Good day, ladies and gentlemen, and welcome to the Meritor Fourth Quarter Fiscal Year 2013 Earnings Conference Call. My name is Kathryn, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Mr. Carl Anderson, Vice President and Treasurer. Please proceed, sir.

Thank you, Kathryn. Good morning, everyone, and welcome to Meritor's Fourth Quarter and Full Fiscal Year 2013 Earnings Call. On the call today, we have Ike Evans, Meritor's Chairman and Chief Executive Officer and President; and Kevin Nowlan, Senior Vice President and Chief Financial Officer. Also in the room today are Jay Craig, Senior Vice President and President of Meritor's Commercial Truck and Industrial Business; and Pedro Ferro, Senior Vice President and President, Aftermarket & Trailer. Both will be available at the conclusion of our remarks for any specific questions about their respective businesses. The slides accompanying today's call are available at 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 expressed 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 Ligation 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 Ike.

Thank you, Carl, and good morning. Let's turn to Slide 3. On the left side of the chart are highlights from our fourth quarter. As you know, Meritor's Board of Directors appointed me Chairman, CEO and President in August, after serving as the Executive Chairman, Interim Chief Executive Officer and President since May. In addition, 2 new board members were elected in fiscal 2013. Tom Pajonas is Senior Vice President and Chief Operating Officer of Flowserve. He has extensive operational experience, as well as a strong manufacturing and engineering background. Bill Lyons, former Chief Financial Officer at CONSOL Energy, has also joined Meritor's board. Bill not only has considerable financial experience, but also serves as a trustee of a major trust fund, which contributes to the board's insights from an investor perspective. Our margin performance this quarter was 7.7% on $909 million in revenue. Despite revenue headwinds in the period, we delivered strong operational performance. The actions we're taking to expand our margins are starting to take hold. We also took steps to improve our balance sheet by deploying $100 million of cash to retire debt and debt-like obligations. If we look back at the past year, you can see we've taken significant steps to better position the company for growth and improve financial performance. In May, we launched M2016, which represents our commitment to achieve a 10% EBITDA margin, $400 million in debt reduction and an incremental $500 million of new business awards in fiscal year 2016. Our EBITDA margin for the year was 7.1% on $3.7 billion of revenue, down due to lower volumes in all markets. Despite the fact the revenue for the year was down more than $700 million, we were able to limit downside conversion to approximately 12%. We were able to do this through…

Thanks, Ike, 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 2014. Slide 12 compares our actual results for fiscal year 2013 to the outlook we provided on July 31. Sales for the year were just over $3.7 billion, which was slightly below the bottom end of our outlook. We had lower-than-anticipated sales in our India, South America and China markets, as these economies were slightly weaker-than-expected. We delivered an adjusted EBITDA margin of 7.1%, or $261 million. Despite the revenue headwinds, we were able to deliver our margin guidance of approximately 7% through solid operational execution, continued net material performance, fixed cost reductions and aftermarket pricing actions. We earned $0.40 in adjusted earnings per share from continuing operations in 2013, which exceeded the upper end of our outlook. This was primarily due to the better mix of earnings from a tax perspective that resulted in a lower effective tax rate. As Ike mentioned, we made a $54 million voluntary pension contribution in the last week of our fiscal year to prefund our 2014 requirements in the U.S. and U.K. Including this contribution, our reported free cash flow from continuing operations before restructuring was negative $109 million. However, our free cash flow guidance did not contemplate this opportunistic pension contribution, nor did it include the $33 million of withholding tax payments associated with the gain on sale of our ownership in Suspensys. Excluding these 2 items, free cash flow from continuing operations before restructuring was negative $22 million, which was in line with our expectations. Although we experienced revenue headwinds in nearly every market we serve, we were able to deliver on our earnings guidance in 2013 through solid execution. This execution has…

Thank you, Kevin. Let's turn to Slide 21. You're now familiar with the 3 financial measures we've established for 2016. We're confident we will achieve these targets because we believe the fundamentals of this company are strong. We've recognized globally -- we're recognized globally for our capabilities in designing, testing and manufacturing the best drivetrain products available anywhere. With efficiency and safety in mind, our global engineering team works with the supply chain and manufacturing to offer a technology-rich portfolio of drivetrain solutions, localized by region when needed. We effectively manage complexity for small volumes and aim to support our customer needs during periods of high volumes. The quality, durability and on-time delivery of our products has earned us the #1 market position in most of the markets we supply. We're growing organically, as demonstrated by the contracts we told you about today with large and growing global customers. Today, we had a recognized brand requested by the largest OEs and commercial truck fleets in the world, a global distribution network for aftermarket products and unmatched support and service from DriveForce to Drivetrain Express. M2016 represents the next step for us and provides the road map that will take us there. Our attention is focused on customers, products and process improvement. We're confident that if we remain committed to maximizing our performance in these areas, we'll be able to minimize the volatility inherent in this industry and achieve the targets we established to create greater value for our shareholders. Thank you. And now we'll take your questions.

[Operator Instructions] And please standby for your first question, which is from the line of Itay Michaeli from Citigroup.

So just wanted to -- maybe we could start with a broad revenue walk between the $3.7 billion you've guided for, for fiscal '14 and your 2016 target. Maybe a little bit more detail around the cadence of the $110 million of revenue from the new book business, the visibility for the remainder of the total $250 million that you expect and then just maybe your overall global market assumptions to underpin that $4.5 billion target.

Of the $110 million, we'll see some of that start in our 2014 numbers. It's obviously more hockey stick towards '16, but it will gradually increase in '15 with the full $110 million in 2016. As far as the global markets, obviously, we were concerned. They are -- our end markets are our concern. We'd like to see them stronger. But again, we've put a plan together that is not overly dependent upon end market recovery. And that's the good thing about M2016, is that we think we can do -- we can really improve our bottom line with what we're doing internally and organically without end market help.

Great. And then maybe a couple of free cash flow questions. One, what's embedded in the fiscal '14 outlook for pension contributions and cash restructuring? And then do you also have maybe, Kevin, the breakout between the pension and OPEB? I think you have it kind of both combined on Slide 17. If you have a breakout between the pension and OPEB that will be very helpful, too.

In terms of pension contributions in '14, it's about $11 million remaining. And we didn't prefund those because those tend to be pay-as-you-go plans. In terms of the pension and OPEB breakout, I'm going to have to get that for you out of the 10-K, I think, in terms of the breakdown. I think the pension -- I'm going to have to get that detail for you.

The next question is from the line of Colin Langan from UBS.

Firstly, any color on the Eaton trial? Any court date set at this point? And in terms of timing, I think you had previously mentioned the fall or kind of there. So is that going on now?

The 3 motions are still before the court. Unfortunately, a trial date has not been set. And other than that, I really can't provide any further updates, but that's the status. I mean, we're waiting for the judge to set a trial date, and that hasn't happened yet.

Okay. And can you give any color on your exposure to South America? I mean, I think some outlooks out there for Brazil are a bit more bearish. Just trying to get a gauge of, in your commercial segment, how big of an exposure there is there.

Jay, do you want to answer that question?

Sure. Yes. This is Jay Craig. Yes, I've just come back from Brazil in the last couple of weeks. And certainly, the market isn't recovering entirely to the levels we would have expected in the short term. As Kevin mentioned in his comments, we're still bullish on the long term. There are some segments of the market that are quite strong, due to the strong agriculture performance out of Brazil. And that tends to favor the very-heavy-truck segment because those are the vehicles required to move those goods. So you're seeing the heavy truck segment perform quite well there. And for the customers that we're aligned with, we're performing well there. But it's really the lighter heavies that has still experienced weakness since the emissions change, which caused a large price increase, which is still being digested by the market.

And any color on the percent of sales that are in your commercial segment from South America?

I'd leave that also to Kevin, but I don't think we disclose specifically what our...

We disclose it normally in the 10-K. I mean, I think if you look at our fiscal year '12, South America represented between 10% and 15% of revenue. And I think when you look at it again this year, you'll see it's probably in that same ZIP code.

Okay. And any color -- your tax rate seemed -- I mean, obviously, you have a lot jurisdictional issues. But, I mean, it seems like your guidance is implying almost an over 50% tax rate. Is that correct? And how do you think you can maybe get the tax rate back to a normal level over time?

Yes. I mean, the key for us to getting the tax rate to more normalized levels over time is to generate better earnings out of our jurisdictions in which we're not a taxpayer. Because, as you'll recall, we have valuation allowances in certain jurisdictions, like in the U.S. and through our Western Europe. Which means if we generate any losses in those jurisdictions, we're not able to recognize a tax benefit. So as the earnings profiles of those geographies improve, it improves our overall effective tax rate.

And my assumption that your tax guidance, the implied rate is over 50%, or am I...

We're not giving a specific guidance on the effective tax rate. But I think you can do some math that would suggest the effective tax rate is not going to be down to the normal levels we would hope to achieve over time.

The next question is from the line of Robert Kosowsky from Sidoti & Company. Robert A. Kosowsky - Sidoti & Company, LLC: I'm just wondering on this M2016 plan you've had in place for a little bit of time now. We saw some nice margin expansion in the aftermarket side. And I'm wondering, if you can tell us like what stage of the game we're in as far as the margin expansion on aftermarket versus commercial truck?

We've done well with margin improvement around value-added offerings. But Pedro, do you want to add a little more color?

Yes. As far as the aftermarket is concerned -- this is Pedro Ferro. We have done a strategic price. We have a large portfolio and we have internal goal now in parallel with the markets, as far as the total increase. But we have managed to change the pricing amongst the various items. And also the lower material cost, we have done a lot of work in optimizing material costs and best cost-country sourcing, as we said, and then the benefit of structural costing reductions in the beginning of the year as well. So... Robert A. Kosowsky - Sidoti & Company, LLC: So does that mean is there still a lot more margin expansion opportunity on the aftermarket side? Or is the bulk of the 200 basis points is going to be coming on the commercial truck side?

Robert, it's Kevin. It's both. I mean, if we think about the key objectives that are really driving margin expansion in M2016, I mean, you have material -- or Meritor value proposition, which is really on both commercial truck in industrial, as well as aftermarket. I think aftermarket experienced some of the successes of that in '13, but there is more to come there. As you look at reduced material costs and better labor and burden performance, that crosses both segments as well. So I don't think you should assume that we're done in one segment or the other. There's more to come in both segments. Robert A. Kosowsky - Sidoti & Company, LLC: Okay, that's helpful. And then otherwise, for some of the new business that you're picking up, do we assume that it's margin accretive relative to your legacy business? And I understand regional kind of margin profiles differ, but is it generally -- a general rule that as you book a new business, it is margin accretive?

Well, without giving specific -- answering that specifically, the -- we -- the customers are -- our customers are recognizing the value of our product offerings. And I tried to outline that a little bit in my comments. These are good business wins.

And to that point, Robert, and you'll see it on the slide where we talk about our revenue outlook and our margin expansion over the next few years, I think it's fair to assume -- I think you'd be in the right ZIP code if you assume 15% to 20% incremental conversion on new business. Some are going to be higher, some are going to be in that range, at the lower end of that range. I think, overall, when we'd look at revenue increases up towards our 2016 targets, you should expect the incremental conversion to be in that range. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. And then 2 last questions. Do you have any update on the freight liner and Volvo contract negotiations?

This is Jay, Robert. I think we're making good progress with both customers right now. I would say the relationships we have with those customers are strong. And we're having good discussions about how we both optimize the value that we provide to those customers. And I think all of us are very pleased on both sides, both the Volvo side and Daimler North America side and our side, on the progress we're making there. Robert A. Kosowsky - Sidoti & Company, LLC: Okay, good. And then, finally, I just noticed CapEx looks like it's going to be up next year. And I was wondering what some of the things you're investing in are kind of accelerating some investments.

Well, it's basically, we didn't spend as much in '13. It's really at normalized level. So it's really not up versus where we've traditional been. But from a modeling standpoint, you can be in that $70 million, $80 million range.

The next question is from the line of Ryan Brinkman from JPMorgan. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Given that you're forecasting free cash flow of only roughly breakeven plus $25 million in FY '14 and yet you have spoken repeatedly of the need to delever the business, are there any other actions that you're maybe contemplating taking in FY '14 to help to delever the business?

I mean, I think our guidance really contemplates what the planning is for fiscal year '14. Keep in mind, as we talked about and Ike mentioned, we've historically had a breakeven of around 7% to 7.5%. So as we're migrating toward our 10% objective over the next couple of years, which will allow it to generate meaningful cash flow, we're still at a stage -- we're at 7.5% --- we are not throwing off a lot of cash flow. But as we see the margin expansion and the recovery of the end markets, we would expect to see that free cash flow improve even more. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay, great. I was just thinking if there were any sort of other things you had in your back pocket, like the sale of Suspensys, for example, if there's anything else that you could sort of strategically -- levers you could pull strategically to help delever the business, apart from like any settlement or anything along those lines or just kind of the free cash flow?

I think right now, we're really focused on those M2016 strategies that Ike talked about earlier. That's really where the focus is as we head into '14. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay, great. And then can you share what your mandatory or maybe any sort of planned discretionary contributions are in FY '14 and to the pension plan? And are those embedded in the free cash flow outlook?

Yes. The plan contribution, we had -- we expect another $11 million of pension contributions that we'll be making over the course of the year. The $54 million was -- that we funded at the end of last year was really what was mandatory to be contributed this year. The $11 million really represents primarily pay-as-you-go plans in some of our international jurisdictions. So the assumption embedded in our free cash flow is another $11 million of pension contributions. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay, that's really helpful. And then just on some of the end markets, China flat versus down 40. What are you seeing there in terms of stabilization to maybe get you a little encouraged? And then on your outlook for 5 through 8 in trailers for North America, obviously, you're looking for a little bit of improvement there. But do you still believe in the idea of large pent-up demand, meaning that volumes could be significantly higher, for example, say, in FY '15, if not in FY '14?

We've given you our best estimate of what we think these markets will be. We've tried to be conservative. But your thoughts as to where these end markets are is as good as ours in that sense. We're at lower levels. I mean -- and the good news is that we are executing really, really well in markets that are depressed and at the lower end. So any kind of upswings that we see in any of these markets is a positive. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay. Then just last question. Your guidance seems to imply roughly $17 million higher EBITDA year-over-year, some margin expansion on flat sales, and I'm sure you can do that, given your stronger execution in the face of the revenue declines just last year. But can you just kind of help us on where that improvement comes from next year? Is it pricing? Is it cost saves? Is it mix? Is it a combination of these factors? What are the rough buckets?

Yes, it's a combination of. We are seeing some pricing, particularly with our aftermarket. But we've also continued to perform on our net material and labor and burden areas as well. So it's a combination of all those things.

The next question is from the line of Doug Karson from Bank of America Merrill Lynch.

As I look out to 2016, the strategy to achieve 10% adjusted EBITDA margins, can you maybe give us a flavor of like the cadence? Is that going to be like back-end loaded or could we see maybe material improvement in 2015?

It's really a mix. I mean, as you think about some of the different elements. As you look at material, labor and burden performance, for instance, we expect to see steady progression on those each year as we move forward. As we look at some of the other things on pricing actions or even on some of the new business wins, they tend to be more back-end loaded. So I think you should expect to see sequential improvement as we head into '14, '15 and '16, but it's not going to be a straight line.

But the good news is we've got $110 million towards the $250 million goal, the $250 million we expect to hit in 2016. So we're 40% of the way there on that. And just to reiterate what Kevin says, we are seeing steady performance on the labor, burden and material area. Some of the pricing from aftermarket probably is a little more in '14, '15 as opposed to '16.

Right. I guess, my question here would be on capacity utilization. I've been following the sector for quite some time. And getting the capacity utilization right, it seems to be difficult for much in the an industry. How is your capacity utilization right now kind of heading into 2014? Is it where you need to be, given the outlook on what you could think 2015 could hold?

Well, the answer -- the quick answer is yes. But, Jay, do you want to add a little more color?

Sure. I mean, it's really consistent with what we see in the outlook for the region. So if you look at North America, it's relatively normalized replacement demands. So we are comfortable with the capacity utilization at that level. We certainly are comfortable that we could flex to higher levels there, if required. I think in Europe, there's a pretty strong prebuy going on right now. So the capacity is not, although 100% utilized, being utilized at a fairly high level. And then as we look at South America, we are probably operating at slightly lower levels than we would expect to. And certainly in China and India, it's probably far below what our capacity is right now. And we've taken actions there to align our variable and fixed costs in line with what we're seeing right now.

Okay. And then -- and finally, on the free cash flow side, it looks like we're going to be either reasonably close to breakeven in the coming year. But as we head out to 2016, I'm assuming we'll be cash flow positive. Do you have any ideas of how you'd deploy that cash flow? Would it be acquisitions, CapEx, trying to delever? Or am I getting too ahead of the plan here?

No, you're not getting ahead. I mean, that's -- you're right on point. I mean, we are expecting to generate positive cash flow as we get through the fiscal '16, M2016 plan. And we expect to deploy that cash flow, primarily to reduce our debt and debt-like liabilities so that we can target achieving BB credit metrics.

The next question is from Kirk Ludtke from CRT Capital Group.

With respect to the Eaton litigation. You mentioned that there's really no trial date set. And I'm just curious, is there a -- can you help us with the time line for the litigation potentially? Or are you kind of getting out of the -- trying to predict what this judge is going to do?

We -- you said it well. I would love for this to have moved at a faster pace. But we're dependent upon the trial judge to set a trial date, and she hasn't done it yet.

Is there -- when you think about what would be a reasonable time line for -- when does -- is there any kind of way to gauge what the particular time line...

Well, we've been wrong at every pass so far. Initially, we thought at early fall, and then we would say maybe late fall. It hasn't happened yet. So your guess on this one is as good as ours and as good as our outside counsel who is helping with this. So we're just dependent upon Judge Robinson to set a date.

Okay, that's helpful. With respect to the HMMWV upgrade, you said something was going to happen in the next 12 months, and I missed it.

Jay, do you want to talk...

Yes, we're expecting a decision out of the Marines, so sometime in the next 12 months on that product. And so we're still -- I think we are very well positioned on 2 of the 4 down-selected programs. And so I think we're very pleased with our positioning there and our -- the vehicles we're aligned with are performing very, very well.

I might add a little bit to Jay's comment. Even though that this one does not require congressional approval, there is always an element of risk with the political process, so just as that as a caveat.

Right, I appreciate that. And when -- what would be the earliest this program would go into production, do you think?

2015. I think it'd be probably a slow ramp-up in the early part of 2015, but then we -- but we would start to see production potentially in '15.

Okay, great. And back to the 2014 guidance for a second. You highlighted that the prebuy in Europe a couple of times. And is -- can you give us a sense for how much of the total annual production will be in the December quarter of the 3 60 for...

We're not really providing any guidance by quarter at this point. But you can imagine, the prebuy does have a benefit on the year overall as we think of the first quarter on a year-over-year basis.

Well, the good news in Europe, we've seen a prebuy and we are seeing some strengthening in the European markets, particularly the Northern Europe. So -- but we can't provide specific guidance for the quarter.

Okay. And then just a couple follow-ups on the other cash flow items. Did you mention pension expense in 2014? I know that funding is 11, but...

I didn't mention pension expense. It will be de minimis in the year. I don't have the exact number in front of me, but it's virtually nothing.

Okay. And restructuring and working capital? I think you mentioned working capital would be a source, but I'm sure if...

We didn't comment one way or the other. I think it's all contemplated in the 0 to $25 million. And the same with restructuring. Historically, we've given some estimate of the restructuring bucket because it's been outside of our free cash guidance. But this year, we are giving free cash guidance in totality, inclusive of restructuring or anything else. So I think you should just assume those are all pieces or potential elements of the 0 to $25 million of guidance.

I would now like to turn the call over to Mr. Carl Anderson for closing remarks.

Thank you for your participation in today's call. If you do have any additional questions, please feel free to reach out to me directly. And with that, we will conclude our fourth quarter and fiscal year 2013 earnings call. Thank you.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect, and have a very good day.