring a 30-day notice.

Fixed Income Securities : The overall fixed income category includes U.S. dollar-denominated and international marketable bonds and convertible debt securities as well as fixed income funds that invest in these instruments. All assets generally allow near-term liquidity and are held in issues which are actively traded to facilitate transactions at minimum cost. The aggregate fixed income portfolio is diversified to avoid exposure to any investment strategy, maturity, issuer or credit quality.

The fair value of fixed income securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges.

U.S. fixed income securities typically offer daily liquidity, with only one investment allowing quarterly redemptions. International and emerging fixed income investment vehicles generally provide daily liquidity.

Commingled Funds : The fair value of commingled funds is determined by a custodian. The custodian obtains valuations from underlying fund managers based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices. The company and custodian review the methods used by the underlying managers to value the assets.

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Real Estate : Real estate provides an indirect investment into a diversified and multi-sector portfolio of property assets. The fair value of real estate investments is valued by the fund managers. The fund managers value the real estate investments via independent third-party appraisals on a periodic basis. Assumptions used to revalue the properties are updated every quarter. For the component of the real estate portfolio under development, the investments are carried at cost, which approximates fair value, until they are completed and valued by a third-party appraiser.

Due to the long-term nature of real estate investments, liquidity is provided on a quarterly basis.

Futures Contracts :  The plan enters into futures contracts in the normal course of its investing activities to manage market risk and to achieve overall investment portfolio objectives.  The credit risk associated with these contracts is minimal as they are traded on organized exchanges and settled daily.  The fair value of futures contracts is determined by direct quoted market prices.  Cash margin for these futures contracts is included in Cash and Cash Equivalents in the leveling table.

Alternatives/Partnerships/Private Equity : This category includes investments in private equity and hedge funds.  Such investments may be made directly or through pooled funds, including fund of funds structures. The fair market value of the company’s interest in partnerships and private equity is valued by the fund managers. The valuation is based on the net present value of observable inputs (dividends, cash flows, earnings, etc.), which are discounted at applicable discount rates. The company and custodian review the methods used by the underlying managers to value the assets.

Most of these investments offer quarterly redemption opportunities. Some partnerships and private equity investments, due to the nature of their investment strategy and underlying holdings, offer less frequent liquidity. When available, liquidity events are closely evaluated.

The valuation methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

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The fair value of plan assets at September 30, 2019 by asset category is as follows (in millions):

U.S. Plans	2019
Asset Category	Level 1				Level 2				Level 3				Total
Equity investments
U.S. – Large cap	$	38			$	—			$	—			$	38
U.S. – Small cap	15				—				—				15
Private equity	—				—				19				19
International equity	21				—				—				21
Equity investments measured at net asset value (1)	—				—				—				154
Total equity investments	$	74			$	—			$	19			$	247
Fixed income investments
U.S. fixed income	$	3			$	233			$	—			$	236
Emerging fixed income	—				16				—				16
Partnerships fixed income	12				—				—				12
Fixed income investments measured at net asset value (1)	—				—				—				27
Total fixed income	$	15			$	249			$	—			$	291
Alternatives – Partnerships	—				—				86				86
Alternatives – Partnerships measured at net asset value (1)	—				—				—				78
Cash and cash equivalents	—				39				—				39
Total assets at fair value	$	89			$	288			$	105			$	741
Non-U.S. Plans	2019
Asset Category	Level 1				Level 2				Level 3				Total
Equity investments
International equity	$	170			$	—			$	—			$	170
Total equity investments	$	170			$	—			$	—			$	170
Fixed income investments
Other fixed income investments	$	6			$	222			$	—			$	228
Fixed income investments measured at net asset value (1)	—				—				—				189
Total fixed income	$	6			$	222			$	—			$	417
Commingled funds	—				3				—				3
Alternative investments measured at net asset value (1)	—				—				—				124
Real estate measured at net asset value (1)	—				—				—				38
Cash and cash equivalents	—				12				—				12
Total assets at fair value	$	176			$	237			$	—			$	764

(1)	In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

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The fair value of plan assets at September 30, 2018 by asset category is as follows (in millions):

U.S. Plans	2018
Asset Category	Level 1				Level 2				Level 3				Total
Equity investments
U.S. – Large cap	$	51			$	—			$	—			$	51
U.S. – Small cap	24				—				—				24
Private equity	—				—				17				17
International equity	29				—				—				29
Equity investments measured at net asset value (1)	—				—				—				191
Total equity investments	$	104			$	—			$	17			$	312
Fixed income investments
U.S. fixed income	$	1			$	164			$	—			$	165
Emerging fixed income	—				20				—				20
Partnerships fixed income	13				—				—				13
Fixed income investments measured at net asset value (1)	—				—				—				34
Total fixed income	$	14			$	184			$	—			$	232
Alternatives – Partnerships	—				—				83				83
Alternatives – Partnerships measured at net asset value (1)	—				—				—				85
Cash and cash equivalents	—				32				—				32
Total assets at fair value	$	118			$	216			$	100			$	744
Non-U.S. Plans	2018
Asset Category	Level 1				Level 2				Level 3				Total
Equity investments
International equity	$	171			$	—			$	—			$	171
Total equity investments	$	171			$	—			$	—			$	171
Fixed income investments
Other fixed income investments	$	5			$	145			$	—			$	150
Fixed income investments measured at net asset value (1)	—				—				—				194
Total fixed income	$	5			$	145			$	—			$	344
Commingled funds	—				5				—				5
Alternative investments measured at net asset value (1)	—				—				—				137
Real estate measured at net asset value (1)	—				—				—				41
Cash and cash equivalents	—				4				—				4
Total assets at fair value	$	176			$	154			$	—			$	702

(1)	In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

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Unfunded Commitment

As of September 30, 2019 , the U.S. plan had $ 13 million of unfunded investment commitments related to plan assets. The majority of this amount is attributed to partnership investments that the plan will invest in gradually over the course of several years. Non-U.S. plans currently do not have any unfunded commitments.

The following table summarizes the changes in Level 3 pension plan assets measured at fair value on a recurring basis for the year ended September 30, 2019 (in millions):

U.S. Plans	2019
	Fair Value at October 1, 2018				Return on Plan Assets: Attributable to Assets Held at September 30, 2019				Purchases				Settlements				Net Transfers Into (Out of) Level 3				Fair Value at September 30, 2019
Asset Category
Private equity	$	17			$	2			$	—			$	—			$	—			$	19
Alternatives –
Partnerships	83				4				—				( 1		)		—				86
Total Level 3 fair value	$	100			$	6			$	—			$	( 1	)		$	—			$	105

The following table summarizes the changes in Level 3 pension plan assets measured at fair value on a recurring basis for the year ended September 30, 2018 (in millions):

U.S. Plans	2018
	Fair Value at October 1, 2017				Return on Plan Assets: Attributable to Assets Held at September 30, 2018				Purchases				Settlements				Net Transfers Into (Out of) Level 3				Fair Value at September 30, 2018
Asset Category
Private equity	$	19			$	( 3	)		$	1			$	—			$	—			$	17
Alternatives –
Partnerships	77				6				—				—				—				83
Total Level 3 fair value	$	96			$	3			$	1			$	—			$	—			$	100

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Information about the expected cash flows for the U.S. and non-U.S. pension plans is as follows (in millions):

	U.S.				Non U.S.				Total
Expected employer contributions:
Fiscal 2020	$	5			$	1			$	6
Expected benefit payments:
Fiscal 2020	71				30				101
Fiscal 2021	70				30				100
Fiscal 2022	70				30				100
Fiscal 2023	67				30				97
Fiscal 2024	67				30				97
Fiscal 2025-2029	308				152				460

The income tax provisions were calculated based upon the following components of income before income taxes (in millions):

	2019				2018				2017
U.S. income	$	194			$	85			$	252
Foreign income	183				193				129
Total	$	377			$	278			$	381

The components of the provision (benefit) for income taxes are summarized as follows (in millions):

	2019				2018				2017
Current tax expense:
U.S.	$	1			$	24			$	1
Foreign	40				51				11
State and local	1				—				2
Total current tax expense	42				75				14
Deferred tax expense (benefit):
U.S.	34				76				28
Foreign	6				( 5		)		9
State and local	—				3				1
Total deferred tax expense	40				74				38
Income tax expense	$	82			$	149			$	52

The deferred tax expense or benefit represents tax effects of current year deductions or items of income that will be recognized in future periods for tax purposes. The fiscal year 2018 deferred income tax expense in the U.S. was primarily attributable to the revaluation of deferred tax assets for the new effective tax rate and the utilization of the foreign tax credit related to the transition tax. The deferred income tax expense in the U.S. in fiscal year 2017 was primarily attributable to the tax effect of the gain on sale of equity investment, partially offset by the additional reversal of a valuation allowance.

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Net deferred income tax assets (liabilities) included in the Consolidated Balance Sheet consist of the tax effects of temporary differences related to the following (in millions):

	September 30,
	2019				2018
Accrued compensation and benefits	$	19			$	15
Accrued product warranties	11				11
Inventory costs	7				6
Receivables	8				8
Asbestos and environmental	8				28
Accrued retiree healthcare benefits	16				21
Retirement pension plans	59				41
Property	7				10
Loss and credit carryforwards	230				278
Other	18				19
Sub-total	383				437
Less: Valuation allowances	( 207		)		( 236		)
Deferred income taxes - asset	$	176			$	201
Taxes on undistributed income	$	( 10	)		$	( 14	)
Intangible assets	( 51		)		( 54		)
Debt basis difference	( 8		)		( 9		)
Deferred income taxes - liability	$	( 69	)		$	( 77	)
Net deferred income tax assets	$	107			$	124

Net deferred income tax assets (liabilities) are included in the Consolidated Balance Sheet as follows (in millions):

	September 30,
	2019				2018
Other assets (see Note 14)	$	122			$	140
Other liabilities (see Note 17)	( 15		)		( 16		)
Net deferred income taxes — asset	$	107			$	124

Valuation Allowances

In prior years, the company established valuation allowances against the net deferred tax assets of its 100 % -owned subsidiaries in France, Germany, Brazil, the U.K. and certain other countries. In evaluating its ability to recover these net deferred tax assets, the company utilizes a consistent approach which considers its historical operating results, including an assessment of the degree to which any gains or losses are driven by items that are unusual in nature and tax planning strategies. In addition, the company reviews changes in near-term market conditions and other factors that impact future operating results.

During the fourth quarter of fiscal year 2018, as a result of sustained profitability in Brazil evidenced by strong earnings history, future forecasted income, and additional positive evidence, the company determined it was more likely then not it would be able to realize the deferred tax assets in Brazil. Accordingly, the company reversed the valuation allowance, resulting in a non-cash income tax benefit of $ 9 million .

As of September 30, 2019, the company continues to maintain the valuation allowances in France, Germany, the U.K. and certain other jurisdictions, as the company believes the negative evidence continues to outweigh the positive evidence that it will be able to recover these net deferred tax assets. If, in the future, the company generates taxable income on a sustained basis, its conclusion regarding the need for valuation allowances in these jurisdictions could change.

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The expiration periods for deferred tax assets related to net operating losses and tax credit carryforwards as of September 30, 2019 are included below (in millions). Also included are the associated valuation allowances on these deferred tax assets (in millions).

	Fiscal Year Expiration Periods
	2020-2024			2025-2034			2035-2039			Indefinite			Total
Net Operating Losses and Tax Credit Carryforwards	$	14		$	30		$	11		$	175		$	230
Valuation Allowances on these Deferred Tax Assets	$	5		$	11		$	—		$	172		$	188

Realization of deferred tax assets representing net operating loss and tax credit carryforwards for which a valuation allowance has not been provided is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that such deferred tax assets will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if the company is unable to generate sufficient future taxable income during the carryforward period.

The company’s provision (benefit) for income taxes was different from the provision for income taxes calculated at the U.S. statutory rate for the reasons set forth below (in millions):

	2019				2018				2017
Expense for income taxes at statutory tax rate	$	79			$	68			$	133
State and local income taxes	3				2				14
Foreign income taxed at rates other than statutory	11				4				( 9		)
Legislative changes	1				126				—
Joint venture equity income	( 6		)		( 6		)		( 7		)
Correlated tax relief	—				—				( 7		)
U.S. tax impact on non-U.S. earnings	—				4				8
Nondeductible expenses	16				8				10
Tax credits	( 11		)		( 9		)		( 14		)
Valuation allowances	( 7		)		( 40		)		( 56		)
Impact of capital loss	—				( 1		)		( 15		)
Other	( 4		)		( 7		)		( 5		)
Income tax expense	$	82			$	149			$	52

On December 22, 2017, the U.S. government enacted the U.S. tax reform. The U.S. tax reform made broad and complex changes to the U.S. tax code that affected the company's fiscal year ended September 30, 2018, including, but not limited to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent and requiring a one-time transition tax on deemed repatriated earnings of foreign subsidiaries.

The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the U.S. tax reform. SAB 118 provides a measurement period that should not extend beyond one year from the U.S. tax reform enactment date for companies to complete the accounting under ASC 740. The company completed their accounting for the enactment date income tax effects of U.S. tax reform as of December 31, 2018. As reflected in the September 30, 2019 financial statements, the results of this accounting were a reduction to the estimated tax expense at September 30, 2018 from $ 89 million to $ 87 million for the refinement of the U.S. tax reform items.

At September 30, 2019, $ 1,163 million of non-U.S. earnings are considered indefinitely reinvested in operations outside the U.S., for which deferred taxes have not been provided. Quantification of the deferred tax liability, if any, associated with permanently reinvested earnings is not practicable.

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Additionally, the company has accounted for the tax impacts related to the Global Intangible Low Tax Income ("GILTI"), Base Erosion Anti Abuse Tax ("BEAT") and Foreign Derived Intangible Income ("FDII") regimes as well as all other provisions of the U.S. tax reform that are effective in fiscal year 2019. The company has elected to treat GILTI as a period cost and, therefore, has not recognized deferred taxes for basis differences that may reverse as GILTI tax in future periods.

The total amount of gross unrecognized tax benefits the company recorded in accordance with ASC Topic 740 as of September 30, 2019 was $ 276 million , of which $ 230 million represents the amount that, if recognized, would favorably affect the effective income tax rate in future periods.

A reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period is as follows (in millions):

	2019				2018				2017
Balance at beginning of the period	$	261			$	269			$	243
Additions to tax positions recorded during the current year	11				—				—
Additions to tax positions recorded during the prior year	9				—				26
Reductions to tax position recorded in prior years	—				( 6		)		—
Reductions to tax positions due to lapse of statutory limits	( 4		)		( 1		)		( 2		)
Translation, other	( 1		)		( 1		)		2
Balance at end of the period	$	276			$	261			$	269

The company’s continuing practice is to recognize interest and penalties on uncertain tax positions in the provision for income taxes in the Consolidated Statement of Operations. At September 30, 2019 and 2018 , the company recorded assets of $ 12 million and $ 13 million , respectively, of interest on uncertain tax positions in the Consolidated Balance Sheet. In addition, penalties of $ 1 million were recorded as of September 30, 2019 and 2018 . The income tax expense related to interest was $ 1 million and income tax benefit of $ 4 million and $ 5 million for the fiscal years ended September 30, 2019 , 2018 and 2017, respectively. The income tax benefit related to penalties was immaterial in fiscal years ended September 30, 2019 , 2018 and 2017.

The company files tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. The company’s Canadian federal income tax returns for fiscal years 2015 and 2016 are currently under audit. The company's German subsidiary is currently under audit for fiscal years 2008 through 2013. The company's Indian subsidiary is currently under audit for fiscal years 2015 and 2016. The company's U.K. subsidiaries are under audit for fiscal years 2015 and 2016. In addition, the company is under audit in various state tax jurisdictions for various years. It is reasonably possible that audit settlements, the conclusion of current examinations or the expiration of the statute of limitations in several jurisdictions could change the company’s unrecognized tax benefits during the next twelve months. It is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefit in the next twelve months.

In addition to the audits listed above, the company has open tax years primarily from 2001-2018 with various significant taxing jurisdictions, including the U.S., Brazil, Canada, China, Italy, Mexico, Sweden and the U.K. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The company has recorded a tax benefit only for those positions that meet the more-likely-than-not standard.

Environmental

Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes and other activities affecting the environment have, and will continue to have, an impact on the operations of the company. The process of estimating environmental liabilities is complex and dependent upon evolving physical and scientific data at the sites, uncertainties as to remedies and technologies to be used and the outcome of discussions with regulatory agencies. The company records liabilities for environmental issues in the accounting period in which they are considered to be probable and the cost can be reasonably estimated. At environmental sites in which more than one potentially responsible party has been identified, the company records a liability for its allocable share of costs related to its involvement with the site, as well as an allocable share

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of costs related to insolvent parties or unidentified shares. At environmental sites in which the company is the only potentially responsible party, the company records a liability for the total probable and estimable costs of remediation before consideration of recovery from insurers or other third parties.

The company has been designated as a potentially responsible party at ten Superfund sites, excluding sites as to which the company’s records disclose no involvement or as to which the company’s liability has been finally determined. Management estimates the total reasonably possible costs the company could incur for the remediation of Superfund sites at September 30, 2019 to be approximately $ 24 million , of which $ 11 million is probable and recorded as a liability. Included in reasonably possible amounts are estimates for certain remediation actions that may be required if current actions are deemed inadequate by the regulators. Environmental remediation costs recorded with respect to the Superfund were $ 2 million in fiscal year 2019 , $ 12 million in fiscal year 2018 and were not substantial in 2017 .

In addition to the Superfund sites, various other lawsuits, claims and proceedings have been asserted against the company, alleging violations of federal, state and local environmental protection requirements, or seeking remediation of alleged environmental impairments, principally at previously disposed-of properties. For these matters, management has estimated the total reasonably possible costs the company could incur at September 30, 2019 to be approximately $ 14 million , of which $ 4 million is probable and recorded as a liability. During fiscal years 2019 , 2018 and 2017 , the company recorded environmental remediation costs of $ 2 million , $ 2 million and $ 3 million , respectively, with respect to these matters, resulting from revised estimates to remediate these sites.

Included in the company’s environmental liabilities are costs for on-going operation, maintenance and monitoring at environmental sites in which remediation has been put into place. This liability is discounted using discount rates in the range of 2.25 to 3.00 percent and is approximately $ 13 million at September 30, 2019 . The undiscounted estimate of these costs is approximately $ 15 million .

The following are the components of the Superfund and non-Superfund environmental reserves (in millions):

	Superfund Sites				Non-Superfund Sites				Total
Balance at September 30, 2018	$	12			$	5			$	17
Payments and other	( 3		)		( 3		)		( 6		)
Accruals	2				2				4
Balance at September 30, 2019	$	11			$	4			$	15

There were $ 3 million , $ 12 million , and $ 3 million of environmental remediation costs recognized in other operating expense in the Consolidated Statement of Operations in fiscal years 2019 , 2018 and 2017 , respectively.

Environmental reserves are included in Other Current Liabilities (see Note 16) and Other Liabilities (see Note 17) in the Consolidated Balance Sheet.

The actual amount of costs or damages for which the company may be held responsible could materially exceed the foregoing estimates because of uncertainties, including the financial condition of other potentially responsible parties, the success of the remediation, discovery of new contamination and other factors that make it difficult to predict actual costs accurately. However, based on management’s assessment, after consulting with outside advisors that specialize in environmental matters, and subject to the difficulties inherent in estimating these future costs, the company believes that its expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material effect on the company’s business, financial condition or results of operations. In addition, in future periods, new laws and regulations, changes in remediation plans, advances in technology and additional information about the ultimate clean-up remedies could significantly change the company’s estimates. Management cannot assess the possible effect of compliance with future requirements.

In April 2016, the company was served with several complaints filed against the company and other defendants in the United States District Court for the Northern District of Mississippi. The complaints were amended in July 2016. These complaints allege damages, including diminution of property value, concealment/fraud and emotional distress resulting from alleged environmental

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pollution in and around a neighborhood in Grenada, Mississippi. Rockwell owned and operated a facility near the neighborhood from 1965 to 1985. The company filed answers to the complaints in July 2016. In May 2017, the company was served with a complaint filed against the company and other defendants by the Mississippi Attorney General in the Chancery Court of Grenada County, Mississippi. The complaint alleged that operations at the above-referenced Grenada facility caused contamination of off-site groundwater and surface waters. Subsequently, the company removed this action to the United States District Court for the Northern District of Mississippi. However, plaintiffs’ motion to remand the case to the Chancery Court was granted in March 2018. In April, May and July 2018, the company was served with additional property damage, personal injury and wrongful death lawsuits naming the company and others as defendants, which were brought by current and former residents of the same neighborhood. The company has reached settlements with some but not all of the plaintiffs, and continues to vigorously defend itself while continuing settlement discussions in the unresolved matters.  The company recorded an accrual in the second quarter of fiscal year 2019.

Asbestos

Maremont Corporation ("Maremont"), a subsidiary of Meritor, manufactured friction products containing asbestos from 1953 through 1977, when it sold its friction product business. Arvin Industries, Inc., a predecessor of the company, acquired Maremont in 1986.

In the first quarter of fiscal year 2019, Maremont and its three wholly-owned subsidiaries, Maremont Exhaust Products, Inc., AVM, Inc., and Former Ride Control Operating Company, Inc., began to solicit votes from asbestos claimants in favor of a Joint Pre-Packaged Plan of Reorganization (the "Plan"). On January 18, 2019, the Plan was approved by voting asbestos claimants and, on January 22, 2019, Maremont and its subsidiaries voluntarily filed cases under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") seeking to implement the Plan through the Chapter 11 cases. Among other things, the Plan was intended to permanently resolve all current and future asbestos claims related to Maremont's historical asbestos-related activities through the creation of a trust pursuant to Section 524(g) of the U.S. Bankruptcy Code (the "524(g) Trust"). Meritor determined that the net amount of $ 51 million Maremont would be required to contribute to the 524(g) Trust according to the Plan represented Meritor's best estimate of Maremont's net asbestos liability. As a result, Meritor recognized $ 31 million of income related to remeasuring the Maremont net asbestos liability based on the terms of the Plan.

As of January 22, 2019, Maremont and its subsidiaries were deconsolidated from the Consolidated Balance Sheet and the results of Maremont’s operations were eliminated from the company’s consolidated results of operations as Maremont became subject to the control of a court. Deconsolidation had an insignificant impact on the Consolidated Statement of Operations.

The Plan was confirmed by the U.S. Bankruptcy Court for the District of Delaware on May 17, 2019 and approved by the United States District Court for the District of Delaware on June 27, 2019. On July 9, 2019, the company contributed $ 48 million , consisting of cash and repayment of a loan to Maremont, and Maremont funded the 524(g) Trust with such cash and its other assets, including its existing insurance policies. As a result, all current and future asbestos claims related to the Maremont’s historical asbestos-related activities have been channeled to the 524(g) Trust, which will process and satisfy all such claims going forward pursuant to its resolution and payment procedures.

Pending and Future Claims as of September 2018: Previously, Maremont engaged a third-party advisor with extensive experience in assessing asbestos-related liabilities to conduct a study to estimate its potential undiscounted liability for pending and future asbestos-related claims. Management continuously monitored the underlying claims data and experience for the purpose of assessing the appropriateness of the assumptions used to estimate the liability.

As of September 30, 2018 , the estimated range of equally likely possibilities of Maremont’s obligation for asbestos-related claims over the next 41 years was $ 107 million to $ 195 million . Based on the information contained in the actuarial study, and all other available information considered, Maremont concluded that no amount within the range of potential liability was more likely than any other and, therefore, recorded a liability at the low end of the range. Maremont recognized a liability for pending and future claims over the next 41 years of $ 107 million as of September 30, 2018 .

Recoveries as of September 2018: Maremont had historically had insurance that reimburses a meaningful portion of the costs incurred defending against asbestos-related claims. The expected insurance receivable related to future asbestos-related liabilities was $ 24 million as of September 30, 2018 .

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Rockwell — ArvinMeritor, Inc. ("AM"), a predecessor of Meritor, along with many other companies, has also been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos used in certain components of Rockwell products many years ago. Liability for these claims was transferred at the time of the spin-off of the automotive business from Rockwell in 1997. Rockwell had approximately 1,400 pending active asbestos claims in lawsuits that name AM, as a defendant at September 30, 2019 and 2018 .

A significant portion of the claims do not identify any of Rockwell’s products or specify which of the claimants, if any, were exposed to asbestos attributable to Rockwell’s products, and past experience has shown that the vast majority of the claimants will likely never identify any of Rockwell’s products. Historically, AM has been dismissed from the vast majority of similar claims filed in the past with no payment to claimants. For those claimants who do show that they worked with Rockwell’s products, management nevertheless believes it has meritorious defenses, in substantial part due to the integrity of the products involved and the lack of any impairing medical condition on the part of many claimants.

Pending and Future Claims : The company engaged a third-party advisor with extensive experience in assessing asbestos-related liabilities to conduct a study to estimate its potential undiscounted liability for pending and future asbestos-related claims as of September 30, 2019 . On a continual basis, management monitors the underlying claims data and experience, for the purpose of assessing the appropriateness of the assumptions used to estimate the liability.

As of September 30, 2019 , the estimated probable range of equally likely possibilities of the company’s obligation for asbestos-related claims over the next 40 years is $ 91 million to $ 181 million . Based on the information contained in the actuarial study, and all other available information considered, management concluded that no amount within the range of potential liability was more likely than any other and, therefore, recorded the low end of the range. The company recognized a liability for pending and future claims of $ 91 million as of September 30, 2019 and $ 103 million as of September 30, 2018 . The ultimate cost of resolving pending and future claims is estimated based on the history of claims and expenses for plaintiffs represented by law firms in jurisdictions with an established history with Rockwell.

Recoveries: Rockwell has insurance coverage that management believes covers indemnity and defense costs, over and above self-insurance retentions, for a significant portion of these claims. In 2004, the company initiated litigation against certain of these carriers to enforce the insurance policies. During the fourth quarter of fiscal year 2016, the company executed settlement agreements with two of these carriers, thereby resolving the litigation against those particular carriers. Pursuant to the terms of one of those settlement agreements, in the fourth quarter of fiscal year 2016 the company received $ 32 million in cash from an insurer, of which $ 10 million was recognized as a reduction in asbestos expense, and $ 22 million was recorded as a liability to the insurance carrier as it is required to be returned to the carrier if additional asbestos liability is not ultimately incurred. During fiscal years 2018 and 2017, Rockwell recognized an additional $ 12 million and $ 10 million , respectively of the cash settlement proceeds as a reduction in asbestos expense. Pursuant to the terms of a second settlement agreement, in the fourth quarter of fiscal year 2016 the company recorded a $ 12 million receivable to reflect expected reimbursement of future defense and indemnity payments under a coverage-in-place arrangement with that insurer. During the fourth quarter of fiscal year 2018, the company entered into a settlement agreement to resolve additional disputed coverage resulting from asbestos claims. On September 15, 2018, the company received $ 3 million in cash and $ 28 million recorded as an insurance receivable related to this settlement. The insurance receivables for Rockwell’s asbestos-related liabilities totaled $ 61 million and $ 68 million as of September 30, 2019 and 2018 , respectively. Included in the September 30, 2018 amount is an increase to previous settlement receivables resulting from the extended forecast horizon which led to a balance of $ 40 million for those previous settlement receivables as of September 30, 2018 .

The amounts recorded for the asbestos-related reserves and recoveries from insurance companies are based upon assumptions and estimates derived from currently known facts. All such estimates of liabilities and recoveries for asbestos-related claims are subject to considerable uncertainty because such liabilities and recoveries are influenced by variables that are difficult to predict. The future litigation environment for Rockwell could change significantly from its past experience, due, for example, to changes in the mix of claims filed against Rockwell in terms of plaintiffs’ law firm, jurisdiction and disease; legislative or regulatory developments; the company’s approach to defending claims; or payments to plaintiffs from other defendants. Estimated recoveries are influenced by coverage issues among insurers and the continuing solvency of various insurance companies. If the assumptions with respect to the estimation period, the nature of pending claims, the cost to resolve claims and the amount of available insurance prove to be incorrect, the actual amount of liability for Rockwell asbestos-related claims, and the effect on the company, could differ materially from current estimates and, therefore, could have a material impact on the company’s financial condition and results of operations.

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T he Rockwell legacy asbestos-related reserves and corresponding asbestos-related recoveries are summarized as follows (in millions):

	September 30,
	2019				2018
Pending and future claims	$	91			$	103
Billed but unpaid claims	2				2
Asbestos-related liabilities	$	93			$	105
Asbestos-related insurance recoveries	$	61			$	68

Assumptions: The following assumptions were made by the company after consultation with consultants and are included in the study:

•	Pending and future claims were estimated for a 40 year period ending in fiscal year 2059;

•	The litigation environment remains consistent throughout the forecast horizon;

•	On a per claim basis, defense and indemnity costs for pending and future claims will be at the level consistent with the company’s recent experience.

Indemnification

The company has agreed to indemnify others in conjunction with certain transactions, primarily divestitures. These indemnities address a variety of matters, which may include environmental, tax, asbestos and employment-related matters, and the periods of indemnification vary in duration.

The company is not aware of any other claims or other information that would give rise to material payments under such indemnities.

Other

The company defines its operating segments as components of its business where separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The company’s Chief Operating Decision Maker ("CODM") is the Chief Executive Officer.

In the second quarter of fiscal year 2019, the company realigned its operations resulting in a change to its operating and reportable segments. As of the second quarter of fiscal year 2019, the reportable segments are (1) Commercial Truck and (2) Aftermarket, Industrial and Trailer. Prior year reportable segment financial results have been recast for these changes.

The company has two reportable segments at September 30, 2019 , as follows:

•	The Commercial Truck segment supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, primarily for medium- and heavy-duty trucks and other applications in North America, South America, Europe and Asia Pacific. This segment also includes the company's aftermarket businesses in Asia Pacific and South America.

•	The Aftermarket, Industrial and Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement parts to commercial vehicle and industrial aftermarket customers, primarily in North America and Europe. In addition, this segment supplies drivetrain systems and certain components, including axles, drivelines, brakes and

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suspension systems for military, construction, bus and coach, fire and emergency and other applications in North America and Europe. It also supplies a variety of undercarriage products and systems for trailer applications in North America.

Segment adjusted EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring expense, asset impairment charges and other special items as determined by management. Segment adjusted EBITDA excludes unallocated legacy and corporate income (expense), net. The company uses segment adjusted EBITDA as the primary basis for the CODM to evaluate the performance of each of its reportable segments.

The accounting policies of the segments are the same as those applied in the Consolidated Financial Statements, except for the use of segment adjusted EBITDA. The company may allocate certain common costs, primarily corporate functions, between the segments differently than the company would for stand alone financial information prepared in accordance with GAAP. These allocated costs include expenses for shared services such as information technology, finance, communications, legal and human resources. The company does not allocate interest expense and certain legacy and other corporate costs not directly associated with the segment.

Segment information is summarized as follows (in millions):

	Commercial Truck				Aftermarket, Industrial and Trailer				Elims				Total
Fiscal year 2019 Sales:
External Sales	$	3,110			$	1,278			$	—			$	4,388
Intersegment Sales	142				35				( 177		)		—
Total Sales	$	3,252			$	1,313			$	( 177	)		$	4,388
Fiscal year 2018 Sales (1) :
External Sales	$	3,037			$	1,141			$	—			$	4,178
Intersegment Sales	135				35				( 170		)		—
Total Sales	$	3,172			$	1,176			$	( 170	)		$	4,178
Fiscal year 2017 Sales (1) :
External Sales	$	2,347			$	1,000			$	—			$	3,347
Intersegment Sales	122				32				( 154		)		—
Total Sales	$	2,469			$	1,032			$	( 154	)		$	3,347

(1)	Fiscal years 2018 and 2017 have been recast to reflect reportable segment changes.

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Segment adjusted EBITDA:	2019				2018 (2)				2017 (2)
Commercial Truck	$	327			$	337			$	224
Aftermarket, Industrial and Trailer	190				150				126
Segment adjusted EBITDA	517				487				350
Unallocated legacy and corporate income (expense), net (1)	3				( 13		)		( 3		)
Interest expense, net	( 57		)		( 67		)		( 119		)
Gain on sale of equity investment	—				—				243
Provision for income taxes	( 82		)		( 149		)		( 52		)
Depreciation and amortization	( 87		)		( 84		)		( 75		)
Loss on sale of receivables	( 6		)		( 5		)		( 5		)
Restructuring costs	( 8		)		( 6		)		( 6		)
AxleTech transactions costs (3)	( 6		)		—				—
Asbestos related items (4)	31				( 25		)		—
Pension settlement loss (5)	—				( 6		)		—
Asset impairment charges	( 10		)		( 3		)		( 4		)
Noncontrolling interests	( 5		)		( 9		)		( 4		)
Income from continuing operations attributable to Meritor, Inc.	$	290			$	120			$	325

(1)	Unallocated legacy and corporate income (expense), net represents items that are not directly related to the company's business segments. These items primarily include asbestos-related charges and settlements, pension and retiree medical costs associated with sold businesses, and other legacy costs for environmental and product liability.

(2)	Fiscal years 2018 and 2017 have been recast to reflect reportable segment changes.

(3)	Represents transaction fees.

(4)	The year ended September 30, 2019 includes $ 31 million related to the remeasurement of the Maremont net asbestos liability based on the Plan. The year ended September 30, 2018 includes $ 25 million related to the change in estimate resulting from change in estimated forecast horizon and an asbestos insurance settlement.

(5)	The year ended September 30, 2018 includes $ 6 million related to the U.K. pension settlement loss.

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Depreciation and Amortization:	2019				2018 (1)				2017 (1)
Commercial Truck	$	68			$	68			$	64
Aftermarket, Industrial and Trailer	19				16				11
Total depreciation and amortization	$	87			$	84			$	75
Capital Expenditures:	2019				2018 (1)				2017 (1)
Commercial Truck	$	82			$	83			$	79
Aftermarket, Industrial and Trailer	21				21				16
Total capital expenditures	$	103			$	104			$	95
	September 30,
Segment Assets:	2019				2018 (2)
Commercial Truck	$	1,659			$	1,764
Aftermarket, Industrial and Trailer	815				589
Total segment assets	2,474				2,353
Corporate (3)	567				633
Less: Accounts receivable sold under off-balance sheet factoring programs (4)	( 226		)		( 260		)
Total assets	$	2,815			$	2,726

(1)	Fiscal years 2018 and 2017 have been recast to reflect reportable segment changes.

(2)	Amounts as of September 30, 2018 have been recast to reflect reportable segment changes, including the reallocation of goodwill.

(3)	Corporate assets consist primarily of cash, deferred income taxes and prepaid pension costs.

(4)	At September 30, 2019 and September 30, 2018 , segments assets include $ 226 million and $ 260 million , respectively, of accounts receivable sold under off-balance sheet accounts receivable factoring programs (see Note 9). These sold receivables are included in segment assets as the CODM reviews segment assets inclusive of these balances.

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Sales by geographic area are based on the location of the selling unit. Information on the company’s geographic areas is summarized as follows (in millions):

Sales by Geographic Area:
	2019				2018				2017
U.S.	$	2,622			$	2,289			$	1,761
Canada	69				72				69
Mexico	249				221				234
Total North America	2,940				2,582				2,064
Sweden	276				311				273
Italy	234				243				210
United Kingdom	165				179				149
Other Europe	91				103				83
Total Europe	766				836				715
Brazil	248				224				168
China	153				196				127
India	197				231				184
Other Asia-Pacific	84				109				89
Total sales	$	4,388			$	4,178			$	3,347

Assets by Geographic Area:
	2019				2018
U.S.	$	1,504			$	1,350
Canada	39				36
Mexico	197				224
Total North America	1,740				1,610
Sweden	130				138
Italy	81				86
United Kingdom	241				263
Other Europe	173				171
Total Europe	625				658
Brazil	187				161
China	124				123
India	84				100
Other Asia-Pacific	55				74
Total	$	2,815			$	2,726

Sales to AB Volvo represented approximately 22 percent , 23 percent and 22 percent of the company’s sales in fiscal years 2019 , 2018 and 2017 , respectively. Sales to Daimler AG represented approximately 19 percent , 17 percent and 17 percent of the company’s sales in fiscal years 2019 , 2018 and 2017 , respectively. Sales to PACCAR represented approximately 13 percent , 12 percent and 10 percent of the company's sales in fiscal years 2019 , 2018 and 2017 , respectively. Sales to Navistar represented approximately 10 percent , 9 percent and 9 percent of the company’s sales in fiscal years 2019 , 2018 and 2017 , respectively. No other customer comprised 10 percent or more of the company’s total sales in any of the three fiscal years ended September 30, 2019 .

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The following is a condensed summary of the company’s unaudited quarterly results of continuing operations for fiscal years 2019 and 2018 . Per share amounts are based on the weighted average shares outstanding for that quarter. Earnings per share for the year may not equal the sum of the four fiscal quarters’ earnings per share due to changes in basic and diluted shares outstanding.

	2019 Fiscal Quarters (Unaudited)
	First				Second				Third				Fourth				2019
	(In millions, except share related data)
Sales	$	1,038			$	1,156			$	1,166			$	1,028			$	4,388
Cost of sales	( 897		)		( 982		)		( 987		)		( 882		)		( 3,748		)
Gross margin	141				174				179				146				640
Provision for income taxes	( 21		)		( 27		)		( 21		)		( 13		)		( 82		)
Net income	92				74				89				41				296
Net income from continuing operations attributable to Meritor, Inc.	90				73				85				42				290
Net income attributable to Meritor, Inc.	90				72				86				43				291
Basic earnings per share from continuing operations	$	1.06			$	0.88			$	1.02			$	0.51			$	3.49
Diluted earnings per share from continuing operations	$	1.03			$	0.85			$	0.99			$	0.50			$	3.36

The company recognized restructuring income and costs in its continuing operations during fiscal year 2019 as follows: an insignificant amount in the first quarter, $ 1 million of income in the second quarter, $ 1 million of income in the third quarter and $ 10 million of restructuring costs in the fourth quarter (see Note 8). During the first quarter of fiscal year 2019 a $ 31 million adjustment was made relating to the remeasurement of the Maremont asbestos liability based on the Plan. The year ended September 30, 2019 includes $ 12 million of non-cash tax benefit related to the one-time deemed repatriation of accumulated foreign earnings and a one-time net charge of $ 9 million recorded for an election made that will allow for a future tax-free repatriation of cash to the United States.

	2018 Fiscal Quarters (Unaudited) (1)
	First				Second				Third				Fourth				2018
	(In millions, except share related data)
Sales	$	903			$	1,066			$	1,129			$	1,080			$	4,178
Cost of sales	( 771		)		( 895		)		( 959		)		( 928		)		( 3,553		)
Gross margin	132				171				170				152				625
Provision for income taxes	( 83		)		( 22		)		( 26		)		( 18		)		( 149		)
Net income (loss)	( 34		)		60				67				33				126
Net income (loss) from continuing operations attributable to Meritor, Inc.	( 35		)		57				66				32				120
Net income (loss) attributable to Meritor, Inc.	( 36		)		57				64				32				117
Basic earnings (loss) per share from continuing operations	$	( 0.40	)		$	0.64			$	0.76			$	0.37			$	1.37
Diluted earnings (loss) per share from continuing operations	$	( 0.40	)		$	0.63			$	0.73			$	0.36			$	1.31

⁽¹⁾ Amounts for the 2018 fiscal quarters have been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715).

The company recognized restructuring costs in its continuing operations during fiscal year 2018 as follows: $ 2 million in the first quarter, $ 1 million in the second quarter, $ 3 million in the third quarter and no restructuring costs in the fourth quarter (see Note 8). During the fourth quarter of fiscal year 2018, the company recognized a $ 6 million loss associated with the UK pension settlement. During the fourth quarter of fiscal year 2018, the company recognized $ 25 million net expense, related to the change

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in estimate resulting from change in estimated forecast horizon and an asbestos insurance settlement. The year ended September 30, 2018 includes $ 57 million of non-cash tax expense related to the revaluation of the company's deferred tax assets and liabilities as a result of the U.S. tax reform, $ 26 million of non-cash tax expense related to the one-time deemed repatriation of accumulated foreign earnings and $ 6 million of non-cash tax expense related to other adjustments. During the fourth quarter of fiscal year 2018, the company recognized a $ 9 million reversal of a Brazil valuation allowance, partially offset by a $ 2 million increase in valuation allowances for certain U.S. state jurisdictions.

	Year Ended September 30,
	2019				2018				2017
	(in millions)
OPERATING ACTIVITIES
Net income	$	296			$	126			$	328
Less: Income (loss) from discontinued operations, net of tax	1				( 3		)		( 1		)
Income from continuing operations	295				129				329
Adjustments to income from continuing operations to arrive at cash provided by operating activities:
Depreciation and amortization	87				84				75
Deferred income tax expense	40				74				38
Restructuring costs	8				6				6
Loss on debt extinguishment	—				8				36
Asset impairment	10				3				4
Equity in earnings of affiliates	( 31		)		( 27		)		( 48		)
Stock compensation expense	18				20				19
Provision for doubtful accounts	—				( 1		)		1
Pension and retiree medical expense (income)	( 37		)		( 31		)		11
Pension settlement loss	—				6				—
Asbestos related liability remeasurement	( 31		)		—				—
Contribution to Maremont trust	( 48		)		—				—
Gain on sale of equity method investment	—				—				( 243		)
Dividends received from equity method investments	23				17				44
Pension and retiree medical contributions	( 16		)		( 21		)		( 38		)
Restructuring payments	( 5		)		( 8		)		( 15		)
Changes in off-balance sheet receivable securitization and factoring programs	( 18		)		11				26
Changes in assets and liabilities, excluding effects of acquisitions, divestitures, foreign currency adjustments and discontinued operations:
Receivables	80				( 98		)		( 160		)
Inventories	9				( 112		)		( 43		)
Accounts payable	( 103		)		97				133
Other current assets and liabilities	( 3		)		36				16
Other assets and liabilities	( 22		)		59				( 12		)
Operating cash flows provided by continuing operations	256				252				179
Operating cash flows used for discontinued operations	—				( 1		)		( 3		)
CASH PROVIDED BY OPERATING ACTIVITIES	$	256			$	251			$	176

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	September 30,
	2019				2018				2017
	(In millions)
Balance sheet data:
Allowance for doubtful accounts	$	3			$	4			$	5
Statement of operations data:
Maintenance and repairs expense	55				52				46
Research, development and engineering expense	75				73				69
Depreciation expense	76				74				67
Rental expense	19				18				14
Interest income	4				3				3
Interest expense	( 61		)		( 70		)		( 122		)
Statement of cash flows data:
Interest payments, net of receipts	41				49				75
Income tax payments, net of refunds	64				33				22
Non-cash investing activities - capital asset additions from capital leases	—				4				—

Article 3-10 of Regulation S-X (S-X Rule 3-10) requires that separate financial information for issuers and guarantors of registered securities be filed in certain circumstances. Certain of the company's 100 % owned subsidiaries, as defined in the credit agreement (the "Guarantors") irrevocably and unconditionally guarantee amounts outstanding under the senior secured revolving credit facility on a joint and several basis. Similar subsidiary guarantees were provided for the benefit of the holders of the publicly-held notes outstanding under the company's indentures (see Note 18).

Schedule I of Article 5-04 of Regulation S-X (S-X Rule 5-04) requires that condensed financial information of the registrant ("Parent") be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. As of September 30, 2019 , net assets of certain subsidiaries in China and India and certain unconsolidated subsidiaries that are restricted by law from transfer by cash dividends, loans or advances to Meritor, Inc did not exceed 25 percent of the consolidated net assets of Meritor, Inc. As of September 30, 2019 the amount of the net assets restricted from transfer by law was $ 73 million .

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

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In millions)
	Fiscal Year Ended September 30, 2019
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
Sales
External	$	—			$	2,621			$	1,767			$	—			$	4,388
Subsidiaries	—				110				201				( 311		)		—
Total sales	—				2,731				1,968				( 311		)		4,388
Cost of sales	( 65		)		( 2,298		)		( 1,696		)		311				( 3,748		)
GROSS MARGIN	( 65		)		433				272				—				640
Selling, general and administrative	( 92		)		( 127		)		( 37		)		—				( 256		)
Restructuring costs	—				( 6		)		( 2		)		—				( 8		)
Other operating expense, net	( 3		)		( 10		)		—				—				( 13		)
OPERATING INCOME (LOSS)	( 160		)		290				233				—				363
Other income (expense), net	50				36				( 46		)		—				40
Equity in earnings of affiliates	—				21				10				—				31
Interest income (expense), net	( 130		)		47				26				—				( 57		)
INCOME (LOSS) BEFORE INCOME TAXES	( 240		)		394				223				—				377
Benefit (provision) for income taxes	53				( 84		)		( 51		)		—				( 82		)
Equity income from continuing operations of subsidiaries	477				108				—				( 585		)		—
INCOME FROM CONTINUING OPERATIONS	290				418				172				( 585		)		295
LOSS FROM DISCONTINUED OPERATIONS, net of tax	1				—				—				—				1
NET INCOME	291				418				172				( 585		)		296
Less: Net income attributable to noncontrolling interests	—				—				( 5		)		—				( 5		)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	291			$	418			$	167			$	( 585	)		$	291

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In millions)
	Fiscal Year Ended September 30, 2019
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
Net income	$	291			$	418			$	172			$	( 585	)		$	296
Other comprehensive income, net of tax	( 115		)		( 62		)		( 64		)		125				( 116		)
Total comprehensive income	176				356				108				( 460		)		180
Less: Comprehensive income attributable to noncontrolling interests	—				—				( 4		)		—				( 4		)
Comprehensive income attributable to Meritor, Inc.	$	176			$	356			$	104			$	( 460	)		$	176

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In millions)
	Fiscal Year Ended September 30, 2018 (1)
	Parent				Guarantors				Non-Guarantors				Elims				Consolidated
Sales
External	$	—			$	2,290			$	1,888			$	—			$	4,178
Subsidiaries	—				143				219				( 362		)		—
Total sales	—				2,433				2,107				( 362		)		4,178
Cost of sales	( 74		)		( 2,037		)		( 1,804		)		362				( 3,553		)
GROSS MARGIN	( 74		)		396				303				—				625
Selling, general and administrative	( 91		)		( 104		)		( 118		)		—				( 313		)
Restructuring costs	( 1		)		( 3		)		( 2		)		—				( 6		)
Other operating expense, net	( 14		)		( 1		)		1				—				( 14		)
OPERATING INCOME (LOSS)	( 180		)		288				184				—				292
Other income (expense), net	77				17				( 68		)		—				26
Equity in earnings of affiliates	—				19				8				—				27
Interest income (expense), net	( 118		)		29				22				—				( 67		)
INCOME (LOSS) BEFORE INCOME TAXES	( 221		)		353				146				—				278
Benefit (provision) for income taxes	( 2		)		( 81		)		( 66		)		—				( 149		)
Equity income from continuing operations of subsidiaries	343				88				—				( 431		)		—
INCOME FROM CONTINUING OPERATIONS	120				360				80				( 431		)		129
LOSS FROM DISCONTINUED OPERATIONS, net of tax	( 3		)		( 1		)		( 1		)		2				( 3		)
NET INCOME	117				359				79				( 429		)		126
Less: Net income attributable to noncontrolling interests	—				—				( 9		)		—				( 9		)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	117			$	359			$	70			$	( 429	)		$	117

⁽¹⁾ Prior period has been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715).

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In millions)
	Fiscal Year Ended September 30, 2018 (1)
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
Net income	$	117			$	359			$	79			$	( 429	)		$	126
Other comprehensive income, net of tax	( 21		)		( 42		)		( 41		)		81				( 23		)
Total comprehensive income	96				317				38				( 348		)		103
Less: Comprehensive income attributable to noncontrolling interests	—				—				( 7		)		—				( 7		)
Comprehensive income attributable to Meritor, Inc.	$	96			$	317			$	31			$	( 348	)		$	96

⁽¹⁾ Prior period has been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715).

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In millions)
	Fiscal Year Ended September 30, 2017 (1)
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
Sales
External	$	—			$	1,762			$	1,585			$	—			$	3,347
Subsidiaries	—				123				149				( 272		)		—
Total sales	—				1,885				1,734				( 272		)		3,347
Cost of sales	( 37		)		( 1,583		)		( 1,502		)		272				( 2,850		)
GROSS MARGIN	( 37		)		302				232				—				497
Selling, general and administrative	( 82		)		( 100		)		( 84		)		—				( 266		)
Restructuring costs	2				( 2		)		( 6		)		—				( 6		)
Other operating expense, net	( 3		)		( 1		)		( 3		)		—				( 7		)
OPERATING INCOME (LOSS)	( 120		)		199				139				—				218
Other income (expense), net	14				( 11		)		( 12		)		—				( 9		)
Gain on sale of equity investment	—				243				—				—				243
Equity in earnings of affiliates	—				42				6				—				48
Interest income (expense), net	( 168		)		35				14				—				( 119		)
INCOME (LOSS) BEFORE INCOME TAXES	( 274		)		508				147				—				381
Benefit (provision) for income taxes	96				( 126		)		( 22		)		—				( 52		)
Equity income from continuing operations of subsidiaries	503				114				—				( 617		)		—
INCOME FROM CONTINUING OPERATIONS	325				496				125				( 617		)		329
LOSS FROM DISCONTINUED OPERATIONS, net of tax	( 1		)		( 1		)		( 1		)		2				( 1		)
NET INCOME	324				495				124				( 615		)		328
Less: Net income attributable to noncontrolling interests	—				—				( 4		)		—				( 4		)
NET INCOME ATTRIBUTABLE TO MERITOR, INC.	$	324			$	495			$	120			$	( 615	)		$	324

⁽¹⁾ Prior period has been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715).

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In millions)
	Fiscal Year Ended September 30, 2017 (1)
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
Net income	$	324			$	495			$	124			$	( 615	)		$	328
Other comprehensive income, net of tax	264				21				23				( 44		)		264
Total comprehensive income	588				516				147				( 659		)		592
Less: Comprehensive income attributable to noncontrolling interests	—				—				( 4		)		—				( 4		)
Comprehensive income attributable to Meritor, Inc.	$	588			$	516			$	143			$	( 659	)		$	588

⁽¹⁾ Prior period has been recast for ASU 2017-07, Compensation Retirement Benefits (Topic 715).

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING BALANCE SHEET (In millions)
	September 30, 2019
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	4			$	4			$	100			$	—			$	108
Receivables, trade and other, net	3				92				456				—				551
Inventories	—				292				234				—				526
Other current assets	6				10				15				—				31
TOTAL CURRENT ASSETS	13				398				805				—				1,216
NET PROPERTY	21				260				234				—				515
GOODWILL	—				337				141				—				478
OTHER ASSETS	170				225				211				—				606
INVESTMENTS IN SUBSIDIARIES	4,432				899				—				( 5,331		)		—
TOTAL ASSETS	$	4,636			$	2,119			$	1,391			$	( 5,331	)		$	2,815
CURRENT LIABILITIES
Short-term debt	$	32			$	—			$	9			$	—			$	41
Accounts and notes payable	53				283				274				—				610
Other current liabilities	77				109				99				—				285
TOTAL CURRENT LIABILITIES	162				392				382				—				936
LONG-TERM DEBT	898				—				4				—				902
RETIREMENT BENEFITS	312				1				23				—				336
INTERCOMPANY PAYABLE (RECEIVABLE)	2,833				( 3,005		)		172				—				—
OTHER LIABILITIES	46				112				68				—				226
MEZZANINE EQUITY	—				—				—				—				—
EQUITY ATTRIBUTABLE TO MERITOR, INC.	385				4,619				712				( 5,331		)		385
NONCONTROLLING INTERESTS	—				—				30				—				30
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	4,636			$	2,119			$	1,391			$	( 5,331	)		$	2,815

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING BALANCE SHEET (In millions)
	September 30, 2018
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
CURRENT ASSETS
Cash and cash equivalents	$	24			$	6			$	85			$	—			$	115
Receivables, trade and other, net	2				62				524				—				588
Inventories	—				242				235				—				477
Other current assets	6				12				28				—				46
TOTAL CURRENT ASSETS	32				322				872				—				1,226
NET PROPERTY	24				241				218				—				483
GOODWILL	—				250				171				—				421
OTHER ASSETS	179				182				235				—				596
INVESTMENTS IN SUBSIDIARIES	3,583				855				—				( 4,438		)		—
TOTAL ASSETS	$	3,818			$	1,850			$	1,496			$	( 4,438	)		$	2,726
CURRENT LIABILITIES
Short-term debt	$	47			$	—			$	47			$	—			$	94
Accounts and notes payable	64				297				339				—				700
Other current liabilities	77				71				142				—				290
TOTAL CURRENT LIABILITIES	188				368				528				—				1,084
LONG-TERM DEBT	726				—				4				—				730
RETIREMENT BENEFITS	241				—				21				—				262
INTERCOMPANY PAYABLE (RECEIVABLE)	2,325				( 2,640		)		315				—				—
OTHER LIABILITIES	50				124				158				—				332
MEZZANINE EQUITY	1				—				—				—				1
EQUITY ATTRIBUTABLE TO MERITOR, INC.	287				3,998				440				( 4,438		)		287
NONCONTROLLING INTERESTS	—				—				30				—				30
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY	$	3,818			$	1,850			$	1,496			$	( 4,438	)		$	2,726

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In millions)
	Fiscal Year Ended September 30, 2019
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES	$	91			$	49			$	116			$	—			$	256
INVESTING ACTIVITIES
Capital expenditures	( 4		)		( 50		)		( 49		)		—				( 103		)
Cash paid for investment in Transportation Power, Inc.	( 6		)		—				—				—				( 6		)
Cash paid for business acquisitions, net of cash acquired	( 168		)		—				—				—				( 168		)
Other investing activities	6				—				—				—				6
CASH (USED FOR) INVESTING ACTIVITIES	( 172		)		( 50		)		( 49		)		—				( 271		)
FINANCING ACTIVITIES
Securitization	—				—				( 38		)		—				( 38		)
Redemption of notes	( 24		)		—				—				—				( 24		)
Term loan borrowings	175				—				—				—				175
Intercompany advances	11				—				( 11		)		—				—
Repurchase of common stock	( 96		)		—				—				—				( 96		)
Deferred issuance costs	( 4		)		—				—				—				( 4		)
Other financing activities	( 1		)		( 1		)		—				—				( 2		)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES	61				( 1		)		( 49		)		—				11
EFFECT OF CHANGES IN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	—				—				( 3		)		—				( 3		)
CHANGE IN CASH AND CASH EQUIVALENTS	( 20		)		( 2		)		15				—				( 7		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	24				6				85				—				115
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	4			$	4			$	100			$	—			$	108

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In millions)
	Fiscal Year Ended September 30, 2018
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES	$	59			$	55			$	137			$	—			$	251
INVESTING ACTIVITIES
Capital expenditures	( 10		)		( 49		)		( 45		)		—				( 104		)
Cash paid for business acquisitions, net of cash acquired	( 35		)		—				—				—				( 35		)
Cash paid for investment in Transportation Power, Inc.	( 6		)		—				—				—				( 6		)
Proceeds from sale of equity method investment	250				—				—				—				250
Other investing activities	4				—				2				—				6
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES	203				( 49		)		( 43		)		—				111
FINANCING ACTIVITIES
Securitization	—				—				( 43		)		—				( 43		)
Redemption of notes	( 181		)		—				—				—				( 181		)
Repurchase of common stock	( 100		)		—				—				—				( 100		)
Other financing activities	( 2		)		( 3		)		—				—				( 5		)
Intercompany advances	35				—				( 35		)		—				—
CASH USED FOR FINANCING ACTIVITIES	( 248		)		( 3		)		( 78		)		—				( 329		)
EFFECT OF CHANGES IN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	—				—				( 6		)		—				( 6		)
CHANGE IN CASH AND CASH EQUIVALENTS	14				3				10				—				27
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	10				3				75				—				88
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	24			$	6			$	85			$	—			$	115

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MERITOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In millions)
	Fiscal Year Ended September 30, 2017
	Parent				Guarantors				Non- Guarantors				Elims				Consolidated
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES	$	33			$	85			$	58			$	—			$	176
INVESTING ACTIVITIES
Capital expenditures	( 9		)		( 51		)		( 35		)		—				( 95		)
Cash paid for business acquisitions, net of cash acquired	—				( 32		)		( 2		)		—				( 34		)
Net investing cash flows provided by discontinued operations	—				2				—				—				2
CASH USED FOR INVESTING ACTIVITIES	( 9		)		( 81		)		( 37		)		—				( 127		)
FINANCING ACTIVITIES
Securitization	—				—				89				—				89
Proceeds from debt issuance	325				—				—				—				325
Redemption of notes	( 103		)		—				—				—				( 103		)
Repayment of notes and term loan	( 408		)		—				—				—				( 408		)
Other financing activities	( 1		)		( 3		)		( 9		)		—				( 13		)
Debt issuance costs	( 12		)		—				—				—				( 12		)
Intercompany advances	95				—				( 95		)		—				—
CASH USED FOR FINANCING ACTIVITIES	( 104		)		( 3		)		( 15		)		—				( 122		)
EFFECT OF CHANGES IN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	—				—				1				—				1
CHANGE IN CASH AND CASH EQUIVALENTS	( 80		)		1				7				—				( 72		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	90				2				68				—				160
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	10			$	3			$	75			$	—			$	88

Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. As of September 30, 2019 and 2018 , Parent-only obligations included $ 315 million and $ 248 million , respectively, of pension and retiree medical benefits (see Notes 22 and 23). All debt is debt of the Parent other than $ 13 million and $ 51 million at September 30, 2019 and 2018 , respectively, (see Note 18) and is primarily related to capital lease obligations and lines of credit. Cash dividends paid to the parent by subsidiaries and investments accounted for by the equity method were $ 29 million , $ 29 million and $ 1 million for 2019 , 2018 , and 2017 , respectively.

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1

In addition to stock options, shares of common stock, restricted shares of common stock, restricted share units and performance share units, all of which do not have an exercise price, have been awarded under the Company’s equity compensation plans and were outstanding at September 30, 2019. The number of weighted average shares in column (a) and the weighted average exercise price reported in column (b) does not take these awards into account.

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*

The 2010 Long-Term Incentive Plan was approved by the Company’s shareholders on January 28, 2010. At that time, the 2007 Long-Term Incentive Plan and the 2004 Directors Stock Plan were terminated. No further awards will be made under those plans, and no stock awards will be made under the Incentive Compensation Plan. On January 20, 2011, January 23, 2014 and January 26, 2017, the Company’s shareholders approved amendments to the 2010 Long-Term Incentive Plan to increase the maximum number of shares that may be granted under the plan. Earlier equity compensation plans were terminated on January 26, 2007, in connection with the approval of the 2007 Long-Term Incentive Plan by the Company’s shareholders.

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