Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Meritor Earnings Conference Call. My name is Tahesha, and I'll be your operator for today. [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, Ms. Christy Daehnert, Director of Investor Relations. Please proceed.

Thank you, Tahesha. Good morning, everyone, and welcome to Meritor's Fourth Quarter Fiscal Year 2012 Earnings Call. On the call today we have Chip McClure, our Chairman, CEO and President; and Jay Craig, our CFO. The slides accompanying today's call are available at www.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 consider your continued participation to be your consent to our recording. Our discussion may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Let me now refer you to Slide 2 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 Chip.

Thank you, Christy, and good morning, everyone. Let me begin by saying fiscal year 2012 was a challenging year, as we faced weakened markets throughout the second half due to global economic slowdown in our sector. This softening was driven by escalating recessionary forces in Western Europe, flat and slowing truck production volumes in North America and reduced national infrastructure investment in China. In Brazil, impacts of Euro 3 inventories and sluggish Euro 5 acceptance drove a decline in truck production since January of 2012. All that said, Meritor's management team faced these challenges aggressively. Together with a strong and realistic focus on cost controls and incremental cost containment, we mitigated the impact of declining sales volumes, all while still making strategic investments to improve manufacturing processes to meet or exceed our customers' expectations. I want to emphasize that despite the global sales challenges, our EBITDA margins increased year-over-year due to the achievement of the 6 execution actions we committed to during the fourth quarter of 2011. While global market forces are beyond our control, our management team’s focus on the drivers of profitability demonstrates our collective strength and commitment to skillfully manage turbulent global markets for the benefit of our shareholders, our customers, our employees and our communities. Let's turn to Slide 3 for more detail on our fourth quarter and full year results. Sales for the fourth quarter 2012 were $986 million, a decline of $127 million or 11% versus the third quarter. This decrease in revenue was driven primarily by weaker end markets. Adjusted EBITDA was $79 million, down from $92 million in the prior quarter. We were able to generate our EBITDA margin of 8% despite the significant revenue headwinds we faced during the quarter. This is a testament to the hard work of all our…

Thanks, Chip, and good morning, everyone. On today's call, I will provide a review of our fourth quarter and full year results, as well as our guidance for 2013. Slide 12 compares our actual results for fiscal year 2012 to the revised outlook we provided on August 1. Sales for the year were just over $4.4 billion, which was in line with our outlook as the third quarter weakness experienced in Brazil and China continued through the fourth quarter. In addition, we saw fourth quarter weakness in North America across the segments, which drove us to the lower end of our sales guidance range. We delivered an adjusted EBITDA margin of 7.8% or $345 million, which was at the midpoint of our range. Given the global market contraction that frankly was far from what we were expecting at the beginning of the year, I'm extremely pleased with this performance. Our margin was 30 basis points better than last year despite there being over $200 million less in revenue. We view our ability to overcome these revenue headwinds and improve our margins as an impressive achievement. We've laid out very challenging goals for this organization a year ago. And every quarter, we updated the external investment community as we made progress on achieving those goals. We executed this plan and I can't emphasize enough, this was no easy task. We had tough discussions and negotiations with our customers in many cases, but the team delivered. We recognized that our work isn't over to achieve our long-term margin objectives we established for ourselves. But I do want to recognize the tremendous accomplishments of this team in 2012. Unfortunately, the global economic downturn has somewhat overshadowed the meaningful improvements we've made to the core profit generation capability of the company. 2012 adjusted income…

Thank you, Jay. Let's turn to Slide 24. I wish to stress that our fourth quarter financial results were solid and in line with our expectations. Despite weakening sales volumes driven by stressed market conditions outside the U.S., we were able to maintain improved adjusted EBITDA margin year-over-year through cost controls and continued manufacturing efficiency improvements. This performance was driven by the focus, the attention and the flexibility of our management team to deliver on our commitments. In 2013, our team will demonstrate this same resolve. Our priorities will be to: maintain flexibility in uncertain market and successfully execute as global markets recover; remain focused on rigorous cost management; continue to implement appropriate balance sheet strategies; and continue to invest in new product developments and maintain market and technology leadership positions. Again, we'll review these strategies and actions in greater detail during our Analyst Day on February 5. Now I'd like to open it up to questions. Operator?

[Operator Instructions] Your first question comes from the line of Brian Johnson from Barclays.

It's actually Steven Hempel on for Brian Johnson. I just had a question around the litigation with Eaton. Could you provide just an update on that litigation, the expected dollar amount, as well as the possible timing of the trial date?

Well first, I can't give you -- this is Chip. And I can't give an update on the dollar amount, but let me just for the audience just to let you know that back on September 28, the Third Circuit court did find in favor of Meritor, supporting the jury's finding that Eaton had engaged in anticompetitive conduct and actually remanded the case back to district court for further proceedings on damages. Eaton did appeal that. And on the 26th of October, so just last month, the circuit -- Third Circuit court did deny Eaton's petition for a rehearing on this. And so at this point, it looks like it's going to be remanded back to district court for proceeding on damages. There is some initial contact starting even later this month, but really can set timing at this point. But it has been remanded back to district court for damages and expected to proceed that way.

Okay. And then just a follow-up in terms of looking out to 2013 revenues here. On Slide 22, it looks like you're expecting obviously the back half to be a little more revenue back end-loaded. Is this the way you guys are looking at revenue for 2013, to be more back end-loaded? And then if you could just sort of hit on the margins as well. I understand we've got some puts and takes with lower FMTV production. If you could possibly try and bucket the revenue and margins into China off-highway, military and commercial vehicle, that'd be kind of helpful.

Sure. Steven, this is Jay Craig. Using Chart 22 -- and I don't think this is too dissimilar what you're hearing from others in the industry. The one thing to remember is given our September 30 fiscal year, as you look at our first quarter, which is the fourth calendar quarter, I think we, and most of the industry, are looking at -- looking for that to be fairly weak around the globe in all commercial truck markets and in the Chinese construction market. We think there's a lot of positives later in the year, whether it be the runoff of the Euro 5 engines in Brazil and the effect of the stimulus actions that have been taken in that economy, the benefit of the stimulus actions in China on our sector and off-highway that we think will benefit us in the second half of the year. We think the fundamentals in the North American truck market are very strong, and we view the recent declines up until October orders in order activity to really be temporary and that the long-term dynamics are very strong. And improving, given the improvement housing market in the U.S., which should drive additional demand as well. I think the most difficult one for us to call is Europe. There is an emissions change coming at the end of 2013, the beginning of '14. Our hope was that would provide at least a floor to the demand in Europe. So far we are not seeing that. We're still seeing a slight step-down. But we're hopeful as we get towards the back half of the calendar year that, that looming emissions change could provide some order activity as we go through that market. Now as far as the impact on our margins, I think it generally flows with the volume puts and takes that I just walked through. Other than a couple of specifics, we tend to get higher margin expansion within Brazil recovers because of some of our unconsolidated joint ventures in that market. Also China tends to be a higher-margin region for us. And then offset by some declining -- continued declining volume in FMTV. But as Chip spoke to, we're already looking through with the rationalization of our business segments. We're looking to take some very significant cost reduction actions in anticipation of the runoff of the FMTV program. And as we'll walk through in our Analyst Day in February, I think you can anticipate we should start to receive the benefit of those actions in our margin towards the latter half of the year.

Okay. Perfect. And just one quick follow-up here. I'm just trying to bucket the China off-highway, military and commercial vehicle. Obviously, we're looking at 2013 volumes down $400 million. I was just wondering if you could try and roughly break out the reduction. Is it roughly equally split between those 3 segments in China off-highway, military and commercial? Or is it more geared towards military?

I would say it's -- I think we're not providing those details today within the segment. But obviously, the China off-highway market has stepped down very significantly. And as Chip mentioned, FMTV volumes this year are coming in 2013. We expect to be about 30% lower than 2012.

Yes. Steven, just to add to that. I think if you look at the China off-highway very quickly, that has been soft in China for a period of time. So that has actually been carried for the last couple of quarters in 2012. And then the military step-down, as you look at it, really is beginning this fiscal year just from a timing point of view.

Your next question comes from the line of Graham Mattison from Lazard Capital Markets.

Just a question. On the -- in the past, you'd said that you needed about $5.2 billion to get a 10% EBITDA margin. Given the changes that you've made in the cost adjustments, can you give us a sense of what type of revenue you need to get back to that 8% to 9% level or even to the 10% level now?

I think obviously, we've taken out a lot of fixed cost on the business. I think our thought is it's measurably lower than that number. I think as we get to February 5, we'll probably give you some indication of where we think that point may be as we talk through the details to the rationalization program of going from 3 to 2 segments. But I think you can expect it's measurably lower than the $5.2 billion we gave guidance to you before.

All right. Great. And then just looking at South America, what's underpinning your expectations for the May-June pickup? Is it the run through the Euro 3 inventory? Or is there something else behind that we should be thinking of?

Graham, this is Chip. And if you look at it, one is, similar to what we have in North America, the age of the fleet is 1 driver that way. Second, you had to -- as you move from Euro 3 to Euro 5, you have to have access to ultra-low sulfur fuel, which outside of the urban areas, was not present out in the rural areas during the middle part of this calendar year. So that kind of slowed it down that way. So as you look at it, I think those are a couple of drivers, as you look at it, that as we look to anticipate kind of that pickup that way. The third thing that the Brazilian government has done very effectively in past is they've actually provided incentives, whether on the tax side or their interest rates that they refer to as FINAME, that have helped to kind of do that. The government has stepped up to do some of that. And right now, that -- but again, we haven't seen the effect. And again, I think part of that is driven by the lack of our access to fuel and some of that. I'll also tell you a fourth factor is again Brazil is more global and tied probably to some of the slowdown even seen in China. So there's been some macroeconomic things taking place that way. But having said all that, you then kind of look fast-forward. There's some shorter-term things like with the World Cup and some -- World Cup and the Olympics coming there, which will be a short-term infrastructure build. And then long-term -- longer-term, as you look at the presence of oil and natural gas that are drivers that way. So that's why we've kind of back end-loaded it, but do envision that as you go out into the second and third quarters of next calendar year.

Your next question comes from the line of Patrick Archambault from Goldman Sachs.

Two regional questions for you, and then one on just margins. First on, in Europe, in the statement you said earlier that you're not factoring in any kind of a prebuy due to the change in regulations into next year, is that something that you're factoring in just so you have a fairly cautious and easily defendable expectation underpinning your numbers? Or is that really the feedback that you've gotten from customers that you've spoken to in the region? And then secondly on the demand side. Can you tell us is there a mix impact in your North America business on the truck side from Navistar? Clearly, with the transition at the 13-liter, the expectation is that they're going to lose some share, and they're a pretty big customer for you. So maybe you could touch on those 2 things and have a follow-up on margins.

Patrick, this is Jay Craig. I think in Europe, what we are cautioned by is that in the U.S., if you recall, the most recent recession offset any benefit of an expected prebuy back in 2010. So we have seen a similar condition occur. And so I think that's really the issue that we see why we're a bit cautious in Europe. It's just -- and I think that is consistent with our largest customer, Volvo. If you read some of their latest earnings announcements and through our discussions with them, they are starting to have that same caution as well. And then I'm sorry, if I could just have you repeat the question on margins, that would be helpful.

Well, I didn't ask yet. Actually I just wanted to find out whether Navistar was an issue in terms of how you're looking at North America was the kind of the second part of the question, just given the transition of the 13-liter engine next year, which could potentially affect their share, and they're a big customer.

Well, we have seen, I think, as you're reading, some fairly material market share shifts in North America. But I think as we've always stated, I think the great benefit we have with our current business model is we are standard vision [ph] effectively on 3 of the 4 OEs. And the 3 have large fleet exposure. So I think you can even -- if you box our revenues to what we performed this year in North America as compared to the industry, you can see we've had very little impact to that market share shift. So we just continue to work closely with all 3 of our customers and try and support their success as best as we can.

Okay, great. And then just quickly on margins, if I may. I believe your guidance implies a decremental of about 15%, which is pretty good, just given the extent of the revenue decline that you're forecasting. And also just in the context of having a mixed headwind from slower Industrial -- or military rather. So is what's going on there really just kind of digging deep into more restructuring actions in Slide 11? Or is there anything else that I'm not sort of factoring in there as we think about that number?

Just a few things. I think obviously, the adjustments to the fixed costs that we continue to make just recognize the realities of government spending in our markets. I think it's had a very significant favorable impact. I think our team has done a great job of staying ahead of those issues. I mean remember, FMTV doesn't go away for almost 2 years. But we're almost 24 months ahead of time taking the actions necessary to adjust to that environment. And also, though, we've seen some great benefits from the price increases we've put in last year. The closure of our Saint Priest facility in Europe and we're getting the fourth quarter benefit of that. We only got 3 quarters of it last year. And also we've had some great material performance out of our purchasing team. We're really getting on stride, getting our stride and affecting material cost reductions that are not just related to just the index [ph] reduction.

Patrick, this is Chip. And hopefully, what we demonstrated in the last 4 to 5 quarters is the fact that we do respond proactively as opposed to reactively to what we see in the market conditions. And to kind of reinforce what Jay said, the FMTV doesn't really wind down for another 2 years. But we're trying to do that proactively at this point. And that is part of what you're seeing as you look at that kind of margin walk going forward. And hopefully, the last 4 to 5 quarters have demonstrated our team's ability to be able to do that.

Your next question comes from the line of Tim Denoyer from Wolfe Trahan. Timothy J. Denoyer - Wolfe Trahan & Co.: If I could ask the margin/Navistar question in a little bit of a different way. With their Garland facility closing in, I guess, the near-term, can you give us a sense of -- if that's going to have any sort of outsized impact on margins in the fiscal first quarter or fiscal second quarter and maybe that margin impact recedes through the year? And from a logistical standpoint and/or materials cost, could there be any efficiencies there as you adjust to that?

Tim, this is Jay. Good question. We are studying that impact. Obviously, we serve Navistar's Mexican facility, which is expected to be the significant beneficiary of that transition of production out of both our joint venture in Mexico and our wholly owned operation. So we do have local production to serve their needs. So I don't think we're as concerned about the logistics cost as we are just kind of the legal structure of some of those earnings going through our joint venture in Mexico. And we're still analyzing that. But I think you can take away that in our guidance we've anticipated the impacts of that change that should occur later in our fiscal year. Timothy J. Denoyer - Wolfe Trahan & Co.: Okay. And another follow-up on Brazil. It did seem like a lot of that European OEMs were fairly constructive on orders in the quarter and we started to see at least October sales looked a little bit better. I was wondering, I guess, why you're not seeing a pickup until, I guess calendar second quarter. I think maybe perhaps it was [indiscernible] who actually said that some of the current incentives would require delivery during the calendar first quarter of the year. And I'm just wondering, obviously, there's always a lot of uncertainty around Brazilian incentives and when they'll be extended, but yes.

This is Jay. [ph] We're reading the same things you are and we're having conversations with our customers in Brazil. And I think the overall impression of that market is mixed. I think you're seeing some people see the increase in October registrations to be a very positive sign as are we. But we just are a bit cautious whether that is the signal that there's a long-term recovery coming in the market. And the other item to keep in consideration that I mentioned earlier in the Q&A is because of our September 30th fiscal year, our first fiscal quarter ends here in December. And even for the people seeing the market, I think, on the more favorable side, they expect that benefit in the new calendar year. So that there's a little bit of mix and match on fiscal versus calendar year relative to our guidance.

And just to reinforce, Tim, we have seen obviously, as you've indicated the last couple of weeks, that kind of uptick and it's probably a little too early to call it that way. But as Jay said, we are getting through the first quarter already, so it's really in the second and third quarter. But as we met with a lot of our customers both there and also at the Hannover truck show, there is optimism as you look at it going into 2013 because of the fuel availability and also the government's actions that they're taking to stimulate these moves. So we certainly feel it is going to occur, it's just a matter of the timing of when it does occur. Timothy J. Denoyer - Wolfe Trahan & Co.: Okay. And then one more quick one on Wabash. I'm guessing, even though you weren't standard on Wabash trailers prior to this recent contract win, that you still had a pretty decent percentage of their production just from customer spec-ing activity. Can you give us a sense of sort of what the incremental increase...

Now first of all, Tim, your statement is fairly correct. I mean, we were a fairly large supplier to them prior to having standard position. So it's more just kind of a reaffirmation by our customers through long-term commitment on that. But I think your statement is that so. So there is some incremental increase that way, but a lot of that was already reflected in the sales we were getting prior to having standard positions. So it's more a recognition of both our customers and our customers' customer support for our products in the trailers. Timothy J. Denoyer - Wolfe Trahan & Co.: Okay. Any sense of -- are you going from 30% of their production up to 80%? Or is it something smaller than that? Or can you maybe have any...

I think, Tim, our plan is on February 5 at our Analyst Day, we're going to be providing a little more detail on all the wins we've had the prior 12 months and what we think the potential impacts are on increase in market share or revenue.

Your next question comes from the line of Robert Kosowsky from Sidoti. Robert A. Kosowsky - Sidoti & Company, LLC: I was wondering on this Eaton lawsuit. Is this the final appeal that they can do? Or can they still take that to the Supreme Court?

Yes. They can still take it to the Supreme Court if decide to do that. But at this point, it appears like the activity is taking place at the district court as far as where it's been remanded back to circuit court. So yes, there is still that one final ability if they want to go to the Supreme Court. But at least at this point, as I kind of indicated, discussions are already starting back at the district court level, so expect it that way. Robert A. Kosowsky - Sidoti & Company, LLC: So that's a positive indicator that it might not escalate, but you still don't fully know yet?

Still don't know. But yes, I would view that as positive. And obviously, the actions in the last couple of months we view as positive, too. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. Then do you need to share any these benefits when you do get some renumeration with your former JV partner? And is this going to be taxed at all?

The answer is yes. This was done jointly with our partner, so it would be done that way.

Obviously, we have very significant NOLs in the U.S., so we -- the tax charge for us would be very de minimis. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. But should we assume like a 50-50 split with the JV partner?

I don't think we've disclosed -- obviously, there's compensation to our attorneys. There's compensation to the partner. We haven't disclosed the arrangements we have with those parties.

And Robert, the other thing I'd also mention, back to the Supreme Court appeal, and I am by no means a legal expert. But my understanding is that they really do accept very few appeals to go to Supreme Court. So I feel pretty good that from a circuit court, being remanded back to district court. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. But you're not ready to give any kind of guidance as to how much the split would be with...

No. Obviously, gain contingencies would be great. But we're operating the business as if it's 0. And any benefit of that would just go towards our long-term goals of deleveraging the balance sheet. So that's how we’re treating it. Robert A. Kosowsky - Sidoti & Company, LLC: And then 2 other kind of free cash flow questions. I guess first off on CapEx for next year. What programs did you pull back on? And are you taking advantage of any of the cyclical weakness to rebuild any machines? Or do you think everything is okay for the next upturn?

We think the guidance we gave for next year is above our ongoing depreciation and amortization. So I wouldn't think of it -- I would think of the last few years as being fairly heavy investment periods, and we're really getting more back to normal than the opposite. So I don't think -- as we've looked at the plan, we feel like we're significantly constraining capital investments that we think are required to keep to increase our margin and increase productivity. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. So all production capacity looks to be okay if you do get an uptick in volume. There's not going to be any kind of rebuild situation like we had last year.

We think better than ever, we -- obviously, we have some operational hiccups almost 2 years ago now. But we have been operating in an extremely volatile environment very effectively for almost 2 years now. So I think we are very confident in our ability to...

And as a small microcosm that I indicated with this ramp-up on the FMTV, the military program, which we were able to do. And again, as both our internal production and with our suppliers, I think we clearly demonstrated the ability to kind of manage that ramp-up very effectively. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. That's helpful. And then finally for free cash flow for next year, do you see free cash flow being an outflow in the beginning of like this next quarter and the quarter after just based upon the securitizations still come down with volumes? Or do you see inventories...

That's a good question, Rob. I think as you typically see with us, the first quarter is usually an outflow. I don't think we anticipate anything that will change that pattern. And it has to do with obviously Europe, we intend to see some securitization outflow from the volume shifts in the first quarter, the holiday period. As I've mentioned before, some of -- a lot of our customers are calendar year end. Some of those payments seemed to arrive a day or 2 after the end of the calendar year. So we tend to see an outflow in the first fiscal quarter, but that's all incorporated in our annual guidance.

Ladies and gentlemen, we have come to the end of our Q&A session. I would now like to turn the conference back over to Ms. Christy Daehnert for any closing remarks.

Thank you for your time and attention on today's call. Please feel free to follow up with me directly with any additional questions you may have. And that concludes today's call.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.