Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2014 Meritor, Inc. Earnings Conference Call. My name is Chantelle and I'll be your facilitator for today's call. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Carl Anderson, Vice President and Treasurer. Please proceed sir.

Thank you, Chantelle. Good morning, everyone and welcome to Meritor's Fourth Quarter and Full Fiscal Year 2014 Earnings Call. On the call today, we have Ike Evans, Meritor's Chairman and Chief Executive Officer and Kevin Nowlan, Senior Vice President and Chief Financial Officer. The slides accompanying today's call are available at our website, meritor.com. We'll refer to the slides in our discussion this morning. The content of this conference call, which we're recording, is the property of Meritor, Inc. It's protected by U.S. and International Copyright Law and may not be rebroadcast without the express written consent of Meritor. We do consider your continued participation to be your consent to our recording. Our discussions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Let me now refer you to Slide two for a more complete disclosure of the risks that could affect our results. To the extent we refer to any non-GAAP measures in our call, you'll find the reconciliation to GAAP in the slides on our website. Now I'll turn the call over to Ike.

Thank you, Carl and good morning everyone. Let’s turn to slide 3, our companywide alignment to achieve our M2016 objectives drove improved financial performance year-over-year. Our results reflect strong execution, driven by a focused effort to convert on the upturn in North America and to effectively manage our operating and product cost. Although revenue was only slightly up over the prior year, EBITDA margin increased from 7.2% last year to 8.3% this year. Adjusted diluted earnings per share from continuing operations increased to $1.02 from $0.42 per share last year and free cash flow for the year was $138 million, our best cash flow result in several years. Efforts to improve our balance sheet this year also paid off. Our eight year pursuit of the antitrust settlement with Eaton as well as treasury actions we executed throughout the year resulted in us achieving our M2016 net debt target two years early. We also extended important long-term supply agreements; one with Volvo our largest global customer and another with Daimler, our largest customer in North America. In June we announced a share repurchase plan of up to $200 million of our equity or equity linked securities that we intend to initiate this year and complete by the end of fiscal 2016. Let’s turn to slide 4 for an update on our M2016 metrics. Our performance in fiscal 2014 puts us on track to achieve our EBITDA margin target of 10% in fiscal 2016. Despite headwinds, including the wind down of our defence business, a challenging South American environment, and a loss of earnings from the 2013 sale of our Suspensys joint venture, we improved our margin by 110 basis points. This was largely due to a concentrated effort by our global team to reduce material costs, better manage labor and burden,…

Thanks Ike, and good morning. On today’s call I’ll review our fourth quarter and full year financial results. And then I’ll take you through our 2015 guidance. We achieved solid financial results for the quarter generating $35 million of adjusted incomes from continuing operations and expanding our adjusted EBITDA margin by 50 basis points compared to the same quarter last year. As Ike said, our results reflect excellent execution driven by our commitment to achieve M2016 objectives. Our team successfully converted on the high volumes in North America and managed our operating and product cost well around the globe. Before we get started in reviewing the financials let me point out that we’ve recast all current and historical results to reflect the Mascot remanufacturing business' discontinued operations. In August we announced that we would exit this business and in September we signed a definitive sale agreement. On slide 11 you’ll see our fourth quarter income statement for continuing operations compared to the prior year. Sales were $933 million in the quarter up $31 million or 3% year-over-year. The increase is primarily driven by higher sales in North America as the Class 8 truck market continued to strengthen. This is partially offset by lower commercial truck production in South America and Europe as well as lower revenue from our defence business. Gross margin was $31 million higher in the fourth quarter of 2014 compared to the same period last year. The improvement includes a $15 million benefit related to the curtailment of our U.S. retiree medical plan. Excluding this benefit gross margin still increased $16 million, which reflects 130 basis points improvement. The expansion in gross margin was driven by higher revenue and the continued execution of our M2016 initiatives. We continue to have strong net material, labor and burden performance…

Thanks Kevin. Please turn to slide 19. This year we took actions to majorly improve our EBITDA margin and cash flow. The settlement of our antitrust lawsuit with Eaton and the treasury actions we took during the year enabled us to achieve our net debt target two years early. We have worked hard on customer relationships and demonstrated that with major contract extensions. We told you we were going to improve our execution and we did. As I said we intend to return value to shareholders. In 2015 we will begin our share buyback, this will be the first time since 2008 that we return value directly to shareholders in the form of the dividend or share buyback. Looking ahead our guidance for this fiscal year shows continued measurable improvement in EBITDA margin and our earnings per share. And we are on track to achieve our M2016 metrics. With that we will take your questions.

(Operator Instructions). Your first question comes from the line of Brian Johnson with Barclays. Please proceed.

Yeah, good morning, just wanted a quick housekeeping and operational question and then sort of a balance sheet strategy question. On the quick housekeeping, can you maybe elaborate a bit further on the value added tax accrual. I think what a number of people are trying to get their heads around is was it a more or less a onetime headwind a year ago that showed up in the fourth quarter and what we have now is a cleaner run rate or conversely is this value added tax going to hit at some point in the year and it is just a question of what quarter it gets accrued at?

Hi Brian, it is Kevin. Yes, the value added tax accrual that we booked in the fourth quarter of last year was about $5 million and it was really a onetime item for catch up of some prior period issues that we discovered in our aftermarket business. So we don’t expect that to impact our run rate going forward.

Okay, the second thing is if you look at the original M2016 plan, you had higher revenues than you are coming in at, they are into basis points margin performance. It just looks like as you have said, your margin performance is better than it would have been in the past given where the revenues are actually coming in due to macro. You know what are the two or three big drivers of that and lots of puts and takes around the world, some markets see a word about incremental margins on growth in North America, other managing the detrimental, how is that?

I mean, the first point as it relates to margins on the businesses that we are seeing incremental revenue, actually we are converting nicely on those. So, we are pretty confident as we see revenue upticks in certain markets that we are able to convert in line with our normal expectations. In terms of our margin performance and where we are seeing improvements that is going above and beyond what even we were guiding to in the last couple of quarters, it really relates to the execution across the board of various M2016 initiatives. It is material performance outperforming our expectations. It is labor and burden performance which had a significant out performance this year relative to the expectations. It is pricing and then again it is converting on the incremental revenue we are seeing in markets that are seeing an uptick in revenue. So, it is really across the board. And as we look into 2015 and our guidance which implies 50 to 70 basis point increase in margin on relatively flat revenue, it is more of the same.

Okay and then two quick balance sheet questions. First, payment sort of strategy as well, Meritor WABCO JV, that JV seems to be well positioned in some interesting developments with automatic emergency braking, if you have shown up with tuning product where one truck can follow another truck. Is there any -- look at that business though kind of it is right around 38 million down 4 million year-over-year. Is that a business that could actually see some technology driven growth over the next several years or is it just going to continue be dominated by truck builds and the brakes needed on trucks?

No, I think technology is a major play Brian in that regard and so the answer to your question is yes. And I mean we are excited about what we are being able to accomplish with our customers with WABCO. So, no absolutely.

Okay and then…

It’s a technology play and we’ll see more .

And is there backlog, when you talk about the new business, would that include new business that Meritor WABCO is getting because that’s not consolidated revenue and so how should we think about that?

When we look at our pipeline Brian, we look at our pipeline which by the way we feel really, really good about, that level of business with the joint venture as far as WABCO is not in that.

Okay so that’s over and above?

The revenues is not consolidated for Meritor or WABCO so it’s not in our revenue guidance. Obviously performance flows through our JV earnings line and I will say some of the Meritor WABCO sales do got through our aftermarket business so to the extent that we are seeing out performance from a top line perspective within that JV. It does have an impact on our aftermarket business as well but it’s not in a meaningful way from a growth perspective relative to the $500 million revenue growth target.

And then final balance sheet question. Now that you’ve delevered a whole bunch, you are ahead of your net debt targets. What are the plans vis-à-vis cash to repurchase shares, potential timing and magnitude and I guess a broader question kind of should we start looking at this business on EPS as opposed to EBITDA?

Brian as it relates to the plans to repurchase obviously we did come in below our net debt target two years early by about $60 million. Now we do have the mortality table adjustments which have gone into effect and we’ll go into effect for us in 2015. So we have to be cognizant of that. But as we look at that and we look at our expected cash flow generation, we are confident that we are going to start the execution of that buyback program this year in 2015 and complete the execution of that program by the end of fiscal 2016. As it relates to thinking about us more on an EPS basis, I think we are thinking about that more internally as well and there is a couple of reasons for that. One of the important reasons is because as we buy back shares, you know, we are trying to deliver real value to shareholder that manifest itself in the EPS line item. Second, I think what you see is we are starting to generate a real benefit on these deferred tax balances that have valuation allowances against them, we’re going to see relatively low effective tax rates for the coming years as you see in our 20% effective tax rate guidance of planning assumption. And that’s not reflected in EBITDA or adjusted EBITDA margins but obviously that flows through the benefit -- the benefit of that flows through EPS. So as we think about our performance we are spending a lot more time thinking about EPS as well.

And does your EPS guidance for 2015 include buybacks?

It does not so that’s potential upside depending on the timing and the magnitude.

Okay, thanks and great progress on -- and we should call it M2014 at this point?

Thank you Brian.

Your next question comes from the line of Robert Kosowsky of Sidoti & Company. Please proceed. Robert Kosowsky - Sidoti & Company: Hi, good morning. How are you doing?

Good morning. Robert Kosowsky - Sidoti & Company: I was wondering if you can give us maybe quantify what the revenue decline was from South America in defence or perhaps the EBITDA decline just to get a better sense of how much mix went against you in commercial?

On a year-over-year basis full year, I mean the full year basis its almost $140 million of decline between the two businesses. Robert Kosowsky - Sidoti & Company: 40 million in full year, what was that in the fourth quarter?

$140 million for the full year both South America and defence combined. Robert Kosowsky - Sidoti & Company: Okay and as far as the quarter specifically can we just divide that by 4 for kind of a rough approximation maybe a little bit less than that because of the cadence of the draw down on defense?

I would tell you it was in the zip code of $35 million to $40 million down sequentially. Robert Kosowsky - Sidoti & Company: Okay and then –

For the quarter year-over-year, the one quarter year-over-year. Robert Kosowsky - Sidoti & Company: Yes, in the fourth quarter versus last year?

Fourth quarter versus last year ballpark is $35 million to $40 million. Robert Kosowsky - Sidoti & Company: Okay and then I know there’s a lot noise in SG&A so should we look at $75 million as a more realistic or reasonable number for what fourth quarter SG&A would have been?

I think the way what we have seen is pretty consistently the last few quarters running in around 6.5% to 7% more normalized, is what we are seeing. Robert Kosowsky - Sidoti & Company: Okay and then finally one other the question just on the deferred tax assets that you have, how much profitability are you going to be generating in I guess the jurisdictions that you haven’t been paying taxes in previously, is it going to be pretty meaningful and I am wondering how long those deferred tax assets will take to get exhausted over the next forecast that you see in your profitability standpoints? Just trying to get a better sense of what the value is of that asset from where you are right now given the improvement of operations in those jurisdictions?

You’ll be able to see when you look at our 10-K what those deferred tax assets balances are. In terms of generating real profit in those jurisdictions we expect to start generating profit in the bulk of U.S. and Western Europe in 2015, which is the reason you are seeing an effective rate that’s 20% as opposed to something that looks like a U.S. statutory rate of 35%. So, as you think about our earnings performance going forward that 20% effective rate is reflective of the fact that we are getting 0% tax rate on those earnings. As we look forward we have a substantial pipeline of these deferred tax assets, hundreds and hundreds of millions of dollars. So it will take a long-long time to exhaust. Now what we do have is the potential that if we generate earnings in these jurisdictions for the next two to three years consistently and have a forecast that will continue to generate earnings in those jurisdictions, the potential exist that we would reverse the valuation allowance at some point in the future and put those assets back on the book. Robert Kosowsky - Sidoti & Company: Okay, that’s helpful. Then I guess is there any way you can guide us as to how much profitability you will be making in those regions or is that detail you don’t want to disclose?

At this point we are not disclosing that but I think you can get a sense based on the fact that it’s a 20% effective rate and that a normal tax rate probably looks like something closer to 30% or 35% Robert Kosowsky - Sidoti & Company: Alright, thank you very much, good luck.

Thank you.

Your next question comes from the line of Neil Frohnappple of Longbow Research. Please proceed.

Hi, good morning guys and congrats on a nice quarter.

Well, thank you.

Ike, I believe you mentioned last quarter that your capacity is around 300,000 unit North American market, but it looks now based on continued strength in orders that builds could certainly be higher than at level on 2015, I know your guidance I think suggest 290 to 300 so, how should we think about your ability and plans to meet demand if higher than previously expected gross scenario plays out next year?

You are right. We have stated that our capacity is at around that 300,000 unit level Neil. As discussed the production demand and the capacity levels of our customers, and we do this just on almost a daily basis, we really think the industry is at 290,000 to 300,000 market level. So the way we would view this is that the backlog which is by the way is increasing each month along with the strong Class 8 orders for October, we really think it bodes well for us in the second half of our fiscal year.

Okay, so you are not worried about missing out on some upside in demand potentially if the market were to heat up a bit more than expected?

Not really, we really think the market really is around that 300,000 level.

Alright and then can you remind us of how lower steel prices will impact Meritor, I believe you guys have steel pricing adjustment programs in place of most of your major OEM manufacturers but you just remind us what the lag is and what percent of pass through you are allowed on average?

We do have pass through mechanisms with the bulk of our OE customers as it relates to steel prices, whether steel prices go up or down we tend to have movements that go along with movements in steel industries. Those tend to lag the actual movements and the changes in our cost by upwards is six to nine months. Now what I will tell you though is what we see in the last six months or so steel has been relatively flat across the globe particularly if you t North America and Europe. So we haven’t seen material movements in steel or something.

Alright and one last one, I think you mentioned earlier Ike that you guys are still confident you can achieve the 500 million of incremental booked revenue. Could you elaborate on any potential opportunities on the horizon if the target is predicated on you guys, getting a major military contract by JLTB? Thank you.

No, the pipeline is quite robust and we’re very confident that we think we can deliver that number. And as we have said before it’s really not dependent upon any single program to make that happen. So I mean at this point in time I mean we are still very, very bullish about what our abilities to make that 250 million hidden in 2016 and $500 million run rate.

Great, thank you very much.

Your next question comes from the line of Colin Langan of UBS. Please proceed.

Oh, great. Thanks for taking my questions. Any color on the aftermarket trailer margin in terms of how sustainable that is. It looks like a record margin. You kind of indicated that the tax issue is more of a onetime issue last year, how should we think about that going forward?

Hi Colin, this is Kevin. Keep in mind that the aftermarket in trailer is benefitting now from the fact that we have recast Mascot discontinued operations. So that did help as we recast the earnings for each of the quarters including the fourth quarter this year. As you look at that 14 plus percent margin in Q4 relative to what you might think of as a run rate, it is probably a little bit high because we have some of those yearend liability valuation adjustments I talked about, product liability workers comp. Those things had a little bit more of an impact on the aftermarket and trailer segment. So probably upwards of a point that, that 14% might be high relative to what you might think of as a run rate going forward, at the type of revenue level that they generated in the fourth quarter. But still a pretty high margin relative to historic standards as we jump off.

And how much you mentioned Mascot, how much of a drag historically has that been in the business?

I can tell you in 2014 for instance there was about $29 million of revenue from the business and we generated a loss of about $5 million of operating losses in the business. So that gives you a sense as to what’s been recast out for the full year of the aftermarket in trailer segment.

Okay and any thoughts on, you mentioned pension mortality assumptions, is that impacting you this year or is that an issue for next year?

It will be an issue this year in 2015. I think a couple of weeks ago or few weeks ago the final rules were handed down and so the expectation is that the actuaries for the plans across North America, the actuaries will be using those new mortality tables with some discretion as they have they update valuations for companies at year end.

And any sense of how big of a factor that or measurements going to be?

Well we estimated it previously about six months ago as being about $124 million negative impact or increase in the liability for our pension and our OPEB liabilities.

Okay and just one last one, on the buyback I mean what is the authorization, is it still 210 million and how should we think about that over the next two years, if you think about that going equally over that period or will it be lumping or how should we think?

At this point we are not giving specific guidance or timing on other than to say that we are going to commence the execution of that buyback plan this year, and we’ll complete it by the end of 2016. But we are not going to give any more details of that. You know, the things we are looking at is where we stand relative to our net debt target adjusted for the mortality tables, where free cash flow is coming in, what our liquidity requirements are of being compliant with compliance with our covenants. But at the end of the day we are going to execute the full 210 within the next two fiscal years. And that 210 has been approved by the board and we have the flexibility under our revolving credit agreement to be able to execute on that as well.

Okay, thank you very much and congrats on a good quarter.

Thank you.

Your next question comes from the line of David Kanowski (ph) of JP Morgan. Please proceed.

Hey, guys. How are you doing, this is David Kanowski on for Ryan.

Good morning David.

Good morning guys. Just a question on your margin guidance, it seems to imply a little bit more of a step up in 2016 and in 2015, can you just talk about what may be drives some of that strength into the out year, is that just some of the headwinds from SMTD still showing up in 2015?

Well keep in mind as we look ahead to 2016 what we said as we expect to be able to achieve 10% EBITDA margin in 2016 as long as revenue is above $4.2 billion. And so part of our expectation is we are going to continue to see execution of material performance, labor and burden performance, pricing actions but we also expecting to still see some market improvement and revenue improvement, a piece of which is market and a piece of which is achieving the $250 million of new business wins that will materialize over the course of the next two years. So we are expecting revenue to be a piece of the equation in converting on that incremental revenue.

Okay and can you just also maybe remind us what your revenue exposure is in China right now and maybe provide a little bit color on the environment and what’s driving some of that uncertainty you mentioned in the slide deck?

Our revenues in the $150 million range and right now we see the market up slightly which was good. But I mean there is a lot of uncertainty as you know around China but it’s not a large market for us in that sense. So the uncertainty still persists but it’s around $150 million David.

Okay and then just one last question, can you just remind us maybe what you expect to pay in pension contributions that is here for 2015 and 2016, I think this would be your pay as you go plans?

It will be roughly about $10 million.

Okay, alright, thanks a lot guys.

Thank you.

At this time there are no additional questions in the queue and I would like to turn the call back over to Mr. Carl Anderson for closing remarks. Please proceed.

Thank you. We do appreciate your participation in today's call. If you have any further questions, please feel free to contact me directly. This conclude Meritor's fourth quarter and full year 2014 earnings call. Thank you.