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MarketScreener Homepage  >  Equities  >  Nyse  >  WABCO Holdings Inc.    WBC

WABCO HOLDINGS INC.

(WBC)
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WABCO : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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11/06/2019 | 06:13am EST

Executive Overview


The worldwide truck and bus, trailer, car and off-highway markets continued to
weaken in the third quarter due to a softening global economic outlook as well
as increasing geopolitical uncertainty. This slowdown in economic growth
expectations affected all regions and all major markets in which we operate. We
continued to partially offset the impact of this deceleration through agile
management of our variable cost structure and discretionary operating expenses
to protect the Company's profitability in this environment. However due to the
sustained size and speed of the drop in markets in the third quarter, we were
unable to fully mitigate this headwind.

Our sales for the third quarter of 2019 decreased compared to one year ago by
12.7% on a reported basis and by 10.5% excluding foreign currency translation
effects. The global production of new trucks and buses shrank by an estimated
10.5% driven by significant decreases in India, down 61.9% and Europe, down
7.4%. The global trailer market also experienced a significant decline, down
24.3% in the third quarter.

We continued to leverage the WABCO Operating System to drive fast and flexible
responses to these major market changes and delivered strong materials and
conversion productivity during the third quarter, a continued solid performance
for us. Operating expenses for the quarter also dropped by $10.1 million,
reflecting the mitigating actions taken to address the drop in the markets. We
remain committed to our operating framework and continue to increase our
investment in engineering to ensure the successful execution of the Company's
long-term strategy.

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

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

On September 13, 2019, Meritor, our exclusive distributor for a certain range of
WABCO aftermarket products in the U.S. and Canada, and our non-exclusive
distributor in Mexico, exercised an option, triggered by the announcement of the
Merger, to terminate the distribution agreement and sell the distribution rights
back to WABCO. The Company will acquire the distribution rights from Meritor at
an exercise price ranging from $225 million to $265 million, depending on the
earnings of the distribution business. The purchase price for the distribution
rights is payable in cash and will result in an increase to the intangible
assets balance. The Company is expected to complete the acquisition in the first
quarter of 2020.

Results of Operations
Approximately 73% of our sales are outside the United States, and therefore
changes in exchange rates can have a significant impact on the reported results
of our operations, which are presented in U.S. dollars. Quarter-over-quarter
changes in sales, cost of sales, gross profit and expenses for 2019 compared
with 2018 are presented both with and without the effects of foreign currency
translation. Changes in sales, cost of sales, gross profit and expenses
excluding foreign exchange effects are calculated using current year sales, cost
of sales, gross profit and expenses translated at prior year exchange rates.
Presenting changes in sales, cost of sales, gross profit and expenses excluding
the effects of foreign currency translation is not in conformity with U.S. GAAP,
but management analyzes the data in this manner because it is useful to us in
understanding the operating performance of our business. We believe this data is
also useful to shareholders for the same reason. The changes in sales, cost of
sales, gross profit and expenses excluding the effects of foreign exchange
translation are not meant to be a substitute for measurements prepared in
conformity with U.S. GAAP, nor to be considered in isolation.




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Third Quarter Results of Operations for 2019 Compared with 2018


                                                      Three Months                    Excluding foreign
                                                   Ended September 30,             exchange translation *
                                                                    % change         2019          % change
                                              2019        2018      reported       adjusted        adjusted
(Amounts in millions)                                                               amount
Sales                                       $ 798.4$ 914.8      (12.7 )%   $     818.8          (10.5 )%
Cost of sales                                 559.5       639.7      (12.5 )%         572.6          (10.5 )%
Gross profit                                  238.9       275.1      (13.2 )%         246.2          (10.5 )%

Operating expenses                            158.0       168.1       (6.0 )%         163.4           (2.8 )%
Other non-operating expense, net               (4.4 )     (12.9 )    (65.9 )%          (4.9 )        (62.0 )%
Interest expense, net                          (0.3 )      (0.7 )    (57.1 )%          (0.3 )        (57.1 )%
Income tax expense                             15.9        13.5       17.8  %          15.8           17.0  %


* Amounts translated using average exchange rates for the three month period

   ended September 30, 2018



Sales

Our sales for the third quarter of 2019 were $798.4 million, a decrease of 12.7%
(10.5% excluding foreign currency translation effects) from $914.8 million in
2018, as a result of a further deceleration in truck and bus and trailer markets
as well as an economic slowdown in all our key regions.

Total sales in Europe, our largest market, decreased 12.8% (9.0% excluding
foreign currency translation effects) for the third quarter of 2019 while the
production of new trucks and buses decreased 7.4%. Our sales to truck and bus
OEMs also declined 14.2% (10.3% excluding foreign currency translation effects)
due to unfavorable customer mix and continued phase out of AMT at a major
gearbox supplier. The production of trailers in Europe dropped by 25.9% year
over year, however our sales were down 18.2% (15.0% excluding foreign currency
translation effects), outperforming this market.

Total sales in North America decreased 5.9% (5.3% excluding foreign currency
translation effects). Our sales to truck and bus OEMs decreased 2.6% (2.0%
excluding foreign currency translation effects). Although the truck and bus
market grew by 3.7%, we were not able to offset the headwinds from an
unfavorable customer mix and insourcing of a product at a major OEM. We were
also impacted by a decline in the production of passenger cars in the U.S. as
well as a weakening off-highway market.

Total sales in South America increased 13.2% (13.3% excluding foreign currency
translation effects) while the truck and bus production increased 6.7%. Our
sales to truck and bus OEMs increased by 14.0% (14.4% excluding foreign currency
translation effects). Our outperformance in this market included a share of
market gain in braking controls at a global OEM.

Total sales in Asia decreased 23.9% (22.8% excluding foreign currency translation effects) compared to an estimated 17.6% decrease in new vehicle production in the region.


Total sales in China decreased 22.4% (19.9% excluding foreign currency
translation effects). Our sales to truck and bus OEMs declined by 13.0% (10.2%
excluding foreign currency translation effects) while the production of new
trucks and buses decreased 1.5%. The decline in sales was primarily due to the
impact from lower pricing and an unfavorable customer mix.

Total sales in India decreased 53.4% (53.2% excluding foreign currency
translation effects) driven by a 61.9% decrease in vehicle production. The
production of new trucks and buses dropped due to continued economic uncertainty
in India driven by access to liquidity, reduced truck utilization and record
levels of truck inventory at OEMs. Our sales to truck and bus OEMs declined by
62.0% (61.8% excluding foreign currency translation effects).

Total sales in Korea increased 7.0% (12.7% excluding foreign currency
translation effects), nicely outperforming the production of trucks and buses
which increased 0.1%. Our sales to truck and bus OEMs grew by 23.1% (29.0%
excluding foreign currency translation effects) driven by a safety stock
accumulation for a new platform launch at a major OEM. Sales in Japan increased
10.4% (6.6% excluding foreign currency translation effects) compared to a
decrease in truck and bus production of 7.6% supported by a favorable model mix
and a share of market gain in braking controls at a major OEM.


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WABCO's aftermarket sales, included in the geographic numbers provided above,
decreased 7.1% (4.7% excluding foreign currency translation effects) in the
third quarter of 2019. Our aftermarket sales in Europe declined by 10.4% (6.8%
excluding foreign currency translation effects) on a year over year basis, which
was a result of overall market drop as well as one time campaign in 2018. We are
also facing a decline in India of 13.0% (12.6% excluding foreign currency
translation effects) due to the sharp economic decline in the country, resulting
in overstocking at distributors. Softening U.S. market conditions contributed to
a decline in North America of 3.3% (3.3% excluding foreign currency translation
effects). The overall decline in market conditions was partially offset by a
solid sales growth of 5.8% within our fleet management portfolio.


Cost of Sales and Gross Profit


Within cost of sales, our largest expense is material costs, which mainly
represents the purchase of components and parts. Our continued focus on
productivity continued to deliver a strong performance for the third quarter of
2019. Management uses material productivity as one of the internal measures of
our cost reduction efforts.

(Amounts in millions)                                     Cost of Sales     

Gross Profit Cost of sales / gross profit for the three months ended September 30, 2018

                                       $       639.7

$ 275.1


Increase/(decrease) due to:
Sales price reductions                                                            (11.6 )
Sales price reductions as % of sales                                               (1.4 )%
Volume, mix and absorption                                       (59.5 )          (24.9 )
Material productivity                                            (10.0 )           10.0
Labor inflation                                                    4.2             (4.2 )
Streamlining costs                                                 5.3             (5.3 )
Foreign exchange effects (1)                                     (18.4 )           (2.0 )
Warranty accruals                                                  4.1             (4.1 )
Other (2)                                                         (5.9 )            5.9
Net decrease                                                     (80.2 )          (36.2 )

Cost of sales / gross profit for the three months ended
September 30, 2019                                       $       559.5$      238.9



(1) Foreign exchange effects include both translational and transactional
effects.
(2) Includes conversion productivity realized partially offset by U.S. tariffs
imposed on imports.


Operating Expenses

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

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(Amounts in millions)
Operating expenses for the three months ended September 30, 2018$ 168.1

Increase/(decrease) due to:
Labor inflation                                                      4.4
Sell-side M&A activity(1)                                            3.9
Employee-related costs                                              (2.6 )
Headquarters relocation costs                                        1.1
Streamlining expenses                                               (2.9 )
Environmental reserve reduction                                     (3.8 )
Foreign exchange translation                                        (5.4 )
Savings net of investments                                          (4.8 )
Net decrease                                                       (10.1 )

Operating expenses for the three months ended September 30, 2019$ 158.0

(1) Consists primarily of legal and financial advisory fees related to the Merger.

Other non-operating expense, net


Other non-operating expenses decreased by $8.5 million from $12.9 million for
the third quarter of 2018 to $4.4 million for the third quarter of 2019. The
decrease results from an upward fair value adjustment to a non-marketable equity
investment of $2.2 million during the third quarter of 2019. This compares to an
impairment of a non-marketable equity investment of $5.5 million during the
third quarter of 2018. Non-marketable equity investments are recorded at cost
and adjusted for changes in observable prices at each reporting period less any
impairment, as discussed in Note 17 of Notes to Condensed Consolidated Financial
Statements.

Interest expense, net

Interest expense, net decreased by $0.4 million to $0.3 million for the third
quarter of 2019 as compared to $0.7 million for the third quarter of 2018. The
decrease in interest expense is the result of a reduction in borrowings for the
third quarter of 2019 when compared to the third quarter of 2018.

Income Taxes


The income tax expense for the third quarter of 2019 was $15.9 million on
pre-tax income of $76.7 million before adjusting for noncontrolling interest,
compared with an income tax expense of $13.5 million on pre-tax income of $93.3
million before adjusting for noncontrolling interest in the third quarter of
2018. The increase in income tax expense for the three month period is primarily
the result of discrete tax benefits during the third quarter of 2018 related to
changes in uncertain tax positions and return to provision adjustments partially
offset by lower pre-tax income in 2019.

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. On April 24, 2019, the
European Commission appealed that decision. On September 16, 2019, the European
Commission announced 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 breach of European Union State aid rules. At September 30, 2019,
the Company maintained a tax reserve of $29.3 million pending further European
Court developments regarding European Union State Aid cases.





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Year to Date Results of Operations for 2019 Compared with 2018


                                                         Nine Months                     Excluding foreign
                                                     Ended September 30,              exchange translation *
                                                                                         2019
                                                                        % change       adjusted       % change
(Amounts in millions)                          2019          2018       reported        amount        adjusted
Sales                                       $ 2,644.0$ 2,919.4       (9.4 )%   $    2,772.2        (5.0 )%
Cost of sales                                 1,863.5       2,025.0       (8.0 )%        1,951.4        (3.6 )%
Gross profit                                    780.5         894.4      (12.7 )%          820.8        (8.2 )%

Operating expenses                              492.1         493.9       (0.4 )%          517.3         4.7  %
Other non-operating expense, net                (17.7 )       (35.3 )    (49.9 )%          (20.1 )     (43.1 )%
Interest (expense)/income net                       -          (6.8 )   (100.0 )%            0.3      (104.4 )%
Income tax expense                               48.9          63.3      (22.7 )%           50.3       (20.5 )%



* Amounts translated using average exchange rates for the nine month period

   ending September 30, 2018



Sales

Our sales for the first nine months of 2019 were $2,644.0 million, a decrease of
9.4% (5.0% excluding foreign currency translation effects) from $2,919.4 million
in 2018 following the continued downturn in the global truck and bus and trailer
markets, as well as a contraction in car and off-highway markets.

Total sales in Europe, our largest market, decreased 10.6% (4.6% excluding
foreign currency translation effects) for the first nine months of 2019, while
the production of new trucks and buses decreased 3.9%. Our sales to truck and
bus OEMs declined 11.1% (5.3% excluding foreign currency translation effects),
driven by the phase out of AMT at a major gearbox supplier in Western Europe.
The trailer market deteriorated 14.7% year over year which also contributed to
the sales decline in the region.

Total sales in North America decreased 1.3% (0.5% excluding foreign currency
translation effects). Our sales to truck and bus OEMs increased 3.8% (4.8%
excluding foreign currency translation effects) while the production of new
trucks and buses increased 11.1%. The sales decline in North America was driven
by a major OEM insourcing production as well as continued weakness in the
passenger car and off-highway markets.

Total sales in South America increased 13.6% (22.6% excluding foreign currency
translation effects) while the truck and bus production increased 5.7%. Our
sales to truck and bus OEMs increased by 11.4% (19.9% excluding foreign currency
translation effects). This included share of market gains in braking controls
and AMT at a major OEM.

Total sales in Asia decreased 18.5% (14.8% excluding foreign currency translation effects) compared to an estimated 10.9% decrease in new vehicle production in the region.


Total sales in China decreased 17.5% (12.8% excluding foreign currency
translation effects). Our sales to truck and bus OEMs declined by 10.6% (5.4%
excluding foreign currency translation effects) primarily driven by the decline
in truck and bus production of 3.7%, continued pricing pressure and an
unfavorable customer mix.

Total sales in India decreased 35.8% (32.3% excluding foreign currency
translation effects) driven by the 34.4% decrease in the production of new
trucks and buses. Our sales to truck and bus OEMs declined by 39.9% (36.4%
excluding foreign currency translation effects). We continue to benefit from the
outperformance initiatives launched in prior quarters, but those impacts were
offset by a negative mix from a decline in the production of multi-axle
vehicles, while the production of twin-axle vehicles which typically have lower
content per vehicle, increased.

Total sales in Korea increased 9.5% (16.3% excluding foreign currency
translation effects) while the truck and bus production only increased 0.7%. Our
sales to truck and bus OEMs grew by 36.3% (44.6% excluding foreign currency
translation effects) following a favorable vehicle model mix. Sales in Japan
increased 1.7% (1.3% excluding foreign currency translation effects) compared to
a decrease in truck and bus production of 5.0%.


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WABCO's aftermarket sales, included in the geographic numbers provided above,
decreased 7.0% (2.3% excluding foreign currency translation effects) in the
first nine months of 2019. Aftermarket sales grew in South America and the
Middle East 3.6% and 9.4%, respectively (11.9% and 16.3% excluding foreign
currency translation effects, respectively). This was offset by a 10.5% decline
(4.6% excluding foreign currency translation effects) in our main market of
Europe, a 16.4% decline (12.4% excluding foreign currency translation effects)
in India and flattish sales growth in North America. In these regions dealers
are facing uncertainty in the market leading to cautious order behavior. The
overall decline in market conditions was partially offset by a solid sales
growth of 5.9% within our fleet management portfolio.

Cost of Sales and Gross Profit


Within cost of sales, our largest expense is material costs, which mainly
represents the purchase of components and parts. Our continued focus on
productivity continued to deliver a strong performance for the first nine months
of 2019. Management uses materials productivity as one of the internal measures
of our cost reduction efforts.

(Amounts in millions)                                     Cost of Sales     

Gross Profit Cost of sales / gross profit for the nine months ended September 30, 2018

                                       $      2,025.0

$ 894.4


Increase/(decrease) due to:
Sales price reductions                                                             (35.5 )
Sales price reductions as % of sales                                                (1.3 )%
Volume, mix and absorption                                        (71.4 )          (40.4 )
Material productivity                                             (30.0 )           30.0
One-time supplier-related settlement in 2018                       10.5            (10.5 )
Labor inflation                                                    14.4            (14.4 )
Streamlining costs                                                  8.4             (8.4 )
Foreign exchange effects (1)                                     (102.2 )          (25.9 )
Other(2)                                                            8.8             (8.8 )
Net decrease                                                     (161.5 )         (113.9 )

Cost of sales / gross profit for the nine months ended
September 30, 2019                                       $      1,863.5$      780.5



(1) Foreign exchange effects include both translational and transactional
effects.
(2) Includes increased depreciations, U.S. tariffs imposed on imports as well as
a one-time positive inventory adjustment of $6.7 million in 2018, partially
offset by conversion productivity realized.


Operating Expenses

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

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(Amounts in millions)
Operating expenses for the nine months ended September 30, 2018$ 493.9

Increase/(decrease) due to:
Labor inflation                                                    14.2
Sell-side M&A activity (1)                                         14.2
Employee-related costs                                             (3.8 )
Headquarters relocation costs                                       3.9
Streamlining expenses                                               0.3
Environmental reserve reduction                                    (3.8 )
Foreign exchange translation                                      (25.2 )
Savings net of investments                                         (1.6 )
Net decrease                                                       (1.8 )

Operating expenses for the nine months ended September 30, 2019$ 492.1

(1) Consists primarily of legal and financial advisory fees related to the Merger.

Other non-operating expense, net


Other non-operating expense, net decreased by $17.6 million from $35.3 million
for the first nine months of 2018 to $17.7 million for the first nine months of
2019. The decrease essentially results from an upward fair value adjustment to a
non-marketable equity investment of $2.2 million during the third quarter of
2019 compared to an impairment loss recognized on a non-marketable equity
investment of $5.5 million during the third quarter of 2018. The decrease from
the prior year also reflects a favorable impact from fluctuations in foreign
exchange rates of $3.7 million during the first nine months of 2019 and
considers that the Company recognized a $2.6 million loss on debt extinguishment
during the first nine months of 2018 from prepayment of the Senior USD Notes, as
discussed in Note 10 of the Notes to Condensed Consolidated Financial
Statements.

Interest expense, net


Interest expense approximated interest income for the first nine months of 2019
compared to interest expense, net of $6.8 million for the first nine months of
2018. Interest expense decreased the first nine-months of 2019 as borrowings
declined when compared to the prior year. Interest expense in the prior year
also included the interest amounts due under the Senior USD Notes up through the
date of prepayment in the second quarter of 2018, as discussed in Note 10 of the
Notes to Condensed Consolidated Financial Statements.

Income Taxes


The income tax expense for the nine months ended September 30, 2019 was $48.9
million on pre-tax income of $272.3 million before adjusting for noncontrolling
interest, compared with an income tax expense of $63.3 million on pre-tax income
of $359.1 million before adjusting for noncontrolling interest for the nine
months ended September 30, 2018. The decrease in income tax expense is primarily
the result of lower pre-tax income in 2019.

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. On April 24, 2019, the
European Commission appealed that decision. On September 16, 2019, the European
Commission announced 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 breach of European Union State aid rules. At September 30, 2019,
the Company maintained a tax reserve of $29.3 million pending further European
Court developments regarding European Union State Aid cases.

When we provided guidance for 2019, our projected results assumed an 18%
effective tax rate for 2019, driven in part by the establishment of a regulated
insurance company to better manage our unfunded pension liabilities. Due to the
pending Merger,

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this initiative has been suspended. We continue to anticipate an annual effective tax rate below 20% due to other tax savings and initiatives that the Company is anticipating in 2019.

Liquidity and Capital Resources


The Company's cash generation in the first quarter was affected by the build-up
of working capital as well as the pay-out of cash incentive programs. During the
second and third quarter of 2019, we leveraged our working capital by enhancing
our collections from customers. This helped us offset the impacts of the first
quarter and achieve a net cash from operating activities of $307.5 million for
the nine months ended September 30, 2019 compared to $300.5 million in the prior
year, despite a lower net income in 2019. During the first quarter of 2019 we
also suspended our share repurchase program due to the pending Merger, and do
not expect to reinstate the share repurchase program this year.

The Company was notified that it will be required to purchase the distribution
rights from Meritor for WABCO aftermarket products in the United States and
Canada for an amount between $225 million and $265 million, payable in cash in
early 2020. The Company believes its available cash on-hand and availability
under its existing credit facilities adequately provide for the funding of this
acquisition.

Cash Flows for the Nine Months Ended September 30, 2019


Operating activities - Net cash provided by operating activities was $307.5
million and $300.5 million for the first nine months of 2019 and 2018,
respectively. Cash flow from operating activities for the first nine months of
2019 consisted primarily of net income including noncontrolling interests of
$223.4 million, increased by $134.9 million for non-cash charges mainly composed
of depreciation and amortization, pension and post-retirement benefit expenses,
deferred income tax benefit, change in fair value of non-marketable equity
securities, stock compensation and non-cash interest expense and debt issuance
cost amortization. This was partially offset by $50.8 million related to changes
in operating assets and liabilities including $9.4 million of payments made
related to the Merger, as well as post-retirement benefit payments.

Cash flow from operating activities for the first nine months of 2018 consisted
primarily of net income including noncontrolling interests of $295.8 million,
increased by $167.1 million for non-cash charges mainly composed of depreciation
and amortization, pension and post-retirement benefit expenses, change in fair
value of non-marketable equity securities, stock compensation and non-cash
interest expense and debt issuance cost amortization. This was partially offset
by $162.4 million related to changes in operating assets and liabilities as well
as pension contributions.

Investing activities - Net cash provided by investing activities amounted to $27.5 million in the first nine months of 2019 compared to net cash used by investing activities balance of $120.5 million in the first nine months of 2018.


Capital expenditures in property, plant and equipment was $107.9 million and
$83.8 million in 2019 and 2018, respectively. This increase is primarily driven
by the timing of investments compared to prior year. On a full year basis, we
expect capital expenditures to be slightly above last year's level.

Aside from capital expenditures in tooling, equipment and software, we had investing cash flows related to our investments and redemptions in repurchase agreements and short-term investments as follows:

                                                                           Nine Months
                                                                       Ended September 30,
                                                    2019                                                 2018
(Amounts in millions)           Repurchase         Short-term                        Repurchase         Short-term
                                Agreements         Investments         Total         Agreements         Investments         Total
Investments                  $        113.3     $         481.8     $   595.1     $            -     $       388.7$   388.7
Sales and redemptions                 198.4               540.2         738.6              135.3             237.4           372.7

Net cash received/(invested) $ 85.1 $ 58.4 $ 143.5$ 135.3$ (151.3 )$ (16.0 )




Financing activities - Net cash used by financing activities amounted to $7.1
million for the nine months ended September 30, 2019 compared to $466.0 million
for the first nine months of 2018. The cash used by financing activities for the
nine months ended September 30, 2019 primarily results from the shares we
repurchased for a total amount of $30.6 million, partially offset by net
borrowings of short-term debt under the revolving credit facilities of $29.3
million. The Company suspended its share

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repurchase program during the first quarter of 2019 due to the pending Merger, and we do not expect to reinstate the share repurchase program this year.


In 2018, the cash used by financing activities mainly resulted from the $500.0
million prepayment of the Senior USD Notes, the repayment of our revolving
credit facilities for $114.3 million, as well as the shares we repurchased for
an amount of $210.1 million, partially offset by cash receipts from other long
term loans (the Schuldschein Loans) for $368.5 million.

Schuldschein Loans


On March 22, 2018, the Company entered through a European subsidiary into a
series of six individual senior unsecured loan agreements with an aggregate
principal amount of €300.0 million, as follows:
(Amounts in millions)      Face value                Coupon             Maturity date
Fixed rate term loan -
Series A                 €       10.0                0.85%              March 31, 2021
Fixed rate term loan -
Series B                         60.0                1.15%              March 31, 2022
Fixed rate term loan -
Series C                         80.0                1.43%              March 31, 2023
Floating rate term loan
- Series A                       50.0     6-month EURIBOR plus 80 bps   March 31, 2021
Floating rate term loan
- Series B                       60.0     6-month EURIBOR plus 90 bps   March 31, 2022
Floating rate term loan
- Series C                       40.0     6-month EURIBOR plus 100 bps  March 31, 2023
                         €      300.0


Senior Notes (EUR and USD)

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

On June 25, 2015, the Company issued $500 million in aggregate principal amount
of senior unsecured notes, comprised of $150 million of 2.83% senior unsecured
notes due 2022, $200 million of 3.08% senior unsecured notes due 2025 and $150
million of 3.18% senior unsecured notes due 2027. The Company paid $2.1 million
of debt issuance costs in connection with these senior unsecured notes.

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

On April 30, 2018, the Company prepaid the outstanding principal amount of
$500.0 million on the Senior USD Notes, and recognized a loss on debt
extinguishment of $2.3 million net of taxes, of which the pretax amount, $2.6
million, was included in other non-operating expenses in the condensed
consolidated statement of operations.
Credit Facilities

Effective June 28, 2018, the Company amended its existing multi-currency
unsecured revolving credit facility, increasing the maximum principal amount of
borrowings under the facility from $400 million (the 2015 Facility) to $600
million (the 2018 Facility), with an option to increase up to an additional
$250.0 million. The 2018 Facility also extended the previously scheduled
maturity date of September 30, 2022 for the 2015 Facility to June 28, 2023,
subject to two one-year extension options, of which the first one was exercised
on May 28, 2019, extending the maturity date by one year to June 28, 2024.

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

Under the 2018 Facility, the Company may borrow, on a revolving basis, loans in an aggregate principal amount at any one time outstanding not in excess of $600.0 million, of which $572.6 million was available for borrowing at September 30, 2019.

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As of September 30, 2019, the Company had no additional borrowings from banks.
This is in comparison to $0.5 million as of December 31, 2018 which was fully
classified as long-term debt.
Derivative Instruments and Hedging Activities

The Company designated borrowings under its revolving credit facilities and
Senior EUR Notes to partially hedge the foreign currency exposure of its net
investment in certain Euro-denominated wholly-owned subsidiaries. As of
September 30, 2019 the Company designated borrowings under the revolving credit
facility and Euro-denominated loans of €465.0 million ($509.0 million at
September 30, 2019 exchange rates) and €440.0 million ($503.6 million at
December 31, 2018 exchange rates) of Euro-denominated loans as hedges of its net
investment in these subsidiaries.

For the three month periods ended September 30, 2019 and 2018, the Company
recorded a gain of $15.4 million, net of taxes of $4.3 million, and a loss of
$4.7 million, net of taxes of $1.4 million, respectively, in cumulative
translation adjustment within AOCI. For the nine month periods ended
September 30, 2019 and 2018, the Company recorded a gain of $18.5 million, net
of taxes of $5.2 million, and a gain of $4.3 million, net of taxes of $1.2
million, respectively, in cumulative translation adjustment within AOCI.
Aggregate Contractual Obligations

The Company has contractual obligations for debt, operating leases, tax
indemnifications, purchase obligations, unfunded pension and post-retirement
benefit plans and tax liabilities that were summarized in a table of aggregate
contractual obligations for the year ended December 31, 2018 disclosed in the
Annual Report on Form 10-K. Subsequent to December 31, 2018, the Company adopted
ASC 842, Leases on January 1, 2019 resulting in the recognition of right-of-use
assets and operating liabilities as discussed in Note 11 of the Condensed
Consolidated Financial Statements. The Company also received notice that it will
be required to purchase the distribution rights held by Meritor in early 2020
for an amount between $225 million and $265 million, as discussed in Note 12 of
the Condensed Consolidated Financial Statements. There have been no other
material changes to the contractual obligations of the Company since
December 31, 2018.
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", "continues", "evaluates",
"forecasts", "seeks", "plans", "goals", "potential", "may increase", "may
fluctuate" and similar expression or future or conditional verbs such as "will,"
"should," "would," "may" and "could" are generally forward looking in nature and
not historical facts. This report includes important information as to risk
factors in "Item 1A. Risk Factors", and "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report on Form 10-K for the year ended December 31, 2018. Many important
factors could cause actual results to differ materially from management's
expectations, including:

• the actual level of commercial vehicle production in our end-markets;

• adverse developments in the business of our key customers;

• periodic changes to contingent liabilities;

• adverse developments in general business, economic and political

conditions or any outbreak or escalation of hostilities on a national,

regional or international basis;

• changes in international or U.S. economic conditions, such as inflation,

       interest rate fluctuations, foreign exchange rate fluctuations or
       recessions in our markets;

• difficulties in international trade caused by geopolitical developments

       including tariffs, sanctions and the United Kingdom's exit from the
       European Union;

• cybersecurity threats, including the potential misappropriation of assets

or sensitive information, corruption of data or operational disruption;




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• unpredictable difficulties or delays in the development of new product

technology;

• pricing changes to our products or those of our competitors, and other

       competitive pressures on pricing and sales;


•      our ability to receive components and parts from our suppliers of a

reasonable quality level or to obtain them at reasonable price levels due

to fluctuations in the costs of the underlying raw materials;

• our ability to access credit markets or capital markets on a favorable

basis or at all;

• our ability to service our debt obligations;


•      changes in the environmental regulations that affect our current and
       future products;

• competition in our existing and future lines of business and the financial

resources of competitors;

• our failure to comply with regulations and any changes in regulations;

• our failure to complete potential future acquisitions, collaborations and

cooperations or to realize benefits from completed acquisitions,

collaborations and cooperations;

• our inability to implement our growth plan;

• our ability to service our pension obligations;

• the loss of any of our senior management;

• difficulties in obtaining or retaining the management and other human

resource competencies that we need to achieve our business objectives;


•      the success of, and costs and savings associated with, our current
       streamlining initiatives;

• labor relations;

• our ability to complete and realize the tax benefits associated with

certain projects relating to the reorganization of our treasury function;


•      our ability to mitigate any tax risks, including, but not limited to,
       those risks associated with changes in legislation, tax audits and the
       loss of the benefits associated with our tax rulings and incentives in
       certain jurisdictions;

• risks inherent in operating in foreign countries, including exposure to

local economic conditions, government regulation, currency restrictions

and other restraints, changes in tax laws and rulings, expropriation,

       political instability and diminished ability to legally enforce our
       contractual rights;

• conditions to the closing of the Merger, including obtaining required

regulatory approvals, may not be satisfied or waived on a timely basis or

otherwise;

• a governmental entity or a regulatory body may prohibit, delay or refuse

to grant approval for the consummation of the Merger and may require

conditions, limitations or restrictions in connection with such approvals

that can adversely affect the anticipated benefits of the proposed Merger

or cause the parties to abandon the proposed Merger;

• the Merger may involve unexpected costs, liabilities or delays;

• our business may suffer as a result of uncertainty surrounding the Merger

       or the potential adverse changes to business relationships resulting from
       the proposed Merger;


•      legal proceedings that may be initiated related to the Merger and the
       outcome of any legal proceedings related to the Merger, which may be
       adverse to us;


•      our inability to complete the acquisition of the North American

aftermarket distribution rights from Meritor within the timeframe called

for under the contract and on the terms required under the contract;

• we may be adversely affected by other general industry, economic, business

and/or competitive factors;

• there may be unforeseen events, changes or other circumstances that could

give rise to the termination of the Merger Agreement or affect the ability

to recognize benefits of the Merger;

• risks that the proposed Merger may disrupt current plans and operations

       and present potential difficulties in employee retention as a result of
       the Merger;

• risks related to diverting management's attention from WABCO's ongoing

business operations; and

• there may be other risks to consummation of the Merger, including the risk

that the Merger will not be consummated within the expected time period or

at all which may affect our business and the price of our common stock.




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We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

Critical Accounting Policies and Estimates


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

© Edgar Online, source Glimpses

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