Supply Chain Due Diligence Summary Meritor, Inc. Conflict Minerals Report for the Year Ended December 31, 2013 This document is intended to supplement the Conflict Minerals Report (the “Report”) filed by Meritor, Inc. (“Meritor”) with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2013 by providing additional detail about Meritor’s supply chain due diligence activities as referenced in Section 2.6 of the Report. All capitalized terms not otherwise defined herein have the meanings given to such terms in the Report. Filtration Although Meritor has a large number of suppliers, many of those suppliers supply indirect materials which are not incorporated into Meritor’s products (e.g., solvents, machine tools, etc.) or are merely service providers (e.g., suppliers who perform heat treating, machining, etc., on Meritor’s products). Accordingly, at the outset, Meritor decided to closely examine its supply base in order to exclude those suppliers whose products or services had no chance of contributing any Conflict Minerals to Meritor’s products. Based on this review, Meritor eliminated from its due diligence inquiry all service providers, suppliers of production aids, suppliers of non-‐production materials, suppliers of outside processes like heat-‐treatment and induction hardening, and suppliers of prototypes and packaging materials. Turning its attention, instead, to suppliers providing products that would be incorporated into Meritor products for resale to its customers, Meritor reviewed purchases made through its Oracle ERP system, through which most of its production purchases are made. A significant percentage of these supplier products use drawings that call out specific Meritor material specifications. For all products that fell into both of the categories mentioned above, Meritor identified all Meritor specifications that could possibly contain 3TG and used that information to develop a complete list of all rough part numbers that are made from those specifications. That list of parts was then used to identify all Purchase Orders (“PO’s”) that have a line item with one of those finished part numbers and the suppliers associated with those PO’s. Through this process, Meritor felt confident that it had identified all Oracle suppliers that made product to any Meritor specified material which could potentially contain 3TG and these suppliers were added to Meritor’s “in scope” supplier list. Of those purchased products that do not have specific Meritor material specifications identified, many have ANSI specs, ASTM specs, or general metal requirements not specified by Meritor. For those suppliers not already identified through the process described in the preceding paragraph, Meritor identified approximately 770 additional production suppliers in its Oracle system whose products supplied to Meritor contain some known amount of steel in their products. Of these suppliers, those who supplied more than $5,000 in products to Meritor annually were included in Meritor’s “in-‐scope” supplier list. In order to identify the global non-‐Oracle suppliers that could be “in scope”, Meritor had its: (i) Purchasing and Engineering groups in Cwmbran,Wales and Australia furnish lists of suppliers whose products could potentially contain 3TG in their products; (ii) Global Electronic Systems group located in Troy, Michigan confirm that it did not have any production sales in 2013; and (iii) its aftermarket business provide a list of suppliers, excluding only eleven suppliers who provide product entirely to their own specifications and which are not influenced by Meritor in any way (these ‘off the shelf’ products simply being packaged in a Meritor box and shipped to its customers). As a result of the foregoing activities, Meritor initially determined that it had 434 direct suppliers whose products could potentially contain 3TG. Meritor then added one direct tin manufacturer supplying its manufacturing facility in Franklin Kentucky, and eliminated several additional aftermarket suppliers who do nothing more than provide an off-‐the-‐shelf product to Meritor. Since that time, Meritor reduced the number of direct suppliers whose products could potentially contain 3TG through further filtration activities, including the removal of duplicate entries of suppliers’ names. Meritor is confident that it has identified all potential “in scope” suppliers through these filtration activities. Supplier Due Diligence Meritor decided to use the i-‐POINT system to conduct its preliminary supplier due diligence with its “in scope” suppliers. I-‐Point was selected among other reasons, for its wide acceptance among Meritor’s customers and peer companies in the auto industry as discussed in the AIAG Conflict Mineral team meetings of which Meritor is an active member. The initial i-‐Point supplier contacts were done between Sept 4 and Sept 24th. Meritor then set-‐up an internal repository for all Conflict Mineral information in a system called ‘Sharepoint’ in which it stores: -‐ -‐ -‐ -‐ -‐ All EICC-‐Gesi forms provided by its suppliers (Accepted and rejected) All pertinent correspondence from its suppliers All internal presentations All documents, reports and activities relating to Meritor’s due diligence efforts A supplier contact log showing details of all supplier contacts Meritor also developed training material for its suppliers. The initial list provided by Meritor to i-‐POINT for submission of the EICC-‐Gesi form to its suppliers consisted of approximately 420 suppliers. Because of the general nature of Meritor’s products, its expectation was that most of the parts sold to it would be free of 3TG. On a product level basis, Meritor anticipated that less than 5% of its suppliers would confirm, on the EICC-‐Gesi form, the presence of 3TG in the products they supplied to Meritor. Because Meritor expected to see a high percentage of ‘No’ answers to question #1 of the EICC-‐Gesi form regarding the presence of 3TG in products supplied to Meritor, a “No” response would not be unexpected and would not cause an elevated level of concern or suspicion. Meritor did, however, identify three circumstances that might constitute a ‘red flag’ and cause it to evaluate a particular supplier’s response more carefully: (i) the supplier in question did not appear to have performed any level of due diligence; (ii) the supplier provided electronic components to Meritor; and (iii) the supplier provided castings to Meritor. The higher scrutiny of castings suppliers is due to the fact that certain casting suppliers may use tin in their process to achieve a higher pearlite content to facilitate successful induction hardening. Where any of the foregoing “red flags” were present, Meritor employed a slightly higher standard of acceptance to those EICC-‐Gesi forms, requesting additional information from the supplier either verbally or on the EICC-‐Gesi form. The team also developed a communication and escalation process to address non-‐responsive suppliers. With regard to any supplier, who failed to respond to Meritor’s request in i-‐point to complete and submit an EICC-‐Gesi form, Meritor sent one reminder thru i-‐Point. In addition, Meritor sent individual e-‐ mails to every unresponsive supplier reiterating its request and providing an EICC-‐Gesi form with training instructions. After completing that exercise, Meritor looked at its unresponsive supplier list by spend and then contacted the suppliers again by phone and by e-‐mail, with priority being given to the suppliers with the largest spend. On April 1, 2014, Meritor discontinued collecting 2013 information from its suppliers. In total, Meritor pursued responses from 350 suppliers whom it identified as potentially having 3TG in their products. At that time, Meritor had evaluated and accepted responses from 327 ( 93%) of those suppliers. Only 23 of the suppliers solicited by Meritor did not respond. Those suppliers who provided an acceptable response account for over 99% of the total annual spend among the suppliers solicited. Of those suppliers who responded, 89 (27%) answered “yes” to the presence of 3TG in their products; however, 81 (91%) of those responding did so at a “Company level” meaning that 3TG may or may not be in the actual products they sell to Meritor.
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