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Item 1. Financial Statements

2021-10-27 compared with 2021-07-29 · 165 added, 142 removed, 651 unchanged (32% of the section changed)

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CONDENSED CONSOLIDATED BALANCE SHEETS

In millions, except par value June 30, 2021 December 31, 2020

Current Assets

Cash and cash equivalents $ 453.5 $ 598.7

In millions, except par value September 30,

2021 December 31,

Cash, cash equivalents and restricted cash $ 456.4 $ 598.7

Accounts receivable 960.3 969.3

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Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable $ 947.3 $ 909.4

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500.0 shares authorized:

226.9 and 226.9 shares issued and 189.0 and 188.9 outstanding at June 30, 2021 and December 31, 2020, respectively

226.9 and 226.9 shares issued and 186.8 and 188.9 outstanding at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 7,905.6 7,880.6

Treasury stock, at cost, 37.9 and 38.0 shares, at June 30, 2021 and December 31, 2020, respectively

Treasury stock, at cost, 40.1 and 38.0 shares, at September 30, 2021 and December 31, 2020, respectively

( 1,206.2 ) ( 1,010.1 )

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Unaudited Unaudited

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

In millions, except per share data 2021 2020 2021 2020

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Interest expense, net ( 42.2 ) ( 45.6 ) ( 134.7 ) ( 150.3 )

Other income (expense), net 10.3 6.3 24.5 ( 8.5 )

Other income, net 0.5 14.3 25.0 5.8

Income before income taxes 175.3 175.4 502.2 438.9

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Unaudited Unaudited

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

In millions 2021 2020 2021 2020

Net income attributable to Wabtec shareholders $ 130.6 $ 128.1 $ 367.8 $ 326.5

Foreign currency translation gain (loss) 33.8 29.2 ( 27.9 ) ( 152.2 )

Unrealized gain (loss) on derivative contracts 0.5 ( 9.1 ) ( 7.4 ) ( 1.0 )

Unrealized (loss) gain on pension benefit plans and post-retirement benefit plans ( 1.1 ) 0.7 ( 4.4 ) ( 2.9 )

Other comprehensive income (loss) before tax 33.2 20.8 ( 39.7 ) ( 156.1 )

Income tax benefit related to components of other comprehensive income (loss) — 2.0 3.0 0.9

Other comprehensive income (loss), net of tax 33.2 22.8 ( 36.7 ) ( 155.2 )

Foreign currency translation (loss) gain ( 59.9 ) 53.8 ( 87.8 ) ( 98.4 )

Unrealized (loss) gain on derivative contracts ( 0.4 ) 2.8 ( 7.8 ) 1.8

Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans 4.4 ( 0.6 ) — ( 3.5 )

Other comprehensive (loss) income before tax ( 55.9 ) 56.0 ( 95.6 ) ( 100.1 )

Income tax (expense) benefit related to components of Other comprehensive (loss) income ( 0.9 ) ( 0.5 ) 2.1 0.4

Other comprehensive (loss) income, net of tax ( 56.8 ) 55.5 ( 93.5 ) ( 99.7 )

Comprehensive income attributable to Wabtec shareholders $ 73.8 $ 183.6 $ 274.3 $ 226.8

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended

September 30,

In millions 2021 2020

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Below market intangible amortization ( 36.2 ) ( 67.9 )

Net loss on disposal of property, plant and equipment 7.1 3.0

Changes in operating assets and liabilities, net of acquisitions

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Decrease in cash ( 142.3 ) ( 44.9 )

Cash and cash equivalents, beginning of period 598.7 604.2

Cash and cash equivalents, end of period $ 453.5 $ 587.9

Cash, cash equivalents and restricted cash, beginning of period 598.7 604.2

Cash, cash equivalents and restricted cash, end of period $ 456.4 $ 559.3

The accompanying notes are an integral part of these statements.

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Other comprehensive income, net of tax — — — — — — 33.2 — 33.2

Stock repurchase — — — — — — — — —

Other — — — — — — — — —

Balance, June 30, 2021 226.9 $ 2.0 $ 7,896.7 ( 37.9 ) $ ( 1,008.6 ) $ 3,780.1 $ ( 375.8 ) $ 33.4 $ 10,327.8

Cash dividends ($ 0.12 dividend per share)

— — — — — ( 22.9 ) — — ( 22.9 )

Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax — — 0.8 0.1 1.5 — — — 2.3

Stock based compensation — — 8.1 — — — — — 8.1

Net income — — — — — 130.6 — 1.2 131.8

Other comprehensive loss, net of tax — — — — — — ( 56.8 ) — ( 56.8 )

Stock repurchase — — — ( 2.3 ) ( 199.1 ) — — — ( 199.1 )

Balance, September 30, 2021 226.9 $ 2.0 $ 7,905.6 ( 40.1 ) $ ( 1,206.2 ) $ 3,887.8 $ ( 432.6 ) $ 34.6 $ 10,191.2

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

In millions, except per share data Common Stock Shares Common Stock Amount Additional Paid-in Capital Treasury Stock Shares Treasury Stock Amount Retained Earnings Accumulated Other Comprehensive Loss Non-controlling Interest Total

Balance, December 31, 2019 226.9 $ 2.0 $ 7,877.2 ( 35.3 ) $ ( 807.1 ) $ 3,267.0 $ ( 382.6 ) $ 37.1 $ 9,993.6

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Balance, June 30, 2020 226.9 $ 2.0 $ 7,871.7 ( 36.6 ) $ ( 909.3 ) $ 3,419.0 $ ( 537.8 ) $ 35.0 $ 9,880.6

Cash dividends ($ 0.12 dividend per share)

— — — — — ( 22.8 ) — — ( 22.8 )

Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax — — 0.4 — ( 0.1 ) — — — 0.3

Stock based compensation — — 10.2 — — — — — 10.2

Net income — — — — — 128.0 — 0.5 128.5

Other comprehensive income, net of tax — — — — — — 55.6 — 55.6

Balance, September 30, 2020 226.9 $ 2.0 $ 7,882.3 ( 36.6 ) $ ( 909.4 ) $ 3,524.2 $ ( 482.2 ) $ 35.5 $ 10,052.4

The accompanying notes are an integral part of these statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021 (UNAUDITED)

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021 (UNAUDITED)

Westinghouse Air Brake Technologies Corporation (“Wabtec” or the "Company") is one of the world’s largest providers of locomotives, value-added, technology-based equipment, systems and services for the global freight rail and passenger transit industries.

Our highly engineered products, which are intended to enhance safety, improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight cars, passenger transit cars and buses around the world.

Our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles.

Many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles.

Wabtec is a global company with operations in over 50 countries and our products can be found in more than 100 countries throughout the world.

In the first six months of 2021, approximately 59 % of the Company’s revenues came from customers outside the United States.

In the first nine months of 2021, approximately 58 % of the Company’s revenues came from customers outside the United States.

ACCOUNTING POLICIES

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Remaining performance obligations represent the transaction price of firm customer orders subject to standard industry cancellation provisions and substantial scope-of-work adjustments.

As of June 30, 2021, the Company's remaining performance obligations were $ 20.8 billion.

As of September 30, 2021, the Company's remaining performance obligations were $ 21.1 billion.

The Company expects to recognize revenue of approximately 25 % of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

SEC regulations require that revenue categories that exceed 10% of total revenue are presented separately on the company's Statement of income.

As such, the Company has displayed sales of goods and sales of services, and the related cost, in line with those regulations.

Additionally, those regulations also require that goods are to include all sales of tangible products, and services must include all other sales.

In Note 16 we refer to sales of both goods, such as spare parts and equipment upgrades, and related services, such as monitoring, maintenance and repairs, as sales in our Services product line.

Revolving Receivables Program In May 2020, the Company entered into a revolving agreement to transfer up to $ 150 million of certain receivables of certain subsidiaries of the Company (the "Originators") through our bankruptcy-remote subsidiary to a financial institution on a recurring basis in exchange for cash equal to the gross receivables transferred.

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As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest).

The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary which held additional receivables of $ 332.7 million at June 30, 2021 that are pledged as collateral under this agreement.

The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary which held receivables of $ 284.8 million at September 30, 2021 that are pledged as collateral under this agreement.

The transfers are recorded at the fair value of the proceeds received and obligations assumed less derecognized receivables.

No obligation was recorded at June 30, 2021 as the estimated expected credit losses on receivables sold is insignificant.

No obligation was recorded at September 30, 2021 as the estimated expected credit losses on receivables sold is insignificant.

Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding.

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The following table sets forth a summary of receivables sold:

In millions Six Months Ended

June 30, 2021 Six Months Ended

June 30, 2020

In millions Nine Months Ended

September 30, 2021 Nine Months Ended

September 30, 2020

Gross receivables sold/cash proceeds received $ 959.1 $ 583.0

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The Company performs its annual impairment test during the fourth quarter after the annual forecasting process is completed, and also tests for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Periodically, management of

the Company assesses whether or not an indicator of impairment is present that would necessitate an impairment analysis to be performed.

Periodically, management of the Company assesses whether or not an indicator of impairment is present that would necessitate an impairment analysis to be performed.

Accounting Standards Recently Adopted In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, “Income Taxes:

Simplifying the Accounting for Income Taxes.” The amendments in this update simplify the accounting for certain income tax transactions by removing specific exceptions to the general principles in Accounting Standards Codification ("ASC") 740, "Income Taxes." This guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted.

Simplifying the Accounting for Income Taxes.” The

amendments in this update simplify the accounting for certain income tax transactions by removing specific exceptions to the general principles in Accounting Standards Codification ("ASC") 740, "Income Taxes." This guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted.

The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Other Comprehensive Income (Loss) Comprehensive income comprises both net income and the change in equity from transactions and other events and circumstances from non-owner sources.

The changes in Accumulated other comprehensive loss by component, net of tax, for the three months ended June 30, 2021 are as follows:

Accumulated Other Comprehensive Income (Loss) Comprehensive income comprises both net income and the change in equity from transactions and other events and circumstances from non-owner sources.

The changes in Accumulated other comprehensive loss by component, net of tax, for the three months ended September 30, 2021 are as follows:

In millions Foreign currency translation Derivative contracts Pension and post retirement benefit plans Total

Balance at March 31, 2021 $ ( 321.9 ) $ ( 3.5 ) $ ( 83.6 ) $ ( 409.0 )

Other comprehensive income (loss) before reclassifications 33.8 0.4 ( 1.8 ) 32.4

Amounts reclassified from Accumulated other comprehensive loss — — 0.8 0.8

Other comprehensive income (loss), net 33.8 0.4 ( 1.0 ) 33.2

Balance at June 30, 2021 $ ( 288.1 ) $ ( 3.1 ) $ ( 84.6 ) $ ( 375.8 )

The changes in Accumulated other comprehensive loss by component, net of tax, for the three months ended June 30, 2020 are as follows:

Other comprehensive (loss) income before reclassifications ( 59.9 ) ( 0.3 ) 2.7 ( 57.5 )

Amounts reclassified from Accumulated other comprehensive loss — — 0.7 0.7

Other comprehensive (loss) income, net ( 59.9 ) ( 0.3 ) 3.4 ( 56.8 )

Balance at September 30, 2021 $ ( 348.0 ) $ ( 3.4 ) $ ( 81.2 ) $ ( 432.6 )

The changes in Accumulated other comprehensive loss by component, net of tax, for the three months ended September 30, 2020 are as follows:

In millions Foreign currency translation Derivative contracts Pension and post retirement benefit plans Total

Balance at March 31, 2020 $ ( 490.0 ) $ 2.8 $ ( 73.4 ) $ ( 560.6 )

Balance at June 30, 2020 $ ( 460.8 ) $ ( 4.1 ) $ ( 72.9 ) $ ( 537.8 )

Other comprehensive income (loss) before reclassifications 53.8 2.2 ( 1.1 ) 54.9

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Other comprehensive income (loss), net 53.8 2.2 ( 0.4 ) 55.6

Balance at June 30, 2020 $ ( 460.8 ) $ ( 4.1 ) $ ( 72.9 ) $ ( 537.8 )

The changes in Accumulated other comprehensive loss by component, net of tax, for the six months ended June 30, 2021 are as follows:

Balance at September 30, 2020 $ ( 407.0 ) $ ( 1.9 ) $ ( 73.3 ) $ ( 482.2 )

The changes in Accumulated other comprehensive loss by component, net of tax, for the nine months ended September 30, 2021 are as follows:

In millions Foreign currency translation Derivative contracts Pension and post retirement benefit plans Total

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Amounts reclassified from Accumulated other comprehensive loss — — 2.2 2.2

Other comprehensive loss, net ( 27.9 ) ( 5.5 ) ( 3.3 ) ( 36.7 )

Balance at June 30, 2021 $ ( 288.1 ) $ ( 3.1 ) $ ( 84.6 ) $ ( 375.8 )

The changes in Accumulated other comprehensive loss by component, net of tax, for the six months ended June 30, 2020 are as follows:

Other comprehensive (loss) income, net ( 87.8 ) ( 5.8 ) 0.1 ( 93.5 )

Balance at September 30, 2021 $ ( 348.0 ) $ ( 3.4 ) $ ( 81.2 ) $ ( 432.6 )

The changes in Accumulated other comprehensive loss by component, net of tax, for the nine months ended September 30, 2020 are as follows:

In millions Foreign currency translation Derivative contracts Pension and post retirement benefit plans Total

Balance at December 31, 2019 $ ( 308.6 ) $ ( 3.3 ) $ ( 70.7 ) $ ( 382.6 )

Other comprehensive loss before reclassifications ( 152.2 ) ( 0.8 ) ( 3.7 ) ( 156.7 )

Other comprehensive (loss) income before reclassifications ( 98.4 ) 1.4 ( 4.8 ) ( 101.8 )

Amounts reclassified from Accumulated other comprehensive loss — — 2.2 2.2

Other comprehensive loss, net ( 152.2 ) ( 0.8 ) ( 2.2 ) ( 155.2 )

Balance at June 30, 2020 $ ( 460.8 ) $ ( 4.1 ) $ ( 72.9 ) $ ( 537.8 )

Reclassifications out of and into Accumulated other comprehensive income (loss) are recognized in "Other income (expense), net" with the tax impact recognized in "Income tax expense."

Other comprehensive (loss) income, net ( 98.4 ) 1.4 ( 2.6 ) ( 99.6 )

Balance at September 30, 2020 $ ( 407.0 ) $ ( 1.9 ) $ ( 73.3 ) $ ( 482.2 )

Amounts reclassified from Accumulated other comprehensive loss are recognized in "Other income, net" with the tax impact recognized in "Income tax expense."

On March 31, 2021, the Company acquired Nordco, a leading North American supplier of new, rebuilt and used maintenance of way equipment.

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adjustments to date have not been significant.

Substantially all of the accounts receivable acquired are expected to be collectible.

Intangible assets acquired include customer relationships and intellectual property that are subject to amortization, and trade names that were assigned an indefinite life and are not subject to amortization.

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The components of inventory, net of reserves, were:

In millions June 30,

In millions September 30,

2021 December 31,

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GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill by segment for the six months ended June 30, 2021 is as follows:

The change in the carrying amount of goodwill by segment for the nine months ended September 30, 2021 is as follows:

In millions Freight Segment Transit Segment Total

Balance at December 31, 2020 $ 6,872.2 $ 1,613.0 $ 8,485.2

Additions / opening balance sheet adjustments 214.2 — 214.2

Additions 214.1 — 214.1

Foreign currency impact ( 9.3 ) ( 85.3 ) ( 94.6 )

Balance at June 30, 2021 $ 7,089.2 $ 1,564.0 $ 8,653.2

As of June 30, 2021 and December 31, 2020, the Company’s trade names had a net carrying amount of $ 660.6 million and $ 650.7 million, respectively.

Balance at September 30, 2021 $ 7,077.0 $ 1,527.7 $ 8,604.7

As of September 30, 2021 and December 31, 2020, the Company’s trade names had a net carrying amount of $ 646.9 million and $ 650.7 million, respectively.

The Company believes these intangibles have indefinite lives, with the exception of the right to use the GE Transportation trade name, to which the Company has assigned a useful life of 5 years.

Intangible assets of the Company, other than goodwill and trade names, consist of the following:

In millions June 30,

In millions September 30,

2021 December 31,

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The backlog intangible asset primarily consists of in-place long-term service agreements acquired by the Company in conjunction with the acquisition of GE Transportation in 2019.

Amortization expense for intangible assets was $ 72.7 million and $ 142.2 million for the three and six months ended June 30, 2021 and $ 72.3 million and $ 141.3 million for the three and six months ended June 30, 2020, respectively.

Amortization expense for intangible assets was $ 72.5 million and $ 214.7 million for the three and nine months ended September 30, 2021, and $ 70.3 million and $ 211.6 million for the three and nine months ended September 30, 2020, respectively.

Amortization expense for the five succeeding years is estimated to be as follows:

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The current portion of the contract assets are classified as current assets under the caption “Unbilled accounts receivable” while the noncurrent contract assets are classified as other assets under the caption "Other noncurrent assets" on the consolidated balance sheet.

Noncurrent contract assets were $ 113.5 million at June 30, 2021 and $ 101.0 million at December 31, 2020, respectively.

Included in noncurrent contract assets are certain costs that are specifically related to a contract, however, do not directly contribute to the transfer of control of the tangible product being created, such as non-recurring engineering costs.

Noncurrent contract assets were $ 149.4 million at September 30, 2021 and $ 101.0 million at December 31, 2020.

Included in noncurrent contract assets are certain costs that are specifically related to a contract but do not directly contribute to the transfer of control of the tangible product being created, such as non-recurring engineering costs.

The Company has elected to use the practical expedient and does not consider unbilled amounts anticipated to be paid within one year as significant financing components.

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The current portion of contract liabilities are classified as current liabilities under the caption “Customer deposits” while the noncurrent contract liabilities are classified as noncurrent liabilities under the caption "Other long term liabilities" on the consolidated balance sheet.

Noncurrent contract liabilities were $ 66.1 million at June 30, 2021 and $ 79.6 million at December 31, 2020.

Noncurrent contract liabilities were $ 83.1 million at September 30, 2021 and $ 79.6 million at December 31, 2020.

These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract or revenue associated with the contract liabilities is expected to be recognized within one year.

Contract liabilities also include provisions for estimated losses from uncompleted contracts.

Provisions for loss contracts were $ 122.5 million and $ 108.9 million at June 30, 2021 and December 31, 2020, respectively.

Provisions for loss contracts were $ 119.8 million and $ 108.9 million at September 30, 2021 and December 31, 2020, respectively.

These provisions for estimated losses are classified as current liabilities and included within the caption “Other accrued liabilities” on the consolidated balance sheets.

The change in the carrying amount of contract assets and contract liabilities for the six months ended June 30, 2021 and 2020 is as follows:

The change in the carrying amount of contract assets and contract liabilities for the nine months ended September 30, 2021 and 2020 is as follows:

Contract Assets

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Foreign currency impact ( 6.2 ) ( 0.7 )

Balance at June 30

Balance at September 30

$ 556.1 $ 517.3

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Foreign currency impact ( 8.6 ) ( 3.3 )

Balance at June 30 $ 786.1 $ 777.8

Balance at September 30 $ 759.8 $ 809.8

The Company leases property and equipment under finance and operating leases.

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The Company does not separate lease and non-lease components contracts.

As most of the Company's leases do not provide a readily stated discount rate, the Company must estimate our incremental borrowing rate to discount lease payments.

The right-of-use assets are classified as non-current and included within the caption "Other noncurrent assets" on the consolidated balance sheets.

The current portion of lease liabilities are classified under the caption "Other accrued liabilities," while the noncurrent portion of lease liabilities are classified under the caption "Other long term liabilities" on the consolidated balance sheets.

As most of the Company's leases do not provide a readily stated discount rate, the Company must estimate the rate to discount lease payments using its incremental borrowing rate.

The Company has established discount rates by geographic region ranging from 1 % to 9 %.

The components of lease expense are as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

In millions 2021 2020 2021 2020

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The following table summarizes the remaining lease term and discount rate assumptions used to develop the present value of lease liabilities:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Weighted-average remaining lease term (years)

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Long-term debt consisted of the following:

Effective Interest Rate June 30, 2021 December 31, 2020

Effective Interest Rate September 30, 2021 December 31, 2020

In millions Book Value Fair Value 1

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4.5 % 249.5 262.9 249.3 267.0

4.15 % Senior Notes, due 2024, net of unamortized debt issuance costs of $ 3.6 and $ 4.3

4.15 % Senior Notes, due 2024, net of unamortized discount and debt issuance costs of $ 3.3 and $ 4.3

4.6 % 746.7 806.9 745.7 817.3

3.20 % Senior Notes, due 2025, net of unamortized debt discount and debt issuance costs of $ 3.9 and $ 4.4

3.20 % Senior Notes, due 2025, net of unamortized discount and debt issuance costs of $ 3.6 and $ 4.4

3.4 % 496.4 532.4 495.6 533.4

3.45 % Senior Notes, due 2026, net of unamortized debt issuance costs of $ 1.1 and $ 1.3

3.45 % Senior Notes, due 2026, net of unamortized discount and debt issuance costs of $ 1.1 and $ 1.3

3.5 % 748.9 806.2 748.7 819.5

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1.5 % 571.7 595.9 — —

4.70 % Senior Notes, due 2028, net of unamortized debt issuance costs of $ 7.7 and $ 8.2

4.70 % Senior Notes, due 2028, net of unamortized discount and debt issuance costs of $ 7.4 and $ 8.2

5.0 % 1,242.6 1,441.3 1,241.8 1,472.2

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Additionally, the Company has debt issuance costs related to certain financing transactions which are also amortized through interest expense.

As of June 30, 2021 and December 31, 2020, the Company had total combined unamortized discount and debt issuance costs of $ 25.8 million and $ 20.5 million, respectively.

As of September 30, 2021 and December 31, 2020, the Company had total combined unamortized discount and debt issuance costs of $ 24.3 million and $ 20.5 million, respectively.

Credit Facilities

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The Company has not requested any increase in the leverage ratio at this time.

The Company was in compliance with all covenants in the Senior Credit Facility as of June 30, 2021.

The following table presents availability under the Revolving Credit Facility at June 30, 2021:

(In millions) Revolving Credit Facility

The Company was in compliance with all covenants in the Senior Credit Facility as of September 30, 2021.

The following table presents availability under the Senior Credit Facility at September 30, 2021:

(In millions) Senior Credit Facility

Maximum Availability $ 1,200.0

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On April 10, 2020 the Company entered into a $ 600 million 364 day credit facility (" 364 Day Facility") initially scheduled to mature in April 2021 with a group of banks which includes a $ 144.0 million revolving credit facility ("364 Day Revolver") and a $ 456.0 million term loan (" 364 Term Loan").

The agreement calls for interest at either a LIBOR-based rate, or a rate based on the prime lending rate of the agent bank, at the Company's option.

The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type and substantially similar to our existing Senior Credit Facility.

The obligations under the 364 Day Facility are guaranteed by certain of the Company's U.S.

The agreement called for interest at either a LIBOR-based rate, or a rate based on the prime lending rate of the agent bank, at the Company's option.

The agreement contained affirmative, negative and financial covenants, and events of default customary for facilities of this type and substantially similar to our existing Senior Credit Facility.

The obligations under the 364 Day Facility were guaranteed by certain of the Company's U.S.

subsidiaries, as guarantors.

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These notes are comprised of our 4.375 % Senior Notes due 2023 (the "2023 Notes"), 4.15 % Senior Notes due 2024 (the "2024 Notes"), 3.20 % Senior Notes due 2025 (the "2025 Notes"), 3.45 % Senior Notes due 2026 (the "2026 Notes"), 1.25 % Senior Notes (EUR) due 2027 (the "Euro Notes" discussed below), and 4.70 % Senior Notes due 2028 (the "2028 Notes").

The 2023 Notes, 2024 Notes, 2025 Notes, 2026 Notes and 2028 Notes are the “US Notes”, and collectively with the Euro Notes, the “Senior Notes”.

Interest on the US Notes is payable semi-annually and interest on the Euro Notes is paid annually.

The 2023 Notes, 2024 Notes, 2025 Notes, 2026 Notes and 2028 Notes are the “US Notes”, and collectively with the Euro Notes, the “Senior Notes.” Interest on the US Notes is payable semi-annually and interest on the Euro Notes is paid annually.

Each series of the Senior Notes may be redeemed any time in whole or from time to time in part in accordance with the provisions of the indenture, under which such series of notes was issued.

Each of the Senior Notes may be redeemed at a redemption price of 100 % of the principal amount plus a specified make-whole premium and accrued interest.

The US Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt, and the Company's guarantee of the Euro Notes, and are senior to all existing and future subordinated indebtedness of the Company.

The US Notes and the Compnay's guarantee of the Euro Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt, and are senior to all existing and future subordinated indebtedness of the Company.

On June 3, 2021, Wabtec Transportation Netherlands B.V.

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The indentures under which the Senior Notes were issued contain covenants and restrictions which limit, subject to certain exceptions, certain sale and leaseback transactions with respect to principal properties, the incurrence of secured debt without equally and ratably securing the Senior Notes, and certain merger and consolidation transactions.

The covenants do not

require the Company to maintain any financial ratios or specified levels of net worth or liquidity.

The US Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of the Company's subsidiaries that is a guarantor under the Senior Credit Facility.

The covenants do not require the Company to maintain any financial ratios or specified levels of net worth or liquidity.

The US Notes are fully and

unconditionally guaranteed, jointly and severally, on an unsecured basis by each of the Company's subsidiaries that is a guarantor under the Senior Credit Facility.

The Company is in compliance with the restrictions and covenants in the indentures under which the Senior Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.

STOCK-BASED COMPENSATION

As of June 30, 2021, the Company maintains employee stock-based compensation plans for stock options, restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan, as amended and restated (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”).

As of September 30, 2021, the Company maintains employee stock-based compensation plans for stock options, restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan, as amended and restated (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”).

The 2011 Plan has a term through May 15, 2030 and provides a maximum of 9.1 million shares for grants or awards, plus any shares which remain available under the 2000 Plan.

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The Company also maintains a 1995 Non-Employee Directors’ Fee and Stock Option Plan as amended and restated (“the Directors Plan”).

Stock-based compensation recognized was $ 16.0 million of expense and $ 1.6 million of income for the three months ended June 30, 2021 and 2020, respectively.

Stock-based compensation expense was $ 24.2 million and $ 5.7 million for the six months ended June 30, 2021 and 2020, respectively.

At June 30, 2021, unamortized compensation expense related to stock options, non-vested restricted shares and incentive stock units expected to vest totaled $ 54.5 million.

Stock-based compensation expense was $ 10.0 million and $ 12.0 million for the three months ended September 30, 2021 and 2020, respectively, and $ 34.2 million and $ 17.6 million for the nine months ended September 30, 2021 and 2020, respectively.

At September 30, 2021, unamortized compensation expense related to stock options, non-vested restricted shares and incentive stock units expected to vest totaled $ 44.1 million.

Stock Options Stock options are granted to eligible employees at an exercise price equivalent to the stock's fair market value, which is the average of the high and low Wabtec stock price on the date of grant.

1 unchanged sentence

Both vesting periods expire 10 years from the date of grant.

The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the six months ended June 30, 2021:

The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the nine months ended September 30, 2021:

Options Weighted

7 unchanged sentences

Canceled ( 26,037 ) $ 74.73

Outstanding at June 30, 2021 624,434 $ 72.62 6.5 $ 6.2

Exercisable at June 30, 2021 379,897 $ 58.63 5.8 $ 5.3

Outstanding at September 30, 2021 579,083 $ 73.11 6.3 $ 9.0

Exercisable at September 30, 2021 336,940 $ 58.96 5.7 $ 9.4

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Dividend yield 0.60 %

13 unchanged sentences

The incentive stock units included in the table below represent the number of incentive stock units that are expected to vest based on the Company’s estimate for meeting those established performance targets.

As of June 30, 2021, the Company estimates that it will achieve 33 %, 113 % and 100 % for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2021, 2022, and 2023, respectively, and has recorded incentive compensation expense accordingly.

As of September 30, 2021, the Company estimates that it will achieve 33 %, 113 % and 100 % for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2021, 2022, and 2023, respectively, and has recorded incentive compensation expense accordingly.

If the estimate of the number of these incentive stock units expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease resulting in recognition in the current period for the elapsed portion of the vesting period and would change future expense for the remaining vesting period.

Compensation expense for the non-vested restricted stock and incentive stock units is based on the average of the high and low Wabtec stock price on the date of grant and recognized over the applicable vesting period.

The following table summarizes the restricted stock activity and incentive stock units activity for the six months ended June 30, 2021:

The following table summarizes the restricted stock activity and incentive stock units activity for the nine months ended September 30, 2021:

and Units Incentive

6 unchanged sentences

Canceled ( 28,732 ) ( 41,494 ) $ 76.10

Outstanding at June 30, 2021 537,484 570,374 $ 77.41

The overall effective tax rate was 25.8 % and 26.6 % for the three and six months ended June 30, 2021, respectively, and 24.9 % and 25.2 % for the three and six months ended June 30, 2020, respectively.

The increase in the effective tax rate is primarily the result of withholding tax expense on intercompany dividends incurred during the six months ended June 30, 2021.

As of June 30, 2021, the liability for income taxes associated with uncertain tax positions was $ 15.7 million, of which $ 14.1 million, if recognized, would favorably affect the Company’s effective income tax rate.

Outstanding at September 30, 2021 550,731 553,492 $ 77.63

The overall effective tax rate was 24.8 % and 26.0 % for the three and nine months ended September 30, 2021, respectively, and 26.7 % and 25.8 % for the three and nine months ended September 30, 2020, respectively.

The decrease in the quarterly effective tax rate is primarily the result of tax expense on internal restructuring activities incurred during the three months ended September 30, 2020 that did not recur in the three months ended September 30, 2021.

The increase in the year-to-date effective tax rate is primarily the result of withholding tax expense on intercompany dividends incurred during the nine months ended September 30, 2021.

As of September 30, 2021, the liability for income taxes associated with uncertain tax positions was $ 14.9 million, of which $ 13.3 million, if recognized, would favorably affect the Company’s effective income tax rate.

As of December 31, 2020, the liability for income taxes associated with unrecognized tax benefits was $ 16.4 million, of which $ 14.8 million, if recognized, would favorably affect the Company's effective tax rate.

2 unchanged sentences

The computation of basic and diluted earnings per share for Net income attributable to Wabtec shareholders is as follows:

Three Months Ended June 30,

Three Months Ended

September 30,

In millions, except per share data 2021 2020

17 unchanged sentences

Percentage allocated to common shareholders 99.8 % 99.8 %

Six Months Ended June 30,

Nine Months Ended

September 30,

In millions, except per share data 2021 2020

19 unchanged sentences

The calculation of earnings per share for common stock shown above excludes the income attributable to the non-vested restricted stock from the numerator and excludes the dilutive impact of those shares from the denominator.

Approximately 0.2 million outstanding shares of Common Stock for the three and six month period of 2021 were not included in the computation of quarterly or year-to-date diluted earnings per share because their exercise price exceeded the average market price of the Company's common stock.

Approximately 0.1 million outstanding shares of Common Stock for the three and nine month period of 2021 were not included in the computation of quarterly or year-to-date diluted earnings per share because their exercise price exceeded the average market price of the Company's common stock.

The following table reconciles the changes in the Company’s product warranty reserve as follows:

4 unchanged sentences

Warranty claim payments ( 84.5 ) ( 95.7 )

Foreign currency impact and other ( 6.0 ) ( 2.1 )

Balance at June 30 $ 281.8 $ 258.5

Foreign currency impact/other ( 8.4 ) 1.7

Balance at September 30 $ 272.0 $ 264.8

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

8 unchanged sentences

These contracts typically mature within two years .

For the three and six months ended June 30, 2021 and 2020, the amounts reclassified into income were not material.

For the three and nine months ended September 30, 2021 and 2020, the amounts reclassified into income were not material.

The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates.

7 unchanged sentences

The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting, but which have the impact of largely mitigating foreign currency exposure.

These foreign exchange contracts are accounted for on a full mark to market basis through earnings, with gains and losses recorded as a component of Other income (expense), net.

The net loss related to these contracts was $ 1.5 million and $ 3.1 million for the three and six months ended June 30, 2021, respectively, and a net loss of $ 1.6 million and $ 0.4 million for the three and six months ended June 30, 2020, respectively.

These foreign exchange contracts are accounted for on a full mark to market basis through earnings, with gains and losses recorded as a component of Other income, net.

The net loss related to these contracts was $ 0.2 million and $ 3.3 million for the three and nine months ended September 30, 2021, respectively, and a net gain of $ 3.1 million and $ 2.7 million for the three and nine months ended September 30, 2020, respectively.

These contracts typically mature within one year .

The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of June 30, 2021:

The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of September 30, 2021:

Fair Value Gross Notional Amount

2 unchanged sentences

Other current assets $ 8.9 $ — $ 768.2 $ —

Cross-currency Swaps

Other current liabilities — — — 270.1

Cross-currency Swaps

Other current assets 5.1 — 579.7 —

Total $ 14.0 $ — $ 1,347.9 $ 270.1

The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedged discussed in the above sections as of December 31, 2020:

The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of December 31, 2020:

Fair Value Gross Notional Amount

8 unchanged sentences

The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing.

The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk.

For the six months ended June 30, 2021 and 2020 the amounts reclassified into income were not material.

The Company does not use leveraged swaps and,

in general, does not leverage any of its investment activities that would put principal capital at risk.

For the nine months ended September 30, 2021 and 2020 the amounts reclassified into income were not material.

Commodity Price Risk

The Company may use commodity forward contracts and futures to mitigate its exposure to commodity price changes and to reduce its overall cost of manufacturing.

For the six months ended June 30, 2021 and 2020 the amounts recognized as income or expense were not material.

For the nine months ended September 30, 2021 and 2020 the amounts recognized as income or expense were not material.

FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS

8 unchanged sentences

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2021 which are included in other current assets and liabilities on the consolidated balance sheet:

Fair Value Measurements at June 30, 2021 Using

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2021 which are included in other current assets and liabilities on the consolidated balance sheet:

Fair Value Measurements at September 30, 2021 Using

Total Carrying

June 30, Quoted Prices in

Active Markets for

Identical Assets Significant Other

Observable Inputs Significant

In millions 2021 (Level 1) (Level 2) (Level 3)

September 30,

2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other

Observable Inputs (Level 2) Significant

Inputs (Level 3)

Foreign Exchange Contracts

2 unchanged sentences

Cross-Currency Swap Agreement

Other current liabilities ( 8.4 ) — ( 8.4 ) —

Other current assets 5.1 — 5.1 —

As a result of our global operating activities, the Company is exposed to market risks from changes in foreign currency exchange rates, which may adversely affect our operating results and financial position.

3 unchanged sentences

The Company’s cash and cash equivalents are highly liquid investments purchased with an original maturity of three months or less and are considered Level 1 on the fair value valuation hierarchy.

The fair value of cash and cash equivalents approximated the carrying value at June 30, 2021 and December 31, 2020.

The fair value of cash and cash equivalents approximated the carrying value at September 30, 2021 and December 31, 2020.

The Company’s defined benefit pension plan assets consist primarily of equity security funds, debt security funds and temporary cash and cash equivalent investments.

4 unchanged sentences

Contingent consideration related to the GE Transportation acquisition is considered Level 3 based on the fair value valuation hierarchy and includes $ 130.0 million classified as "Other accrued liabilities" on the Company's consolidated balance sheet and $ 219.8 million in long-term liabilities classified as "Contingent consideration" on the Company's consolidated balance sheet.

The fair value approximates the carrying value at June 30, 2021.

The fair value approximates the carrying value at September 30, 2021.

COMMITMENTS AND CONTINGENCIES

Claims have been filed against the Company and certain of its affiliates in various jurisdictions across the United States by persons alleging bodily injury as a result of exposure to asbestos-containing products.

Additionally, from time to time, the Company is involved in litigation related to claims arising out of the Company's operations in the ordinary course of business,

including claims based on product liability, contracts, intellectual property or other causes of action.

Additionally, from time to time, the Company is involved in litigation related to claims arising out of the Company's operations in the ordinary course of business, including claims based on product liability, contracts, intellectual property or other causes of action.

Further information and detail on these claims are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

During the first six months of 2021, there were no material changes to the information described in the Form 10-K related to claims arising from asbestos exposure or the Company's ordinary operations.

During the first nine months of 2021, there were no material changes to the information described in the Form 10-K related to claims arising from asbestos exposure or the Company's ordinary operations.

Xorail, Inc., a wholly owned subsidiary of the Company (“Xorail”), has received notices from Denver Transit Constructors (“DTC”) alleging breach of contract related to the operating of constant warning wireless crossings, and late delivery of the Train Management & Dispatch System (“TMDS”) for the Denver Eagle P3 Project, which is owned by the Denver Regional Transit District ("RTD").

12 unchanged sentences

the trial has been completed, included post-trial submission.

A decision is expected by the end of 2021.

As of the date hereof, the Company is involved in no litigation that the Company believes will have a material adverse effect on its financial condition, results of operations or liquidity.

11 unchanged sentences

Since certain administrative and other operating expenses have not been allocated to business segments, the results in the following tables are not necessarily a measure computed in accordance with generally accepted accounting principles and may not be comparable to other companies.

Segment financial information for the three months ended June 30, 2021 is as follows:

Segment financial information for the three months ended September 30, 2021 is as follows:

In millions Freight

9 unchanged sentences

Income (loss) before income taxes $ 195.2 $ 43.9 $ ( 63.8 ) $ 175.3

Segment financial information for the three months ended June 30, 2020 is as follows:

Segment financial information for the three months ended September 30, 2020 is as follows:

In millions Freight

9 unchanged sentences

Income (loss) before income taxes $ 160.2 $ 64.1 $ ( 48.9 ) $ 175.4

Segment financial information for the six months ended June 30, 2021 is as follows:

Segment financial information for the nine months ended September 30, 2021 is as follows:

In millions Freight

9 unchanged sentences

Income (loss) before income taxes $ 510.2 $ 159.3 $ ( 167.3 ) $ 502.2

Segment financial information for the six months ended June 30, 2020 is as follows:

Segment financial information for the nine months ended September 30, 2020 is as follows:

In millions Freight

10 unchanged sentences

Sales to external customers by product line are as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

In millions 2021 2020 2021 2020

9 unchanged sentences

Total Transit Segment $ 611.9 $ 627.8 $ 1,935.2 $ 1,789.4

OTHER INCOME (EXPENSE), NET

The components of Other income (expense), net are as follows:

Three Months Ended June 30, Six Months Ended June 30,

OTHER INCOME, NET

The components of Other income, net are as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

In millions 2021 2020 2021 2020

Foreign currency gain (loss) $ 2.3 $ ( 0.3 ) $ 10.9 $ ( 14.1 )

Foreign currency (loss) gain $ ( 3.5 ) $ 6.4 $ 7.4 $ ( 7.7 )

Equity income 3.2 5.6 10.5 6.7

Expected return on pension assets/amortization 1.9 2.5 7.3 7.2

Other miscellaneous income (expense) 0.7 2.3 0.9 ( 0.2 )

Total other income (expense), net $ 10.3 $ 6.3 $ 24.5 $ ( 8.5 )

Other miscellaneous expense, net ( 1.1 ) ( 0.2 ) ( 0.2 ) ( 0.4 )

Total Other income, net $ 0.5 $ 14.3 $ 25.0 $ 5.8

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements