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

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, including normal recurring items, considered necessary for a fair presentation of financial data have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the entire year. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes for the year ended December 31, 2018,2019, included in the Company’s Annual Report on Form 10-K.

As previously announced, onOn March 28, 2019, WABCO entered into an Agreement (the Merger Agreement) and Plan of Merger (the Merger Agreement) with ZF Friedrichshafen AG (ZF), a stock corporation organized and existing under the laws of the Federal Republic of Germany, and Verona Merger Sub Corp., a Delaware corporation and indirect wholly owned subsidiary of ZF, pursuant to which ZF will acquire 100% of the issued and outstanding shares of WABCO common stock (the Merger). ConsummationThe Merger Agreement was adopted by WABCO’s shareholders at the June 27, 2019 special meeting of shareholders, whereby holders representing 68.4% of the Company’s outstanding shares voted in favor of adopting the Merger Agreement. All approvals from regulatory authorities required to close the Merger have been received with the exception of the Chinese State Administration for Market Regulation (SAMR). The consummation of the Merger isremains subject to approval by WABCO’s shareholders, customary closing conditions and the remaining regulatory approvalsapproval from the Chinese SAMR. In connection with the Antitrust Division of the United States Department of Justice's review of the Merger and is expected to close in early 2020. Duepursuant to the pending Merger,settlement order approved by the U.S. District Court for the District of Columbia, WABCO is divesting the Company's steering components business, R.H. Sheppard Co., Inc., for which the Company has suspended previously announced changesentered into a definitive agreement to its internal reporting. sell on January 30, 2020. The closing of the divestiture is subject to the consummation of the Merger and other customary closing conditions.

The Company will maintain its current internal reportinghas incurred $3.5 million and $4.1 million of costs related to the Merger and the divestiture of Sheppard for the three months ended March 31, 2020 and 2019, respectively, primarily for legal and financial advisory services that are included in selling, general and administrative expenses.

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 continue to operate as onemake decisions about resource allocations, the Company has concluded that WABCO has 1 reportable segment.

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Management believes the most complex and sensitive judgments, because of their significance to the condensed consolidated financial statements, result primarily from the need to make estimates

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

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

The following table presents product sales disaggregated by end-market:

The following table presents product sales disaggregated by geography, based on the billing addresses of customers:

Timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to performance obligations to be satisfied in the future. Contract assets and contract liabilities were not material as of March 31, 20192020 and December 31, 2018.2019.

The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 20192020 and 20182019 were not material. The Company has elected to apply the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

The Company holds guaranteed notes receivable from reputable state owned and public enterprises in China that are settled through bankers acceptance drafts, which are registered and endorsed to the Company. These notes receivable are fully guaranteed by banks and generally have contractual maturities of six months or less, but the ultimate recourse remains against the trade debtor.

The Company monitors the credit quality of both the drawers of the drafts and guarantors on a monthly basis by reviewing various factors such as payment history, level of state involvement in the institution, size, national importance as well as current economic conditions in China. Since theThe Company hasis 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 aand, as discussed in Note 6, the expected credit loss related to the guaranteed notes receivable as of March 31, 2020 was immaterial. No loss provision against these receivables was established as of MarchDecember 31, 2019 or December 31, 2018.as the Company has not experienced any historical losses.

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

Anti-dilutive shares, if applicable, are excluded and represent those options, RSUs, DSUs and PSUs whose assumed proceeds were greater than the average price of the Company’s common stock.

The Company accounts for purchases of treasury stock under the cost method with the costs of such share purchases reflected in treasury stock in the accompanying condensed consolidated balance sheets. Upon the exercise or vesting of an equity incentive award, the Company may reissue shares from treasury stock or may elect to issue new shares. When treasury shares are reissued, they are recorded at the average cost of the treasury shares acquired since the inception of the share buy back programs, net of shares previously reissued. Gains on the reissuance of treasury shares are recorded as capital surplus. Losses on the reissuance of treasury shares are charged to capital surplus to the extent of previous gains recorded, and to retained earnings for any losses in excess. The Company has reissued, on a cumulative basis, a total of 145,245172,722 treasury shares related to certain employee vestings under its equity incentive program through March 31, 2019.2020.

On December 7, 2018, the Board of Directors authorized the repurchase of shares of common stock for an amount of $600.0 million through December 31, 2020. As of March 31, 20192020, the Company has purchased 272,000 shares for $30.6 million and has $569.4 million remaining under this repurchase authorization. TheThere was no repurchase activity for the first three months of 2020 as the Company has suspended its share repurchase program due to the

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

As part of its equity incentive program, the Company grants PSUs, the vesting of which would occur, if at all, and at levels that depend upon the achievement of three-year cumulative goals tied to earnings per share.earnings. The Company assesses the expected achievement levels at the end of each reporting period. The grant date fair value of the number of awards expected to vest based on the Company’s best estimate of ultimate performance against the respective targets is recognized as compensation expense on a straight-line basis over the requisite vesting period of the awards. As of March 31, 2019,2020, the Company believes it is probable that the performance conditions will be met and has recognizedaccrued for compensation expense accordingly.on the PSUs based on the expected achievement levels for the outstanding awards.

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

Total stock-based compensation cost recognized during the three month periods ended March 31, 20192020 and 20182019 was as follows:

The total number and type of awards granted during the periods presented and the related weighted-average grant-date fair values were as follows:

The RSUs granted during the periods presented above have vesting terms as follow:vest in equal annual installments over three years.

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

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

As of March 31, 2019,2020, the outstanding debt balance net of unamortized debt issuance costs was €299.2€299.4 million ($335.9329.9 million at March 31, 20192020 exchange rates) of which €100.0 million ($112.3110.2 million at March 31, 20192020 exchange rates) was used for the recapitalization of affiliated entities. The remaining proceeds will be utilizedwere used to meet general financing requirements.fund the acquisition of the distribution rights from Meritor as discussed in Note 19.

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

The Schuldschein Loans contain customary affirmative and negative covenants, and financial covenants consisting of a consolidated net indebtedness to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization adjusted for certain items) ratio of not more than three times at the end of each fiscal quarter based upon the preceding twelve consecutive months, as well as a consolidated EBITDA to consolidated net interest expense ratio of not less than three times at the end of each fiscal quarter based upon the preceding twelve consecutive months. The Company was in compliance with all of the covenants as of March 31, 2019.2020.

On November 15, 2016, the Company issued an aggregate amount of €440 million of senior unsecured notes (collectively, the Senior EUR Notes) as follows:

The Company paid approximately $1.4 million of debt issuance costs in connection with the Senior EUR Notes, which has been presented in the condensed consolidated balance sheets as a direct reduction of the related debt liability. Interest on the Senior EUR Notes is payable semi-annually on January 1 and July 1 of each year, and commenced on July 1, 2017. As of March 31, 2019,2020, the outstanding debt balance net of unamortized debt issuance costs was €439.0€439.2 million ($492.8483.9 million at March 31, 20192020 exchange rates). This debt balance included a revaluation loss of $16.0$8.9 million, net of taxes of $6.1$4.1 million, that has been recognized in cumulative translation adjustment within accumulated other comprehensive income. See Note 4 for further discussion.

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

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

The EUR Note Purchase Agreement contains customary affirmative and negative covenants, and financial covenants consisting of a consolidated net indebtedness to consolidated EBITDA ratio of not more than three times at the end of each fiscal quarter based upon the preceding twelve consecutive months, as well as a consolidated EBITDA to consolidated net interest expense ratio of not less than three times at the end of each fiscal quarter based upon the preceding twelve consecutive months. The EUR Note Purchase Agreement also provides for customary events of default, the occurrence of which could result in an acceleration of the Company's obligations under the EUR Note Purchase Agreement. The Company was in compliance with all of the covenants as of March 31, 2019.2020.

Effective June 28, 2018, the Company amended its existing multi–currency unsecured revolving credit facility, increasing the maximum principal amount of borrowings under the facility from $400 million (the 2015 Facility) to $600 million (the 2018 Facility), with an option to increase up to an additional $250.0$250 million. The 2018 Facility also extended the previously scheduled maturity date of September 30, 2022 for the 2015 Facilityour revolving credit facility to June 28, 2023, subject to two2 one–year extension options. Concurrent with entering intooptions of which the 2018 Facility,first one was exercised on May 28, 2019 and extended the Company also terminated the $100 million multi-currency five-year unsecured revolving credit facility (the 2014 Facility) that was duematurity date to expire on December 17, 2019.June 28, 2024.

AtAs of March 31, 2020 and December 31, 2019, there was $84.2 millionwere 0 outstanding underborrowings on the 2018 Facility and thererevolving credit facility. There were also no outstanding letters of credit or swing line loans. There were no borrowings, letters of credit or swing line loans outstanding as of December 31, 2018. The proceeds from borrowings under the 2018 Facility are available to fund finance acquisitions, provide working capital and for other general corporate purposes.

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

As of March 31, 2020 and December 31, 2019, the Company's various subsidiariesCompany had 0 additional borrowings from banks totaling $0.4 million, of which $0.3 million was classified as long-term debt. The remaining $0.1 million supports local working capital requirements. This is in comparison to $0.5 million as of December 31, 2018 which was fully classified as long-term debt.banks.

The Company has operating leases for warehouses, corporate offices, cars, forklifts and certain equipment. On January 1, 2019, the Company adopted the accounting and transition guidance in ASC 842 for its operating leases resulting in the recognition of operatingequipment with lease right-of-use (ROU) assets and lease liabilities on the effective date. The Company measures ROU assets throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. The lease liabilities are measured at the present value of the unpaid lease payments at the lease commencement date. Leases that include both lease and non-lease components are accounted for as a single lease component for each asset class.

The Company has uncollateralized bank guarantees for $29.0$23.9 million, of which $17.3$13.2 million is related to statutorily-required guarantees for tax and other litigation, $3.0$2.9 million is related to letters of credit, and $8.7$7.8 million is related to other individually immaterial items.

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

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

As previously disclosed, this includes one1 particular case for which an accrual of BRL 39.038.9 million including interest ($9.97.5 million based on March 31, 20192020 exchange rates) was recorded based on management's assessment after considering advice of external legal counsel with respect to the likelihood of loss in this case. A corresponding deposit was made in the first quarter of 2017 into an escrow account with the Brazilian government, representing substantially all of the potential liability for the case. In March 2018, our appeal to have this case heard at the Brazilian Superior Court of Justice (the Court) was accepted. The Court subsequently heard the case and rejected our position ultimately ruling in favor of the tax authorities during the first quarter of 2018. There will be no further appeals. Accordingly, management expects this case to be closed by the Brazilian authorities within

The estimated total amount of other remaining contingencies for tax claims under the indemnification agreement as of March 31, 20192020 was $16.5 million including interest. However, based on management’s assessment following advice of our external legal counsel, the Company believes that it has valid arguments in all of these cases and thus no accrual is required at this time.  

Income tax expense is the net result of taxes on the mix of earnings in multiple tax jurisdictions, foreign tax credits and rulings, the assessment and accrual of uncertain tax positions resulting from tax authority audits or changes in the interpretation of the law. ForOrdinarily, interim income tax reporting, we estimate ourexpense is calculated using the annual estimated effective tax rate and apply it(AETR) expected to our year-to-date ordinary income (loss). Tax jurisdictions withbe applicable for the full year. However, when a projected or year-to-date loss for which a tax benefitreliable estimate of the AETR cannot be realized are excluded. Themade, the actual effective tax effectsrate (ETR) for the year-to-date period may be the best estimate of unusual or infrequently occurring items, including changesthe AETR. For the three months ended March 31, 2020 we used the actual year-to-date ETR in judgment about valuation allowances and effectscomputing our income tax expense as a reliable estimate of changes in tax laws or rates, are reported in the interim period in which they occur.AETR cannot be made due to the uncertainty of the impact of COVID-19 on full year results.

The income tax expense was $7.4 million on pretax income of $34.8 million before adjusting for noncontrolling interest for the three months ended March 31, 2020, and $12.1 million on pretax income of $100.0 million before adjusting for noncontrolling interest for the three months ended March 31, 2019, and $26.3 million on pretax income of $133.0 million before adjusting for noncontrolling interest for the three months ended March 31, 2018.2019. The changedecrease in income tax expense for this period is primarily the result of lower pre-taxpretax income andduring the first quarter of 2020, partially offset by discrete tax benefits during the three months ended March 31,first quarter of 2019 the most significantrelated to reversal of which is a deferred tax liability of $6.5 million discrete tax benefitfor earnings not permanently reinvested, $1.1 million related to a change in a permanent reinvestment assertion with respectamended state income tax filings, and $1.3 million related to WABCO INDIA.vested stock awards.

On February 14, 2019, the General Court of the European Union (the General Court) issued a judgment annulling a European Commission decision which had previously declared the Belgium Excess Profit Ruling (EPR) regime as illegal and incompatible with European State Aid law. The General Court ruled that the European Commission had wrongly considered that the Belgian provisions allowing tax exemptions of multinational companies’ excess profit granted by means of rulings could constitute an illegal state aid scheme. The European Commission can and we expect will appeal that decision. In the eventOn April 24, 2019, the European Commission decides not to appeal it still has the possibility to take an individual State Aid decision against each companyappealed that benefited from the EPR regime. The annulment ofdecision. On September 16, 2019, the European Commission decision; however, will resultannounced that they opened separate in-depth investigations to assess whether excess profit rulings granted by Belgium to thirty-nine multinational companies (including WABCO) gave those companies an unfair advantage over their competitors, in Belgium stoppingbreach of European Union State aid rules. During the recoverythree months ended March 31, 2020 there were no further developments on the European Commission appeal of the tax deemed to be illegal state aid from all beneficiaries, even in the event of an appeal, thus leading to a cash tax benefit for the Company as we will be able to utilize Belgium NOLs against a current year tax liability.General Court decision nor separate in-depth investigations into excess profit rulings. At March 31, 2019,2020, the Company maintained a tax reserve of $31.7$29.6 million pending further European Court developments regarding European Union State Aid cases.

Unrecognized tax benefits at March 31, 2019,2020 including the $31.7$29.6 million of EPR clawback, amounted to $39.1$34.6 million, of which $33.7$31.5 million has been offset against deferred tax assets. The remaining unrecognized tax benefits of $5.4$3.1 million were classified as either a short-term or long-term liability depending on the expected timing of the resolution. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense.

In February 2018, the Company received a final tax and interest assessment in India for the 2013 tax year related to a capital gain on an intercompany transfer of an Indian subsidiary. The assessment was for INR 3.5 billion ($51.246.5 million at March 31, 20192020 exchange rates). In addition, a penalty assessment was issued in March of 2018 for INR 2.1 billion ($31.027.9 million at March 31, 20192020 exchange rates). The Company believes that no tax is due under the relevant double tax treaty between the Netherlands and India and therefore no amount has been accrued. The Company appealed both the tax and penalty assessments during March 2018.assessments. In May 2018, the Commissioner of Income Tax granted a partial stay of demand requiring the Company to pay 15% of the assessment (INR 531.4 million, $7.7equivalent to $7.1 million at March 31, 20192020 exchange rates).

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

The weighted-average expected rates of return on plan assets used to determine the pension and post-retirement benefit plan cost for the three month periods ended March 31, 20192020 and 20182019 were based on the rates determined as of the beginning of each of the fiscal years of 2.40%2.34% and 2.75%2.93%, respectively.

The Company makes contributions to funded pension plans that, at a minimum, meet all statutory funding requirements. Contributions in 2019,2020, as well as payments of benefits incurred by unfunded plans, were in line with the expectations for 20192020 and also in line with the contributions made during 2018.2019.

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

The Company recognizes all derivative financial instruments in the condensed consolidated balance sheet at fair value using Level 2 inputs and these are classified as other current assets, other assets, other accrued liabilities or other liabilities on the condensed consolidated balance sheets. The impact resulting from changes in the fair value of derivative instruments is recorded in the same line item in the condensed consolidated statements of operations as the underlying exposure being hedged or in accumulated other comprehensive income (AOCI) for derivatives that qualify and have been designated as cash flow hedges or hedges of a net investment in a foreign operation. Any ineffective portion of a financial instrument's change in fair value is recognized in earnings together with changes in the fair value of any derivatives not designated as relationship hedges.

Foreign exchange contracts are also used by the Company to offset the earnings impact relating to the variability in exchange rates on certain assets and liabilities denominated in non-functional currencies and have not been designated as relationship hedges. As of March 31, 20192020 and December 31, 2018,2019, the Company had the following outstanding notional amounts related to foreign currency forward contracts: