Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the quarterly period ended March 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
For the transition period from              to              .
Commission file number 1-33332
WABCO Holdings Inc.
(Exact name of Registrant as specified in its charter)
 
Delaware
 
20-8481962
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Giacomettistrasse 1, 3000 Bern 31, Switzerland
 
 
1220 Pacific Drive, Auburn Hills, Michigan
 
48326-1589
(Address of principal executive offices)
 
(Zip Code)
Chaussée de la Hulpe 166, 1170 Brussels, Belgium
(Former name or former address)

Registrant’s telephone number, including area code +41 315 813 300
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     o   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x   Yes     o   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.  
Large Accelerated Filer
 
x
  
Accelerated Filer
 
o
 
 
 
 
Non-Accelerated Filer
 
o
  (Do not check if a smaller reporting company)
Smaller Reporting Company
 
o
 
 
 
 
 
 
 
 
 
 
 
Emerging Growth Company
 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     o   Yes     x   No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  
Common stock, $.01 par value, outstanding at
 
 
April 15, 2019
 
51,232,761


Table of Contents

WABCO HOLDINGS INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter ended March 31, 2019
Contents
 
 
 
 
 
 
Item 1.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

2
Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements

WABCO HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
    
 
Three Months Ended
March 31,
(Amounts in millions, except share and per share data)
2019
 
2018
Sales
$
932.9

 
$
1,003.3

Cost of sales
660.0

 
694.3

Gross profit
272.9

 
309.0

Operating expenses:
 
 
 
Selling and administrative expenses
120.4

 
113.5

Research, development and engineering expenses
48.4

 
50.7

Other operating income, net
(1.1
)
 
(2.2
)
Operating income
105.2

 
147.0

Equity income of unconsolidated joint ventures, net
0.6

 
0.4

Other non-operating expense, net
(5.9
)
 
(11.4
)
Interest income/(expense), net
0.1

 
(3.0
)
Income before income taxes
100.0

 
133.0

Income tax expense
12.1

 
26.3

Net income including noncontrolling interests
87.9

 
106.7

Less: net income attributable to noncontrolling interests
3.7

 
6.0

Net income attributable to Company
$
84.2

 
$
100.7

Net income attributable to Company per common share
 
 
 
Basic
$
1.64

 
$
1.87

Diluted
$
1.64

 
$
1.87

Cash dividends per share of common stock
$
—

 
$
—

Weighted average common shares outstanding
 
 
 
Basic
51,233,141

 
53,740,732

Diluted
51,330,942

 
53,890,432

    
See Notes to Condensed Consolidated Financial Statements.

3
Table of Contents

WABCO HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
March 31,
 (Amounts in millions)
2019
 
2018
Net income including noncontrolling interests
$
87.9

 
$
106.7

Other comprehensive income:
 
 
 
     Currency translation adjustments
14.4

 
23.7

     Pension and post-retirement benefit plan adjustments, net
7.7

 
(3.2
)
Total other comprehensive income
$
22.1

 
$
20.5

Comprehensive income
$
110.0

 
$
127.2

     Less: comprehensive income attributable to noncontrolling interests
3.7

 
5.1

Comprehensive income attributable to Company
$
106.3

 
$
122.1


See Notes to Condensed Consolidated Financial Statements.
    

4
Table of Contents

WABCO HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in millions, except share data)
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
603.3

 
$
503.8

Short-term investments
 
134.3

 
135.8

Accounts receivable, less allowance for doubtful accounts of $10.7 in 2019 and 2018
 
678.0

 
611.5

Inventories, net
 
357.3

 
319.1

Guaranteed notes receivable
 
55.0

 
44.1

Investments in repurchase agreements
 
56.1

 
85.8

Other current assets
 
107.1

 
96.8

Total current assets
 
1,991.1

 
1,796.9

Property, plant and equipment, net
 
558.0

 
553.6

Operating lease right–of–use assets
 
114.9

 
—

Goodwill
 
802.6

 
809.4

Deferred tax assets
 
240.7

 
236.7

Investments in unconsolidated joint ventures
 
11.1

 
10.4

Intangible assets, net
 
240.8

 
246.6

Other assets
 
89.0

 
85.0

TOTAL ASSETS
 
$
4,048.2

 
$
3,738.6

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Loans payable to banks
 
$
84.3

 
$
—

Accounts payable
 
275.0

 
232.5

Accrued payroll
 
112.6

 
111.2

Current portion of warranties
 
26.5

 
23.3

VAT payable
 
19.9

 
15.7

Accrued expenses
 
76.8

 
73.8

Promotion and customer incentives
 
19.1

 
26.6

Accrued income tax
 
38.4

 
28.2

Other accrued liabilities
 
113.3

 
84.7

Total current liabilities
 
765.9

 
596.0

Long-term debt
 
829.0

 
845.2

Operating lease liabilities
 
86.9

 
—

Pension and post-retirement benefits
 
707.1

 
716.0

Deferred tax liabilities
 
76.1

 
75.4

Long-term income tax liabilities
 
156.9

 
156.8

Other liabilities
 
81.9

 
84.0

TOTAL LIABILITIES
 
2,703.8

 
2,473.4

Shareholders’ equity:
 
 
 
 
Preferred stock, 4,000,000 shares authorized; none issued and outstanding
 
—

 
—

Common stock, $.01 par value, 400,000,000 shares authorized; shares issued: 79,122,144 in 2019; 79,018,266 in 2018; and shares outstanding: 51,231,217 in 2019; 51,364,925 in 2018
 
0.8

 
0.8

Capital surplus
 
896.8

 
898.5

Treasury stock, at cost: 27,890,927 shares in 2019; 27,653,341 shares in 2018
 
(2,187.2
)
 
(2,159.3
)
Retained earnings
 
3,050.9

 
2,960.8

Accumulated other comprehensive loss
 
(510.3
)
 
(524.0
)
Total shareholders’ equity
 
1,251.0

 
1,176.8

Noncontrolling interests
 
93.4

 
88.4

Total equity
 
1,344.4

 
1,265.2

TOTAL LIABILITIES AND EQUITY
 
$
4,048.2

 
$
3,738.6

See Notes to Condensed Consolidated Financial Statements.

5
Table of Contents

WABCO HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
March 31,
(Amounts in millions)
2019
 
2018
Operating activities:
 
 
 
Net income including noncontrolling interests
$
87.9

 
$
106.7

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
25.9

 
24.4

Amortization of intangibles
6.6

 
7.0

Equity in earnings of unconsolidated joint ventures, net of dividends received
(0.6
)
 
(1.2
)
Non-cash stock compensation
4.1

 
4.4

Non-cash interest expense and debt issuance cost amortization
2.6

 
6.0

Deferred income tax benefit
(10.4
)
 
(0.4
)
Pension and post-retirement benefit expense
16.4

 
16.4

Foreign currency effects on changes in monetary assets/liabilities
4.9

 
8.5

Unrealized (gain)/loss on revaluation of foreign currency forward contracts
(1.6
)
 
3.6

Other
(0.4
)
 
0.3

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(68.6
)
 
(33.1
)
Inventories, net
(40.6
)
 
(25.7
)
Accounts payable
47.3

 
12.9

Other accrued liabilities and taxes
17.2

 
2.8

Other current and long-term assets
(24.9
)
 
(23.6
)
Other long-term liabilities
(1.4
)
 
(13.3
)
Pension and post-retirement benefit contributions
(5.6
)
 
(6.7
)
Net cash provided by operating activities
58.8

 
89.0

Investing activities:
 
 
 
Purchases of property, plant and equipment
(39.1
)
 
(19.3
)
Investments in capitalized software
(1.4
)
 
(2.0
)
Purchases of short-term investments and repurchase agreements
(267.9
)
 
(174.6
)
Sales and maturities of short-term investments and repurchase agreements
298.6

 
58.1

Investments in unconsolidated joint ventures

(0.3
)
 
—

Acquisition of businesses
—

 
(6.4
)
Net cash used by investing activities
(10.1
)
 
(144.2
)
Financing activities:
 
 
 
Borrowings of long-term debt
—

 
368.5

Net borrowings/(repayments) of short-term debt
85.2

 
(398.9
)
Purchases of treasury stock
(30.6
)
 
(30.7
)
Taxes withheld and paid on employee stock award vestings
(4.8
)
 
(4.6
)
Dividends to noncontrolling interest holders
(2.3
)
 
(1.2
)
Proceeds from noncontrolling interest holders
3.9

 
—

Proceeds from exercise of stock options
0.5

 
0.4

Net cash provided/(used) by financing activities
51.9

 
(66.5
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1.0
)
 
18.4

Net increase/(decrease) in cash, cash equivalents and restricted cash
99.6

 
(103.3
)
Cash, cash equivalents and restricted cash at beginning of period
504.2

 
1,141.5

Cash, cash equivalents and restricted cash at end of period
$
603.8

 
$
1,038.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

6
Table of Contents

 
Three Months Ended
March 31,
(Amounts in millions)
2019
 
2018
Supplemental cash flow disclosures
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
6.2

 
$
10.9

Income taxes
$
12.4

 
$
15.8

Non cash activity:
 
 
 
Increase in capital expenditures included in accounts payable and other accrued liabilities
$
9.7

 
$
0.2

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
       Cash and cash equivalents
$
603.3

 
$
1,038.2

Restricted cash, included in other assets
0.5

 
—

Cash, cash equivalents and restricted cash at end of period
$
603.8

 
$
1,038.2


See Notes to Condensed Consolidated Financial Statements.

7
Table of Contents


WABCO HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
 
Three Months Ended
March 31,
(Amounts in millions)
2019

2018
Total equity, beginning balance
$
1,265.2

 
$
1,201.1

 
 
 
 
Common stock and capital surplus
 
 
 
     Balance, beginning of period
899.3

 
884.0

          Stock options exercised
0.1

 
0.1

          Share-based compensation
4.1

 
4.4

          Tax withheld on stock award vestings
(4.7
)
 
(4.5
)
          Changes in ownership of noncontrolling interests
(1.2
)
 
—

     Balance, end of period
897.6

 
884.0

Treasury stock
 
 
 
     Balance, beginning of period
(2,159.3
)
 
(1,861.3
)
          Treasury shares purchased
(30.6
)
 
(30.6
)
          Treasury shares reissued
2.7

 
1.6

     Balance, end of period
(2,187.2
)
 
(1,890.3
)
Retained earnings
 
 
 
     Balance, beginning of period
2,960.8

 
2,563.2

          Adoption of ASU 2018-02 (Note 2) and ASU 2016-16
8.4

 
5.3

          Net income attributable to Company
84.2

 
100.7

          Treasury shares reissued
(2.5
)
 
(1.4
)
     Balance, end of period
3,050.9

 
2,667.8

Accumulated other comprehensive loss
 
 
 
     Balance, beginning of period
(524.0
)
 
(464.5
)
          Other comprehensive income
22.1

 
21.4

          Adoption of ASU 2018-02 (Note 2)
(8.4
)
 
—

     Balance, end of period
(510.3
)
 
(443.1
)
Noncontrolling interests
 
 
 
     Balance, beginning of period
88.4

 
79.7

          Net income attributable to noncontrolling interests
3.7

 
6.0

          Dividends paid
(2.3
)
 
(1.2
)
          Contribution from noncontrolling interests
3.9

 
—

          Changes in ownership of noncontrolling interests
(1.0
)
 
—

          Other comprehensive income/(loss)
0.7

 
(1.1
)
     Balance, end of period
93.4

 
83.4

Total equity, ending balance
$
1,344.4

 
$
1,301.8





8
Table of Contents


WABCO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

NOTE 1.
Basis of Financial Statement Presentation

WABCO Holdings Inc. and its subsidiaries (collectively WABCO, Company, we, or our) engineer, develop, manufacture and sell integrated systems controlling advanced braking, stability, suspension, steering, transmission automation, as well as air compression and processing primarily for commercial vehicles. WABCO’s largest selling products are pneumatic anti-lock braking systems (ABS), electronic braking systems (EBS), electronic stability control (ESC) systems, brake controls, automated manual transmission systems (AMT), air disc brakes and a large variety of conventional mechanical products such as actuators, air compressors and air control valves for medium- and heavy-duty trucks, buses and trailers. In addition, we supply commercial vehicle aftermarket distributors and service partners as well as fleet operators with replacement parts, fleet management solutions, diagnostic tools, training and other expert services. WABCO sells its products primarily to two groups of customers around the world: original equipment manufacturers (OEMs) including truck and bus, trailer, car and off-highway, and commercial vehicle aftermarket distributors of replacement parts and services as well as commercial vehicle fleet operators for management solutions and services. We also provide remanufacturing services globally.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, including normal recurring items, considered necessary for a fair presentation of financial data have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the entire year. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended December 31, 2018 , included in the Company’s Annual Report on Form 10-K.

As previously announced, on March 28, 2019, WABCO entered into an Agreement and Plan of Merger (the Merger Agreement) with ZF Friedrichshafen AG (ZF), a stock corporation organized and existing under the laws of the Federal Republic of Germany, and Verona Merger Sub Corp., a Delaware corporation and indirect wholly owned subsidiary of ZF, pursuant to which ZF will acquire 100% of the issued and outstanding shares of WABCO common stock (the Merger). Consummation of the Merger is subject to approval by WABCO’s shareholders, customary closing conditions, and regulatory approvals and is expected to close in early 2020. Due to the pending Merger, the Company has suspended previously announced changes to its internal reporting. The Company will maintain its current internal reporting to the chief operating decision maker and continue to operate as one reportable segment.

All majority-owned subsidiaries of WABCO are included in the condensed consolidated financial statements and intercompany transactions are eliminated upon consolidation. WABCO’s investments in unconsolidated joint ventures are included at cost plus its equity in undistributed earnings less dividends and changes in foreign currency in accordance with the equity method of accounting and reflected as investments in unconsolidated joint ventures in the condensed consolidated balance sheets.

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Management believes the most complex and sensitive judgments, because of their significance to the condensed consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes 2 and 16 to the Consolidated Financial Statements for the year ended December 31, 2018 , in the Company’s Annual Report on Form 10-K, describe the most significant accounting estimates and policies used in the preparation of the Consolidated Financial Statements. Actual results in these areas could differ materially from management’s estimates. There have been no significant changes in the Company’s assumptions regarding critical accounting estimates during the first three months of 2019 .

9

NOTE 2.
Recently Issued Accounting Standards

Recently Adopted Accounting Standards

In June 2018, the FASB issued ASU 2018-07 Compensation-Stock Compensation (Topic 718), to simplify the accounting for share–based payments granted to nonemployees by aligning the accounting with the requirements for employee share–based compensation. ASU 2018-07 is effective for the Company beginning in fiscal 2019, including interim periods within that fiscal year. The Company adopted the guidance as of January 1, 2019. There was no material impact on the Company's condensed consolidated financial statements resulting from the adoption of this guidance.

In February 2018, the FASB issued ASU 2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The standard allows for certain stranded tax effects within Accumulated Other Comprehensive Income (AOCI), resulting from the U.S. Tax Cuts and Jobs Act, to be reclassified to retained earnings. ASU 2018-02 is effective for the Company beginning in fiscal 2019, including interim periods within that fiscal year. The Company adopted the provisions of ASU 2018–02 as of January 1, 2019. There was a one–time reclassification of $8.4 million from AOCI to retained earnings related to the remeasurement of deferred taxes recorded in other comprehensive income based on the newly enacted corporate tax rate. Refer to Note 13 for additional detail regarding the components of the reclassification.

In August 2017, the FASB issued ASU 2017-12 Targeted Improvements to Accounting for Hedging Activities , which aims at improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements, by expanding and refining hedge accounting for both nonfinancial and financial risk components and aligning the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU 2017-12 is effective for the Company beginning in fiscal 2019, including interim periods within that fiscal year. The Company adopted the provisions of ASU 2017–12 as of January 1, 2019. There was no material impact on the Company's condensed consolidated financial statements resulting from the adoption of this guidance.

In February 2016, the FASB issued ASU 2016-02 and subsequent amendments, collectively known as ASC 842 Leases . ASC 842 requires recognition of operating leases as lease assets and liabilities on the balance sheet and also requires the disclosure of key information about leasing arrangements. The Company has elected to adopt ASC 842 by applying the modified transition method and has elected to use the effective date of January 1, 2019 as the initial date of application. The Company elected the package of practical expedients and did not elect the use of the hindsight practical expedient. As a result, the Company will continue to account for existing leases in accordance with previous accounting guidance throughout the entire lease term including periods after the effective date. The remeasurement or modification of a lease after the effective date requires application of the new guidance. The Company has also elected the practical expedient under ASU 2018-01 Land Easement and will apply previous judgments under previous guidance as to the recognition of land easements as a lease.
The adoption of ASC 842 resulted in the recognition of operating lease right-of-use (ROU) assets of $110.1 million and an operating lease liabilities of $111.2 million on the effective date. The new guidance did not have a material impact on the condensed consolidated statement of operations or statement of cash flow. The accounting for finance leases under ASC 842 remained substantially unchanged from previous accounting guidance and are not material. See Note 11 for the disclosures required by ASC 842 and accounting policy information for leases.

Pending Adoption of Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-14 Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans . This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU removes the requirements to disclose: amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the next fiscal year; the amount and timing of plan assets expected to be returned to the employer; and the effects of a one-percentage point change in assumed health care cost trend rates. The ASU requires disclosure of an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for all entities and the amendments in this update are required to be applied on a retrospective basis to all periods presented. The Company is currently evaluating this guidance to determine the impact on its disclosures.

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The ASU requires disclosure of changes in unrealized gains and

10

losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact on its disclosures.

In January 2017, the FASB issued ASU 2017-04 Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The standard eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (the Step 2 test) from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. The standard is effective for the Company beginning January 1, 2020 and will be applied to any annual or interim goodwill impairment assessment after that date. Early adoption is permitted for interim and annual impairment testing after January 1, 2017. The Company does not expect the adoption of this guidance to have a material impact on the Company's condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016–13 Financial Instruments–Credit Losses to replace the incurred loss model for financial assets measured at amortized cost and require entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. For trade and other receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. The new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

We do not expect the pending adoption of other recently issued accounting standards to have an impact on the condensed consolidated financial statements.

NOTE 3.
Revenue from Contracts with Customers

The Company follows the guidance under ASC 606 effective January 1, 2018. Revenue under ASC 606 is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer, which is typically at a point in time. Estimates of variable consideration are included in revenue to the extent that it is probable that a significant reversal of cumulative revenue will not occur once the uncertainty is resolved.

Disaggregation of Revenue

The following table presents product sales disaggregated by end-market:
 
 
Three Months Ended March 31,
(Amount in millions)
 
2019

2018
OEM  
 
$
703.8

 
$
760.8

Aftermarket
 
229.1

 
242.5

Total sales
 
$
932.9

 
$
1,003.3


The following table presents product sales disaggregated by geography, based on the billing addresses of customers:
 
 
Three Months Ended March 31,
(Amount in millions)
 
2019
 
2018
United States
 
$
219.7

 
$
209.9

Europe
 
461.7

 
501.4

Other  (1)
 
251.5

 
292.0

Total sales
 
$
932.9

 
$
1,003.3


11


(1)  
Sales to other regions includes revenues primarily from Japan, China, Brazil and India.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to performance obligations to be satisfied in the future. Contract assets and contract liabilities were not material as of March 31, 2019 and December 31, 2018 .

Transaction Price Allocated to the Remaining Performance Obligations

The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2019 and 2018 were not material. The Company has elected to apply the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

NOTE 4. Accumulated Other Comprehensive Loss
    
The table below presents the changes in accumulated other comprehensive loss for the three month periods ended March 31, 2019 and 2018 .

12

 
Three Months Ended
March 31,
(Amount in millions)
2019
 
2018
Foreign currency translation adjustments   :
 
 
 
   Balance at beginning of period
$
(243.0
)
 
$
(177.6
)
   Adoption of ASU 2018-02 (Note 2)
(7.1
)
 
—

   Adjustment for the period
14.4

 
24.8

   Balance at end of period (1)
(235.7
)
 
(152.8
)
 
 
 
 
Losses on intra-entity transactions:
 
 
 
   Balance at beginning of period
(11.9
)
 
(11.8
)
   Adjustment for the period
—

 
(0.1
)
   Balance at end of period (2)
(11.9
)
 
(11.9
)
 
 
 
 
Unrealized gains on investments:
 
 
 
   Balance at beginning of period
—

 
0.1

   Adjustment for the period
—

 
(0.1
)
   Balance at end of period
—

 
—

 
 
 
 
Unrealized losses on hedges:
 
 
 
   Balance at beginning of period
—

 
(0.8
)
   Adjustment for the period
—

 
—

   Balance at end of period
—

 
(0.8
)
 
 
 
 
Pension and post-retirement plans:
 
 
 
   Balance at beginning of period
(269.1
)
 
(274.4
)
   Adoption of ASU 2018-02 (Note 2)
(1.3
)
 
—

   Other comprehensive loss/(income) before reclassifications
3.1

 
(7.8
)
   Amounts reclassified to earnings, net   (3)
4.6

 
4.6

   Balance at end of period
(262.7
)
 
(277.6
)
 
 
 
 
Accumulated other comprehensive loss at end of period
$
(510.3
)
 
$
(443.1
)

(1) Includes an accumulated loss of $9.7 million , net of taxes of $1.2 million as of March 31, 2019 and an accumulated loss of $50.1 million , net of taxes of $21.7 million , as of March 31, 2018 related to foreign currency gains and losses on Euro-denominated debt and foreign currency contracts designated and qualifying as partial hedges of a net investment. This includes the one-time adjustment of currency translation related to the adoption of ASU 2018-02 of $7.1 million disclosed above.

(2)
Relates to intra-entity foreign currency transactions that are of a long term investment nature, when the entities to the transaction are consolidated, combined or accounted for by the equity method in the Company's financial statements.

(3)  
Consists of amortization of prior service cost and actuarial losses that are included as a component of pension and post-retirement expense within other non-operating expenses. The amounts reclassified to earnings are recorded net of tax of $1.9 million for three month periods ended March 31, 2019 and 2018 .

NOTE 5. Inventories, net

The components of inventories are as follows:


13

(Amounts in millions)
 
As of March 31, 2019
 
As of December 31, 2018
Finished products
$
178.9

 
$
185.2

Products in process
16.1

 
15.3

Raw materials
180.7

 
137.1

    Inventories, gross
375.7

 
337.6

Less: inventory allowances
(18.4
)
 
(18.5
)
    Inventories, net
$
357.3

 
$
319.1


Inventory costs are primarily comprised of direct material and labor costs, as well as material overhead such as inbound freight and custom and excise duties.

NOTE 6. Guaranteed Notes Receivable

The Company holds guaranteed notes receivable from reputable state owned and public enterprises in China that are settled through bankers acceptance drafts, which are registered and endorsed to the Company. These notes receivable are fully guaranteed by banks and generally have contractual maturities of six months or less, but the ultimate recourse remains against the trade debtor. These guaranteed drafts are available for discounting with banking institutions in China or transferring to suppliers to settle liabilities. The total amount of notes receivable discounted or transferred for the first three months of 2019 and 2018 were $ 41.7 million and $78.9 million , respectively. Discounting fees were immaterial for the three months ended March 31, 2019 and 2018 . The fair value of these guaranteed notes receivable is determined based on Level 2 inputs including credit ratings and other criteria observable in the market and was equal to their carrying amounts of $ 55.0 million and $44.1 million as of March 31, 2019 and December 31, 2018 , respectively.

The Company monitors the credit quality of both the drawers of the drafts and guarantors on a monthly basis by reviewing various factors such as payment history, level of state involvement in the institution, size, national importance as well as current economic conditions in China. Since the Company has not experienced any historical losses nor is expecting future credit losses based on a review of the various credit quality indicators described above, we have not established a loss provision against these receivables as of March 31, 2019 or December 31, 2018 .
    

NOTE 7. Net Income Attributable to Company per Share

Basic net income attributable to Company per share has been computed using the weighted average number of common shares outstanding. The average number of outstanding shares of common stock used in computing diluted net income attributable to Company per share includes weighted average incremental shares when the impact is not anti-dilutive. The weighted average incremental shares represent the net amount of shares the Company would issue upon the assumed exercise of in-the-money stock options and vesting of restricted stock units (RSUs) and deferred stock units (DSUs) after assuming that the Company would use the proceeds from the exercise of options to repurchase stock. The weighted average incremental shares also includes the net amount of shares issuable for performance stock units (PSUs) at the end of the reporting period, if any, based on the number of shares issuable if the end of the period were the end of the vesting period.

Anti-dilutive shares, if applicable, are excluded and represent those options, RSUs, DSUs and PSUs whose assumed proceeds were greater than the average price of the Company’s common stock.
 
Three Months Ended March 31,
 
2019
 
2018
Weighted average incremental shares included
97,801

 
149,700

Shares excluded due to anti-dilutive effect
33,655

 
—


NOTE 8. Capital Stock
The following is a summary of the number of shares of common stock issued, treasury stock and common stock outstanding for the three month periods ended March 31, 2019 and 2018 : 

14

 
Three Months Ended March 31,
 
2019
 
2018
 
Total Shares
 
Treasury Stock
 
Net Shares
Outstanding
 
Total Shares
 
Treasury  Stock
 
Net Shares
Outstanding
Balance at beginning of period
79,018,266

 
(27,653,341
)
 
51,364,925

 
78,937,828

 
(25,202,342
)
 
53,735,486

Shares issued upon exercise of stock options
8,294

 
16,500

 
24,794

 
6,742

 
9,092

 
15,834

Shares issued upon vesting of RSUs
38,213

 
6,143

 
44,356

 
32,503

 
7,012

 
39,515

Shares issued for DSUs
901

 
—

 
901

 
—

 
—

 
—

Shares issued upon vesting of PSUs
56,470

 
11,771

 
68,241

 
20,678

 
6,009

 
26,687

Shares purchased for treasury
—

 
(272,000
)
 
(272,000
)
 
—

 
(221,000
)
 
(221,000
)
Balance at end of period
79,122,144

 
(27,890,927
)
 
51,231,217

 
78,997,751

 
(25,401,229
)
 
53,596,522


The Company accounts for purchases of treasury stock under the cost method with the costs of such share purchases reflected in treasury stock in the accompanying condensed consolidated balance sheets. Upon the exercise or vesting of an equity incentive award, the Company may reissue shares from treasury stock or may elect to issue new shares. When treasury shares are reissued, they are recorded at the average cost of the treasury shares acquired since the inception of the share buy back programs, net of shares previously reissued. Gains on the reissuance of treasury shares are recorded as capital surplus. Losses on the reissuance of treasury shares are charged to capital surplus to the extent of previous gains recorded, and to retained earnings for any losses in excess. The Company has reissued, on a cumulative basis, a total of 145,245 treasury shares related to certain employee vestings under its equity incentive program through March 31, 2019 .

On December 7, 2018, the Board of Directors authorized the repurchase of shares of common stock for an amount of $600.0 million through December 31, 2020. As of March 31, 2019 the Company has purchased 272,000 shares for $30.6 million and has $569.4 million remaining under this repurchase authorization. The Company suspended its share repurchase program due to the
pending Merger.

NOTE 9. Stock-Based Compensation

The Company records stock-based compensation expense in the condensed consolidated statements of operations for stock options and RSUs based on the grant date fair value, determined by the closing market price of the Company’s common stock on the date of grant. RSUs vest in equal annual installments over three years. As of March 31, 2019 , the stock option awards are fully vested.

As part of its equity incentive program, the Company grants PSUs, the vesting of which would occur, if at all, and at levels that depend upon the achievement of three-year cumulative goals tied to earnings per share. The Company assesses the expected achievement levels at the end of each reporting period. The grant date fair value of the number of awards expected to vest based on the Company’s best estimate of ultimate performance against the respective targets is recognized as compensation expense on a straight-line basis over the requisite vesting period of the awards. As of March 31, 2019 , the Company believes it is probable that the performance conditions will be met and has recognized compensation expense accordingly.

The Company also grants DSUs to its non-management directors as part of the equity portion of their annual retainer and are fully vested at grant. Each DSU provides the right to the issuance of a share of our common stock, within ten days after the earlier of the director’s death or disability, the 13-month anniversary of the grant date or the director’s separation from service. Each director may also elect within a month after the grant date to defer the receipt of shares for five or more years. No election can be made to accelerate the issuance of stock from a DSU.

Total stock-based compensation cost recognized during the three month periods ended March 31, 2019 and 2018 was as follows:
 
Three Months Ended
March 31,
(Amount in millions)
2019
 
2018
Stock-based compensation
$
4.1

 
$
4.4



15

The total number and type of awards granted during the periods presented and the related weighted-average grant-date fair values were as follows:
 
Three Months Ended March 31,
 
2019
 
2018
 
Underlying
Shares
Weighted
Average
Grant Date
Fair Value
 
Underlying
Shares
Weighted
Average
Grant Date
Fair Value
RSUs Granted
66,877

$
117.49

 
56,710

$
140.80

PSUs Granted
66,877

$
117.49

 
54,437

$
140.71

Total Awards
133,754


 
111,147

 

The RSUs granted during the periods presented above have vesting terms as follow:
 
Three Months Ended March 31,
 
2019
 
2018
Vest in equal annual installments over three years
66,877

 
54,619

Vest after three years
—

 
2,091

Total RSUs granted
66,877

 
56,710


NOTE 10. Debt

Schuldschein Loans

On March 22, 2018 the Company, through a European subsidiary, entered into a series of six individual senior unsecured loan agreements with an aggregate principal amount of €300.0 million (collectively, the Schuldschein Loans), as follows :

(Amounts in millions)
Face value
 
Coupon
Maturity date
Fixed rate term loan - Series A
€
10.0

 
0.85%
March 31, 2021
Fixed rate term loan - Series B
60.0

 
1.15%
March 31, 2022
Fixed rate term loan - Series C
80.0

 
1.43%
March 31, 2023
Floating rate term loan - Series A
50.0

 
6-month EURIBOR plus 80 bps
March 31, 2021
Floating rate term loan - Series B
60.0

 
6-month EURIBOR plus 90 bps
March 31, 2022
Floating rate term loan - Series C
40.0

 
6-month EURIBOR plus 100 bps
March 31, 2023
 
€
300.0

 
 
 

The Company paid approximately €1.1 million of debt issuance costs in connection with the Schuldschein Loans, which has been presented in the condensed consolidated balance sheets as a direct reduction of the related debt liability. Interest under the fixed rate tranches is paid on March 31 of each year, and commenced on March 31, 2019. Interest under the floating rate tranches is paid semi-annually on March 31 and September 30 of each year, and commenced on September 30, 2018.

As of March 31, 2019 , the outstanding debt balance net of unamortized debt issuance costs was €299.2 million ( $335.9 million at March 31, 2019 exchange rates) of which €100.0 million ( $112.3 million at March 31, 2019 exchange rates) was used for recapitalization of affiliated entities. The remaining proceeds will be utilized to meet general financing requirements.

Subject to certain conditions, the Company may, at its option, prepay all or any part of the Schuldschein Loans in an amount equal to the higher of the outstanding nominal amount of such loans (or the part of it) and the discounted value.

The Schuldschein Loans contain customary affirmative and negative covenants, and financial covenants consisting of a consolidated net indebtedness to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization adjusted for certain items) ratio of not more than three times at the end of each fiscal quarter based upon the preceding twelve consecutive months, as well as a consolidated EBITDA to consolidated net interest expense ratio of not less than three times at the end of each fiscal quarter based upon the preceding twelve consecutive months. The Company was in compliance with all of the covenants as of March 31, 2019 .

16


Senior EUR Notes

On November 15, 2016 , the Company issued an aggregate amount of €440 million of senior unsecured notes (collectively, the Senior EUR Notes) as follows:
(Amounts in millions)
Face value
 
Coupon
 
Maturity date
Series D Notes
€
190.0

 
0.84
%
 
November 15, 2023
Series E Notes
80.0

 
1.20
%
 
November 15, 2026
Series F Notes
170.0

 
1.36
%
 
November 15, 2028
 
€
440.0

 
 
 
 

The Company paid approximately $1.4 million of debt issuance costs in connection with the Senior EUR Notes, which has been presented in the condensed consolidated balance sheets as a direct reduction of the related debt liability. Interest on the Senior EUR Notes is payable semi-annually on January 1 and July 1 of each year, and commenced on July 1, 2017. As of March 31, 2019 , the outstanding debt balance net of unamortized debt issuance costs was €439.0 million ( $492.8 million at March 31, 2019 exchange rates). This debt balance included a revaluation loss of $16.0 million , net of taxes of $6.1 million , that has been recognized in cumulative translation adjustment within accumulated other comprehensive income. See Note 4 for further discussion.

The proceeds from the Senior EUR Notes were utilized to repay outstanding balances on our revolving credit facilities, fund our share repurchase program, finance acquisitions and meet general financing requirements.

Subject to certain conditions, the Company may, at its option, prepay all or part of the Senior EUR Notes plus any accrued and unpaid interest to the date of prepayment and certain penalties as defined in the note purchase agreement (the EUR Note Purchase Agreement). The Company may also be required, subject to certain events and conditions, to make an offer to prepay all of the Senior EUR Notes including any accrued and unpaid interest to the date of prepayment. Each holder has the option to accept or reject such offer to prepay.

The EUR Note Purchase Agreement contains customary affirmative and negative covenants, and financial covenants consisting of a consolidated net indebtedness to consolidated EBITDA ratio of not more than three times at the end of each fiscal quarter based upon the preceding twelve consecutive months, as well as a consolidated EBITDA to consolidated net interest expense ratio of not less than three times at the end of each fiscal quarter based upon the preceding twelve consecutive months. The EUR Note Purchase Agreement also provides for customary events of default, the occurrence of which could result in an acceleration of the Company's obligations under the EUR Note Purchase Agreement. The Company was in compliance with all of the covenants as of March 31, 2019 .

The Company also agreed to indemnify the note purchasers holding Senior EUR Notes that are subject to a swap agreement for certain potential losses associated with swap breakage resulting from a prepayment of the Senior EUR Notes or from an acceleration of the Senior EUR Notes as a result of an event of default.

Senior USD Notes

On June 25, 2015, the Company issued an aggregate amount of $500.0 million of senior unsecured notes (the Senior USD Notes). On April 30, 2018, the Company prepaid the outstanding principal amount of $500.0 million on the Senior USD Notes, and recognized a loss on debt extinguishment of $2.3 million net of taxes, of which the pretax amount, $2.6 million , was included in other non-operating expenses in the condensed consolidated statement of operations.

Revolving Credit Facilities

Effective June 28, 2018, the Company amended its existing multi–currency unsecured revolving credit facility, increasing the maximum principal amount of borrowings under the facility from $400 million (the 2015 Facility) to $600 million (the 2018 Facility), with an option to increase up to an additional $250.0 million . The 2018 Facility also extended the previously scheduled maturity date of September 30, 2022 for the 2015 Facility to June 28, 2023, subject to two one –year extension options. Concurrent with entering into the 2018 Facility, the Company also terminated the $100 million multi-currency five -year unsecured revolving credit facility (the 2014 Facility) that was due to expire on December 17, 2019.


17

On the effective date of the 2018 Facility, the Company repaid the outstanding balance of €104.0 million and €52.0 million under the 2015 Facility and 2014 Facility and commenced borrowing under the 2018 Facility. Under the 2018 Facility, the Company may borrow, on a revolving basis, outstanding loans in an aggregate principal amount at any one time not in excess of $600 million and the 2018 Facility also provides for up to $50 million for standby letters of credit and swing line loans.

At March 31, 2019 , there was $84.2 million outstanding under the 2018 Facility and there were no outstanding letters of credit or swing line loans. There were no borrowings, letters of credit or swing line loans outstanding as of December 31, 2018 . The proceeds from borrowings under the 2018 Facility are available to fund finance acquisitions, provide working capital and for other general corporate purposes.

Interest on loans under the 2018 Facility is calculated at a rate per annum equal to an applicable margin which can vary from 0.30% to 0.85% based on the Company's leverage ratio plus LIBOR for loans denominated in U.S. Dollars and EURIBOR for loans denominated in Euros (SIBOR for loans denominated in Singapore Dollars and HIBOR for loans denominated in Hong Kong Dollars).

The 2018 Facility contains terms and provisions (including representations, covenants and conditions) customary for transactions of this type. Financial covenants include a leverage test (consolidated net indebtedness not to exceed three times adjusted four quarter trailing consolidated EBITDA) and a maximum subsidiary indebtedness test. The maximum subsidiary indebtedness test limits the total aggregate amount of indebtedness of the Company's subsidiaries, excluding indebtedness under the 2018 Facility, to 20 percent of consolidated total assets as at the end of the most recently ended financial year, of which not more than $150 million may be secured, provided however that the Company may incur additional subsidiary indebtedness subject to, inter alia, providing additional corporate guarantees. Other undertakings and covenants include delivery of financial reports and other information, compliance with laws including environmental laws and permits, the Employee Retirement Income Security Act (ERISA) and U.S. regulations, the Foreign Account Tax Compliance Act (FATCA), sanctions-related obligations, negative pledge, limitations on mergers and sales of assets, change of business and use of proceeds. We were in compliance with all of the covenants as of March 31, 2019 .

Other Debt

As of March 31, 2019 , the Company's various subsidiaries had additional borrowings from banks totaling $0.4 million , of which $0.3 million was classified as long-term debt. The remaining $ 0.1 million supports local working capital requirements. This is in comparison to $0.5 million as of December 31, 2018 which was fully classified as long-term debt.

NOTE 11. Leases

The Company has operating leases for warehouses, corporate offices, cars, forklifts and certain equipment. On January 1, 2019, the Company adopted the accounting and transition guidance in ASC 842 for its operating leases resulting in the recognition of operating lease right-of-use (ROU) assets and lease liabilities on the effective date. The Company measures ROU assets throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. The lease liabilities are measured at the present value of the unpaid lease payments at the lease commencement date. Leases that include both lease and non-lease components are accounted for as a single lease component for each asset class.
    
The minimum payments under operating leases are recognized on a straight-line basis over the lease term in the condensed consolidated statements of operations. Operating lease expenses related to variable lease payments are recognized in cost of sales or as operating expenses in a manner consistent with the nature of the underlying lease and as the events, activities, or circumstances in the lease agreement occur. Leases with a term of less than 12 months are not recognized on the condensed consolidated balance sheets and the related lease expenses are recognized in the condensed consolidated statements of operations on a straight-line basis over the lease term.
    
The accounting for leases requires management to exercise judgment and make estimates in determining the applicable discount rate, lease term and payments due under a lease. If a lease does not provide an implicit rate, the Company uses the incremental borrowing rate to determine the present value of future lease payments. The incremental borrowing rate is applied to leases on a portfolio basis and is determined from a rate for borrowings with a term equal to one-half the total lease term and an amount equal to the total minimum lease payments. A Euro (EUR) and United States Dollar (USD) quote are used because these currencies represent the majority of the lease population.
    

18

The lease term includes the non-cancellable period of the lease plus any additional periods covered by either an option to extend (or not terminate) that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) a lease controlled by the lessor. The Company has leases with a lease term ranging from 1 year to 15 years . Lease payments are generally comprised of fixed payments including in-substance fixed payments, payments that depend on an index or rate, any amounts payable under residual value guarantees, as well as any exercise price for a Company option to purchase the underlying asset if it is reasonably certain the Company will exercise the option. The Company generally does not provide residual value guarantees.
    
The operating leases of the Company do not contain major restrictions or covenants such as those relating to dividends or additional financial obligations. Finance leases and income related to subleasing are immaterial to the condensed consolidated financial statements. There were no lease transactions with related parties as of March 31, 2019 .

The operating lease expense for the three months ended March 31, 2019 was $7.8 million . Lease expenses related to variable lease payments and short term leases were immaterial. Other information related to operating leases follows:

(Amount in millions)
Three Months Ended
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
$
7.8

ROU assets obtained in exchange for new lease liabilities
$
12.0

 
 
Weighted-average remaining lease term (in years)
6.4

Weighted-average discount rate
1.6
%
    
Future minimum lease payments under non-cancellable operating leases as of March 31, 2019 were as follows:
(Amount in millions)
 
2019 (excluding three months ended March 31, 2019)
$
29.4

2020
24.9

2021
16.7

2022
14.1

2023
9.4

Thereafter
27.9

Total lease payments
122.4

Less: imputed interest
7.5

Total
$
114.9

 
 
Amounts recognized in the condensed consolidated balance sheet:
 
Current liabilities, included in other accrued liabilities
$
28.0

Long-term liabilities, as operating lease liabilities

$
86.9

    
NOTE 12. Warranties, Guarantees, Commitments and Contingencies
Warranties
Products sold by the Company are covered by a basic limited warranty with terms and conditions that vary depending upon the product and country in which it was sold. The limited warranty covers the equipment, parts and labor (in certain cases) necessary to satisfy the warranty obligation generally for a period of two years. Estimated product warranty expenses are accrued in cost of goods sold at the time the related sale is recognized. Estimates of warranty expenses are based primarily on warranty claims experience and specific customer contracts. Warranty expenses include accruals for basic warranties for product sold, as well as accruals for product recalls, service campaigns and other related events when they are known and estimable. Recoveries from suppliers are recognized when an arrangement with the supplier exists and collectibility is assured. Amounts recognized as recoveries do not exceed related warranty costs accrued. To the extent the Company experiences changes in warranty claim activity or costs associated with servicing those claims, its warranty accrual is adjusted accordingly. Warranty accrual estimates and the allocation of warranty between short and long term are updated based upon the most current warranty claims information available.

19

The following is a summary of changes in the Company’s product warranty liability for the three month periods ended March 31, 2019 and 2018 .
 
Three Months Ended
March 31,
(Amount in millions)
2019
 
2018
Balance of warranty costs accrued, beginning of period
$
43.7

 
$
50.9

Warranty costs accrued
10.3

 
11.3

Warranty claims settled
(6.9
)
 
(9.6
)
Foreign exchange translation effects
(0.5
)
 
1.2

Balance of warranty costs accrued, end of period
$
46.6

 
$
53.8

Current liability, disclosed as current portion of warranties
$
26.5

 
$
32.1

Long-term liability, included in other liabilities
$
20.1

 
$
21.7

 
 
 
 
Warranty costs accrued
$
10.3

 
$
11.3

Less: received and anticipated recoveries from suppliers
—

 
(0.2
)
Warranty costs net of received and anticipated recoveries
$
10.3

 
$
11.1


Guarantees and Commitments

The Company has uncollateralized bank guarantees for $29.0 million , of which $17.3 million is related to statutorily-required guarantees for tax and other litigation, $3.0 million is related to letters of credit, and $8.7 million is related to other individually immaterial items.

Right of Recourse

As discussed in Note 6, the Company may receive bank acceptance drafts from customers in China in payment of outstanding accounts receivable in the ordinary course of business. These bank acceptance drafts are non-interest bearing obligations of the issuing bank and generally have contractual maturities of six months or less. The Company may use these banker's acceptance drafts prior to the scheduled maturity date to settle outstanding accounts payable with vendors. Bank acceptance drafts transferred to vendors are subject to customary right of recourse provisions prior to their scheduled maturity date. As of March 31, 2019 and December 31, 2018 , the Company had approximately $22.8 million and $28.2 million , respectively, of bankers acceptance drafts subject to customary right of recourse provisions, which were transferred to vendors and had not reached their scheduled maturity date. Historically, the bankers acceptance drafts have settled upon maturity without any claim of recourse against the Company.

Contingencies

We are subject to proceedings, lawsuits and other claims related to products and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable and reasonably possible losses. A determination of the amount of liability to be recorded, if any, for these contingencies is made after careful analysis of each individual issue.

Under an indemnification agreement, WABCO Brazil is responsible for certain claims related to Trane's (formerly called American Standard) business for periods prior to the Company's spin-off from Trane in 2007. In particular, there are tax claims pending in various stages of the Brazilian legal process related to income, social contribution and/or value added taxes for which a contingency exists and which may or may not ultimately be incurred by the Company. 

As previously disclosed, this includes one particular case for which an accrual of BRL 39.0 million including interest ( $9.9 million based on March 31, 2019 exchange rates) was recorded based on management's assessment after considering advice of external legal counsel with respect to the likelihood of loss in this case. A corresponding deposit was made in the first quarter of 2017 into an escrow account with the Brazilian government, representing substantially all of the potential liability for the case. In March 2018, our appeal to have this case heard at the Brazilian Superior Court of Justice (the Court) was accepted. The Court subsequently heard the case and rejected our position ultimately ruling in favor of the tax authorities during the first quarter of 2018. There will be no further appeals. Accordingly, management expects this case to be closed by the Brazilian authorities within

20

the next twelve months and has classified the accrual and deposit within other current liabilities and other current assets, respectively, as of March 31, 2019 .

The estimated total amount of other remaining contingencies for tax claims under the indemnification agreement as of March 31, 2019 was $16.5 million including interest. However, based on management’s assessment following advice of our external legal counsel, the Company believes that it has valid arguments in all of these cases and thus no accrual is required at this time.  

Merger Litigation

Following the announcement of the execution of the Merger Agreement, two putative class action complaints were filed against the Company and the Board of Directors. On April 23, 2019, the first putative class action complaint was filed against the Company and the Board of Directors in the United States District Court for the District of Delaware under the caption Collier v. WABCO Holdings Inc., et al. , No. 1:19-cv-00729 (D. Del.). On April 24, 2019, the second putative class action complaint was filed against the Company and the Board of Directors in the United States District Court for the District of Delaware under the caption Kent v. WABCO Holdings Inc., et al. , No. 1:19-cv-00735 (D. Del.). Both actions allege violations of federal securities laws and regulations due to allegedly material and misleading statements and omissions in the preliminary proxy statement filed in connection with the Merger, including with respect to the financial analyses of the Company’s financial advisors and financial projections prepared by the Company’s management. The actions seek to enjoin the special meeting and the closing, as well as damages, costs and attorneys’ fees. The defendants believe that the lawsuits are without merit.


NOTE 13. Income Taxes

Income tax expense is the net result of taxes on the mix of earnings in multiple tax jurisdictions, foreign tax credits and rulings, the assessment and accrual of uncertain tax positions resulting from tax authority audits or changes in the interpretation of the law. For interim income tax reporting, we estimate our annual effective tax rate and apply it to our year-to-date ordinary income (loss). Tax jurisdictions with a projected or year-to-date loss for which a tax benefit cannot be realized are excluded. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur.

The income tax expense was $12.1 million on pretax income of $100.0 million before adjusting for noncontrolling interest for the three months ended March 31, 2019 , and $26.3 million on pretax income of $133.0 million before adjusting for noncontrolling interest for the three months ended March 31, 2018 . The change in income tax expense is primarily the result of lower pre-tax income and discrete tax benefits during the three months ended March 31, 2019 , the most significant of which is a $6.5 million discrete tax benefit related to a change in a permanent reinvestment assertion with respect to WABCO INDIA.
    
On February 14, 2019, the General Court of the European Union (the General Court) issued a judgment annulling a European Commission decision which had previously declared the Belgium Excess Profit Ruling (EPR) regime as illegal and incompatible with European State Aid law. The General Court ruled that the European Commission had wrongly considered that the Belgian provisions allowing tax exemptions of multinational companies’ excess profit granted by means of rulings could constitute an illegal state aid scheme. The European Commission can and we expect will appeal that decision. In the event the European Commission decides not to appeal it still has the possibility to take an individual State Aid decision against each company that benefited from the EPR regime. The annulment of the European Commission decision; however, will result in Belgium stopping the recovery of the tax deemed to be illegal state aid from all beneficiaries, even in the event of an appeal, thus leading to a cash tax benefit for the Company as we will be able to utilize Belgium NOLs against a current year tax liability. At March 31, 2019 , the Company maintained a tax reserve of $31.7 million pending further European Court developments regarding European State Aid cases.

Unrecognized tax benefits at March 31, 2019 , including the $31.7 million of EPR clawback, amounted to $39.1 million , of which $33.7 million has been offset against deferred tax assets. The remaining unrecognized tax benefits of $5.4 million were classified as either a short-term or long-term liability depending on the timing of the resolution. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

In February 2018, the Company received a final tax and interest assessment in India for the 2013 tax year related to a capital gain on an intercompany transfer of an Indian subsidiary. The assessment was for INR 3.5 billion ( $51.2 million at March 31, 2019 exchange rates). In addition, a penalty assessment was issued in March of 2018 for INR 2.1 billion ( $31.0 million at March 31, 2019 exchange rates). The Company believes that no tax is due under the relevant double tax treaty between the Netherlands and India and therefore no amount has been accrued. The Company appealed both the tax and penalty assessments during March 2018. In May 2018, the Commissioner of Income Tax granted a partial stay of demand requiring the Company to pay 15% of the assessment (INR 531.4 million , $7.7 million at March 31, 2019 exchange rates).

On March 31, 2019, the partial stay expired. The Commissioner of Income Tax directed the tax authority to recover an additional 5% percent of the assessment or INR 177.0 million ( $2.6 million at March 31, 2019 exchange rates) and granted a further stay pending resolution of the appeal. As of March 31, 2019 , the Company has deposited installments totaling INR 531.4 million ( $7.7 million at March 31, 2019 exchange rates) for the original partial stay of demand and an additional INR 25.0 million ( $0.4 million at March 31, 2019 exchange rates) for the subsequent request for payment. The Company has requested a payment plan for the remainder of the INR 177.0 million additional assessment. The assessed penalty has been held in abeyance pending the appeal.

As described in Note 2, the Company adopted the provisions of ASU 2018–02 as of January 1, 2019 which was applicable to deferred taxes on pension obligations and unrealized foreign currency losses on net investment hedges that had been previously recognized in other comprehensive income. This resulted in the reclassification of $8.4 million from accumulated other

21

comprehensive income to retained earnings, representing the stranded tax. The Company’s policy is to follow the portfolio approach for releasing income tax effects recorded in AOCI.

NOTE 14. Streamlining Expenses

The Company accounts for employee-related streamlining charges as either a one-time benefit arrangement or an ongoing benefit arrangement as appropriate under the applicable accounting guidance. From time to time the Company also has streamlining charges that are not related to employees, such as facility exit costs.

In the third quarter of 2015, the Company announced proposals to cease manufacturing at two production facilities to preserve the Company's global competitiveness for certain mechanical products. These proposals resulted in a workforce reduction of 316 positions and includes a smaller program initiated in the fourth quarter of 2014 (the 2014/2015 Program). As of March 31, 2019 , production at both facilities has been transferred to other facilities within the Company's globally integrated supply chain. The cumulative costs incurred as of March 31, 2019 related to the 2014/2015 Program was $65.3 million , which approximates the total expected costs to be incurred under this program.

Based on the Company’s efforts to maintain our global footprint, the Company has periodically entered into other streamlining programs as deemed necessary which may include workforce reductions, site closures and rotation of manufacturing footprint to low cost regions (Other Programs). In 2019 streamlining costs incurred for Other Programs related to the relocation of corporate functions to the new global headquarters, headcount reductions and the transfer of certain product lines and business processes to best cost countries.

The following is a summary of changes in the Company’s streamlining program liabilities for the three month periods ended March 31, 2019 and 2018 .  
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Balance at beginning of period
$
26.4

 
$
43.7

Charges
5.9

 
(0.3
)
Payments
(8.0
)
 
(7.8
)
Foreign exchange effects
(0.4
)
 
1.2

Balance at end of period (1)
$
23.9

 
$
36.8

 
 
 
 
Current liabilities, included in other accrued liabilities
$
12.9

 
$
18.2

Long-term liability, included in other liabilities

$
11.0

 
$
18.6


(1) Includes $5.0 million and $12.0 million related to the 2014/2015 Program as of March 31, 2019 and 2018 , respectively.

A summary of the streamlining costs related to the above programs is as follows:  
 
Three Months Ended March 31,
(Amounts in millions)

2019
 
2018
Employee-related charges – cost of sales
$
1.7

 
$
—

Employee-related charges – selling and administrative
4.1

 
(0.4
)
Other streamlining charges
0.1

 
0.1

Total streamlining costs
$
5.9

 
$
(0.3
)

For the three month period ended March 31, 2019 , the Company recorded $ 5.1 million related to headcount reductions and $0.6 million related to footprint relocation and $0.2 million related to the 2014/2015 Program. Streamlining expenses recorded for each component were individually immaterial for the three month period ended March 31, 2018 .

NOTE 15. Pension and Post-retirement Benefits

Post-retirement pension, health and life insurance costs had the following components for the three month periods ended March 31, 2019 and 2018 :  

22

 
Three Months Ended March 31,
 
2019
 
2018
(Amounts in millions)
Pension
Benefits
 
Health
& Life
Ins.
Benefits
 
Pension
Benefits
 
Health
& Life
Ins.
Benefits
Service cost-benefits earned during period
$
6.7

 
$
0.2

 
$
6.8

 
$
0.2

Interest cost on the projected benefit obligation
4.1

 
0.1

 
4.2

 
0.1

Less: expected return on plan assets
(1.2
)
 
—

 
(1.3
)
 
—

Amortization of prior service cost
0.1

 
—

 
0.1

 
—

Amortization of net loss
6.3

 
0.1

 
6.2

 
0.1

Pension and post-retirement benefit plan cost
$
16.0

 
$
0.4

 
$
16.0

 
$
0.4


The weighted-average expected rates of return on plan assets used to determine the pension and post-retirement benefit plan cost for the three month periods ended March 31, 2019 and 2018 were based on the rates determined as of the beginning of each of the fiscal years of 2.40% and 2.75% , respectively.

The Company makes contributions to funded pension plans that, at a minimum, meet all statutory funding requirements. Contributions in 2019 , as well as payments of benefits incurred by unfunded plans, were in line with the expectations for 2019 and also in line with the contributions made during 2018 .

Pension and post-retirement benefit plan cost is included in cost of sales, selling and administrative expenses and non-operating expenses on the condensed consolidated statements of operations.

NOTE 16. Derivative Instruments and Hedging Activities

ASC 815, Derivatives and Hedging , requires a company to recognize all of its derivative instruments as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it qualifies and has been designated as a hedge for accounting purpose. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument based upon the exposure being hedged as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
    
The Company recognizes all derivative financial instruments in the condensed consolidated balance sheet at fair value using Level 2 inputs and these are classified as other current assets, other assets, other accrued liabilities or other liabilities on the condensed consolidated balance sheets. The impact resulting from changes in the fair value of derivative instruments is recorded in the same line item in the condensed consolidated statements of operations as the underlying exposure being hedged or in accumulated other comprehensive income (AOCI) for derivatives that qualify and have been designated as cash flow hedges or hedges of a net investment in a foreign operation. Any ineffective portion of a financial instrument's change in fair value is recognized in earnings together with changes in the fair value of any derivatives not designated as relationship hedges.

Net Investment Hedges

The Company designated borrowings under its revolving credit facilities and Senior EUR Notes to partially hedge the foreign currency exposure of its net investment in certain Euro-denominated wholly-owned subsidiaries. As of March 31, 2019 and December 31, 2018 , the Company designated Euro-denominated loans of €515.0 million (approximately $578.1 million at March 31, 2019 exchange rate) and €440.0 million (approximately $503.6 million at December 31, 2018 exchange rate) as hedges of its net investment in these subsidiaries.
For the three month periods ended March 31, 2019 and 2018 , the Company recorded a gain of $8.2 million , net of taxes of $2.3 million , and a loss of $22.5 million , net of taxes of $6.3 million , respectively, in cumulative translation adjustment within AOCI.
Derivatives Not Designated as Hedges
Foreign exchange contracts are also used by the Company to offset the earnings impact relating to the variability in exchange rates on certain assets and liabilities denominated in non-functional currencies and have not been designated as relationship hedges. As of March 31, 2019 and December 31, 2018 , the Company had the following outstanding notional amounts related to foreign currency forward contracts:

23

(Amounts in millions)
 
 
 
 
 
As of March 31, 2019
 
As of December 31, 2018
Foreign Currency
 
Unit of Measure
 
Hedged against
 
Quantity Hedged
 
Notional Amount (USD Equivalent)
 
Quantity Hedged
 
Notional Amount (USD Equivalent)
Chinese Yuan
 
CNY
 
EUR
 
823.0

 
122.1

 
849.0

 
123.4

Hong Kong Dollar
 
HKD
 
EUR
 
285.0

 
36.3

 
285.0

 
36.4

British Pound
 
GBP
 
EUR
 
7.5

 
9.8

 
11.7

 
14.9

Polish Zloty
 
PLN
 
EUR
 
88.0

 
23.0

 
*

 
*


* No significant outstanding foreign currency forward contracts

The Company had additional foreign currency forward contracts with notional amounts that individually amounted to less than $10 million . As of March 31, 2019 and December 31, 2018 , forward contracts for an aggregate notional amount of € 184.1 million ($ 206.7 million at March 31, 2019 exchange rates) and € 170.2 million ($ 194.8 million at December 31, 2018 exchange rates), respectively, were outstanding with average durations of less than one month. The majority of these exchange contracts were entered into on March 28, 2019 and December 27, 2018 , respectively. These foreign exchange contracts have offset the revaluation of assets and liabilities. The Company recognized a non-operating gain of $1.2 million and a non operating loss of $0.2 million for three months ended March 31, 2019 and 2018 , respectively. The fair value of these derivatives was a liability of $1.0 million at March 31, 2019 and an asset of $0.6 million at December 31, 2018 .

NOTE 17. Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 were as follow:
 
As of March 31, 2019
(Amounts in millions)
Level 1
 
Level 2
 
Level 3
 
Total
Short-term and other investments (a)
$
—

 
$
182.3

 
$
—

 
$
182.3

Foreign currency derivative liabilities (b)
—

 
1.0

 
—

 
1.0

 
 
 
 
 
 
 
 
 
As of December 31, 2018
(Amounts in millions)
Level 1
 
Level 2
 
Level 3
 
Total
Short-term and other investments (a)
$
—

 
$
209.4

 
$
—

9.0

$
209.4

Foreign currency derivative assets (b)
—

 
0.6

 
—

 
0.6


(a) Short-term and other investments consist of mutual funds or deposit funds holding primarily term deposits, certificates of deposit and short-term bonds.The Company considers highly liquid investments with maturities of three months or less when purchased to be cash and cash equivalents. The fair value of short-term and other investments is determined based on pricing sources for identical instruments in less active markets. The unrealized gains and losses on short–term and other investments still held at the reporting date were immaterial for the three -month periods ended March 31, 2019 and 2018 .

(b) Fair value of derivative instruments determined based on Level 2 inputs including credit ratings and other criteria observable
in the market.

Other Fair Value Disclosures

As of March 31, 2019 and December 31, 2018 , the carrying amount of the Company's investments in repurchase agreements, guaranteed notes receivable and long-term debt were determined to approximate their fair values based on Level 2 inputs. The Company also had non-marketable equity securities that do not have readily determinable fair values, the carrying amount of which amounted to $25.4 million as of March 31, 2019 and December 31, 2018 .


24

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
    
Our sales decreased compared to one year ago by 7.0% on a reported basis and by 0.8% excluding foreign currency translation effects. Our sales performance took place in a context of a challenging market where the global production of trucks and buses declined 2.5% and the production of trailers also decreased 7.3%.

The WABCO Operating System continued to enable fast and flexible responses to major market changes, delivering $ 10.6 million of materials and conversion productivity. The year over year material cost reduction for this period was limited due to the one-time supplier-related settlement of $9.1 million ( $10.5 million excluding foreign currency translation effects) disclosed last year. Gross materials productivity delivered 4.0% of material savings. Commodity inflation had a negative impact of 1.2% , bringing net materials productivity to 2.8% for the first quarter of 2019 . Conversion productivity represented 6.7% for the first quarter of 2019 , a continued solid performance for us.

The top line decrease of $70.4 million ( $7.6 million excluding foreign currency translation effects) translated into a decrease of net income attributable to Company of $16.5 million ( $11.4 million excluding foreign currency translation effects). This decrease was primarily driven by several factors which, despite a flexible reaction to the changing market environment, contributed $20.9 million ($23.2 million excluding foreign currency translation effects) of higher costs for the current period: last year's one-time supplier-related settlement, increased restructuring expenses to adjust our workforce to the changing market environment, implementation costs for our new global headquarters in Switzerland, as well as expenses incurred in relation to the sell-side M&A activity discussed below. These higher costs were partially offset by an improved tax rate for the quarter.

As previously announced, on March 28, 2019, WABCO entered into an Agreement (the Merger Agreement) and Plan of Merger with ZF Friedrichshafen AG (ZF), a stock corporation organized and existing under the laws of the Federal Republic of Germany, and Verona Merger Sub Corp., a Delaware corporation and indirect wholly owned subsidiary of ZF, pursuant to which ZF will acquire 100% of the issued and outstanding shares of WABCO common stock (the Merger). Consummation of the Merger is subject to approval by WABCO’s shareholders, customary closing conditions, and regulatory approvals.

The Company suspended its share repurchase program due to the pending Merger and we do not expect to reinstate the program this year. The Company’s guidance for 2019, communicated on February 15, 2019, assumed that the Company would continue its share repurchase program through 2019. The suspension of the share repurchase program will negatively impact the Company’s earnings per share performance however, due to the pending Merger, the Company will not be updating its guidance.

Results of Operations
Approximately 76% of our sales are outside the United States, and therefore changes in exchange rates can have a significant impact on the reported results of our operations, which are presented in U.S. dollars. Quarter-over-quarter changes in sales, cost of sales, gross profit and expenses for 2019 compared with 2018 are presented both with and without the effects of foreign currency translation. Changes in sales, cost of sales, gross profit and expenses excluding foreign exchange effects are calculated using current year sales, cost of sales, gross profit and expenses translated at prior year exchange rates. Presenting changes in sales, cost of sales, gross profit and expenses excluding the effects of foreign currency translation is not in conformity with U.S. GAAP, but management analyzes the data in this manner because it is useful to us in understanding the operating performance of our business. We believe this data is also useful to shareholders for the same reason. The changes in sales, cost of sales, gross profit and expenses excluding the effects of foreign exchange translation are not meant to be a substitute for measurements prepared in conformity with U.S. GAAP, nor to be considered in isolation.








25
Table of Contents

First Quarter Results of Operations for 2019 Compared with 2018
 
 
Three Months Ended March 31,
 
Excluding foreign
exchange translation *
(Amounts in millions)
2019
 
2018
 
% change
reported
 
2019
adjusted
amount
 
% change
adjusted
Sales
$
932.9

 
$
1,003.3

 
(7.0
)%
 
$
995.7

 
(0.8
)%
Cost of sales
660.0

 
694.3

 
(4.9
)%
 
703.9

 
1.4
 %
Gross profit
272.9

 
309.0

 
(11.7
)%
 
291.8

 
(5.6
)%
 
 
 
 
 
 
 
 
 
 
Operating expenses
167.7

 
162.0

 
3.5
 %
 
179.4

 
10.7
 %
Other non-operating expense, net
(5.9
)
 
(11.4
)
 
(48.2
)%
 
(7.2
)
 
(36.8
)%
Interest income/(expense) net
0.1

 
(3.0
)
 
(103.3
)%
 
0.2

 
(106.7
)%
Income tax expense
12.1

 
26.3

 
(54.0
)%
 
12.8

 
(51.3
)%

*
Amounts translated using average exchange rates for the three month period ended March 31, 2018

Sales

Our sales for the first quarter of 2019 were $ 932.9 million , a decrease of 7.0% ( 0.8% excluding foreign currency translation effects) from $1,003.3 million in 2018 . Our sales performance took place in the context of a challenging environment which saw declines in the global production of new trucks and buses, trailers as well as passenger cars.

Total sales in Europe, our largest market, decreased 7.9% (increased 0.2% excluding foreign currency translation effects) for the first quarter of 2019 , despite a 1.8% decrease in the production of new trucks and buses. Our sales to truck and bus OEMs declined 7.9% ( 0.2% excluding foreign currency translation effects), nicely outperforming the production of trucks and buses. In addition our sales to trailer customers grew despite a decrease in trailer production, and we realized strong growth to off-highway customers.

Total sales in North America increased 4.4% ( 5.4% excluding foreign currency translation effects) driven by a market growth of 9.2% . Our sales to truck and bus OEMs increased 11.2% ( 12.6% excluding foreign currency translation effects), outperforming once again the market. However, the sales to off-highway and car customers declined following a strong decline in their markets.

Total sales in South America increased 5.9% ( 21.9% excluding foreign currency translation effects), despite a decrease in truck and bus production of 3.6% . Our sales to truck and bus OEMs decreased by 1.3% (increased 12.9% excluding foreign currency translation effects). We outperformed the market due to a share of market gain in braking controls at a global OEM.

Total sales in Asia decreased 16.3% ( 10.8% excluding foreign currency translation effects) compared to an estimated 5.5% decrease in new vehicle production in the region. Total sales in China decreased 15.6% ( 10.5% excluding foreign currency translation effects). Our sales to truck and bus OEMs declined by 11.5% ( 6.1% excluding foreign currency translation effects) primarily driven by the decline in truck and bus production of 2.5% as well as by continuing pricing pressure. Total sales in India decreased 24.9% ( 17.7% excluding foreign currency translation effects) driven by the 17.3% decrease in the production of new trucks and buses. Our sales to truck and bus OEMs declined by 27.8% ( 20.9% excluding foreign currency translation effects). We continue to benefit from the outperformance initiatives launched in prior quarters but those impacts were offset by a negative mix from a decline in the production of multi-axle vehicles while the production of twin-axle vehicles which typically have lower content per vehicle increased. Total sales in Korea decreased 4.0% (increased 1.7% excluding foreign currency translation effects) while the truck and bus production increased 4.2% . Our sales to truck and bus OEMs grew by 26.5% ( 34.9% excluding foreign currency translation effects) following a favorable vehicle model mix, offset by a decrease in aftermarket as dealers reduce stock levels in a depressed market environment. Sales in Japan decreased 2.8% ( 1.1% excluding foreign currency translation effects) compared to a decrease in truck and bus production of 0.8% .

WABCO's aftermarket sales, included in the geographic numbers provided above, decreased 5.5% (increased 1.2% excluding foreign currency translation effects) in the first quarter of 2019 . We realized strong growth in North America, South America and Middle East of 9.2% , 0.9% and 29.5% , respectively ( 9.3% , 17.0% and 39.8% excluding foreign currency translation effects, respectively). This was partially offset by a 9.3% decline ( 2.0% excluding foreign currency translation effects) in our main market

26
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of Western Europe following the mild winter conditions this year and a 37.0% ( 33.9% excluding foreign currency translation effects) decline in South Korea as dealers reduce stock levels in a depressed market environment.

Cost of Sales and Gross Profit

Within cost of sales, our largest expense is material costs, which mainly represents the purchase of components and parts. Our continued focus on productivity generated 6.7% of production and conversion cost savings, as well as 4.0% of gross material savings and 2.8% of net materials productivity for the first quarter of 2019 . Management uses conversion and materials productivity as internal measures of our cost reduction efforts.

(Amounts in millions)
Cost of Sales
 
Gross Profit
Cost of sales / gross profit for the three months ended March 31, 2018
$
694.3

 
$
309.0

 
 
 
 
Increase/(decrease) due to:
 
 
 
Sales price reductions
—


(11.7
)
Sales price reductions as % of sales




(1.2
)%
Volume, mix and absorption
6.0


(1.8
)
Material productivity
(10.7
)

10.7

One-time supplier-related settlement in 2018
10.5

 
(10.5
)
Conversion productivity
(10.4
)

10.4

Labor inflation
6.3


(6.3
)
Streamlining costs
2.0


(2.0
)
Foreign exchange effects (1)
(51.2
)

(11.7
)
Other (2)
13.2


(13.2
)
Net increase
(34.3
)
 
(36.1
)
 
 
 
 
Cost of sales / gross profit for the three months ended March 31, 2019
$
660.0

 
$
272.9


(1) Foreign exchange effects include both translational and transactional effects.
(2) Includes increased depreciations as well as U.S. tariffs imposed on imports.

Operating Expenses

Operating expenses include selling and administrative expenses, product engineering expenses and other operating expenses.

(Amounts in millions)
 
Operating expenses for the three months ended March 31, 2018
$
162.0

 
 
Increase/(decrease) due to:
 
Labor inflation
5.8

Sell-side M&A activity
4.1

Employee-related costs
0.6

Headquarters relocation costs
1.8

Streamlining expenses
4.8

Foreign exchange translation
(11.7
)
Investments net of savings
0.3

Net increase
5.7

 
 
Operating expenses for the three months ended March 31, 2019
$
167.7




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Table of Contents

Other non-operating expense, net

Other non-operating expense, net decreased by $5.5 million to $5.9 million for the first quarter of 2019 as compared to $11.4 million for the first quarter of 2018 , primarily driven by gains on short term investments in 2019 , as well as unfavorable foreign exchange revaluation impacts in the first quarter of 2018.

Interest income/(expense), net

Interest income/(expense), net increased by $3.1 million to an income of $0.1 million for the first quarter of 2019 as compared to an expense of $3.0 million for the first quarter of 2018 , as a result of lower interest expense due to the prepayment of the Senior USD Notes in the second quarter of 2018, as discussed in Note 10 of Notes to Condensed Consolidated Financial Statements.

Income Taxes

The income tax expense for the first quarter of 2019 was $12.1 million on pre-tax income of $ 100.0 million before adjusting for noncontrolling interest, compared with an income tax expense of $ 26.3 million on pre-tax income of $133.0 million before adjusting for noncontrolling interest in the first quarter of 2018 . The change in income tax expense is primarily the result of lower pre-tax income and discrete tax benefits during the first quarter of 2019, the most significant of which is a $6.5 million discrete tax benefit related to a change in a permanent reinvestment assertion with respect to WABCO INDIA.

On February 14, 2019, the General Court of the European Union (the General Court) issued a judgment annulling a European Commission decision which had previously declared the Belgium Excess Profit Ruling (EPR) regime as illegal and incompatible with European State Aid law. The General Court ruled that the European Commission had wrongly considered that the Belgian provisions allowing tax exemptions of multinational companies’ excess profit granted by means of rulings could constitute an illegal state aid scheme. The European Commission can and we expect will appeal that decision. In the event the European Commission decides not to appeal it still has the possibility to take an individual State Aid decision against each company that benefited from the EPR regime. The annulment of the European Commission decision; however, will result in Belgium stopping the recovery of the tax deemed to be illegal state aid from all beneficiaries, even in the event of an appeal, thus leading to a cash tax benefit for the Company as we will be able to utilize Belgium NOLs against a current year tax liability. At March 31, 2019 , the Company maintained a tax reserve of $31.7 million pending further European Court developments regarding European State Aid cases.

When we provided guidance for 2019, our projected results assumed an 18% effective tax rate for 2019, driven in part by the establishment of a regulated insurance company to better manage our unfunded pension liabilities. Due to the pending Merger, this initiative has been suspended. We continue to anticipate an annual effective tax rate below 20% due to other tax savings and initiatives that the Company is anticipating in 2019.

Liquidity and Capital Resources

The Company’s cash generation in the first quarter is typically affected by the build-up of working capital as well as the pay-out of cash incentive programs.  In the first quarter of 2019 , these effects were further strengthened by a temporary increase in the level of working capital in certain regions as well as by the timing of our investments in property, plant and equipment.  During the quarter we also suspended our share repurchase program due to the pending Merger. We do not expect to reinstate the share repurchase program this year.
Cash Flows for the Three Months Ended March 31, 2019

Operating activities - Net cash provided by operating activities was $ 58.8 million and $89.0 million for the first three months of 2019 and 2018 , respectively. Cash flow from operating activities for the first three months of 2019 consisted primarily of net income including noncontrolling interests of $87.9 million , increased by $47.5 million for non-cash charges mainly composed of depreciation and amortization, pension and post-retirement benefit expenses, deferred income tax benefit, foreign currency effects on changes in monetary assets/liabilities and stock compensation. This was partially offset by $76.6 million related to changes in operating assets and liabilities as well as pension contributions.

Cash flow from operating activities for the first three months of 2018 consisted primarily of net income including noncontrolling interests of $106.7 million , increased by $69.0 million for non-cash charges mainly composed of depreciation and amortization, pension and post-retirement benefit expenses, foreign currency effects on changes in monetary assets/liabilities, debt

28
Table of Contents

issuance cost amortization and stock compensation. This was partially offset by $86.7 million related to changes in operating assets and liabilities as well as pension contributions.

Investing activities - Net cash used in investing activities amounted to $ 10.1 million in the first three months of 2019 compared to $144.2 million in the first three months of 2018 .

Capital expenditures in property, plant and equipment was $39.1 million and $19.3 million in 2019 and 2018 , respectively. This increase is primarily driven by the timing of investments compared to prior year. On a full year basis, we expect capital expenditures to be slightly above last year's level.

Aside from capital expenditures in tooling, equipment and software, we had investing cash flows related to our investments and redemptions in repurchase agreements and short-term investments as follows:
 
Three Months Ended March 31,
 
2019
 
2018
(Amounts in millions)
Repurchase Agreements
 
Short-term Investments
 
Total
 
Repurchase Agreements
 
Short-term Investments
 
Total
Investments
$
113.3

 
$
154.6

 
$
267.9

 
$
—

 
$
174.6

 
$
174.6

Sales and redemptions
142.2

 
156.4

 
298.6

 
30.5

 
27.6

 
58.1

Net cash received/(invested)
$
28.9

 
$
1.8

 
$
30.7

 
$
30.5

 
$
(147.0
)
 
$
(116.5
)

Financing activities - Net cash provided by financing activities amounted to $ 51.9 million for the three months ended March 31, 2019 compared to net cash used by financing activities of $66.5 million for the first three months of 2018 . The cash provided by financing activities for the three months ended March 31, 2019 primarily results from the net borrowings of short-term debt under the revolving credit facilities of $85.2 million , partially offset by the shares we repurchased for a total amount of $30.6 million . The Company suspended its share repurchase program during the quarter due to the pending Merger and we do not expect to reinstate the share repurchase program this year.

In 2018 , the cash used by financing activities mainly related to the repayment of our revolving credit facilities for $398.9 million , as well as to the shares we repurchased for an amount of $30.7 million , partially offset by cash receipts from our new long term loans (the Schuldschein Loans) for $368.5 million .
Schuldschein Loans

On March 22, 2018, the Company entered through a European subsidiary into a series of six individual senior unsecured loan agreements with an aggregate principal amount of €300.0 million, as follows:
(Amounts in millions)
Face value
 
Coupon
Maturity date
Fixed rate term loan - Series A
€
10.0

 
0.85%
March 31, 2021
Fixed rate term loan - Series B
60.0

 
1.15%
March 31, 2022
Fixed rate term loan - Series C
80.0

 
1.43%
March 31, 2023
Floating rate term loan - Series A
50.0

 
6-month EURIBOR plus 80 bps
March 31, 2021
Floating rate term loan - Series B
60.0

 
6-month EURIBOR plus 90 bps
March 31, 2022
Floating rate term loan - Series C
40.0

 
6-month EURIBOR plus 100 bps
March 31, 2023
 
€
300.0

 
 
 
Senior Notes (EUR and USD)

On November 15, 2016 , the Company issued €440.0 million in aggregate principal amount of senior unsecured notes, comprised of €190 million of 0.84% senior unsecured notes due 2023, €80 million of 1.20% senior unsecured notes due 2026 and €170 million of 1.36% senior unsecured notes due 2028. The Company paid $1.4 million of debt issuance costs in connection with these senior unsecured notes. Interest on these notes is payable semi-annually on January 1 and July 1 of each year, and commenced on July 1, 2017.

On June 25, 2015 , the Company issued $500 million in aggregate principal amount of senior unsecured notes, comprised of $150 million of 2.83% senior unsecured notes due 2022, $200 million of 3.08% senior unsecured notes due 2025 and $150 million

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of 3.18% senior unsecured notes due 2027. The Company paid $2.1 million of debt issuance costs in connection with these senior unsecured notes.

The proceeds from the Senior Notes were utilized to repay outstanding balances on the revolving credit facilities, fund our share repurchase program, finance acquisitions and meet general financing requirements.

On April 30, 2018, the Company prepaid the outstanding principal amount of $500.0 million on the Senior USD Notes, and recognized a loss on debt extinguishment of $2.3 million net of taxes, of which the pretax amount, $2.6 million , was included in other non-operating expenses in the condensed consolidated statement of operations
Credit Facilities
    
Effective June 28, 2018, the Company amended its existing multi–currency unsecured revolving credit facility, increasing the maximum principal amount of borrowings under the facility from $400 million (the 2015 Facility) to $600 million (the 2018 Facility), with an option to increase up to additional $250.0 million . The 2018 Facility also extends the previous scheduled maturity date of September 30, 2022 for the 2015 Facility to June 28, 2023, subject to two one–year extension options.The Company also repaid the outstanding principal and interest under the 2015 Facility on the effective date of the 2018 Facility.

Concurrent with entering into the 2018 Facility, the Company also terminated the $100 million multi-currency five-year unsecured revolving credit facility (the 2014 Facility) that was due to expire on December 17, 2019.

Under the 2018 Facility, the Company may borrow, on a revolving basis, loans in an aggregate principal amount at any one time outstanding not in excess of $600.0 million , of which $515.8 million was available for borrowing at March 31, 2019 .

As of March 31, 2019 , various subsidiaries also had other borrowings from banks totaling $0.4 million , of which $0.3 million was classified as long-term debt. The remaining $ 0.1 million supports local working capital requirements.
Derivative Instruments and Hedging Activities

The Company designated borrowings under its revolving credit facilities and Senior EUR Notes to partially hedge the foreign currency exposure of its net investment in certain Euro-denominated wholly-owned subsidiaries. As of March 31, 2019 the Company designated borrowings under the revolving credit facility and Euro-denominated loans of €515.0 million ( $578.1 million at March 31, 2019 exchange rates) and €440.0 million ( $503.6 million at December 31, 2018 exchange rates) of Euro-denominated loans as hedges of its net investment in these subsidiaries.

For the three month periods ended March 31, 2019 and 2018 , the Company recorded a gain of $8.2 million , net of taxes of $2.3 million , and a loss of $22.5 million , net of taxes of $6.3 million , respectively, in cumulative translation adjustment within AOCI.
As disclosed in our 2018 Form 10-K, the Company entered into a distribution agreement with an affiliate of Meritor Inc. (Meritor) to serve as the exclusive distributor for a certain range of WABCO’s Aftermarket products in the U.S. and Canada and its non-exclusive distributor in Mexico. As a result of the Merger Agreement, Meritor now has the option to put these distribution rights to the Company at any time until April 2021 for an exercise price between $225 million and $265 million, based on the earnings of the distribution business.
Aggregate Contractual Obligations

The Company has contractual obligations for debt, operating leases, tax indemnifications, purchase obligations, unfunded pension and post-retirement benefit plans and tax liabilities that were summarized in a table of aggregate contractual obligations for the year ended December 31, 2018 disclosed in the Annual Report on Form 10-K. There have been no material changes to those obligations since December 31, 2018 except for the adoption of ASC842 Leases on January 1, 2019 resulting in the recognition of right-of-use assets and operating lease liabilities as discussed in Note 11 of Notes to Condensed Consolidated Financial Statements.
Information Concerning Forward Looking Statements

Certain of the statements contained in this report (other than the historical financial data and other statements of historical fact), including, without limitation, statements as to management’s expectations and beliefs, are forward-looking statements. These

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forward-looking statements were based on various facts and were derived utilizing numerous important assumptions and other important factors, and changes in such facts, assumptions or factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, financial condition, liquidity, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “strategies”, “prospects”, “intends”, “projects”, “estimates”, “continues”, “evaluates”, “forecasts”, “seeks”, “plans”, “goals”, “potential”, “may increase”, “may fluctuate” and similar expression or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward looking in nature and not historical facts. This report includes important information as to risk factors in “Item 1A. Risk Factors”, and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 . Many important factors could cause actual results to differ materially from management’s expectations, including:
 
•
the actual level of commercial vehicle production in our end-markets;
•
adverse developments in the business of our key customers;
•
periodic changes to contingent liabilities;
•
adverse developments in general business, economic and political conditions or any outbreak or escalation of hostilities on a national, regional or international basis;
•
changes in international or U.S. economic conditions, such as inflation, interest rate fluctuations, foreign exchange rate fluctuations or recessions in our markets;
•
difficulties in international trade caused by geopolitical developments including tariffs, sanctions and the United Kingdom’s exit from the European Union;
•
cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;
•
unpredictable difficulties or delays in the development of new product technology;
•
pricing changes to our products or those of our competitors, and other competitive pressures on pricing and sales;
•
our ability to receive components and parts from our suppliers of a reasonable quality level or to obtain them at reasonable price levels due to fluctuations in the costs of the underlying raw materials;
•
our ability to access credit markets or capital markets on a favorable basis or at all;
•
our ability to service our debt obligations;
•
changes in the environmental regulations that affect our current and future products;
•
competition in our existing and future lines of business and the financial resources of competitors;
•
our failure to comply with regulations and any changes in regulations;
•
our failure to complete potential future acquisitions, collaborations and cooperations or to realize benefits from completed acquisitions, collaborations and cooperations;
•
our inability to implement our growth plan;
•
our ability to service our pension obligations;
•
the loss of any of our senior management;
•
difficulties in obtaining or retaining the management and other human resource competencies that we need to achieve our business objectives;
•
the success of, and costs and savings associated with, our current streamlining initiatives;
•
labor relations;
•
our ability to complete and realize the tax benefits associated with certain projects relating to the reorganization of our treasury function;
•
our ability to mitigate any tax risks, including, but not limited to, those risks associated with changes in legislation, tax audits and the loss of the benefits associated with our tax rulings and incentives in certain jurisdictions;

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•
risks inherent in operating in foreign countries, including exposure to local economic conditions, government regulation, currency restrictions and other restraints, changes in tax laws and rulings, expropriation, political instability and diminished ability to legally enforce our contractual rights;
•
we may be unable to obtain shareholder approval as required for the Merger;
•
conditions to the closing of the Merger, including obtaining required regulatory approvals, may not be satisfied or waived on a timely basis or otherwise;
•
a governmental entity or a regulatory body may prohibit, delay or refuse to grant approval for the consummation of the Merger and may require conditions, limitations or restrictions in connection with such approvals that can adversely affect the anticipated benefits of the proposed Merger or cause the parties to abandon the proposed Merger;
•
the Merger may involve unexpected costs, liabilities or delays;
•
our business may suffer as a result of uncertainty surrounding the Merger or the potential adverse changes to business relationships resulting from the proposed Merger;
•
legal proceedings that may be initiated related to the Merger and the outcome of any legal proceedings related to the Merger, which may be adverse to us;
•
we may be adversely affected by other general industry, economic, business and/or competitive factors;
•
there may be unforeseen events, changes or other circumstances that could give rise to the termination of the Merger Agreement or affect the ability to recognize benefits of the Merger;
•
risks that the proposed Merger may disrupt current plans and operations and present potential difficulties in employee retention as a result of the Merger;
•
risks related to diverting management’s attention from WABCO's ongoing business operations; and
•
there may be other risks to consummation of the Merger, including the risk that the Merger will not be consummated within the expected time period or at all which may affect our business and the price of our common stock.
We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

Critical Accounting Policies and Estimates

Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Management believes the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Readers should also refer to Management’s Discussion and Analysis and Notes 2 and 16 of Notes to the Consolidated Financial Statements for the year ended December 31, 2018  in the Company’s Annual Report on Form 10-K for a description of the most significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ materially from management’s estimates. There have been no significant changes in the Company’s assumptions regarding critical accounting estimates during the first three months of 2019 .

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

There were no material changes to the disclosure on this matter for the year ended December 31, 2018 made in the Company’s Annual Report on Form 10-K.


Item 4.
Controls and Procedures

The Company has established a Disclosure Controls Committee that assists the Chief Executive Officer and Chief Financial Officer in their evaluation of the Company’s disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures, as defined in the Securities Exchange Act of 1934, as amended (the Exchange Act), Rule 13a-15(e), are effective to ensure that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Beginning January 1, 2019, we implemented ASC 842  Leases. We developed new policies and trainings, and enhanced internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standards. These enhancements to our internal controls are not considered significant.

There have been no other changes in the Company’s internal control over financial reporting during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings

We may be party to a variety of legal proceedings with respect to environmental related, employee related, product related, and general liability and automotive litigation related matters that arise in the normal course of our business. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our combined results of operations or financial position. For more information on current legal proceedings, refer to Note 12 of Notes to the Condensed Consolidated Financial Statements.


Item 1A.
Risk Factors

Other than as noted below, there have been no new material risks identified that were not disclosed in the Company’s risk factor disclosure in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .

The proposed Merger may not be consummated on a timely basis, or at all, and the failure to close or delays in closing the Merger could adversely affect our business, financial results and stock price .

As previously announced, on March 28, 2019, WABCO entered into an Agreement and Plan of Merger (the Merger Agreement) with ZF Friedrichshafen AG (ZF), a stock corporation organized and existing under the laws of the Federal Republic of Germany, and Verona Merger Sub Corp., a Delaware corporation and indirect wholly owned subsidiary of ZF, pursuant to which ZF will acquire 100% of the issued and outstanding shares of WABCO common stock (the Merger). We can provide no assurance that the Merger will be consummated or consummated in the timeframe or manner currently anticipated. The Merger is subject to a number of conditions including the approval of our shareholders and receipt of regulatory approvals, which are not within our control. There can be no assurance as to when, or if, the conditions to closing of the Merger will be satisfied or waived or that other events will not intervene to delay the Merger or result in the termination of the Merger Agreement.

Any delay in closing or a failure to close could have a negative impact on our business, financial results and stock price as well as our relationships with our customers, suppliers or employees, and a negative impact on our ability to pursue alternative strategic transactions and/or our ability to implement alternative business plans. If the Merger Agreement is terminated under certain circumstances, we may be required to pay ZF a termination fee of $211 million.

Our business and financial results could be adversely impacted during the pendency of the Merger.

The Merger may cause disruptions to our business or business relationships and create uncertainty surrounding our ongoing business operations, which could have an adverse impact on our financial condition, results of operations and cash flows, regardless of whether the Merger is completed, including as a result of the following (all of which could be exacerbated by a delay in consummation of the Merger):

•
matters relating to the Merger may require substantial commitments of time and effort by our management, which could divert employees' attention away from the day-to-day operations of our business;
•
our employees may experience uncertainty about their future roles with us, which may adversely affect our ability to hire, retain and motivate key personnel and other employees;
•
customers, suppliers, strategic partners or other third parties that we maintain business relationships with may experience uncertainty prior to the closing of the Merger and seek alternative relationships with other third parties or seek to terminate or re-negotiate their relationships with us; and
•
the Merger Agreement restricts us from engaging in certain actions without the consent of ZF, which could delay or prevent us from realizing certain business opportunities or taking certain actions with respect to our operations that WABCO would otherwise take.

In addition, we have incurred, and will continue to incur, significant costs, expenses, and fees for professional services and other transaction costs in connection with the Merger, and we are required to pay many of these costs regardless of whether or not the Merger is consummated.

We could also be subject to litigation related to failure to close the Merger or to enforce our obligations under the Merger Agreement.

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The Merger Agreement contains provisions that could discourage or deter a potential competing acquirer that might be willing to pay more to make an acquisition proposal or an offer or proposal that could reasonably be expected to lead to an acquisition proposal.

Under the Merger Agreement, we are generally not permitted to solicit or discuss acquisition proposals with third parties,
subject to certain exceptions. Further, subject to limited exceptions, the Merger Agreement contains restrictions on our ability to pursue an acquisition proposal or an offer or proposal that could reasonably be expected to lead to an acquisition proposal and, in specified circumstances, could require us to pay ZF a termination fee of $211 million. Such restrictions may discourage or deter a third party that may be willing to pay more than ZF for our common stock from considering or proposing an acquisition proposal. Notwithstanding the foregoing, in no event will the termination fee be paid to ZF more than once.

Regulatory authorities may enjoin consummation of the Merger or seek divestitures of certain interests and assets in connection with the Merger.

Pursuant to the Merger Agreement, WABCO and ZF have agreed to use their respective reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the Merger and the other transactions contemplated by the Merger Agreement, including obtaining any requisite approvals, subject to certain specified limitations under the Merger Agreement. This includes using reasonable best efforts to obtain all requisite approvals, clearances, orders, decisions, decrees or authorizations or expirations of any waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and from the Committee on Foreign Investment in the United States and each member agency thereof acting in such capacity under the Defense Production Act of 1950, as amended. The Merger is also conditioned upon receipt of certain foreign approvals.

We cannot assure you that these regulatory clearances and approvals will be timely obtained or obtained at all, or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the closing of the Merger including the requirement to divest assets. In furtherance thereof, pursuant to the Merger Agreement, WABCO and ZF have also agreed to work together and use their respective reasonable best efforts to cause WABCO to divest certain interests and assets. ZF has agreed, subject to certain exceptions, to make divestitures and take remedial actions required by regulators so long as such actions do not result in a material adverse effect on the combined company, after giving effect to the Merger. ZF is not required to divest a portion of, or certain assets primarily related to, specific product lines or business divisions.

The delay or failure to obtain regulatory approvals or the imposition of conditions to obtain regulatory approvals could result in a delay or failure to close the Merger or a termination of the Merger Agreement.


Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds

On December 7, 2018, the Board of Directors authorized the repurchase of shares of common stock for an amount of $600.0 million through December 31, 2020. A summary of the repurchase activity for the first three months of 2019 is as follows:

ISSUER PURCHASES OF EQUITY SECURITIES
Period
 
Total Number of Shares Purchased (a)
Average price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a)
 
 
 
 
 
 
Total through December 31, 2018
 
3,511,454

$119.60
3,511,454

$0
 
 
 
 
 
 
January 1 - January 31
 
208,000

$111.53
208,000

$576,800,982
February 1 - February 28
 
64,000

$115.62
64,000

$569,401,085
March 1 - March 31
 
—

-
—

$569,401,085
Total first quarter
 
272,000

$112.50
272,000

$569,401,085
 
 
 
 
 
 
Total through March 31, 2019
 
3,783,454

$119.09
3,783,454

$569,401,085

(a)
Relates to the approved share repurchase program as discussed above.

All share repurchases were effected in accordance with the safe harbor provisions of Rule 10b-18 of the Exchange Act.







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Item 6.
Exhibits

Exhibit
No.
Description
2.1
3.1
10.1
10.2
10.3
10.4
31.1
31.2
32.1
32.2
101
The following financial information from WABCO Holdings Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2019, filed with the SEC on April 26, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, and (vi) Notes to Condensed Consolidated Financial Statements.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WABCO HOLDINGS INC.
 
/ S /    SEAN DEASON
Sean Deason
Chief Financial Officer & Controller
(Principal Financial Officer and Principal Accounting Officer)
April 26, 2019


36
Exhibit 3.1 BY-LAWS OF* WABCO HOLDINGS INC. A Delaware Corporation * As last amended and restated by the Board of Directors on July 16, 2007, except Article III, Section 1, which was amended by the Board of Directors on December 7, 2012, Article I, Section 16 and Section 17, which were amended by the Board of Directors on May 24, 2018, and Article XI, which was added by the Board of Directors on March 23, 2019. DM_US 153721442-3.080136.0011

 
TABLE OF CONTENTS Page ARTICLE I OFFICES.......................................................................................................... 1 Section 1. Registered Office ....................................................................................... 1 Section 2. Other Offices .............................................................................................. 1 ARTICLE II MEETINGS OF STOCKHOLDERS ............................................................... 1 Section 1. Place of Meetings ....................................................................................... 1 Section 2. Annual Meetings ........................................................................................ 1 Section 3. Special Meetings ........................................................................................ 1 Section 4. Notice ......................................................................................................... 1 Section 5. Adjournments ............................................................................................. 2 Section 6. Quorum ...................................................................................................... 2 Section 7. Voting ........................................................................................................ 2 Section 8. Proxies........................................................................................................ 2 Section 9. Consent of Stockholders in Lieu of Meeting ............................................. 3 Section 10. List of Stockholders Entitled to Vote......................................................... 3 Section 11. Record Date ............................................................................................... 3 Section 12. Stock Ledger .............................................................................................. 4 Section 13. Organization and Conduct of Meetings ..................................................... 4 Section 14. Inspectors of Election ................................................................................ 4 Section 15. Nature of Business at Meetings of Stockholders ....................................... 4 Section 16. Nomination of Directors ............................................................................ 5 Section 17. Proxy Access for Director Nominations .................................................... 7 ARTICLE III DIRECTORS ................................................................................................... 7 Section 1. Number and Election of Directors ........................................................... 16 Section 2. Vacancies ................................................................................................. 17 Section 3. Duties and Powers.................................................................................... 18 Section 4. Meetings ................................................................................................... 18 Section 5. Organization ............................................................................................. 18 Section 6. Resignations and Removals of Directors ................................................. 18 Section 7. Quorum .................................................................................................... 18 Section 8. Actions of the Board by Written Consent ................................................ 19 Section 9. Meetings by Manus of Conference Telephone ........................................ 19 Section 10. Committees .............................................................................................. 19 Section 11. Compensation .......................................................................................... 19 Section 12. Interested Directors .................................................................................. 19 ARTICLE IV OFFICERS ..................................................................................................... 20 Section 1. General ..................................................................................................... 20 Section 2. Election .................................................................................................... 20 Section 3. Voting Securities Owned by the Corporation .......................................... 20 Section 4. Chairman of the Board of Directors ......................................................... 21 -i- DM_US 153721442-3.080136.0011

 
TABLE OF CONTENTS (continued) Page Section 5. Vice Chairman or the Board of Directors ................................................ 21 Section 6. Chief Executive Officer ........................................................................... 21 Section 7. Vice Presidents......................................................................................... 21 Section 8. Secretary .................................................................................................. 21 Section 9. Treasurer .................................................................................................. 22 Section 10. Assistant Secretaries ................................................................................ 22 Section 11. Assistant Treasurers ................................................................................. 22 Section 12. Other Officers .......................................................................................... 22 ARTICLE V STOCK .......................................................................................................... 23 Section 1. Uncertified Shares .................................................................................... 23 Section 2. Dividend Record Date.............................................................................. 23 Section 3. Record Owners......................................................................................... 23 Section 4. Transfer and Registry Agents .................................................................. 23 ARTICLE VI NOTICES ....................................................................................................... 23 Section 1. Notices ..................................................................................................... 23 Section 2. Waivers of Notice .................................................................................... 24 ARTICLE VII GENERAL PROVISIONS ............................................................................ 24 Section 1. Dividends ................................................................................................. 24 Section 2. Disbursements .......................................................................................... 24 Section 3. Fiscal Year ............................................................................................... 24 Section 4. Corporate Seal .......................................................................................... 24 ARTICLE VIII INDEMNIFICATION.................................................................................... 24 Section 1. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation ............................................ 24 Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation .......................................................................... 25 Section 3. Authorization of Indemnification ............................................................ 25 Section 4. Good Faith Defined.................................................................................. 26 Section 5. Indemnification by a Court ...................................................................... 26 Section 6. Expenses Payable in Advance ................................................................. 26 Section 7. Nonexclusivity of Indemnification and Advancement of Expenses ........ 26 Section 8. Insurance .................................................................................................. 27 Section 9. Certain Definitions ................................................................................... 27 Section 10. Survival of Indemnification and Advancement of Expenses ................... 27 Section 11. Limitation on Indemnification ................................................................. 28 Section 12. Indemnification of Employees and Agents .............................................. 28 ARTICLE IX AMENDMENTS ........................................................................................... 28 -ii- DM_US 153721442-3.080136.0011

 
TABLE OF CONTENTS (continued) Page Section 1. Amendments ............................................................................................ 28 Section 2. Entire Board of Directors ......................................................................... 28 ARTICLE X CONSTRUCTION ......................................................................................... 28 Section 1. Construction ............................................................................................. 28 ARTICLE XI FORUM ......................................................................................................... 28 Section 1. Forum for Adjudication of Disputes ........................................................ 28 -iii- DM_US 153721442-3.080136.0011

 
BY-LAWS OF WABCO HOLDINGS INC. (hereinafter called the “Corporation”) ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to tune by the Board of Directors. Section 2. Annual Meetings. The Annual Meeting of Stockholders far the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other proper business may be transacted at the Annual Meeting of Stockholders. Section 3. Special Meetings. Unless otherwise required by law or by the certificate of incorporation of the Corporation, as amended and restated from time to time (the “Certificate of Incorporation”), Special Meetings of Stockholders, for any purpose or purposes, may be called by either (i) the Chairman of the Board of Directors, if there be one, or (ii) the Chief Executive Officer, and shall be called by the Chief Executive Officer at the request in writing made pursuant to a resolution of (a) a majority of the members of the Board of Directors or (b) a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority include the power to call such meetings. Such request shall state the purpose or purposes of the proposed meeting. The ability of the stockholders to call a Special Meeting of Stockholders is hereby specifically denied. At a Special Meeting of Stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto). Section 4. Notice. Whenever stockholders arc required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a Special Meeting, the purpose or purposes for which the meeting is called, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed present in person and vote at such meeting. 1 DM_US 153721442-3.080136.0011

 
Unless otherwise required by law, written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to notice of and to vote at such meeting. Section 5. Adjournments. Any meeting of the stockholders may he adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting in accordance with the requirements of Section 4 hereof shall be given to each stockholder of record entitled to notice of and to vote at the meeting. Section 6. Quorum. Unless otherwise required by applicable law or the Certificate of Incorporation, the holders of a majority of the Corporation’s capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting front time to time, in the manner provided in Section 5 hereof, until a quorum shall be present or represented. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. Section 7. Voting. Unless otherwise required by law, the Certificate of Incorporation or these By-Laws, any question brought before any meeting of the stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the Corporation’s capital stock represented and entitled to vote thereat, voting as a single class. Unless otherwise provided in the Certificate of Incorporation, each stockholder represented at a meeting of the stockholders shall be entitled to cast one (1) vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy as provided in Section 8 of this Article II. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of the stockholders, in such officer’s discretion, may require that any votes cast at such meeting shall he cast by written ballot. Section 8. Proxies. Each stockholder emitted to vote at a meeting of the stockholders may authorize another person or persons to act for such stockholder as proxy, but no such proxy shall be voted upon after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute a valid means by which a stockholder may grant such authority: (a) A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such stockholder’s authorized officer, director, employee or agent signing such writing or causing such person’s signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature. 2

 
(b) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram or cablegram to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such telegram or cablegram, provided that any such telegram or cablegram must either set forth or be submitted with information from which it can be determined that the telegram or cablegram was authorized by the stockholder. If it is determined that such telegrams or cablegrams are valid, the inspectors or, if there are no inspectors, such other persons snaking that determination shall specify the information on which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing, telegram or cablegram authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing, telegram or cablegram for any and all purposes for which the original writing, telegram or cablegram could be used; provided, however, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing, telegram or cablegram. Section 9. Consent of Stockholders in Lieu of Meeting. Any action required or permitted to be taken by the stockholders of the Corporation mast be effected at a duly called Annual or Special Meeting of Stockholders of the Corporation, and the ability of the stockholders to consent in writing to the taking of any action is hereby specifically denied. Section 10. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting either (i) at a place within the city where the meeting is to be held, which place shall he specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held or (ii) during ordinary business hours, at the principal place of business of the Corporation. The list shall also be produced and kept at the time and place of the malting during the whole time thereof, and may be inspected by any stockholder who is present. Section 11. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not he more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of the stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 3

 
Section 12. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 10 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of the stockholders. Section 13. Organization and Conduct of Meetings. The Chairman oldie Board of Directors shall act as chairman of meetings of the stockholders. The Board of Directors may designate any other officer or director of the Corporation to act as chairman of any meeting in the absence of the Chairman of the Board of Directors, and the Board of Directors may further provide for determining who shall act as chairman of any stockholders meeting in the absence of the Chairman and such designee. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of any meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants. Section 14. Inspectors of Election. In advance of any meeting of the stockholders, the Board of Directors, by resolution, the Chairman or the Chief Executive Officer shall appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of the stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best or such inspector’s ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by applicable law. Section 15. Nature of Business at Meetings of Stockholders. No business may be transacted at an Annual Meeting of Stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the Annual Meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (c) otherwise properly brought before the Annual Meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the 4

 
notice provided for in this Section 15 and on the record date for the determination of stockholders entitled to notice of and to vote at such Annual Meeting, (ii) who is entitled to vote at such Annual Meeting and (iii) who complies with the notice procedures set forth in this Section 15. In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary or the Corporation. To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after such anniversary date, or in the case of the Corporation’s first Annual Meeting, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs. To be in proper written form; a stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the Annual Meeting (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the Annual Meeting to bring such business before the meeting. No business shall be conducted at the Annual Meeting of Stockholders except business brought before the Annual Meeting in accordance with the procedures set forth in this Section 15; provided, however, that, once business has been properly brought before the Annual Meeting in accordance with such procedures, nothing in this Section 15 shall he deemed to preclude discussion by any stockholder of any such business, if the chairman of an Annual Meeting determines that business was not properly brought before the Annual Meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. Section 16. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as provided in Section 17 or as may be otherwise provided in the Certificate of Incorporation with respect to the right, if any, of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors pursuant to this Section 16 may be made at any Annual Meeting of Stockholders, or at any Special Meeting of Stockholders called for the 5

 
purpose of electing directors, (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by any stockholder of the Corporation (a) who is a stockholder of record on the date of the giving of the notice provided for in this Section 16 and on the record date for the determination of stockholders entitled to notice of and to vote at such meeting, (b) who is entitled to vote at such meeting and (c) who complies with the notice procedures set forth in this Section 16. In addition to any other applicable requirements, for a nomination to be made by a stockholder pursuant to this Section 16, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely under this Section 16, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (i) in the case of an Annual Meeting, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after such anniversary date, or in the case of the Corporation’s first Annual Meeting, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs; and (ii) in the case of a Special Meeting of Stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the Special Meeting was mailed or public disclosure of the date of the Special Meeting was made, whichever first occurs. To be in proper written form under this Section 16, a stockholder’s notice to the Secretary must set forth (i) as to each person whom the stockholder proposes to nominate for election as a director (a) the name, age, business address and residence address of the person, (b) the principal occupation or employment of the person, (c) the class or series and number of shares of capital stock (if any) of the Corporation which are owned beneficially or of record by the person and (d) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder; and (ii) as to the stockholder giving the notice (a) the name and record address of such stockholder, (b) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (c) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (d) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (e) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. 6

 
In order for any incumbent director to become a nominee of the Board of Directors for further service on the Board of Directors, such person must submit an irrevocable resignation, contingent on (i) that person receiving a Majority Withheld Vote in an uncontested election, each as defined in Section 1 of Article III, and (ii) acceptance of that resignation by the Board of Directors. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. Section 17. Proxy Access for Director Nominations. (a) Eligibility. Subject to the terms and conditions of these By-Laws, in connection with any Annual Meeting of Stockholders at which directors are to be elected, the Corporation will include in its proxy statement and on its form of proxy the name of any stockholder nominee for election to the Board of Directors for whom notice is provided pursuant to this Section 17 (each such nominee, a “Stockholder Nominee”) if: (i) the Stockholder Nominee satisfies the eligibility requirements in this Section 17; (ii) timely written notice (the “Stockholder Notice”) that satisfies this Section 17 is delivered to the Secretary of the Corporation in accordance with Section 17(b) of this Article II from a stockholder who qualifies as or is acting on behalf of an Eligible Stockholder as defined in Section 17(e) of this Article II; (iii) the Stockholder Notice expressly states that the Eligible Stockholder elects to have such Stockholder Nominee(s) included in the Corporation’s proxy materials pursuant to this Section 17; and (iv) the additional requirements in these By-Laws are satisfied. (b) Timely Notice. To be timely under this Section 17, the Stockholder Notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the anniversary of the date (as stated in the Corporation’s proxy materials) the definitive proxy statement was first sent to stockholders in connection with the preceding year’s Annual Meeting of Stockholders, provided, however, that in the event that the Annual Meeting is more than thirty (30) days before or after the anniversary date of the preceding year’s Annual Meeting, or if no Annual Meeting was held in the preceding year, to be timely, the Stockholder Notice must be so received not earlier than one hundred fifty (150) days prior to such Annual Meeting and not later than one hundred twenty (120) days prior to such Annual Meeting or the tenth (10th) day following the day on which notice of the date of the Annual Meeting was mailed or public disclosure of the date of the Annual Meeting was first made. In no event shall an adjournment or recess of an Annual Meeting, or postponement of an Annual Meeting for which notice has been given, commence a new time period (or extend any time period) for the giving of the Stockholder Notice as described above. 7

 
(c) Information to be Included in Proxy Statement. In addition to including the name of the Stockholder Nominee in the Corporation’s proxy statement for the Annual Meeting, the Corporation shall also include: (i) the information concerning the Stockholder Nominee(s) and the Eligible Stockholder that is required to be disclosed in the Corporation’s proxy statement by the regulations promulgated under the Exchange Act; and (ii) if the Eligible Stockholder so elects, a single written statement of the Eligible Stockholder (or, in the case of a group, a single written statement of the group), not to exceed 500 words, in support of the Stockholder Nominee(s), which must be provided at the same time as the Stockholder Notice for inclusion in the Corporation’s proxy statement for the Annual Meeting (a “Statement”). Notwithstanding anything to the contrary contained in this Section 17, the Corporation may omit from its proxy materials any information or Statement that the Corporation, in good faith, believes is untrue in any material respect (or omits a material fact necessary to make the statements made, in light of the circumstances under which they are made, not misleading), or would violate any applicable law or regulation. Nothing in this Section 17 shall limit the Corporation’s ability to solicit against and include in its proxy materials its own statements relating to any Eligible Stockholder or Stockholder Nominee. (d) Stockholder Nominee Limits. The maximum number of Stockholder Nominees (including Stockholder Nominees that were submitted by an Eligible Stockholder for inclusion in the Corporation’s proxy statement pursuant to this Section 17 but either are subsequently withdrawn or that the Board of Directors decides to nominate) appearing in the Corporation’s proxy materials with respect to an Annual Meeting of Stockholders (the “Authorized Number”) shall not exceed the greater of: (x) two (2) or (y) twenty percent (20%) of the number of directors in office as of the last day on which a Stockholder Notice may be delivered pursuant to this Section 17 with respect to the Annual Meeting, or if such amount is not a whole number, the closest whole number (rounding down) below twenty percent (20%); provided, that: (i) in the event that one or more vacancies for any reason occurs on the Board of Directors after the date of the Stockholder Notice but prior to or at the Annual Meeting and the Board of Directors resolves to reduce the size of the Board of Directors in connection therewith, the Authorized Number shall be calculated based on the number of directors in office as so reduced; and (ii) the Authorized Number shall also be reduced by: (A) any Stockholder Nominee for whom notice was provided pursuant to this Section 17 by an Eligible Stockholder who the Board of Directors determines to include in the Corporation’s proxy materials with respect to such Annual Meeting as an unopposed (by the Corporation) nominee; 8

 
(B) the number of incumbent directors who had been Stockholder Nominees at any of the preceding three Annual Meetings of Stockholders; and (C) the number of nominees for director who will be included in the Corporation’s proxy materials with respect to such Annual Meeting as an unopposed (by the Corporation) nominee pursuant to an agreement, arrangement, or other understanding between the Corporation and a stockholder or group of stockholders (other than any such agreement, arrangement, or understanding entered into in connection with an acquisition of capital stock, by such stockholder or group of stockholders, from the Corporation), other than any such director who at the time of such Annual Meeting will have served as a director for at least one full term. (e) Eligibility of Nominating Stockholder; Stockholder Groups. (i) To qualify as an “Eligible Stockholder,” a stockholder must own and have owned (as defined in Section 17(f) of this Article II) continuously for at least three (3) years as of the date of the Stockholder Notice, or must be acting on behalf of a group of no more than 20 stockholders and beneficial owners each of whom owns and has owned (as defined in Section 17(f) of this Article II) continuously for at least three (3) years as of the date of the Stockholder Notice, a number of shares (as adjusted to account for any stock dividend, stock split, subdivision, combination, reclassification, or recapitalization) that (in the case of a group, in the aggregate) represents at least three percent (3%) of the shares of the Corporation entitled to vote in the election of directors outstanding as of the date of the Stockholder Notice (the “Required Shares”), and must thereafter continue to own the Required Shares through such Annual Meeting of Stockholders; provided that in the case of a group of stockholders and beneficial owners: (A) any and all requirements and obligations for an Eligible Stockholder set forth in this Section 17 must be satisfied by and as to each such stockholder or beneficial owner (except that shares that a stockholder or beneficial owner has owned continuously for at least three (3) years may be aggregated as specified above in this Section 17(e)(i)). (ii) A group of any two or more funds that are (A) under common management and investment control, or (B) part of a family of funds, meaning a group of publicly-offered investment companies (whether organized in the U.S. or outside the U.S.) that hold themselves out to investors as related companies for purposes of investment and investor services, shall be treated as one stockholder or beneficial owner. (iii) No stockholder or beneficial owner, alone or together with any of its affiliates, may be a member of more than one group of stockholders or beneficial owners constituting an Eligible Stockholder under this Section 17, and no shares may be treated as owned by more than one stockholder or beneficial owner. (f) Ownership. For purposes of this Section 17, a stockholder or beneficial owner shall be deemed to “own” only those outstanding shares of the Corporation as to which such person possesses both: 9

 
(i) the full voting and investment rights pertaining to the shares; and (ii) the full economic interest in (including the opportunity for profit and risk of loss on) such shares; provided that the number of shares calculated in accordance with clauses (i) and (ii) shall not include any shares: (A) sold by such person or any of its affiliates in any transaction that has not been settled or closed; (B) borrowed by such person or any of its affiliates for any purposes or purchased by such person or any of its affiliates pursuant to an agreement to resell; or (C) subject to any option, warrant, forward contract, swap, contract of sale, or other derivative or similar agreement entered into by such person or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of outstanding shares of the Corporation, in any such case which instrument or agreement has, or is intended to have or if exercised would have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such person’s or its affiliates’ full right to vote or direct the voting of any such shares, and/or (2) hedging, offsetting, or altering to any degree any gain or loss arising from the full economic ownership of such shares by such person or its affiliate. An Eligible Stockholder shall be deemed to “own” shares held in the name of a nominee or other intermediary so long as the Eligible Stockholder retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares. An Eligible Stockholder’s ownership of shares shall be deemed to continue during any period in which the person has delegated any voting power by means of a proxy, power of attorney, or other instrument or arrangement that is revocable at any time by the Eligible Stockholder. An Eligible Stockholder’s ownership of shares shall be deemed to continue during any period in which the person has loaned such shares provided that the stockholder or beneficial owner has the power to recall such loaned shares on not more than five (5) business days’ notice. For purposes of this Section 17, the terms “owned,” “owning,” and other variations of the word “own” shall have correlative meanings, and the term “affiliate” or “affiliates” shall have the meanings ascribed under the rules and regulations promulgated under the Exchange Act. (g) Stockholder Notice and Other Information Requirement. (i) The Stockholder Notice shall include: (A) the information required of director nominees under Section 16 of this Article II; (B) a statement by the Eligible Stockholder (or in the case of a group, each stockholder or beneficial owner whose shares are aggregated for purposes of constituting an Eligible Stockholder), which statement(s) shall also be 10

 
included in the Schedule 14N filed with the SEC, setting forth and certifying as to the number of shares of the Corporation it owns and has owned continuously for at least three years as of the date of the Stockholder Notice and agreeing to continue to own such shares through the Annual Meeting; (C) a copy of the Schedule 14N that has been or concurrently is filed with the Securities and Exchange Commission as required by Rule 14a-18 under the Exchange Act; (D) the written agreement of the Eligible Stockholder (or in the case of a group, the written agreement of each stockholder or beneficial owner whose shares are aggregated for purposes of constituting an Eligible Stockholder) addressed to the Corporation, setting forth the following additional agreements, representations, and warranties: (1) that the Eligible Stockholder (including each member of any group of stockholders or beneficial owners that together is an Eligible Stockholder under this Section 17): (a) acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control at the Corporation, and does not presently have any such intent, (b) has not nominated and will not nominate for election to the Board of Directors at the Annual Meeting any person other than the Stockholder Nominee(s) being nominated pursuant to this Section 17, (c) has not engaged and will not engage in, and has not been and will not be a “participant” (as defined in Item 4 of Schedule 14A under the Exchange Act) in, a “solicitation” within the meaning of Rule 14a- 1(l) under the Exchange Act, in support of the election of any individual as a director at the Annual Meeting other than its Stockholder Nominee or a nominee of the Board of Directors, (d) will not distribute to any stockholder any form of proxy for the Annual Meeting other than the form distributed by the Corporation, (e) will comply with all laws and regulations applicable to its nomination and any solicitation in connection with the Annual Meeting, and (f) will file all materials described in Section 17(g)(iv) of this Article II with the Securities and Exchange Commission, regardless of whether any such filing is required under Regulation 14A of the Exchange Act, or whether any exemption from filing is available for such materials under Regulation 14A of the Exchange Act; (2) to provide immediate notice if the Eligible Stockholder ceases to own any of the Required Shares prior to the applicable Annual Meeting of Stockholders; (3) to assume all liability stemming from any legal or regulatory violation arising out of the Eligible Stockholder’s communications with the stockholders of the Corporation or out of the information that the Eligible Stockholder provided to the Corporation; (4) to indemnify and hold harmless the Corporation and its affiliates and each of its and their directors, officers, and employees 11

 
individually against any liability, loss, or damages in connection with any threatened or pending action, suit, or proceeding, whether legal, administrative, or investigative, against the Corporation or its affiliates or any of its or their directors, officers, or employees arising out of the nomination or solicitation process pursuant to this Section 17; (5) that the Eligible Stockholder has provided and will provide facts, statements, and other information in all communications with the Corporation and its stockholders that are or will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; (6) to promptly provide to the Corporation (but in any event within five business days after such request) such additional information as is necessary or reasonably requested by the Corporation; and (7) in the case of a nomination by a group of stockholders or beneficial owners that together is an Eligible Stockholder, (a) if applicable, documentation satisfactory to the Corporation demonstrating that a group of funds qualifies pursuant to the criteria set forth in Section 17(e)(ii) to be treated as one stockholder or person for purposes of this Section 17 and (b) the designation by all group members of one group member that is authorized to act on behalf of all members of the nominating stockholder group with respect to the nomination and matters related thereto, including withdrawal of the nomination and the receipt of notice from the Corporation. (ii) Within the time period prescribed in Section 17(b) for delivery of the Stockholder Notice, the Eligible Stockholder shall deliver: (A) a written representation and agreement signed by such Stockholder Nominee and representing and agreeing that such Stockholder Nominee: (1) consents to being named in the Corporation’s proxy statement and form of proxy as a nominee and to serving as a director if elected; (2) is not and will not become a party to (a) any agreement, arrangement, or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) other than any Voting Commitment that is disclosed to the Corporation in such representation or (b) any Voting Commitment that could limit or interfere with such individual’s ability to comply, if elected as a director of the Corporation, with such individual’s fiduciary duties under applicable law; (3) is not and will not become a party to any agreement, arrangement, or understanding with any person or entity other than the 12

 
Corporation with respect to any direct or indirect compensation, reimbursement, or indemnification in connection with service or action as a director other than any such agreement, arrangement, or understanding that is disclosed to the Corporation in such representation; (4) independent under the listing standards of the principal U.S. exchange upon which the shares of the Corporation are listed, applicable Securities and Exchange Commission rules, and any publicly disclosed standards used by the Board of Directors in determining and disclosing the independence of the Corporation’s directors, including (a) the audit committee independence requirements set forth in the rules of the principal U.S. exchange on which shares of the Corporation are listed, (b) as a “non-employee director” under Rule 16b-3 of the Exchange Act; (5) such Stockholder Nominee does not have any direct or indirect relationship with the Corporation that has not been deemed categorically immaterial pursuant to the Corporation’s related person transactions policy; (6) such Stockholder Nominee is not and has not been subject to (a) any event specified in Item 401(f) of Regulation S-K under the Securities Act, or (b) any order of the type specified in Rule 506(d) of Regulation D under the Securities Act; and (7) has not taken any action inconsistent with and, if elected as a director of the Corporation, will comply with all of the Corporation’s corporate governance, conflict of interest, related person transaction, confidentiality, and stock ownership and trading policies and guidelines, and any other Corporation policies and guidelines applicable to directors; and (B) a completed and signed questionnaire from each Stockholder Nominee regarding the matters generally required in the questionnaires required of the Corporation’s directors (which questionnaire shall be provided to the Stockholder Nominee upon request). At the request of the Corporation, the Stockholder Nominee must promptly, but in any event within five (5) business days of such request, provide to the Corporation such other information necessary or as it may reasonably request, including additional information to permit the Board of Directors to determine whether each Stockholder Nominee satisfies the eligibility requirements of this Article II. (iii) An Eligible Stockholder (or in the case of a group, each stockholder or beneficial owner whose shares are aggregated for purposes of constituting an Eligible Stockholder) must: (A) within five (5) business days after the date of the Stockholder Notice, deliver to the Corporation one or more written statements from the record holder(s) of the Required Shares and from each intermediary 13

 
through which the Required Shares are or have been held, in each case during the requisite three-year holding period, specifying the number of shares that the Eligible Stockholder owns as of the date of the Stockholder Notice and has owned continuously for the preceding three years; and (B) as to any group of funds whose shares are aggregated for purposes of constituting an Eligible Stockholder, within five (5) business days after the date of the Stockholder Notice, provide documentation reasonably satisfactory to the Corporation demonstrating that the number of stockholders and/or beneficial owners within such group does not exceed 20, including whether a group of investment companies qualifies as one stockholder or beneficial owner within the meaning of Section 17(e)(i) of this Article II. (iv) The Eligible Stockholder shall file with the Securities and Exchange Commission any solicitation or other communication relating to the Corporation’s Annual Meeting of Stockholders, one or more of the Corporation’s directors then in office, or any Stockholder Nominee, regardless of whether any such filing is required under Regulation 14A of the Exchange Act, or whether any exemption from filing is available for such solicitation or other communication under Regulation 14A of the Exchange Act. (v) In the event that any information or communications provided by the Eligible Stockholder or any Stockholder Nominees to the Corporation or its stockholders is not, when provided, or thereafter ceases to be true, correct, and complete in all material respects (including omitting a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading), such Eligible Stockholder or Stockholder Nominee, as the case may be, shall promptly notify the Secretary and provide the information that is required to make such information or communication true, correct, complete, and not misleading; it being understood that providing any such notification shall not be deemed to cure any such defect or limit the remedies (including without limitation under these By-Laws) available to the Corporation relating to any such defect. (h) Proxy Access Procedures. (i) Notwithstanding anything to the contrary contained in this Section 17, the Corporation shall omit from its proxy statement and proxy card any Stockholder Nominee, and such nomination shall be disregarded and no vote on such Stockholder Nominee will occur, notwithstanding that proxies in respect of such vote may have been received by the Corporation, if: (A) the Corporation receives notice (whether or not subsequently withdrawn) that a stockholder intends to nominate a person for election to the Board of Directors pursuant to the advance notice requirements for stockholder nominees for director set forth in Section 16 of this Article II and which stockholder does not expressly elect to have its nominee(s) included in the Corporation’s proxy materials pursuant to this Section 17; 14

 
(B) the Eligible Stockholder breaches any of its respective agreements, representations, or warranties set forth in the Stockholder Notice (or otherwise provided or required pursuant to this Section 17), any of the information in the Stockholder Notice (or otherwise submitted pursuant to this Section 17) was not, when provided, true, correct, and complete, or the requirements of this Section 17 otherwise have not been satisfied; (C) the Stockholder Nominee (1) is not independent under the listing standards of the principal U.S. exchange upon which the shares of the Corporation are listed, applicable Securities and Exchange Commission rules, and any publicly disclosed standards used by the Board of Directors in determining and disclosing the independence of the Corporation’s directors, (2) does not qualify as independent under the audit committee independence requirements set forth in the rules of the principal U.S. exchange on which shares of the Corporation are listed, as a “non-employee director” under Rule 16b-3 of the Exchange Act, (3) is or has been, within the past three years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, as amended, (4) is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in a criminal proceeding (excluding traffic violations and other minor offenses) within the past 10 years, or (5) is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act of 1933, as amended; or (D) the election of the Stockholder Nominee to the Board of Directors would cause the Corporation to be in violation of the Certificate of Incorporation, these By-Laws, any applicable law, rule, or regulation or the listing standards of the principal U.S. exchange upon which the shares of the Corporation are listed. (ii) An Eligible Stockholder submitting more than one Stockholder Nominee for inclusion in the Corporation’s proxy materials pursuant to this Section 17 shall rank such Stockholder Nominees based on the order that the Eligible Stockholder desires such Stockholder Nominees to be selected for inclusion in the Corporation’s proxy statement and include such specified rank in its Stockholder Notice submitted to the Corporation. In the event that the number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 17 exceeds the Authorized Number, the Corporation shall determine which Stockholder Nominees shall be included in the Corporation’s proxy materials in accordance with the following provisions: (A) the highest ranking Stockholder Nominee of each Eligible Stockholder will be selected for inclusion in the Corporation’s proxy materials until the Authorized Number is reached, going in order of the amount (largest to smallest) of shares of the Corporation each Eligible Stockholder disclosed as owned in its respective Stockholder Notice submitted to the Corporation; and (B) if the Authorized Number is not reached after each Eligible Stockholder has had one Stockholder Nominee selected, this selection process 15

 
will continue as many times as necessary, following the same order each time, until the Authorized Number is reached. Following such determination, if any Stockholder Nominee who satisfies the eligibility requirements in this Section 17 thereafter is not included in the Corporation’s proxy materials, or is not presented for election as a director for any reason (including the Stockholder Nominee’s or the Eligible Stockholder’s failure to comply with this Section 17 or withdrawal of the Stockholder Nominee or nomination), no other nominee or nominees shall be included in the Corporation’s proxy materials or otherwise submitted for election as a director pursuant to this Section 17 in substitution for such Stockholder Nominee. (iii) Any Stockholder Nominee who is included in the Corporation’s proxy materials for a particular Annual Meeting of Stockholders but withdraws from or becomes ineligible or becomes unavailable for election at the Annual Meeting for any reason, including failure to comply with any provision of these By-Laws will be ineligible to be a Stockholder Nominee pursuant to this Section 17 for the next two Annual Meetings. In no event shall any such withdrawal, ineligibility, or unavailability commence a new time period (or extend any time period) for the giving of a Stockholder Notice. (iv) Except as otherwise provided by law, and notwithstanding any other provision of these By-Laws, each of the Chairman of the Board of Directors, the Board of Directors (including any authorized committee of the Board of Directors), or the chairman of the meeting shall have the power and authority to interpret this Section 17 and to make any and all determinations necessary or advisable to apply this Section 17 to any persons, facts, or circumstances, in each case acting in good faith. For purposes of applying the requirements of this Section 17, the number of Required Shares required to be owned by any person or persons during any time period shall be adjusted, in the manner determined by the Board of Directors (including any authorized committee thereof) or by the Secretary of the Corporation, to account for any stock dividend, stock split, subdivision, combination, reclassification, or recapitalization of shares of the Corporation. This Section 17 shall be the exclusive method for stockholders to include nominees for director election in the Corporation’s proxy materials. ARTICLE III DIRECTORS Section 1. Number and Election of Directors. The Board of Directors shall consist of not less than three (3) or more than fifteen (15) members, the exact number of which shall he fixed, from time to time, exclusively pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board of Directors, and subject to the rights of the holders of Preferred Stock, if any, the exact number may be increased or decreased (but not to less than three (3) or more than fifteen (15)). Except as provided in Section 2 of this Article III, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In the event any nominee for director in an uncontested election receives a greater number of votes “withheld” from his or her election than votes “for” his or her election (with “broker nonvotes” not counted as a vote “withheld” from or “for” such person’s election) (a “Majority Withheld Vote”), the Compensation, Nominating and Governance Committee (or comparable committee appointed by the Board of 16

 
Directors) shall promptly consider the director’s resignation and make a recommendation to the Board of Directors on whether to accept the director’s resignation, taking into account such factors as the Compensation, Nominating and Governance Committee may in its discretion determine appropriate, and the Board of Directors shall vote on whether to accept such resignation. The Board of Directors shall act on the recommendation of the Compensation, Nominating and Governance Committee within ninety (90) days following certification of the stockholder vote. Any director who receives a Majority Withheld Vote shall not participate in the Compensation, Nominating and Governance Committee’s recommendation or Board of Directors action regarding whether to accept the director’s resignation. If a majority of the directors serving on the Compensation, Nominating and Governance Committee received a Majority Withheld Vote at the same election, then the independent directors who did not receive a Majority Withheld Vote shall appoint a committee amongst themselves to consider the resignations and recommend to the Board of Directors whether to accept them. Promptly thereafter, the Board of Directors will disclose its decision regarding whether to accept the director’s resignation in a Form 8-K filed with the Securities and Exchange Commission. For this purpose, an “uncontested election” shall mean that, ten (10) days prior to the record date for determining stockholders entitled to notice of the meeting of stockholders at which directors are to be elected, the number of nominees does not exceed die number of directors to be elected. A director shall hold office until the Annual Meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Directors need not be stockholders. The Board of Directors shall be divided into three classes, designated Classes I, II and III, the number of directorships in each of which Classes shall be as nearly equal in number as possible. The initial division of the members of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the Board of Directors. The term of the initial Class I Directors shall terminate on the date of the 2008 annual meeting; the term of the initial Class II Directors shall terminate on the date of the 2009 annual meeting; and the term of the initial Class III Directors shall terminate on the date of the 2010 annual meeting. At each succeeding annual meeting of stockholders beginning in 2008, successors to the class of Directors whose term expires at that annual meeting shall be elected to a three-year term. If the number of Directors is changed, any increases or decreases shall be apportioned among the Classes so as to attain or maintain in each Class a number of directors as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no ease will a decrease in the number of directors shorten the term of any incumbent director. Section 2. Vacancies. Subject to the terms of any one or more classes or series of preferred stock, any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class shall hold office for a term that shall coincide 17

 
with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Section 3. Duties and Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders. Section 4. Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, or the Chief Executive Officer. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, facsimile or telegram or other means of electronic communication on twenty-four (24) hours’ notice, or on such shorter notice as the person or persons calling such meeting may, deem necessary or appropriate in the circumstances. Section 5. Organization. At each meeting of the Board of Directors, the Chairman of the Board of Directors, or, in his or her absence, a director chosen by a majority of the directors present, shall act as chairman. The Secretary of the Corporation shall act as secretary at each meeting of the Board of Directors. In case the Secretary shall be absent front any meeting of the Board of Directors, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all the Assistant Secretaries, the chairman of the meeting may appoint any person to act as secretory of the meeting. Section 6. Resignations and Removals of Directors. Any director of the Corporation may resign at any time, by giving notice in writing to the Chairman of the Board of Directors, the Chief Executive Officer or the Secretary of the Corporation. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Except as otherwise required by applicable law and subject to the rights, if any, of the holders of shares of preferred stock then outstanding, any director or the entire Board of Directors may be removed front office at any time, but only for cause, and only by the affirmative vote of the holders of at least a majority of the voting power of the Corporation’s then outstanding capital stock entitled to vote generally in the election of directors, cast at a special meeting of stockholders called for the purpose or at an annual meeting. Section 7. Quorum. Except as otherwise required by law or the Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than 18

 
announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present. Section 8. Actions of the Board by Written Consent. Unless otherwise provided in the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 9. Meetings by Manus of Conference Telephone. Unless otherwise provided in the Certificate of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 9 shall constitute presence in person at such meeting. Section 10. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 11. Compensation. The directors may he paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary for service as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for service as committee members. Section 12. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because any such director’s or officer’s vote is counted for such purpose if: (i) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction 19

 
are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum: or (ii) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders: or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV OFFICERS Section 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chief Executive Officer, a Secretary and a Treasurer. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director), a Vice Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Director and the Vice Chairman of the Board of Directors, need such officers be directors of the Corporation. Section 2. Election. The Board or Directors, at its first meeting held after each Annual Meeting of Stockholders, as necessary, shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and each officer of the Corporation shall hold office until such officer’s successor is elected and qualified, or until such officer’s earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Any officer may resign at any time by delivering a written notice of resignation, signed by such office, to the Board of Directors or the Chief Executive Officer or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security bottlers of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have 20

 
exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. Section 4. Chairman of the Board of Directors. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and may exercise such other powers as may from time to time he assigned by these By-Laws or by the Board of Directors. Section 5. Vice Chairman or the Board of Directors. The Vice Chairman of the Board of Directors, if there he one, shall assume all of the duties of the Chairman of the Board of Directors assigned by these By-Laws in the event of the absence or disability of the Chairman of the Board of Directors. The Vice Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may front time to time be assigned by these By-Laws or by the Board of Directors. Section 6. Chief Executive Officer. The Chief Executive Officer shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the Chief Executive Officer. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the Chief Executive Officer shall preside at all meetings of the stockholders, The Chief Executive Officer shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors. Section 7. Vice Presidents. Each Vice President shall have such powers and shall perform such duties as shall he assigned to him by the Board of Directors. Section 8. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties us may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the Chief Executive Officer, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the Chief Executive Officer may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of 21

 
Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer’s signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 9. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Corporation, in case of the Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer’s possession or under the Treasurer’s control belonging to the Corporation. Section 10. Assistant Secretaries. Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretary’s inability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 11. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time tray be assigned to them by the Board of Directors, the Chief Executive Officer, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer’s inability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board or Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance oldie duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer’s possession or under the Assistant Treasurer’s control belonging to the Corporation, Section 12. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. 22

 
ARTICLE V STOCK Section 1. Uncertified Shares. Unless otherwise provided by resolution of the Board of Directors, each class or series of the shares of capital stock in the Corporation shall be issued in uncertificated form pursuant to the customary arrangements for issuing shares in such form. Shares shall be transferable only on the books of the Corporation by the holder thereof in person or by attorney upon presentment of proper evidence of succession, assignation or authority to transfer in accordance with the customary procedures for transferring shares in uncertificated form. Section 2. Dividend Record Date. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall he not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 3. Record Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shalt not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law. Section 4. Transfer and Registry Agents. The Corporation may front time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors, ARTICLE VI NOTICES Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given either personally by mail, facsimile, telegraph or other means of electronic communication or by other lawful means. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to such director, member of a committee or stockholder, at such person’s address as it appears on the records of the Corporation, with postage thereon prepaid. If notice be by facsimile, telegram, or other means of electronic communication, such notice shall he deemed to be given at the time provided in the General Corporation Law of the State of Delaware (“DGCL”). Such further notice shall he given as may be required by law. 23

 
Section 2. Waivers of Notice. Whenever any notice is required by applicable law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any Annual or Special Meeting of Stockholders or any regular or special meeting of the directors or members of a committee of directors need he specified in any written waiver of notice unless so required by law, the Certificate of Incorporation or these By-Laws. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 8 of Article III hereof), and may he paid in cash, in property, or in shares of the Corporation’s capital stock. Before payment of any dividend. there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors front time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for purchasing any of the shares of capital stock, warrants, rights, options. hoods, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the Corporation shall commence on the first day of January of each year and shall terminate on December 31. Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name oldie Corporation, the year of its organization and the words “Corporate Seal. Delaware**. The seal may be used by causing it or a facsimile thereof to be impressed or allied or reproduced or otherwise. ARTICLE VIII INDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or 24

 
investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation. partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, bad no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was at director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification wider this Article VIII (unless ordered by a court) shall be made by the Corporation unity as authorized in the specific case upon a determination that indemnification of the present or former director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or 25

 
proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action was based on the records or books of account of the Corporation or another enterprise or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Section 1 or Section 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application, Section 6. Expenses Payable in Advance. Expenses (including attorneys’ fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately he determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Such expenses (including attorneys’ fees) incurred by runner directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate. Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not he deemed exclusive of any other rights to which those seeking indemnification or 26

 
advancement of expenses may he entitled under the Certificate of Incorporation, these By-Laws, any statute, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Section 1 and Section 2 of this Article VIII shall he made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or Section 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise. Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent or another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII. Section 9. Certain Definitions. For purposes of this Article VIII, references to “The Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the inquest of such constituent corporation as a director, officer, employee or agent of manlier corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. The term “another enterprise” as used in this Article VIII shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. For purposes of this Article VIII, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VIII. Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. 27

 
Section 11. Limitation on Indemnification. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 of this Article VIII), the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation. Section 12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation. ARTICLE IX AMENDMENTS Section 1. Amendments. In furtherance and not in limitation of the powers conferred upon it by the laws or the State of Delaware, the Board of Directors shall have the power to adopt, amend, alter or repeal the Corporation’s By-Laws. The affirmative vote of at least a majority or the entire Board of Directors shall be required to adopt, amend, alter or repeal the Corporation’s By-Laws. The Corporation’s By-Laws also may he adopted, amended, altered or repealed by the affirmative vote of at least a majority of the voting power of the shares entitled to vote at an election of directors; provided, however, that any amendment, alteration or repeal of Sections 3, 9, 15 or 16 of Article II, Article VIII or this Section 1 of Article IX, shall require the affirmative vote oldie holders of at least sixty live percent (65%) of the voting power oldie shares entitled to vote at an election of directors. Section 2. Entire Board of Directors. As used in this Ankle IX and in these By-Laws generally, the term “entire Board of Directors” means the total number of directors which the Corporation would have if there were no vacancies. ARTICLE X CONSTRUCTION Section 1. Construction. In the event of any conflict between the provisions of these By-Laws as in effect from time to time and the provisions of the Certificate of Incorporation of the Corporation as in effect from time to time, the provisions of such Certificate of Incorporation shall be controlling. ARTICLE XI FORUM Section 1. Forum for Adjudication of Disputes. Unless the Corporation consents in writing to the selection of an alternative forum (an “Alternative Forum Consent”), the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder, employee or agent of the 28

 
Corporation to the Corporation or the Corporation’s stockholders; (iii) any action asserting a claim against the Corporation or any director, officer, stockholder, employee or agent of the corporation arising out of or relating to any provision of the DGCL or the Corporation’s Certificate of Incorporation or by-laws; or (iv) any action asserting a claim against the Corporation or any director, officer, stockholder, employee or agent of the Corporation governed by the internal affairs doctrine of the State of Delaware; provided, however, that, in the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein. Failure to enforce the foregoing provisions would cause the Corporation irreparable harm and the Corporation shall be entitled to equitable relief, including injunctive relief and specific performance, to enforce the foregoing provisions. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XI. If any action, the subject matter of which is within the scope of this Article XI, is filed in a court other than the Court of Chancery of the State of Delaware (or any other state or federal court located within the State of Delaware, as applicable) (a “Foreign Action”) by or in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the Court of Chancery of the State of Delaware (or such other state or federal court located within the State of Delaware, as applicable) in connection with any action brought in any such court to enforce this Article XI and (ii) having service of process made upon such stockholder in any such action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder. The existence of any prior Alternative Forum Consent shall not act as a waiver of the Corporation’s ongoing consent right as set forth above in this Article XI with respect to any current or future actions or claims. *** 29

 
Mr. Sean Deason April 1, 2019 Dear Sean, I am most pleased to confirm that, effective today, you are promoted to the position of Chief Financial Officer while retaining your Controller and Investor Relations accountabilities. In order to reflect this change, your new compensatory arrangement will be as follows: - your Annual Base Salary will be increased to $400,000 as of April 1, 2019; - your AIP target will be increased to 60% as of April 1, 2019; - your Equity LTIP target will be increased to $400,000 as of next grant cycle (February 2020); - your Cash LTIP target will be increased to 40% for all ongoing plans. The impact of these changes represents an overall 74% increase of your total target compensation package. I would like to thank you for your dedication and I wish you all the very best for the further development of your career in our company. Best regards, Jacques Esculier Chairman & Chief Executive Officer There is nothing in this document which is intended to supersede local laws. Confidential Page 1 │1 April 1, 2019

 
Mr. Alexander De Bock April 1, 2019 Dear Alex, I am most pleased to confirm that, effective today, your new compensatory arrangement will be as follows: - your Annual Base Salary will be increased to CHF350,000 as of April 1, 2019; - your Equity LTIP target will be increased to $125,000 as of next grant cycle (February 2020); - you will be enrolled into the Cash LTIP with a target of 35% and with immediate full participation (no phase-in) to all ongoing plans. The impact of these changes represents an overall 35% increase of your total target compensation package. I would like to thank you for your dedication and I wish you all the very best for the further development of your career in our company. Best regards, Jacques Esculier Chairman & Chief Executive Officer There is nothing in this document which is intended to supersede local laws. Confidential Page 1 │1 April 1, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Exhibit 31.1
CERTIFICATIONS
I, Jacques Esculier, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of WABCO Holdings Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 26, 2019
/s/ Jacques Esculier
Jacques Esculier
Chief Executive Officer and Chairman of the Board




Exhibit 31.2
CERTIFICATIONS
I, Sean Deason, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of WABCO Holdings Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 26, 2019
/s/ Sean Deason
Sean Deason
Chief Financial Officer & Controller




Exhibit 32.1
WABCO HOLDINGS INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WABCO Holdings Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jacques Esculier, the Chief Executive Officer and Chairman of the Board of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that
(i)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.  
/s/ Jacques Esculier
Jacques Esculier
Chief Executive Officer and Chairman of the Board
Dated: April 26, 2019




Exhibit 32.2
WABCO HOLDINGS INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of WABCO Holdings Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sean Deason, the Chief Financial Officer & Controller of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(i)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.  
/s/ Sean Deason
Sean Deason
Chief Financial Officer & Controller
Dated: April 26, 2019