WABCO Europe BVBA
WABCO Holdings Inc. (Form: 10-Q, Received: 07/26/2013 07:00:33)
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 June 30, 2013
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.)
Chaussee de Wavre, 1789
1160 Brussels, Belgium
 
 
 
 
One Centennial Avenue,
P.O. Box 6820, Piscataway, NJ
 
08855-6820
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code +32 2 663 98 00
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).  
Large Accelerated Filer
 
x
  
Accelerated Filer
 
o
 
 
 
 
Non-Accelerated Filer
 
o
  
Smaller Reporting Company
 
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
 
 
July 25, 2013
 
62,602,194 shares


Table of Contents

WABCO HOLDINGS INC. AND SUBSIDIARIES
FORM 10-Q
Three months ended June 30, 2013
Contents
 
 
 
 
 
 
Item 1.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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 INCOME
(Unaudited)
 
 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
(Amounts in millions, except share and per share data)
2013
 
2012
 
2013
 
2012
Sales
$
678.2

 
$
635.2

 
$
1,322.9

 
$
1,292.5

Cost of sales
471.6

 
441.5

 
918.6

 
902.6

Gross Profit
206.6

 
193.7

 
404.3

 
389.9

Costs and expenses:
 
 
 
 
 
 
 
Selling and administrative expenses
89.2

 
74.0

 
171.7

 
153.1

Product engineering expenses
29.5

 
26.1

 
59.8

 
52.2

Other operating expense, net
1.5

 
0.8

 
4.6

 
2.3

Operating income
86.4

 
92.8

 
168.2

 
182.3

Equity income of unconsolidated joint ventures, net
5.3

 
4.8

 
8.2

 
9.7

Other non-operating income/(expense), net
4.0

 
(0.6
)
 
3.7

 
(1.3
)
Interest expense, net
(0.2
)
 
(0.5
)
 
(0.5
)
 
(0.8
)
Income before income taxes
95.5

 
96.5

 
179.6

 
189.9

Income tax expense
9.7

 
17.6

 
17.8

 
19.0

Net income
85.8

 
78.9

 
161.8

 
170.9

Less: net income attributable to noncontrolling interests
2.6

 
3.3

 
4.9

 
6.1

Net income attributable to Company
$
83.2

 
$
75.6

 
$
156.9

 
$
164.8

Net income attributable to Company per common share
 
 
 
 
 
 
 
Basic
$
1.33

 
$
1.18

 
$
2.50

 
$
2.56

Diluted
$
1.31

 
$
1.15

 
$
2.46

 
$
2.50

Cash dividends per share of common stock
$

 
$

 
$

 
$

Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
62,673,044

 
64,288,346

 
62,795,504

 
64,467,425

Diluted
63,500,403

 
65,625,136

 
63,790,312

 
66,010,308

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
 
Six Months Ended
 
June 30,
 
June 30,
 (Amounts in millions)
2013
 
2012
 
2013
 
2012
Comprehensive income
$
63.9

 
$
41.9

 
$
131.9

 
$
147.4

Less: comprehensive (loss)/income attributable to noncontrolling interests
(1.6
)
 
(0.4
)
 
$
1.0

 
$
3.4

Comprehensive income attributable to Company
$
65.5

 
$
42.3

 
$
130.9

 
$
144.0


See Notes to Condensed Consolidated Financial Statements.


4

Table of Contents

WABCO HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30,
2013
 
December 31,
2012
(Amounts in millions, except share data)
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
166.4

 
$
175.0

Accounts receivable, less allowance for doubtful accounts of $4.3 in 2013 and $3.6 in 2012
347.8

 
301.5

Inventories:
 
 
 
Finished products
92.0

 
76.9

Products in process
8.2

 
7.1

Raw materials
106.5

 
107.8

Taxes receivable on income
3.3

 

Future income tax benefits
10.7

 
13.8

Restricted cash
31.1

 
26.0

Guaranteed notes receivable
55.9

 
41.2

Other current assets
43.7

 
43.3

Total current assets
865.6

 
792.6

Property, plant and equipment, less accumulated depreciation
370.9

 
389.0

Goodwill
363.7

 
371.7

Long-term future income tax benefits
92.2

 
91.5

Investments in unconsolidated joint ventures
20.5

 
20.5

Intangible assets, net
40.5

 
39.4

Other assets
41.3

 
42.3

TOTAL ASSETS
$
1,794.7

 
$
1,747.0

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Loans payable to banks
$
23.8

 
$
76.2

Accounts payable
159.6

 
115.4

Accrued payroll
106.1

 
94.2

Current portion of warranties
29.3

 
33.8

Taxes payable

 
5.7

Other accrued liabilities
117.6

 
120.4

Total current liabilities
436.4

 
445.7

Post-retirement benefits
424.5

 
430.6

Deferred tax liabilities
29.9

 
29.9

Long-term income tax liabilities
47.5

 
47.7

Other liabilities
59.8

 
64.4

Total liabilities
998.1

 
1,018.3

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: 77,079,903 in 2013; 75,755,306 in 2012; and shares outstanding: 62,603,883 in 2013; 62,747,151 in 2012
0.7

 
0.7

Capital surplus
776.2

 
735.5

Treasury stock, at cost: 14,476,020 shares in 2013; 13,008,155 shares in 2012
(757.8
)
 
(655.8
)
Retained earnings
875.5

 
718.6

Accumulated other comprehensive income:
 
 
 
Foreign currency translation adjustments
(44.7
)
 
(15.4
)
Unrealized losses on benefit plans, net of tax
(103.9
)
 
(107.2
)
Total shareholders’ equity
746.0

 
676.4

Noncontrolling interests
50.6

 
52.3

Total equity
796.6

 
728.7

TOTAL LIABILITIES AND EQUITY
1,794.7

 
1,747.0


See Notes to Condensed Consolidated Financial Statements.

5

Table of Contents

WABCO HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months
Ended June 30,
 
2013
 
2012
(Amounts in millions)
 
 
 
Operating activities:
 
 
 
Net income
$
161.8

 
$
170.9

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
37.2

 
33.3

Amortization of intangibles
6.0

 
5.4

Equity in earnings of unconsolidated joint ventures, net of dividends received
0.1

 
(2.5
)
Non-cash stock compensation
6.6

 
7.6

Deferred income tax expense
(0.1
)
 
(2.8
)
Loss on sale or disposal of property, plant and equipment
0.1

 

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(54.7
)
 
(29.1
)
Inventories
(21.7
)
 
(9.6
)
Accounts payable
48.4

 
11.2

Other accrued liabilities and taxes
2.1

 
(9.1
)
Other current and long-term assets
(26.0
)
 
14.4

Other long-term liabilities
(3.7
)
 
(20.2
)
Net cash provided by operating activities
156.1

 
169.5

Investing activities:
 
 
 
Purchases of property, plant and equipment
(33.8
)
 
(36.0
)
Investments in capitalized software
(7.2
)
 
(4.6
)
Net cash used in investing activities
(41.0
)
 
(40.6
)
Financing activities:
 
 
 
Net (repayments)/borrowings of revolving credit facilities
(45.8
)
 
15.0

Net repayments of short-term debt
(5.9
)
 
(4.3
)
Purchases of treasury stock
(100.7
)
 
(99.8
)
Dividends to noncontrolling interest holders
(2.7
)
 
(2.9
)
Proceeds from exercise of stock options
35.7

 
14.2

Net cash used in financing activities
(119.4
)
 
(77.8
)
Effect of exchange rate changes on cash and cash equivalents
(4.3
)
 
(3.7
)
Net (decrease)/increase in cash and cash equivalents
(8.6
)
 
47.4

Cash and cash equivalents at beginning of period
175.0

 
102.4

Cash and cash equivalents at end of period
$
166.4

 
$
149.8

Cash paid during the period for:
 
 
 
Interest
$
0.2

 
$
0.5

Income taxes
$
24.3

 
$
14.8

Non cash items for the period:
 
 
 
Treasury stock purchase accrual
$
3.8

 
$
3.0

See Notes to Condensed Consolidated Financial Statements.

6

Table of Contents

WABCO HOLDINGS INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

NOTE 1.
Basis of Financial Statement Presentation
WABCO Holdings Inc. and its subsidiaries (collectively “WABCO” or the “Company”) develops, manufactures and sells advanced braking, stability, suspension and transmission control systems primarily for commercial vehicles. WABCO’s largest selling products are pneumatic anti-lock braking systems (“ABS”), electronic braking systems (“EBS”), automated manual transmission systems, air disc brakes and a large variety of conventional mechanical products such as actuators, air compressors and air control valves for heavy and medium-sized trucks, trailers and buses. WABCO sells its products to four groups of customers around the world: truck and bus original equipment manufacturers (“OEMs”), trailer OEMs, aftermarket distributors of replacement parts and services and automotive OEMs.
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, 2012 , included in the Company’s Annual Report on Form 10-K.
Based on the organizational structure, as well as the nature of financial information available and reviewed by the Company’s chief operating decision maker to assess performance and make decisions about resource allocations, the Company has concluded that its total WABCO operations represent one reportable segment and that WABCO’s performance and future net cash flow perspectives are best understood and assessed as such. All majority-owned subsidiaries of WABCO are included in the 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 consolidated balance sheet.
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 14 to the Consolidated Financial Statements for the year ended December 31, 2012 , 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 six months of 2013 .

NOTE 2.
Recently Issued Accounting Standards
The adoption of recently issued accounting standards did not have a material impact on the condensed consolidated financial statements, nor do we expect the pending adoption of recently issued accounting standards to have a material impact on the condensed consolidated financial statements.
In 2013, the FASB issued Accounting Standards Update 2013-02 Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income ("ASU 2013-02") .
ASU 2013-02 aims to improve the reporting of reclassifications out of accumulated other comprehensive income. The entities are required to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income.
We adopted the provisions of ASU 2013-02 as of March 31, 2013. 

7





NOTE 3.
Comprehensive Income

Total comprehensive income attributable to the Company consisted of the following (amounts in millions):  
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
85.8

 
$
78.9

 
$
161.8

 
$
170.9

Foreign currency translation losses
(21.6
)
 
(40.3
)
 
(33.2
)
 
(26.1
)
Unrealized (losses) / gains on benefit plans, net
(0.3
)
 
3.3

 
3.3

 
2.6

Comprehensive income
63.9

 
41.9

 
131.9

 
147.4

Less: Net income attributable to noncontrolling interests
2.6

 
3.3

 
4.9

 
6.1

Less: Foreign currency translation losses, attributable to noncontrolling interests
(4.2
)
 
(3.7
)
 
(3.9
)
 
(2.7
)
Comprehensive income attributable to Company
$
65.5

 
$
42.3

 
$
130.9

 
$
144.0



The table below presents the rollforward of Accumulated Other Comprehensive Income for the six month period ended June 30, 2013 (amounts in millions).
 
Accumulated Other Comprehensive Income
 
Foreign Currency Translation
Losses on Intra-entity transactions (1)
Unrealized Losses on Benefit Plans, net of tax
 
Total
Beginning balance as of Dec 31, 2012
(9.5
)
(5.9
)
(107.2
)
 
(122.6
)
Other comprehensive income before reclassifications
(27.9
)
(1.4
)
1.1

 
(28.2
)
Amounts reclassified from accumulated other comprehensive income


2.2

(2)
2.2

Net current period other comprehensive income
(27.9
)
(1.4
)
3.3

 
(26.0
)
Ending Balance as of June 30, 2013
(37.4
)
(7.3
)
(103.9
)
 
(148.6
)

(1) 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.
(2) This accumulated other comprehensive income component, net of $0.9 million in tax, is included in the computation of net periodic pension cost. See Note 13 Post-retirement Benefits for additional details.



NOTE 4.
Accounts Receivable Securitization Program & Financing Receivables
On September 23, 2009, the Company established an accounts receivable securitization program (the “Accounts Receivable Securitization Program”) with Société Générale Bank Nederland N.V. The maximum funding from receivables that may be sold into the Accounts Receivable Securitization Program and outstanding at any point in time is € 80 million ; however, there can be no assurance that the Company will generate sufficient eligible receivables to access the maximum availability. The original term of the Accounts Receivable Securitization Program was for one year, with the possibility of four additional annual extensions, assuming the Company and the participating sellers are in compliance with the applicable covenants. The Company extended the Accounts Receivable Securitization Program in September 2012 for one additional year.
During the six months ended June 30, 2013 , the Company sold all of its eligible receivables into the Accounts Receivable Securitization Program. The receivables were removed from the balance sheet in accordance with the guidance under ASC topic 860, Transfers and Servicing . The total amount of receivables sold under the Accounts Receivable Securitization Program during the six months ended June 30, 2013 was € 381.6 million ($ 501.2 million at weighted average June 30, 2013 year-to-date exchange rates). The amount of eligible receivables sold and outstanding as of June 30, 2013

8


amounted to € 76.6 million ($ 99.9 million at June 30, 2013 exchange rates). As a result of the sale, accounts receivable decreased by $ 99.9 million and cash and cash equivalents increased by $ 59.7 million . The remaining amount of proceeds of $ 40.2 million is a subordinated deposit with Société Générale Bank Nederland N.V. at June 30, 2013 .
The fair value of the receivables sold equaled the carrying cost at time of sale, and no gain or loss was recorded as a result of the sale. The Company estimated the fair value of sold receivables using Level 3 inputs and based the estimate on historical and anticipated performance of similar receivables, including historical and anticipated credit losses (if any). As part of the Accounts Receivable Securitization Program, the Company continues to service the receivables. The Company sells the receivables at face value, but receives actual funding net of the subordinated deposit account until collections are received from customers for the receivables sold. The Company is exposed to the credit losses of sold receivables up to the amount of its subordinated deposit account at each settlement date. Credit losses for receivables sold and past due amounts outstanding at June 30, 2013 were both immaterial. Servicing fees paid for the program were $ 0.4 million and $ 0.5 million for the six months ended June 30, 2013 and June 30, 2012 respectively.
In addition to the above, the Company has the ability to access cash on a daily basis related to collections on sold receivables, which provided the Company with $ 29.3 million of additional cash as of June 30, 2013 . Of these cash receipts, $ 20.2 million is classified on the consolidated balance sheet as loans payable to bank and $ 9.1 million reduced the subordinated deposit, which is classified as restricted cash on the consolidated balance sheet as of June 30, 2013 , to $ 31.1 million . Also, the Company has pledged unsold receivables under the Accounts Receivable Securitization Program of € 10.2 million ($ 13.3 million at June 30, 2013 exchange rates).
On April 15, 2009, the Company entered into a € 35 million factoring program, which has a term of five years, in respect to accounts receivable from one of our customers. To date, we have not utilized this facility.
Other receivables available for financing include receivables 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 drafts 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 six months of 2013 and 2012 were $ 16.4 million and $ 21.3 million , respectively. There were no expenses for the six months ended June 30, 2013 , compared to $ 0.1 million for the six months ended June 30, 2012 . The carrying amounts of these guaranteed notes receivable are $ 55.9 million and $ 41.2 million as of June 30, 2013 and December 31, 2012 , respectively.
The Company monitors the credit quality of both the drawers of the draft 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 June 30, 2013 or December 31, 2012 .
    
NOTE 5.
Net Income Attributable to Company per Share
Basic net income attributable to Company per share has been computed using the weighted average number of WABCO 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”) after assuming that the Company would use the proceeds from the exercise of options to repurchase stock. Anti-dilutive shares, if applicable, are excluded and represent those options and RSU’s whose assumed proceeds were greater than the average price of the Company’s common stock.
 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2013
 
2012
 
2013
 
2012
Weighted average incremental shares included
827,359

 
1,336,790

 
994,808

 
1,542,883

Shares excluded due to anti-dilutive effect
50,296

 
500,765

 
231,000

 
435,080



9


NOTE 6.
Capital Stock
The following is a summary of net shares outstanding and shares issued or reacquired during the six month period ended June 30, 2013 .  
 
Number of Shares of Common Stock
 
Total Shares
 
Treasury Shares
 
Net Shares
Outstanding
Balance, December 31, 2012
75,755,306

 
(13,008,155
)
 
62,747,151

Shares issued upon exercise of stock options
1,213,479

 

 
1,213,479

Shares issued upon vesting of RSUs
111,118

 

 
111,118

Shares purchased for treasury

 
(1,467,865
)
 
(1,467,865
)
Balance, June 30, 2013
77,079,903

 
(14,476,020
)
 
62,603,883

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. 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 and the Company reflects the difference between the average cost paid and the amount received for the reissued shares in capital surplus. As of June 30, 2013 , no shares have been reissued.

On May 26, 2011, the Board of Directors approved the purchase of shares in an amount not to exceed $400 million , which expired on May 31, 2013. On October 26, 2012, the Board of Directors authorized the Company to enter into an additional share repurchase program. This board authorization allows for the repurchase of an additional $400 million of common shares at the discretion of management for a period until December 31, 2014. As of June 30, 2013 , the Company had repurchased shares for a total amount of $ 481.4 million , leaving an unexpended balance of $ 318.6 million available to repurchase shares in the futu re. Subsequent to June 30, 2013 , the Company has repurchased 105,000 additional shares for $ 8.3 million . The Company plans to continue to purchase shares at prevailing market prices. The timing and amount of share repurchases, if any, will depend on a variety of factors, including, among other things, share price, market conditions and applicable regulatory requirements.

NOTE 7.
Stock-Based Compensation
The Company records stock-based compensation based on the estimated fair value of the award at the grant date and recognizes that as an expense in the condensed consolidated statements of income over the requisite service period. Commencing in 2013, the Company has replaced the stock options component of the equity incentive awards with performance stock units, the vesting of which would occur, if at all, and at levels depending upon, the achievement of a three-year cumulative earnings metric. Total stock-based compensation cost recognized during the three and six month periods ended June 30, 2013 and 2012 were as follows:
 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2013
 
2012
 
2013
 
2012
Stock-based compensation
$
3.4

 
$
4.0

 
$
6.6

 
$
7.6

The total number and type of awards granted during the periods presented and the related weighted-average grant-date fair values were as follows:
 
Six Months
Ended June 30, 2013
 
Six Months
Ended June 30, 2012
 
Underlying
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted
Average
Grant Date
Fair Value
 
Underlying
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted
Average
Grant Date
Fair Value
Options Granted

 


 


 
274,505

 
$
58.72

 
$
23.11

RSUs Granted
109,668

 
$

 
$
67.98

 
129,877

 
$

 
$
58.48

PSUs Granted
94,364

 
 
 
68.10

 

 
 
 

Total Awards
204,032

 
 
 
 
 
404,382

 
 
 
 

10


There were no stock options granted in the six months ended June 30, 2013 . In the six months ended June 30, 2012 , a total of 274,505 options were granted of which all are exercisable in equal installments over a period of three years. In the first six months of 2013 , a total of 109,668 RSUs were granted of which 900 vest immediately, 101,814 vest in equal annual installments over a period of three years and 3,068 vest after three years. Of the remaining 3,886 RSUs granted in 2013 66% vest after two years and 34% vest after three years. In the first six months of 2012 , a total of 129,877 RSUs were granted of which 10,027 vest immediately, 101,722 vest in equal annual installments over a period of three years and 12,746 vest after three years. Of the remaining 5,382 RSUs granted in 2012 66% vest after two years and 34% vest after three years.
In the first six months of 2013 , a total of 94,364 PSUs were granted, the vesting of which would occur, if at all, and at levels depending upon, the achievement of a certain three-year cumulative earnings per share goal.
The weighted average grant date fair value for stock options was calculated under the Black-Scholes option-pricing model. The following table summarizes the significant assumptions used for the grants during the six month periods ended June 30, 2013 and 2012 :
Assumption
June 30, 2013
 
June 30, 2012
Risk-free interest rate
N/A
 
0.81
%
Expected volatility
N/A
 
44.48
%
Expected holding period
N/A
 
5 Years

Expected forfeiture rate
N/A
 
2.3
%
Expected dividend yield
N/A
 
%
The risk free interest rate is based on the yield of U.S. Treasury securities that correspond to the expected holding period of the options. WABCO reviewed the historic volatility of its common stock over a four -year period, the common stock of its peer group over a three -year period, and the implied volatility for at-the-money options to purchase shares of its common stock. Based on this data, the Company chose to use a weighted average of the implied volatility of WABCO, the most recent four-year historical volatility of WABCO and the median most recent three -year historical volatility of WABCO’s peer group prior to the spin-off date. The expected holding period was calculated by reviewing the historical exercise pattern of all holders that were granted options and the exercise behavior of officers versus non-officers. The results of the analysis supported one expected holding period for all groups of employees. The expected forfeiture rate was determined based on the historical stock option forfeiture data of the Company.

NOTE 8.
Debt

On July 8, 2011 , the Company entered into a $400 million multi-currency five -year senior unsecured revolving credit facility (the "Facility") with the lenders and agent banks party thereto, including Banc of America Securities Limited as agent, issuing bank and swingline lender, and Banc of America Securities Limited, Citigroup Global Markets Limited, Fortis Bank S.A./N.V., ING Belgium SA/NV, Société Générale Corporate & Investment Banking, The Bank of Tokyo-Mitsubishi UFJ, Ltd and The Royal Bank of Scotland NV, (Belgium) Branch, as mandated lead arrangers and bookrunners and Credit Lyonnais and Unicredit Bank AG as lead arrangers.

As of June 30, 2013 , the Facility is our principal bank credit facility, and it will expire on September 1, 2016 . It replaced the $800 million multi-currency five -year senior unsecured revolving credit facility entered into by WABCO on May 31, 2007 with, among others, J.P. Morgan Securities, Inc. as lead arranger and bookrunner and JPMorgan Chase Bank, N.A., as agent, issuing bank and swingline lender.

Under the Facility, the Company may borrow, on a revolving basis, loans in an aggregate principal amount at any one time outstanding not in excess of $400 million . Up to $50 million under the Facility may be used for issuing letters of credit, of which $ 48.8 million was unused as of June 30, 2013 , and up to $50 million is available in the form of swingline loans, of which $ 50.0 million was unused as of June 30, 2013 . There was no outstanding balance on the Facility as of June 30, 2013 , and the balance of letters of credit issued was $ 1.2 million .

The proceeds of the borrowings under the Facility will be available to repurchase WABCO shares, finance acquisitions, refinance existing indebtedness and meet general financing requirements.

Interest on loans under the Facility will be calculated at a rate per annum equal to an applicable margin, which can vary from 0.80% to 1.55% based on the Company's leverage ratio, plus LIBOR for loans denominated in U.S. Dollars,

11


EURIBOR for loans denominated in Euros, HIBOR for loans denominated in Hong Kong Dollars and SIBOR for loans denominated in Singapore Dollars, plus mandatory costs, if any.

The Facility contains terms and provisions (including representations, covenants and conditions) customary for transactions of this type. Our primary financial covenant is a leverage test which requires net indebtedness not to exceed three times adjusted four quarter trailing EBITDA (earnings before interest, taxes, depreciation and amortization adjusted for certain items). Additional financial covenants include an interest coverage test and a maximum subsidiary indebtedness test. The interest coverage test requires three times interest expense not to exceed adjusted four quarter trailing EBITDA. The maximum subsidiary indebtedness test limits the total aggregate amount of indebtedness of WABCO's subsidiaries, excluding indebtedness under the Facility, to $400 million , of which not more than $150 million may be secured. At June 30, 2013 the Company had the ability to borrow an incremental $ 398.8 million under the Facility and was in compliance with all the covenants.
Financial covenants, as determined on the date the Facility was signed, are not subject to any future changes in U.S. GAAP accounting standards and all cash on the balance sheet can be deducted for net indebtedness purposes. In addition, expenses and payments related to any streamlining of WABCO’s operations are excluded when calculating the four quarter trailing adjusted EBITDA. Other covenants include delivery of financial reports and other information, compliance with laws including environmental laws and permits, ERISA and U.S. regulations, limitations on liens, mergers and sales of assets and change of business.
Also, various subsidiaries had borrowings from banks totaling $ 23.8 million , of which $ 20.2 million relates to our Accounts Receivable Securitization Program referred to in Note 4 above. The remaining $ 3.6 million supports local working capital requirements.

NOTE 9.
Warranties, Guarantees, Commitments and Contingencies
Warranties
Products sold by WABCO 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. To the extent WABCO experiences changes in warranty claim activity or costs associated with servicing those claims, its warranty accrual is adjusted accordingly. Warranty accrual estimates are updated based upon the most current warranty claims information available.
The following is a summary of changes in the Company’s product warranty liability for the three and six month periods ended June 30, 2013 and 2012 (amounts in millions).
 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2013
 
2012
 
2013
 
2012
Balance of warranty costs accrued, beginning of period
$
51.2

 
$
57.7

 
$
55.2

 
$
52.6

Warranty costs accrued
4.9

 
7.6

 
9.8

 
17.5

Warranty claims settled
(6.3
)
 
(9.9
)
 
(13.9
)
 
(15.9
)
Foreign exchange translation effects
0.5

 
(3.3
)
 
(0.8
)
 
(2.1
)
Balance of warranty costs accrued, end of period
$
50.3

 
$
52.1

 
$
50.3

 
$
52.1

Current liability, included in current portion of warranties
$
29.3

 
$
41.0

 
$
29.3

 
$
41.0

Long-term liability, included in other liabilities
$
21.0

 
$
11.1

 
$
21.0

 
$
11.1


12


Guarantees and Commitments
The Company has bank guarantees for $ 25.8 million which is comprised of uncollateralized bank guarantees, of which $ 20.5 million is related to tax and other litigation, $ 1.2 million is related to letters of credit and $ 4.1 million is related to other items.
The Company has inventory and receivables that are pledged against a local bank facility in India to support local working capital requirements of $ 7.5 million . Also, the Company has pledged unsold receivables under the Accounts Receivable Securitization Program of € 10.2 million ($ 13.3 million at June 30, 2013 exchange rates).
Contingencies
General
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.
Litigation
On June 23, 2010, the European Commission (the “Commission”) issued a decision imposing a total of € 326.1 million in fines, or approximately $ 400 million on the date of assessment (the “EC Fine”), on the former American Standard Companies Inc. (now Trane Inc., hereinafter referred to as “American Standard” or “Trane”), and certain of its European subsidiaries engaged in the Bath and Kitchen business and successor entities for infringements of European Union competition rules relating to the distribution of bathroom fixtures and fittings in a number of European countries. Pursuant to our Indemnification and Cooperation Agreement with Trane, WABCO Europe BVBA (an indirect wholly-owned subsidiary of WABCO) is responsible for, and is liable to indemnify Trane Inc. and Ideal Standard International (representing the successor to the Bath and Kitchen business, and owner of certain of the former American Standard subsidiaries) and their owners against the EC Fine.
As required by the Indemnification and Cooperation Agreement, WABCO paid the fine amount into escrow on August 30, 2010, using € 230.0 million of cash on hand and € 96.1 million of additional borrowings. The funds were subsequently released from escrow and paid to the Commission. After reviewing all of the elements of the case, WABCO decided to appeal the decision in order to try to have the fine reduced. On September 8, 2010, WABCO filed its appeal in the General Court of the European Union, located in Luxembourg. On March 27, 2012, the oral hearing for the appeal took place before the court. This was the final step in the procedure before a judgment is handed down. The Company now believes that a decision on the appeal will be made within the next six months.
Other
In conjunction with the Tax Sharing Agreement, as further discussed in "Note 11. Tax and Indemnification Liabilities Transferred from Trane to WABCO", WABCO is responsible for certain tax and indemnification liabilities. These liabilities include indemnification liabilities to Trane of $ 12.8 million as of June 30, 2013 . It is reasonably possible that the Company could incur losses in excess of the amount accrued. Although this amount cannot be estimated, we believe that any additional losses would not have a material adverse impact on the condensed consolidated financial statements.

NOTE 10.
Income Taxes
The income tax expense for the six months ended June 30, 2013 was $ 17.8 million on pretax income of $ 179.6 million before adjusting for noncontrolling interest. Income tax expense is the net result of taxes on earnings in profitable jurisdictions, income offset by fully valued net operating losses, the accrual of interest on uncertain tax positions, and certain foreign tax planning. In addition, the Company recognized a tax benefit of $ 2.4 million during the first quarter due to the impact of U.S. tax legislation enacted in January 2013.
The accompanying June 30, 2013 condensed consolidated balance sheet continues to reflect a full valuation allowance for certain foreign tax loss carryforwards due to a continued cumulative loss position and an uncertain level of earnings in Europe. As a result of anticipated profitability for the year and positive trends in the foreseeable future in Europe, we may release all or a portion of this valuation allowance by the end of 2013. However, the exact timing and amount of the valuation allowance released are subject to change based on the level of profitability that we are able to actually achieve for the

13


year and our visibility into future period results. The potential release of this valuation allowance by the end of 2013 would have a material impact on our recorded tax expense in the period of reversal. We will release this valuation allowance when management determines that it is more likely than not that our deferred tax asset will be realized.
Unrecognized tax benefits at June 30, 2013 amounted to $ 46.1 million related to the WABCO business and $ 1.4 million related to WABCO obligations directly to tax authorities for Trane’s Bath and Kitchen business as further discussed in "Note 11. Tax and Indemnification Liabilities Transferred from Trane to WABCO". Moreover, $ 47.5 million of the unrecognized tax benefits are classified as long-term liabilities. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. No material penalties have been accrued related to these unrecognized tax benefits.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With no material exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2007.

NOTE 11.
Tax and Indemnification Liabilities Transferred from Trane to WABCO
Pursuant to the Tax Sharing Agreement between Trane and WABCO, entered into on July 16, 2007, and other agreements with Trane as filed in WABCO’s Form 10 prior to its spin-off from Trane, WABCO is responsible for certain tax contingencies and indemnification liabilities. As noted in "Note 10. Income Taxes", the liabilities as of June 30, 2013 include $ 1.4 million related to non-U.S. entities of Trane’s former Bath and Kitchen business but for which WABCO entities have obligations directly to non-U.S. tax authorities. In addition, as of June 30, 2013 , the Company had indemnification liabilities of $ 12.8 million which is classified within long-term liabilities on the balance sheet.
During the second quarter of 2013, approximately $ 3.8 million of indemnification liabilities was released in the statement of income due to the settlement of a foreign tax audit.
Under an indemnification agreement, WABCO Brazil is responsible for certain claims related to its business for periods prior to the spin-off of WABCO from American Standard. 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. The estimated total amount of the contingency as of June 30, 2013 is $ 42.6 million including interest. However, based on management’s assessment and 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.

NOTE 12.
Streamlining Expenses
The Company accounts for employee-related streamlining charges as either a one-time benefit arrangement or an ongoing benefit arrangement as appropriate. From time to time the Company also has streamlining charges that are not related to employees, such as facility exit costs.
Based on market declines occurring in the fourth quarter of 2008, we commenced a streamlining program on October 28, 2008 (the “2008/2009 Program”), which began with a consultative process with works councils and employee representatives globally. The 2008/2009 Program reduced our global workforce by approximately 1,800 employees. This level of reduction in workforce brought our capacity in line with market demand, while still allowing us to continue our focus on core strategies, including technology, new products, globalization, and quality and productivity initiatives. We believe the completion of these actions created sufficient flexibility in production and helped us to cope with anticipated demand volatility. The Company does not expect to incur any further charges on the 2008/2009 Program.
Based on the Company’s efforts to maintain our global footprint, the Company will periodically enter into other streamlining programs as deemed necessary (“Other Programs”).
The following is a summary of changes in the Company’s streamlining program liabilities for the six month period ended June 30, 2013 (amounts in millions). Activity for the period consisted primarily of termination payments and employee-related charges.
 

14


2008 / 2009 Program
 
Balance as of December 31, 2012
$
10.2

Charges during the first six months of 2013

Payments during the first six months of 2013
(2.4
)
Balance as of June 30, 2013
$
7.8

Other Programs
 
Balance as of December 31, 2012
$
9.9

Charges during the first six months of 2013
9.8

Payments during the first six months of 2013
(5.1
)
Balance as of June 30, 2013
$
14.6

Foreign exchange translation effects
$

Total streamlining liability as of June 30, 2013
$
22.4

A balance of $ 13.8 million is classified as long term and is included in other liabilities. The remaining $ 8.6 million is classified as short term and is included in other accrued liabilities as of June 30, 2013 .
The following is a summary of current and cumulative streamlining costs.
 
 
Charges for three months
Ended June 30, 2013
 
Charges for six months Ended June 30, 2013
 
Cumulative Charges
as of June 30, 2013
 
2008/2009
Program
 
Other
Programs
 
2008/2009
Program
 
Other
Programs
 
2008/2009
Program
 
Other
Programs
Employee-related charges – cost of sales
$

 
$
0.3

 
$

 
$
3.2

 
$
45.7

 
$
13.2

Employee-related charges – selling and administrative

 
4.3

 

 
6.5

 
45.8

 
16.1

Asset write-offs

 
0.1

 

 
0.1

 

 
1.1

Total program costs
$

 
$
4.7

 
$

 
$
9.8

 
$
91.5

 
$
30.4


NOTE 13.
Post-retirement Benefits
Post-retirement pension, health and life insurance costs had the following components for the three and six month period ended June 30, 2013 and 2012 (amounts in millions):
 
 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2013
 
2013
 
2012
 
2012
 
2013
 
2013
 
2012
 
2012
 
Pension
Benefits
 
Health
& Life
Ins.
Benefits
 
Pension
Benefits
 
Health
& Life
Ins.
Benefits
 
Pension
Benefits
 
Health
& Life
Ins.
Benefits
 
Pension
Benefits
 
Health
& Life
Ins.
Benefits
Service cost-benefits earned during period
$
3.2

 
$

 
$
2.3

 
$

 
$
6.4

 
$

 
$
4.5

 
$

Interest cost on the projected benefit obligation
5.1

 
0.1

 
5.9

 
0.1

 
10.2

 
0.2

 
11.9

 
0.2

Plan amendments

 

 
(4.3
)
 

 

 

 
(4.3
)
 

Less assumed return on plan assets
(2.2
)
 

 
(2.2
)
 

 
(4.5
)
 

 
(4.4
)
 

Amortization of net loss
1.5

 
0.1

 
0.6

 
0.1

 
3.1

 
0.2

 
1.2

 
0.2

Defined benefit plan cost
$
7.6

 
$
0.2

 
$
2.3

 
$
0.2

 
$
15.2

 
$
0.4

 
$
8.9

 
$
0.4


The Company makes contributions to funded pension plans that, at a minimum, meet all statutory funding requirements. Contributions in 2013 , as well as payments of benefits incurred by unfunded plans were in line with the expectations for 2013 and also in line with the contributions made during 2012 .
Defined benefit plan cost is included in selling and administrative expenses and cost of sales on the Condensed Consolidated Statements of Income.

15




NOTE 14.
Derivative Instruments and Hedging Activities

ASC topic 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 relationship hedge. 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 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 consolidated balance sheet. Level 2 inputs used by the Company in valuing its derivative instruments include model-based valuation techniques for which all significant assumptions are observable in the market.
    
The earnings impact resulting from changes in the fair value of derivative instruments is recorded in the same line item in the consolidated statement 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.

Foreign exchange contracts are 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 June 30, 2013 , forward contracts for an aggregate notional amount of € 71.5 million ($ 93.3 million at June 30, 2013 exchange rates) were outstanding with an average duration of one month. These foreign exchange contracts have offset the revaluation of assets and liabilities. The combined net non-operating gain/(loss) for the six months ended June 30, 2013 was $ 0.2 million . The majority of these exchange contracts were entered into on June 27, 2013 . The fair value of the derivatives was $ 0.1 million at June 30, 2013 .


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
    
In the second quarter of 2013 , the production of new trucks and buses greater than six tons declined in most markets, while China and South America experienced significant increases year over year. WABCO’s sales in the same period increased by 6.8% , both on a reported basis and excluding foreign currency translation effects, compared to one year ago.

WABCO's global aftermarket sales increased by 8.1% ( 8.3% excluding foreign currency translation effects) in the second quarter of 2013 . This performance demonstrates the continued success of the Company's aftermarket strategies initiated several years ago.

During the second quarter of 2013 , WABCO's Operating System continued to enable fast and flexible responses to major market changes, delivering $20.7 million of materials and conversion productivity, a record amount for WABCO. Gross materials productivity represented 4.8% of total materials cost, while the impact of commodity inflation reduced net materials productivity to 4.5% . Conversion productivity represented 6.2% , another robust result.
Results of Operations
Approximately 89% 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, gross profit, expenses, pre-tax income and net income attributable to Company for 2013 compared with 2012 are presented both with and without the effects of foreign currency translation. Changes in sales, gross profit, expenses, pre-tax income and net income attributable to Company excluding foreign exchange effects are calculated using current year sales, gross profit, expenses, pre-tax income and net income attributable to Company translated at prior year exchange rates. Presenting changes in sales, gross profit, expenses, pre-tax income and net income attributable to Company 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, gross profit, expenses, pre-tax income and net income attributable to

16

Table of Contents

Company 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. Management believes that presenting these non-U.S. GAAP financial measures is useful to shareholders because it enhances their understanding of how management assesses the operating performance of the Company’s business.
Second Quarter Results of Operations for 2013 Compared with 2012
(amounts in millions)
 
 
Three Months
Ended June 30,
 
 
 
 
 
 
 
Excluding foreign
exchange translation (a)
 
2013
 
2012
 
% change
reported
 
2013
adjusted
amount
 
% change
adjusted
Sales
$
678.2

 
$
635.2

 
6.8
 %
 
$
678.2

 
6.8
 %
Cost of sales
471.6

 
441.5

 
6.8
 %
 
473.4

 
7.2
 %
Gross profit
206.6

 
193.7

 
6.7
 %
 
204.8

 
5.7
 %
Operating expenses
120.2

 
100.9

 
19.1
 %
 
118.9

 
17.8
 %
Operating income
86.4

 
92.8

 
(6.9
)%
 
85.9

 
(7.4
)%
Equity income of unconsolidated joint ventures
5.3

 
4.8

 
10.4
 %
 
5.3

 
10.4
 %
Other non-operating income/(expense), net
4.0

 
(0.6
)
 
*

 
3.8

 
*

Interest expense, net
(0.2
)
 
(0.5
)
 
(60.0
)%
 
(0.2
)
 
(60.0
)%
Income before income taxes
95.5

 
96.5

 
(1.0
)%
 
94.8

 
(1.8
)%
Income tax expense
9.7

 
17.6

 
(44.9
)%
 
9.8

 
(44.3
)%
Net income
85.8

 
78.9

 
8.7
 %
 
85.0

 
7.7
 %
Less: net income attributable to noncontrolling interests
2.6

 
3.3

 
(21.2
)%
 
2.7

 
(18.2
)%
Net income attributable to Company
$
83.2

 
$
75.6

 
10.1
 %
 
$
82.3

 
8.9
 %
* Percentage change not meaningful
 
 
 
 
 
 
 
 
 


(a)
The 2013 amounts adjusted for foreign currency translation were calculated using average exchange rates for the three month period ending June 30, 2012 .
Sales
Our sales for the second quarter of 2013 were $ 678.2 million , an increase of 6.8% ( 6.8% excluding foreign currency translation effects) from $635.2 million in 2012 . The increase, excluding foreign currency translation effects, was predominately driven by increased WABCO content per vehicle, growth in our aftermarket sales and increases in the production of new trucks and buses greater than six tons in China and South America. Total sales in Europe, our largest market, increased approximately 7.4% ( 5.6% excluding foreign currency translation effects) for the second quarter of 2013 , driven mainly by increased WABCO content per vehicle, partially offset by lower levels of truck, bus and trailer production. Total sales decreased 4.0% in North America, despite a nearly 9% decline in commercial vehicle production, due to increased WABCO content per vehicle. Total sales in Asia increased 0.8% ( 5.6% excluding foreign currency translation effects). The sales increase in Asia included an increase of sales in China of 25.9% ( 22.5% excluding foreign currency translation effects) helped by the recovery in commercial vehicle production, an increase in total sales in Korea of 7.4% ( 4.8% excluding foreign currency translation effects), partially offset by a decrease in total sales in Japan of 20.4% ( 2.4% excluding foreign currency translation effects) and a decrease in total sales in India of 13.5% ( 10.6% excluding foreign currency translation effects). Total sales in South America increased 49.9% ( 58.1% excluding foreign currency translation effects) driven by the recovery in production of new trucks and buses in Brazil. WABCO's aftermarket sales, included in the geographic numbers provided above, increased by 8.1% ( 8.3% excluding foreign currency translation effects), as we continued to benefit from the continued success of the Company's aftermarket strategies initiated several years ago.

17

Table of Contents

Cost of Sales and Gross Profit
Our cost of sales for the second quarter of 2013 was $ 471.6 million , an increase of $ 30.1 million ($ 31.9 million excluding foreign currency translation effects) from $ 441.5 million in 2012 . 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 4.8% of material savings, before the 0.3% negative impact of commodity inflation, bringing net materials productivity to 4.5% for the quarter. This productivity achievement resulted in $ 14.3 million of material cost savings. Our second largest expense within the cost of sales is for labor and other costs associated with converting our purchased components and parts into finished goods. Labor and other cost escalations increased conversion costs by approximately $3.5 million , while our productivity efforts generated $6.4 million of savings, or 6.2% of the conversion costs. Warranty expenses were lower compared to the second quarter of 2012 by $1.3 million , driven by an improvement in warranty claims experience. Absorption of overhead and other costs were favorable by $9.2 million versus the prior year. Volume and mix increased cost of sales by $ 48.5 million , but contributed $1.6 million to improvement of gross profit. Sales price reductions had a negative impact of $7.6 million on gross profit, or 1.1% of sales. Streamlining expenses reduced cost of sales by $ 1.6 million . Foreign currency translation effects decreased cost of sales by $ 1.8 million and combined with translation effects on sales they improved gross profit by $ 1.8 million . Foreign currency transaction impacts increased cost of sales by $ 12.7 million and negatively affected gross profit in the amount of $ 12.2 million . The net result of all these changes was an increase in gross profit of $ 12.9 million ($ 11.1 million excluding foreign currency translation effects).
Operating Expenses
Operating expenses, which include selling and administrative expenses, product engineering expenses and other operating expenses, increased by $ 19.3 million ($ 18.0 million excluding foreign currency translation effects). The increase excluding foreign currency translation effects comprises increases in research and development investment of $ 3.1 million , in labor inflation and other costs of $ 2.9 million , in pension costs of $ 4.3 million (due to 2012 reduction in our UK pension obligation), in incentive compensation of $ 5.2 million and in streamlining and separation expenses of $ 2.5 million .
Equity Income of Unconsolidated Joint Ventures
Equity in net income of unconsolidated joint ventures increased by $ 0.5 million to $ 5.3 million in 2013 as compared to $ 4.8 million in 2012 , primarily driven by higher income from our North American joint venture.
Other Non-Operating Income/(Expense), net
The increase in non-operating income of $ 4.6 million compared to an expense of $ 0.6 million in the quarter ended June 30, 2012 was primarily driven by the release of tax indemnification liabilities, due to settlement of a foreign tax audit.
Income Taxes
The income tax expense for the second quarter of 2013 was $ 9.7 million on pre-tax income of $ 95.5 million before adjusting for noncontrolling interest, compared with a provision of $ 17.6 million on a pre-tax income of $ 96.5 million before adjusting for noncontrolling interest in the second quarter of 2012 .
In the three months ended June 30, 2013 and June 30, 2012 the income tax expense is primarily the net result of taxes on earnings in profitable jurisdictions offset by fully valued net operating losses, the accrual of interest on uncertain tax positions, the benefit from the release of an uncertain tax position due to the settlement of a foreign tax audit, and certain foreign tax planning. In addition, the tax expense for the three months ended June 30, 2012 included a tax charge of $2.2 million as a consequence of the settlement of a foreign tax audit and the accrual of interest on uncertain tax positions.

18

Table of Contents

Year to Date Results of Operations for 2013 Compared with 2012
(amounts in millions)
 
 
Six Months
Ended June 30,
 
 
 
 
 
 
 
Excluding foreign
exchange translation (a)
 
2013
 
2012
 
% change
reported
 
2013
adjusted
amount
 
% change
adjusted
Sales
$
1,322.9

 
$
1,292.5

 
2.4
 %
 
$
1,331.3

 
3.0
 %
Cost of sales
918.6

 
902.6

 
1.8
 %
 
927.5

 
2.8
 %
Gross profit
404.3

 
389.9

 
3.7
 %
 
403.8

 
3.6
 %
Operating expenses
236.1

 
207.6

 
13.7
 %
 
235.3

 
13.3
 %
Operating income
168.2

 
182.3

 
(7.7
)%
 
168.5

 
(7.6
)%
Equity income of unconsolidated joint ventures
8.2

 
9.7

 
(15.5
)%
 
8.2

 
(15.5
)%
Other non-operating income/(expense), net
3.7

 
(1.3
)
 
*

 
3.6

 
*

Interest expense, net
(0.5
)
 
(0.8
)
 
(37.5
)%
 
(0.5
)
 
(37.5
)%
Income before income taxes
179.6

 
189.9

 
(5.4
)%
 
179.8

 
(5.3
)%
Income tax expense
17.8

 
19.0

 
(6.3
)%
 
18.3

 
(3.7
)%
Net income
161.8

 
170.9

 
(5.3
)%
 
161.5

 
(5.5
)%
Less: net income attributable to noncontrolling interests
4.9

 
6.1

 
(19.7
)%
 
5.1

 
(16.4
)%
Net income attributable to Company
$
156.9

 
$
164.8

 
(4.8
)%
 
$
156.4

 
(5.1
)%
* Percentage change not meaningful
 
 
 
 
 
 
 
 
 


(a)
The 2013 amounts adjusted for foreign currency translation were calculated using average exchange rates for the six month period ending June 30, 2012 .
Sales
Our sales for the first six months of 2013 were $1,322.9 million , an increase of 2.4% ( 3.0% excluding foreign currency translation effects) from $1,292.5 million in 2012 . The increase, excluding foreign currency translation effects, was predominately driven by increased WABCO content per vehicle and growth in our aftermarket sales, partially offset by a decline in the global production of trucks and buses greater than six tons. Total sales in Europe, our largest market, increased approximately 2.5% ( 1.4% excluding foreign currency translation effects) for the first six months of 2013 , driven mainly by increased WABCO content per vehicle, which more than offset the impact from the decline in production of trucks and buses greater than six tons. Total sales decreased 4.6% in North America, despite a more significant decline in commercial vehicle production, due to increased WABCO content per vehicle. Total sales in Asia decreased 7.4% ( 2.5% excluding foreign currency translation effects). The sales reduction in Asia primarily included a decrease in total sales in India of 24.1% ( 19.6% excluding foreign currency translation effects) and a decrease in total sales in Japan of 22.4% ( 7.4% excluding foreign currency translation effects), partially offset by an increase of sales in China of 14.6% ( 12.3% excluding foreign currency translation effects) and an increase in total sales in Korea of 2.9% (flat excluding foreign currency translation effects). Total sales in South America increased 36.3% ( 48.7% excluding foreign currency translation effects) driven by the recovery in production of new trucks and buses in Brazil as well as increased WABCO content per vehicle. WABCO's aftermarket sales, included in the geographic numbers provided above, increased by 7.7% ( 8.5% excluding foreign currency translation effects), as we continued to benefit from the success of the Company's aftermarket strategies initiated several years ago.

19


Cost of Sales and Gross Profit
Our cost of sales for the first six months of 2013 was $ 918.6 million , an increase of $ 16.0 million ($ 24.9 million excluding foreign currency translation effects) from $ 902.6 million in 2012 . 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 4.9% of material savings before the 0.4% negative impact of commodity inflation, bringing net materials productivity to 4.5% for the first six months of 2013. This productivity achievement resulted in $ 27.0 million of material cost savings. Our second largest expense within the cost of sales is for labor and other costs associated with converting our purchased components and parts into finished goods. Labor and other cost escalations increased conversion costs by approximately $ 7.0 million , while our productivity efforts generated $ 12.5 million of savings, or 6.1% of the conversion costs. Warranty expenses were lower compared to the first six months 2012 by $ 6.3 million driven by an improvement in warranty claims experience. Absorption of overhead and other costs were favorable by $ 16.0 million versus the prior year. Volume and mix increased cost of sales by $ 62.9 million , but contributed $ 10.7 million to the decline of gross profit. Sales price reductions had a negative impact of $ 14.0 million on gross profit, or 1.0% of sales. Streamlining expenses added $ 1.3 million to cost of sales. Foreign currency translation effects decreased cost of sales by $ 8.9 million and combined with translation effects on sales they positively affected gross profit in the amount of $ 0.5 million . Foreign currency transaction impacts increased cost of sales by $ 15.5 million and negatively impacted gross profit by $ 14.9 million . The net result of all these changes was an increase in gross profit of $ 14.4 million ($ 13.9 million excluding foreign currency translation effects).
Operating Expenses
Operating expenses, which include selling and administrative expenses, product engineering expenses and other operating expenses, increased by $ 28.5 million ($ 27.7 million excluding foreign currency translation effects). The increase excluding foreign currency translation effects comprises increases in research and development investment of $ 7.3 million , in labor inflation and other costs of $ 6.3 million , in pension costs of $ 4.3 million (due to 2012 reduction in our UK pension obligation), in incentive compensation of $ 6.1 million and in streamlining and separation expenses of $ 3.7 million .
Equity Income of Unconsolidated Joint Ventures
Equity in net income of unconsolidated joint ventures decreased by $ 1.5 million to $ 8.2 million in 2013 as compared to $ 9.7 million in 2012 , driven by lower income from our North American and South African joint ventures.
Other Non-Operating Income/(Expense), net
The increase in non-operating income of $ 5.0 million compared to an expense of $ 1.3 million in the six months ended June 30, 2012 was primarily driven by the release of tax indemnification liabilities, due to settlement of a foreign tax audit.
Income Taxes
The income tax expense for the first six months of 2013 was $ 17.8 million on pre-tax income of $ 179.6 million before adjusting for noncontrolling interest, compared with a provision of $ 19.0 million on a pre-tax income of $ 189.9 million before adjusting for noncontrolling interest in the first six months of 2012 .
In the six months ended June 30, 2013 and June 30, 2012 the income tax expense is primarily the net result of taxes on earnings in profitable jurisdictions offset by fully valued net operating losses, the accrual of interest on uncertain tax positions, the benefit from the release of an uncertain tax position due to the settlement of a foreign tax audit, and certain foreign tax planning. In addition, the income tax expense for the first six months ended June 30, 2013 is partially offset by a tax benefit of $ 2.4 million due to the impact of U.S. tax legislation enacted in January 2013. Also, the tax expense for the first six months ended June 30, 2012 was largely offset by the release of tax accruals of approximately $ 13.6 million due to certain government filings submitted in January 2012.

Liquidity and Capital Resources
We employ several means to manage our liquidity, and we are not dependent upon any one source of funding. Our sources of financing include cash flows from operations, cash and cash equivalents, the Revolving Credit Facility, the Accounts Receivable Securitization Program and the use of operating leases.

20


Cash Flows for the Six Months Ended June 30, 2013
Net cash provided by operating activities was $ 156.1 million for the first six months of 2013 . This compared with net cash provided by operating activities of $ 169.5 million for the first six months of 2012 .
The Company recorded net income of $161.8 million for the first six months of 2013 compared with net income of $ 170.9 million for the first six months of 2012 . Net income attributable to the Company for the first six months of 2013 included noncash elements such as depreciation and amortization of $ 43.2 million . Our working capital increased due to an increase in business activity as well as from seasonal activity. This resulted in a higher level of accounts receivable and to a lesser extent inventory, partially offset by a higher level of accounts payable. Working capital increase of $ 28.0 million for the six months ended June 30, 2013 was however only slightly higher than the $ 27.5 million increase for the six months ended June 30, 2012 .
Other accrued liabilities and taxes increased $ 2.1 million for the first six months of 2013 compared to a decrease of $ 9.1 million for the first six months of 2012 . The major drivers of this change were accruals for incentive compensation and payroll related items, partially offset by a decrease in the short term portion of our warranty accruals and decreases of end of the period accruals for invoices not received. Other current and long-term assets for the first six months of 2013 increased $ 26.0 million compared to a decrease of $ 14.4 million for the first six months of 2012 . The main drivers of this change were increases in notes receivable from our Chinese operations and an increase in the subordinated account under our Accounts Receivables Securitization Program. Other long-term liabilities for the first six months of 2013 decreased $ 3.7 million compared to a decrease of $ 20.2 million for the first six months of 2012 , and the main driver of this change was the payment and release of the remaining accrual for tax indemnification liabilities due to the settlement of a foreign tax audit.
The net cash used in investing activities amounted to $ 41.0 million in the first six months of 2013 compared to net cash used in investing activities of $ 40.6 million in the first six months of 2012 . The net cash usage for 2013 includes capital expenditures of $ 17.2 million of investments in tooling, $ 16.6 million in plant and equipment and $ 7.2 million in software. This compared with $ 19.5 million of investments in tooling, $ 16.5 million in plant and equipment and $ 4.6 million in software during the first six months of 2012 .
The net cash used by financing activities during the first six months of 2013 amounted to $ 119.4 million compared to net cash used by financing activities of $ 77.8 million during the first six months of 2012 .
Our total third party debt was $ 23.8 million as of June 30, 2013 compared to $ 87.7 million as of June 30, 2012 . The decrease during the first six months of 2013 is primarily driven by repayments of the revolving credit facility.
We received $ 35.7 million of stock option proceeds during 2013 compared with $ 14.2 million in 2012 . The number of stock options exercised in the first six months of 2013 and 2012 were 1,213,479 and 777,638 , respectively.

On May 26, 2011, the Board of Directors approved the purchase of shares in an amount not to exceed $400 million, which expired on May 31, 2013. On October 26, 2012, the Board of Directors authorized the Company to enter into an additional share repurchase program. This board authorization allows for the repurchase of an additional $400 million of common shares at the discretion of management for a period until December 31, 2014. During the first six months of 2013 , the Company repurchased shares for a total amount of $ 102.0 million of which $ 3.8 million was not settled until after June 30, 2013 . As of June 30, 2013 , the Company had repurchased shares for a total amount of $ 481.4 million and had the authority to make an additional $ 318.6 million of share repurchases.
Credit Facility
On July 8, 2011 , the Company entered into a $400 million multi-currency five -year senior unsecured revolving credit facility (the "Facility") with the lenders and agent banks party thereto, including Banc of America Securities Limited as agent, issuing bank and swingline lender, and Banc of America Securities Limited, Citigroup Global Markets Limited, Fortis Bank S.A./N.V., ING Belgium SA/NV, Société Générale Corporate & Investment Banking, The Bank of Tokyo-Mitsubishi UFJ, Ltd and The Royal Bank of Scotland NV, (Belgium) Branch, as mandated lead arrangers and bookrunners and Credit Lyonnais and Unicredit Bank AG as lead arrangers.

As of June 30, 2013 , the Facility is our principal bank credit facility, and it will expire on September 1, 2016 . It replaced the $800 million multi-currency five -year senior unsecured revolving credit facility entered into by WABCO on May 31, 2007 with, among others, J.P. Morgan Securities, Inc. as lead arranger and bookrunner and JPMorgan Chase Bank, N.A., as agent, issuing bank and swingline lender.


21


Under the Facility, the Company may borrow, on a revolving basis, loans in an aggregate principal amount at any one time outstanding not in excess of $400 million . Up to $50 million under the Facility may be used for issuing letters of credit, of which $ 48.8 million was unused as of June 30, 2013 , and up to $50 million is available in the form of swingline loans, of which $ 50.0 million was unused as of June 30, 2013 . There was no outstanding balance on the Facility as of June 30, 2013 , and the balance of letters of credit issued was $ 1.2 million .
 
The proceeds of the borrowings under the Facility will be available to repurchase WABCO shares, finance acquisitions, refinance existing indebtedness and meet general financing requirements.

Interest on loans under the Facility will be calculated at a rate per annum equal to an applicable margin, which can vary from 0.80% to 1.55% based on the Company's leverage ratio, plus LIBOR for loans denominated in U.S. Dollars, EURIBOR for loans denominated in Euros, HIBOR for loans denominated in Hong Kong Dollars and SIBOR for loans denominated in Singapore Dollars, plus mandatory costs, if any.

The Facility contains terms and provisions (including representations, covenants and conditions) customary for transactions of this type. Our primary financial covenant is a leverage test which requires net indebtedness not to exceed three times adjusted four quarter trailing EBITDA (earnings before interest, taxes, depreciation and amortization adjusted for certain items). Additional financial covenants include an interest coverage test and a maximum subsidiary indebtedness test. The interest coverage test requires three times interest expense not to exceed adjusted four quarter trailing EBITDA. The maximum subsidiary indebtedness test limits the total aggregate amount of indebtedness of WABCO's subsidiaries, excluding indebtedness under the Facility, to $400 million, of which not more than $150 million may be secured. At June 30, 2013 the Company had the ability to borrow an incremental $ 398.8 million under our principal credit facility and was in compliance with all the covenants.    

Financial covenants are not subject to any future changes in U.S. GAAP accounting standards and all cash on the balance sheet can be deducted for net indebtedness purposes. In addition, expenses and payments related to any streamlining of WABCO’s operations are excluded when calculating the four quarter trailing adjusted EBITDA. Other covenants include delivery of financial reports and other information, compliance with laws including environmental laws and permits, ERISA and U.S. regulations, limitations on liens, mergers and sales of assets and change of business.

Also, various subsidiaries had borrowings from banks totaling $ 23.8 million , of which $ 20.2 million relates to our Accounts Receivable Securitization Program referred to in Note 4 above. The remaining $ 3.6 million supports local working capital requirements.
Accounts Receivable Securitization Program
As discussed above, we have the ability to use our Accounts Receivable Securitization Program as one of several means to manage our liquidity. Under the terms of the Accounts Receivable Securitization Program that we entered into with Société Générale on September 23, 2009, we have the ability to sell our accounts receivable directly to Société Générale. The maximum funding from receivables that may be sold into the Accounts Receivable Securitization Program and outstanding at any point in time is €80 million; however, there can be no assurance that the Company will generate sufficient eligible receivables to access the maximum availability. The original term of the Accounts Receivable Securitization Program was for one year, with the possibility of four additional annual extensions, assuming the Company and the participating sellers are in compliance with the applicable covenants. The Company extended the Receivables Program in September 2012 for one additional year.
During the six months ended June 30, 2013 , the Company sold all of its eligible receivables into the Accounts Receivable Securitization Program. The receivables were removed from the balance sheet in accordance with the guidance under ASC topic 860, Transfers and Servicing . The total amount of receivables sold under the Accounts Receivable Securitization Program during the six months ended June 30, 2013 was € 381.6 million ($ 501.2 million at weighted average June 30, 2013 year-to-date exchange rates). The amount of eligible receivables sold and outstanding at June 30, 2013 amounted to € 76.6 million ($ 99.9 million at June 30, 2013 exchange rates). As a result of the sale, accounts receivable decreased by $ 99.9 million and cash and cash equivalents increased by $ 59.7 million . The remaining amount of proceeds of $ 40.2 million is a subordinated deposit with Société Générale Bank Nederland N.V. at June 30, 2013 .
The fair value of the receivables sold equaled the carrying cost at time of sale, and no gain or loss was recorded as a result of the sale. The Company estimated the fair value of sold receivables using Level 3 inputs and based the estimate on historical and anticipated performance of similar receivables, including historical and anticipated credit losses (if any). As part of the Accounts Receivable Securitization Program, the Company continues to service the receivables. The Company sells the

22


receivables at face value, but receives actual funding net of the subordinated deposit account until collections are received from customers for the receivables sold. The Company is exposed to the credit losses of sold receivables up to the amount of its subordinated deposit account at each settlement date. Credit losses for receivables sold and past due amounts outstanding at June 30, 2013 were both immaterial. Servicing fees for the program were $ 0.4 million for the six months ended June 30, 2013 .
Factoring Program
On April 15, 2009, we entered into a €35 million factoring program, which has a term of five years, with respect to accounts receivable from one of our customers. To date, we have not utilized this program.
Derivative Instruments and Hedging Activities

The Company recognizes all derivative financial instruments in the 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 consolidated balance sheet. Level 2 inputs used by the Company in valuing its derivative instruments include model-based valuation techniques for which all significant assumptions are observable in the market. The earnings impact resulting from changes in the fair value of derivative instruments is recorded in the same line item in the consolidated statement 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.

Foreign exchange contracts are 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 June 30, 2013 , forward contracts for an aggregate notional amount of € 71.5 million ($ 93.3 million at June 30, 2013 exchange rates) were outstanding with an average duration of one month. These foreign exchange contracts have offset the revaluation of assets and liabilities and result in a net non-operating gain/(loss) of $ 0.2 million as per June 30, 2013 . The majority of these exchange contracts were entered into on June 27, 2013 . The fair value of the derivatives was $ 0.1 million as of June 30, 2013 .
Off-Balance Sheet Arrangements
Please see the disclosure above in “Accounts Receivable Securitization Program.”
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, 2012 disclosed in the Annual Report on Form 10-K. There have been no other material changes to those obligations since December 31, 2012 .
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 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,” “plans,” “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.” 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;

23


adverse developments in the business of our key customers;
periodic changes to contingent liabilities, including those associated with litigation matters and government investigations;
our ability to access credit markets or capital markets on a favorable basis or at all;
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;
unpredictable difficulties or delays in the development of new product technology;
pricing changes to our supplies or products or those of our competitors, and other competitive pressures on pricing and sales;
our ability to receive component parts from our suppliers;
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 or to realize benefits from completed acquisitions;
our inability to implement our growth plan;
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;
labor relations; and
risks inherent in operating in foreign countries, including exposure to local economic conditions, government regulation, currency restrictions and other restraints, changes in tax laws, expropriation, political instability and diminished ability to legally enforce our contractual rights.
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. Management’s Discussion and Analysis and Notes 2 and 14 to the Consolidated Financial Statements for the year ended December 31, 2012  in the Company’s Annual Report on Form 10-K, describe 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 six months of 2013 .

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, 2012 made in the Company’s Annual Report on Form 10-K.


24

Table of Contents

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.
There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

25

Table of Contents

PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
These are further described in "Note 9. Warranties, Guarantees, Commitments and Contingencies."

Item 1A.
Risk Factors
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, 2012 .

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

The Company's Board of Directors has approved two programs to purchase shares of the Company's common stock. A summary of the repurchase activity for the first six months of 2013 follows:

ISSUER PURCHASES OF EQUITY SECURITIES

Period
 
Total Number of Shares Purchased
Average price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a)
 
 
 
 
 
 
Total through December 31, 2012
 
7,051,349

$
53.82

7,051,349

$
420,555,846

 
 
 
 
 
 
January 1 - January 31
 
10,000

$
62.54

10,000

$419,930,456
February 1 - February 28
 
226,603

$
67.93

226,603

$404,537,006
March 1 - March 31
 
509,144

$
70.56

509,144

$368,613,986
Total first quarter
 
745,747

$
69.65

745,747

$368,613,986
 
 
 
 
 
 
Total through March 31, 2013
 
7,797,096

$
55.33

7,797,096

$368,613,986
 
 
 
 
 
 
April 1 - April 30
 
469,018

$
66.59

469,018

$337,380,432
May 1 - May 31
 

$


$337,380,432
June 1 - June 30
 
253,100

$
74.32

253,100

$318,570,675
Total second quarter
 
722,118

$
69.30

722,118

$318,570,675
 
 
 
 
 
 
Total through June 30, 2013
 
8,519,214

$
56.52

8,519,214

$318,570,675
 
 
 
 
 
 
(a) On May 26, 2011, the Board of Directors approved the purchase of shares in an amount not to exceed $400 million, which expired on May 31, 2013. On October 26, 2012, the Board of Directors authorized the Company to enter into an additional share repurchase program. This board authorization allows for the repurchase of a further $400 million of common shares at the discretion of management for a period until December 31, 2014.
The unexpended balance of $ 318.6 million under that authorization as of June 30, 2013 will continue to be used to repurchase shares in the future.
All share repurchases were effected in accordance with the safe harbor provisions of Rule 10b-18 of the Exchange Act.

Item 6.
Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as part of this quarterly report on Form 10-Q.


26

Table of Contents

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 /    JASON CAMPBELL
Jason Campbell
Vice President and Controller
(Principal Accounting Officer)
July 26, 2013

27

Table of Contents

WABCO HOLDINGS INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
(The File Number of the Registrant, WABCO Holdings Inc., is 1-33332)
 
Exhibit
No.
 
Description
10.1
Amended and Restated WABCO Holdings Inc. 2009 Omnibus Incentive Plan (incorporated by reference to Appendix C to the Company’s definitive proxy statement on Schedule 14A filed with the Securities and Exchange Commission on April 19, 2013).

10.2
Form of Deferred Stock Unit Award Agreement for Directors
31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following financial information from WABCO Holdings, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2013, filed with the SEC on July 26, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income for the three and six month periods ended June 30, 2013 and 2012, (ii) the Condensed Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2013 and 2012, (iii) the Condensed Consolidated Balance Sheet at June 30, 2013 and December 31, 2012, (iv) the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2013 and 2012 and (v) Notes to Consolidated Financial Statements.*
 
 
 
 
 
 
 
 
*
Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings.

28





DIRECTOR DEFERRED STOCK UNIT AWARD AGREEMENT UNDER THE WABCO HOLDINGS INC. 2009 OMNIBUS INCENTIVE PLAN


Name of Grantee:
 
Number of Shares Subject to DSUs:
 
Grant Date
 

This Deferred Stock Unit Award Agreement (the “Agreement”) is between WABCO Holdings Inc. (the “Company”), and the Grantee named above, as a non-employee director of the Company. Capitalized terms used but not defined herein shall have the meanings set forth in the Plan.
WHEREAS , the Compensation, Nominating and Governance Committee of the Company's Board of Directors (the “Committee”) authorized the grant of Common Stock on a deferred basis (the “DSUs”) pursuant to the terms of the Company's 2009 Omnibus Incentive Plan (as it may be amended from time to time, the “Plan”);
WHEREAS , the Plan allows for the grant of Common Stock pursuant to Incentive Awards, as defined in Section 2.1(v) of the Plan; and
WHEREAS , the Committee has determined to issue DSUs to the Grantee as set forth below (the “Award”).
NOW THEREFORE , for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Grantee hereby agree as follows:
1.
Issuance of Common Stock.
The Company shall issue to the Grantee, within ten (10) days after the earlier of (a) the Grantee's death or Disability (as defined below), (b) [ ] (i.e., the 13th month anniversary of the Grant Date), (c) the Grantee's “separation from service” (within the meaning of Section 409A of the Code) from the Company or (d) a Change in Control, the full number of shares of Common Stock subject to the DSUs, subject to the terms of this Agreement and the Plan. In lieu of receiving such shares on the date set forth in (b) above, the Grantee may elect to defer the issuance of shares of Common Stock payable with respect to the DSUs for at least an additional five years (i.e., to at least [ ]). Any such election must be made not later than [ ] pursuant to a payment election form provided by the Company. A Grantee who submits an election form will have no right to accelerate or further defer a deferred distribution of Common Stock deliverable upon the settlement of the DSUs.

2.
Dividend Equivalent Right.
Subject to the restrictions, limitations and conditions as described in the Plan, the Company also grants to the Grantee Dividend Equivalents (under Section 8 of the Plan) with respect to the shares of Common Stock underlying the DSUs. Any Dividend Equivalents credited with respect to shares of Common Stock underlying the DSUs shall be paid in cash (without interest) at the same time as the underlying shares of Common Stock to which the Dividend Equivalents relate are distributed to the Grantee under Paragraph 1 above.


BST99 1650249-2.080136.0012                                          1 out of 3



3.
Taxes.
The Grantee is personally responsible for the proper reporting and payment of all taxes related to shares of Common Stock distributed with respect to DSUs and the Dividend Equivalents.

4.
Death; Disability.
Any Shares that are issued to the Grantee on account of the Grantee's death shall be issued to the beneficiary previously designated by the Grantee and communicated in writing to the Company, or, if the Grantee has not designated a beneficiary, to the Grantee's estate.

For purposes of this Agreement, “Disability” means the Grantee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months.

5.
Change in Control.
No shares of Common Stock shall be issuable to the Grantee upon a Change in Control unless such Change in Control is also a “change in the ownership or effective control of the corporation or in the ownership of a substantial portion of the assets of the corporation” within the meaning of Section 409A of the Code.

6.
Conformity with the Plan.
This Award is intended to conform in all respects with, and is subject to, all applicable provisions of the Plan. The DSUs granted under this Agreement constitute an Incentive Award within the meaning of Section 2.1(v). Any conflicts or inconsistencies between this Award and the Plan shall be resolved in accordance with the terms of the Plan. The Grantee agrees to be bound by all of the terms of this Award and the Plan.

7.
Rights as a Shareholder.
Except for the right to receive Dividend Equivalents as set forth in Paragraph 2 of this Agreement, the Grantee shall have no rights as a shareholder of the Company with respect to any DSUs covered by this Award until such time as shares of Common Stock in respect of such DSUs are issued to the Grantee.

8.
Section 409A.
It is intended that this Award will comply with the requirements of Section 409A of the Code. This Paragraph 8 does not create an obligation on the part of the Company to modify the Plan or this Agreement and does not guarantee that the DSUs or the shares of Common Stock delivered hereunder will not be subject to taxes, interest and penalties under Section 409A of the Code. The Grantee shall be responsible for all of the Grantee's federal, state and local taxes (and any related liabilities).
9.
Restrictions on Transfer.
Notwithstanding anything to the contrary in this Agreement, the DSUs may not be sold, assigned, transferred, pledged, or otherwise encumbered by the Grantee. No transfer by will or the applicable laws of descent and distribution of any shares of Common Stock which are payable to the Grantee upon settlement of the DSUs by reason of the Grantee's death shall be effective to bind the Company unless the Committee shall have been furnished with written notice of such transfer and a copy of the will or such other evidence as the Committee may deem necessary to establish the validity of the transfer.

BST99 1650249-2.080136.0012                                          2 out of 3



10.
Compensation Recovery Policy . This Award shall, at all times, be subject to the Company's Compensation Recovery Policy, as may be in effect from time to time.
11.
Securities Matters.
The Company shall not be required to issue or deliver any shares of Common Stock until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied. The Grantee acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the DSUs are granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
12.
Entire Agreement.
This Award constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Award.

13.
Amendment.
This Award may be modified, amended or rescinded only by a written agreement executed by both parties' signatories to this Award.


[THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]


IN WITNESS WHEREOF, this Agreement is effective as of the Grant Date set forth on the cover page of this Agreement.



[__________________]


____________________________________          _____________________
By:                                  Date
Its:


By signing below, the Grantee acknowledges receipt of a copy of this entire Award and a copy of the Plan.


_____________________________________          _____________________
Signature                                  Date



_____________________________________
Print Name




BST99 1650249-2.080136.0012                                          3 out of 3


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: July 26, 2013
/s/ Jacques Esculier
Jacques Esculier
Chief Executive Officer and Chairman of the Board




Exhibit 31.2
CERTIFICATIONS
I, Ulrich Michel, 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: July 26, 2013
/s/ Ulrich Michel
Ulrich Michel
Chief Financial Officer




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 June 30, 2013 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: July 26, 2013




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 June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ulrich Michel, the Chief Financial Officer 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/ Ulrich Michel
Ulrich Michel
Chief Financial Officer
Dated: July 26, 2013