Three Months Ended June
                                                           30,                Percent
                                                   2012          2011          Change
Commercial Vehicles (in thousands)
North America, Heavy-Duty Trucks                       75            61            23  %
North America, Medium-Duty Trucks                      45            45             -  %
United States, Trailers                                62            52            19  %
Western Europe, Heavy- and Medium-Duty Trucks          91           104           (13 )%
South America, Heavy- and Medium-Duty Trucks           42            51           (18 )%

We expect production volumes in North America to continue to remain at levels experienced since the second half of fiscal year 2011 (which were higher than they were during the first half of fiscal year 2011) and production volumes in Europe to continue to be at lower levels than those in fiscal year 2011. Beginning in second quarter of fiscal year 2012, production volumes in South America declined significantly as the industry transitioned to tighter emission standard requirements for commercial vehicles. The recovery of production volumes has been slower than previously expected, and we do not expect production volumes in South America to return to 2011 levels during fiscal year 2012. Production volumes in the Asia-Pacific region, more specifically China and India, have decreased compared to levels experienced in fiscal year 2011, and there is no certainty as to when these volumes will return to the levels previously experienced.
Sales for our primary military program were at their peak during the third quarter of fiscal year 2012. This program is expected to wind down over the next few years. We are working to secure our participation in new military programs with various OEMs. However, failure to secure new military contracts could have a longer-term negative impact on our Industrial Segment. In addition, even if sales of our military programs do return to historic levels, the levels of profitability on these sales could be lower than what we have recognized in recent periods.
Industry-Wide Issues
Our business continues to address a number of other challenging industry-wide issues including the following:
• Continued strong demand for commercial truck production in North America and impact on the ability to support customer demand;

• Uncertainty around the market outlook in South America, Europe, China and India;

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

• Disruptions in the financial markets and their impact on the availability and cost of credit;

• Higher energy and transportation costs;

• Consolidation and globalization of OEMs and their suppliers; and

• Significant pension and retiree medical health care costs.

Other
Other significant factors that could affect our results and liquidity in fiscal year 2012 include:
• Ability to manage possible adverse effects on our European operations, or financing arrangements related thereto, in the event one or more countries exit the European monetary union;

• Ability to work with our commercial truck 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;

• Higher than planned price reductions to our customers;

• Potential price increases from our suppliers;

• Additional restructuring actions and the timing and recognition of restructuring charges;

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

• Our ability to implement planned productivity, cost reduction, and other margin improvement initiatives;

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

• Impact of currency exchange rate volatility in the markets in which we operate;

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

NON-GAAP FINANCIAL MEASURES
In addition to the results reported in accordance with accounting principles generally accepted in the United States (GAAP), we have provided information regarding non-GAAP financial measures. These non-GAAP financial measures include Adjusted income (loss) from continuing operations and Adjusted diluted earnings
(loss) per share from continuing operations, Adjusted EBITDA, Adjusted EBITDA margin, Free cash flow and Free cash flow from continuing operations before restructuring payments.

Adjusted income (loss) from continuing operations and Adjusted diluted earnings
(loss) per share from continuing operations are defined as reported income or loss from continuing operations and reported diluted earnings or loss per share from continuing operations before restructuring expenses, asset impairment charges and other special items as determined by management. Adjusted EBITDA is defined as income (loss) from continuing operations before interest, income taxes, depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring expenses, asset impairment charges and other special items as determined by management. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by consolidated sales. Free cash flow is defined as cash flows provided by (used for) operating activities less capital expenditures. Management believes Adjusted EBITDA and Adjusted income (loss) from continuing operations are meaningful measures of performance as they are commonly utilized by management and investors to analyze ongoing operating performance and entity valuation. Management, the investment community and banking institutions routinely use Adjusted EBITDA, together with other measures, to measure operating performance in our industry. Further, management uses Adjusted EBITDA for planning and forecasting future periods. In addition, we use Segment EBITDA as the primary basis to evaluate the performance of each of our reportable segments. Management believes that Free cash flow is useful in analyzing our ability to service and repay debt. Adjusted income (loss) from continuing operations and Adjusted diluted earnings (loss) per share from continuing operations and Adjusted EBITDA should not be considered a substitute for the reported results prepared in accordance with GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. Free cash flow should not be considered a substitute for cash provided by (used for) operating activities, or other cash flow statement data prepared in accordance with GAAP, or as a measure of financial position or liquidity. In addition, these non-GAAP cash flow measures do not reflect cash used to service debt or cash received from the divestitures of businesses or sales of other assets and thus do not reflect funds available for investment or other discretionary uses. These non-GAAP financial measures, as determined and presented by the company, may not be comparable to related or similarly titled measures reported by other companies. Set forth below are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP. Adjusted income from continuing operations and Adjusted diluted earnings per share are reconciled to income from continuing operations and diluted earnings per share below (in millions, except per share amounts).

                                             Three Months Ended               Nine Months Ended
                                                  June 30,                        June 30,
                                            2012             2011            2012            2011
Adjusted income from continuing
operations                             $        37       $       29     $        80      $       39
Restructuring costs                             (3 )             (7 )           (30 )           (15 )
Gain on the sale of property                    16                -              16               -
Other loss related to LVS divestitures           -                -               -              (2 )
Gain on settlement of note receivable            -                5               -               5
Income from continuing operations      $        50       $       27     $        66      $       27
Adjusted diluted earnings per share
from continuing operations             $      0.38       $     0.30     $      0.82      $     0.41
Impact of adjustments on diluted
earnings per share                            0.13            (0.02 )         (0.14 )         (0.13 )
Diluted earnings per share from
continuing operations                  $      0.51       $     0.28     $      0.68      $     0.28

                                 MERITOR, INC.


Free cash flow and Free cash flow from continuing operations before
restructuring payments are reconciled to cash flows provided by (used for)
operating activities below (in millions).
                                              Three Months Ended                 Nine Months Ended
                                                   June 30,                          June 30,
                                            2012              2011             2012             2011
Cash provided by operating activities
- continuing operations                $        73       $        44      $        35       $        37
Capital expenditures - continuing
operations                                     (22 )             (26 )            (65 )             (68 )
Free cash flow - continuing operations          51                18              (30 )             (31 )
Cash used for operating activities -
discontinued operations                         (5 )             (19 )            (13 )             (56 )
Capital expenditures - discontinued
operations                                       -                 -                -                (6 )
Free cash flow - discontinued
operations                                      (5 )             (19 )            (13 )             (62 )
Free cash flow - total company         $        46       $        (1 )    $       (43 )     $       (93 )
Free cash flow - continuing operations $        51       $        18      $       (30 )     $       (31 )
Restructuring payments - continuing
operations                                       5                 3               15                10
Free cash flow from continuing
operations before restructuring
payments                               $        56       $        21      $       (15 )     $       (21 )

                                 MERITOR, INC.

  Adjusted EBITDA is reconciled to net income attributable to Meritor, Inc. in
"Results of Operations" below.
Results of Operations
The following is a summary of our financial results is (in millions, except per
share amounts):
                                          Three Months Ended              Nine Months Ended
                                               June 30,                        June 30,
                                          2012            2011           2012            2011
SALES:
Commercial Truck                     $       690      $      770     $     2,134     $    2,038
Industrial                                   242             308             779            844
Aftermarket & Trailer                        265             278             763            746
Intersegment Sales                           (84 )           (84 )          (244 )         (223 )
SALES                                $     1,113      $    1,272     $     3,432     $    3,405
SEGMENT EBITDA:
Commercial Truck                     $        48      $       49     $       144     $      122
Industrial                                    20              21              53             56
Aftermarket & Trailer                         25              36              73             81
SEGMENT EBITDA                                93             106             270            259
Unallocated legacy and corporate
costs (1)                                     (1 )            (3 )            (4 )           (9 )
ADJUSTED EBITDA                               92             103             266            250
Interest expense, net                        (25 )           (22 )           (72 )          (73 )
Provision for income taxes                   (12 )           (28 )           (49 )          (69 )
Depreciation and amortization                (15 )           (16 )           (48 )          (49 )
Restructuring costs                           (3 )            (7 )           (30 )          (15 )
Loss on sale of receivables                   (1 )            (3 )            (7 )           (6 )
Gain on the sale of property                  16               -              16              -
Other, net                                     -               5               -              3
Noncontrolling interests                      (2 )            (5 )           (10 )          (14 )
INCOME FROM CONTINUING OPERATIONS,
attributable to Meritor, Inc.        $        50      $       27     $        66     $       27
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, net of tax, attributable
to Meritor, Inc.                              (1 )           (10 )           (19 )            5
NET INCOME attributable to Meritor,
Inc.                                 $        49      $       17     $        47     $       32
DILUTED EARNINGS (LOSS) PER SHARE
Attributable to Meritor, Inc.
Continuing operations                $      0.51      $     0.28     $      0.68     $     0.28
Discontinued operations                    (0.01 )         (0.10 )         (0.20 )         0.05
Diluted earnings per share           $      0.50      $     0.18     $      0.48     $     0.33
DILUTED AVERAGE COMMON SHARES
OUTSTANDING                                 97.2            96.8            97.2           96.9

(1) Unallocated legacy and corporate costs represent items that are not directly related to our business segments and include pension and retiree medical costs associated with sold businesses and other legacy costs for environmental and product liability matters.

                                 MERITOR, INC.

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011
  Sales
The following table reflects total company and business segment sales for the
three months ended June 30, 2012 and 2011. The reconciliation is intended to
reflect the trend in business segment sales and to illustrate the impact that
changes in foreign currency exchange rates, volumes and other factors had on
sales. Business segment sales include intersegment sales (in millions).
                                                                      Dollar Change Due To
                            June 30,           Dollar       %                       Volume /
                        2012        2011       Change    Change     Currency         Other
Sales:
Commercial Truck      $   690     $   770     $  (80 )    (10 )%   $    (47 )     $      (33 )
Industrial                242         308        (66 )    (21 )%         (8 )            (58 )
Aftermarket & Trailer     265         278        (13 )     (5 )%        (10 )             (3 )
Intersegment Sales        (84 )       (84 )        -        -  %          8               (8 )
TOTAL SALES           $ 1,113     $ 1,272     $ (159 )    (13 )%   $    (57 )     $     (102 )

Commercial Truck sales were $690 million in the third quarter of fiscal year 2012, down 10 percent compared to the third quarter of fiscal year 2011. North American industry-wide production volumes for heavy-duty trucks increased 23 percent in the third quarter of fiscal year 2012 as compared to the same period a year ago. However, the increase in sales in North America associated with the higher production volumes was largely offset by lower sales in South America and Europe as industry-wide production volumes in these regions were down 18 percent and 13 percent, respectively. In South America, the industry transitioned to tighter emission standard requirements for commercial vehicles resulting in lower production volumes beginning in our second quarter of fiscal year 2012. The recovery of production volumes has been slower than previously expected, and we do not expect production volumes in South America to return to 2011 levels during fiscal year 2012. The effects of foreign currency exchange rates decreased sales by $47 million compared to the same period a year ago as the U.S. dollar strengthened against other currencies compared to the prior year.
Industrial sales were $242 million in the third quarter of fiscal year 2012, a decrease of $66 million compared to the third quarter of fiscal year 2011. The decrease in sales is primarily due to lower sales in our Asia-Pacific region, primarily in China and India.
Aftermarket & Trailer sales were $265 million in the third quarter of fiscal year 2012, slightly down from $278 million in the third quarter of fiscal year 2011. The decrease in sales is primarily due to the impact of foreign currency translation, which decreased sales by $10 million compared to the prior year. In addition, sales of our core aftermarket replacement products in the North American and European markets were lower, which were partially offset by higher sales of our products for trailer applications. Cost of Sales and Gross Profit
Cost of sales primarily represents materials, labor and overhead production costs associated with the company's products and production facilities. Cost of sales for the three months ended June 30, 2012 was $981 million compared to $1,137 million in the prior year, representing a decrease of 14 percent. The decrease in costs of sales is primarily due to lower sales, which decreased by 13 percent, and the lower fixed costs resulting from the rationalization of our European manufacturing footprint as well as improvements in our operations. Total cost of sales was approximately 88 percent and 89 percent of sales for the three month periods ended June 30, 2012 and 2011, respectively.
The following table summarizes significant factors contributing to the changes in costs of sales during third quarter of fiscal year 2012 compared to the same quarter in the prior year (in millions):

                             Cost of Sales
Quarter ended June 30, 2011 $       1,137
Volume, mix and other, net           (105 )
Foreign exchange                      (51 )
Quarter ended June 30, 2012 $         981

                                 MERITOR, INC.


   Changes in the components of cost of sales year over year are summarized as
follows (in millions):
Lower material costs             $ (123 )
Lower labor and overhead costs      (34 )
Other, net                            1
Total decrease in costs of sales $ (156 )

Material costs represent the majority of our cost of sales and include raw materials, composed primarily of steel and purchased components. Material costs for the three months ended June 30, 2012 decreased by approximately $123 million compared to the same period last year primarily as a result of lower sales. Global steel prices were relatively stable in the third quarter of fiscal year 2012 as compared to the third quarter of fiscal year 2011.
Labor and overhead costs decreased by $34 million compared to the same period in the prior year. The decrease was primarily due to lower sales in the third quarter of fiscal year 2012. In addition, savings associated with the rationalization of our European manufacturing operations, including the sale of the St. Priest, France facility, as well as continuous improvement initiatives contributed to the decrease in labor and overhead costs.
Gross profit for the three months ended June 30, 2012 was $132 million compared to $135 million in the same period last year. Gross profit, as a percentage of sales, for the quarter ended June 30, 2012 was 11.9 percent compared to 10.6 percent for the three months ended June 30, 2011. Gross margins improved in the third quarter of fiscal year 2012 primarily due to improvements in Commercial Truck pricing and rationalization of the European manufacturing footprint.
Other Income Statement Items
Selling, general and administrative expenses for the three months ended June 30, 2012 and 2011 are summarized as follows (in millions):

                             Three Months Ended             Three Months Ended
                               June 30, 2012                  June 30, 2011                Increase (Decrease)
SG&A                       Amount        % of sales       Amount        % of sales
Loss on sale of
receivables             $       (1 )         (0.1 )%   $       (3 )         (0.2 )%   $       (2 )     (0.1)pts
Short- and long-term
variable
compensation                    (5 )         (0.5 )%           (7 )         (0.6 )%           (2 )     (0.1)pts
All other SG&A                 (62 )         (5.5 )%          (62 )         (4.9 )%            -       0.6pts
Total SG&A              $      (68 )         (6.1 )%   $      (72 )         (5.7 )%   $       (4 )     0.4pts

All other SG&A represents normal selling, general and administrative expense and was relatively flat in total. The increase in all other SG&A as a percentage of sales compared to the third quarter of fiscal year 2011 was due to lower sales in the current year.
Restructuring costs of $3 million were recorded during the quarter ended June 30, 2012 compared to $7 million a year ago. Restructuring costs recognized in the third quarter of fiscal year 2012 were associated with the European headcount reduction plan, which was approved in the second quarter of fiscal year 2012 in response to ongoing economic weakness and uncertainty in the European region. Remaining anticipated costs under this plan are approximately $2 million and are expected to be incurred during the remainder of fiscal year 2012. Restructuring costs recognized in the third quarter of fiscal year 2011 were primarily associated with employee headcount reductions at our St. Priest, France manufacturing facility.
Gain on sale of property of $16 million was recognized during the third quarter of fiscal year 2012. This gain is associated with the sale of excess land at our facility at Cwmbran, Wales.
Operating income for the third quarter of fiscal year 2012 was $76 million, compared to $56 million in the prior year. Key items impacting operating income are discussed above.
Equity in earnings of affiliates was $12 million in the third quarter of fiscal year 2012, compared to $21 million in the same period in the prior year. The decrease is primarily due to lower earnings from our affiliates in South America resulting from the impact of the commercial vehicle industry transitioning to tighter emission standard requirements and the impact of . . .