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Item 1. Financial Statements

2022-11-01 compared with 2022-08-05 · 149 added, 117 removed, 573 unchanged (32% of the section changed)

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CONDENSED CONSOLIDATED BALANCE SHEETS

In millions, except par value June 30,

In millions, except par value September 30,

2022 December 31,

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500.0 shares authorized and 226.9 shares issued:

181.9 and 185.8 outstanding at June 30, 2022 and December 31, 2021, respectively

181.9 and 185.8 outstanding at September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 7,937 7,916

Treasury stock, at cost, 45.0 and 41.1 shares, at June 30, 2022 and December 31, 2021, respectively

Treasury stock, at cost, 45.0 and 41.1 shares, at September 30, 2022 and December 31, 2021, respectively

( 1,697 ) ( 1,306 )

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

In millions, except per share data 2022 2021 2022 2021

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

In millions 2022 2021 2022 2021

Net income attributable to Wabtec shareholders $ 160 $ 131 $ 475 $ 368

Foreign currency translation (loss) gain ( 195 ) 34 ( 182 ) ( 28 )

Foreign currency translation loss ( 170 ) ( 60 ) ( 352 ) ( 88 )

Unrealized gain (loss) on derivative contracts — — 3 ( 8 )

Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans 4 ( 1 ) 5 ( 4 )

Other comprehensive (loss) income before tax ( 191 ) 33 ( 174 ) ( 40 )

Income tax (expense) benefit related to components of other comprehensive (loss) income ( 1 ) — ( 1 ) 3

Other comprehensive (loss) income, net of tax ( 192 ) 33 ( 175 ) ( 37 )

Unrealized gain on pension benefit plans and post-retirement benefit plans 6 4 11 —

Other comprehensive loss before tax ( 164 ) ( 56 ) ( 338 ) ( 96 )

Income tax (expense) benefit related to components of other comprehensive loss ( 3 ) ( 1 ) ( 4 ) 2

Other comprehensive loss, net of tax ( 167 ) ( 57 ) ( 342 ) ( 94 )

Comprehensive (loss) income attributable to Wabtec shareholders $ ( 7 ) $ 74 $ 133 $ 274

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

Nine Months Ended

September 30,

In millions 2022 2021

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Purchase of property, plant and equipment ( 82 ) ( 78 )

Proceeds from disposal of property, plant and equipment 2 8

Acquisitions of businesses, net of cash acquired ( 69 ) ( 405 )

Proceeds from disposal of property, plant and equipment 2 8

Net cash used for investing activities ( 149 ) ( 475 )

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Balance, June 30, 2022 226.9 $ 2 $ 7,926 ( 45.0 ) $ ( 1,696 ) $ 4,314 $ ( 641 ) $ 42 $ 9,947

Cash dividends ($ 0.15 dividend per share)

— — — — — ( 28 ) — ( 28 )

Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax — — 1 — — — — — 1

Stock based compensation — — 10 — — — — — 10

Net income — — — — — 160 — 3 163

Other comprehensive loss, net of tax — — — — — — ( 167 ) — ( 167 )

Stock repurchase — — — — ( 1 ) — — — ( 1 )

Balance, September 30, 2022 226.9 $ 2 $ 7,937 ( 45.0 ) $ ( 1,697 ) $ 4,447 $ ( 808 ) $ 44 $ 9,925

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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, 2020 226.9 $ 2 $ 7,881 ( 38.0 ) $ ( 1,010 ) $ 3,589 $ ( 339 ) $ 30 $ 10,153

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Balance, June 30, 2021 226.9 $ 2 $ 7,897 ( 37.9 ) $ ( 1,009 ) $ 3,780 $ ( 376 ) $ 33 $ 10,327

Cash dividends ($ 0.12 dividend per share)

— — — — — ( 23 ) — — ( 23 )

Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax — — 1 0.1 2 — — — 3

Stock based compensation — — 8 — — — — — 8

Net income — — — — — 131 — 1 132

Other comprehensive loss, net of tax — — — — — — ( 57 ) — ( 57 )

Stock repurchase — — — ( 2.3 ) ( 199 ) — — — ( 199 )

Balance, September 30, 2021 226.9 $ 2 $ 7,906 ( 40.1 ) $ ( 1,206 ) $ 3,888 $ ( 433 ) $ 34 $ 10,191

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, 2022 (UNAUDITED)

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022 (UNAUDITED)

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

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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 2022, approximately 55 % of the Company’s net sales came from customers outside the United States.

In the first nine months of 2022, approximately 55 % of the Company’s net sales came from customers outside the United States.

ACCOUNTING POLICIES

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For the year ended December 31, 2021, Wabtec had earnings of approximately $ 40 million attributable to customers in Russia, while earnings from customers in Ukraine and Belarus were no t significant.

As of June 30, 2022, Wabtec had approximately $ 18 million of assets related to Russian operations, which were primarily cash and inventory.

As of September 30, 2022, Wabtec had approximately $ 16 million of assets related to Russian operations, which were primarily cash and inventory.

Assets related to Ukraine and Belarus operations are not significant.

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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, 2022, the Company's remaining performance obligations were approximately $ 22.8 billion.

As of September 30, 2022, the Company's remaining performance obligations were approximately $ 22.2 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.

Revolving Receivables Program The Company utilizes a revolving agreement to transfer up to $ 200 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.

Revolving Receivables Program The Company utilizes a revolving facility to sell certain receivables of the Company and certain of its subsidiaries (the "Originators").

The Originators contribute receivables to our bankruptcy-remote subsidiary, which sells the receivables to a financial institution on a recurring basis in exchange for cash equal to the gross receivables sold.

During the third quarter of 2022, the Company amended its revolving receivables facility to increase the amount of certain receivables that can be sold to such financial institution from $ 200 million to up to $ 350 million.

The bankruptcy remote subsidiary is a separate legal entity with its own creditors, and its assets are not available to pay creditors of the Company or any other affiliates of the Company.

As customers pay their balances, we transfer additional receivables into the program, which resulted in our gross receivables sold exceeding collections reinvested for the periods presented.

The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary, which holds additional receivables that are pledged as collateral under this agreement.

At June 30, 2022 and 2021 the bankruptcy-remote subsidiary held receivables of $ 410 million and $ 333 million, respectively.

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, 2022 or 2021 as the estimated expected credit losses on receivables sold is insignificant.

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

As customers pay their balances, we transfer additional receivables into the program, which results in our gross receivables sold exceeding collections reinvested for any applicable period.

The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary, which holds additional receivables that are pledged as collateral under this facility.

The Company has agreed to guarantee the performance of the Originators respective obligations under the revolving agreement.

Neither the Company (except for the bankruptcy-remote consolidated subsidiary referenced above) nor the Originators guarantees the collectability of the receivables under the revolving agreements.

At September 30, 2022 and 2021 the bankruptcy-remote subsidiary held receivables of $ 634 million and $ 285 million, respectively.

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

No obligation was recorded at September 30, 2022 or 2021 as the estimated expected credit losses on receivables sold is insignificant.

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

The following table sets forth a summary of receivables sold:

In millions Six Months Ended

June 30, 2022 Six Months Ended

June 30, 2021

In millions Nine Months Ended

September 30, 2022 Nine Months Ended

September 30, 2021

Gross receivables sold/cash proceeds received $ 1,281 $ 959

Collections reinvested under revolving agreement ( 684 ) ( 487 )

Collections reinvested under revolving receivables agreement ( 1,076 ) ( 875 )

Net cash proceeds received $ 205 $ 84

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Other intangibles (with definite lives) are amortized on a straight-line basis over their estimated economic lives.

Amortizable intangible assets are reviewed for impairment when indicators of impairment are present.

intangible assets are reviewed for impairment when indicators of impairment are present.

The Company tests goodwill and indefinite-lived intangible assets for impairment at the reporting unit level and at least annually.

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.

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.

Accounting Standards Recently Issued In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805):

Accounting Standards Recently Issued In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Obligations.

The amendments in this update outline specific quantitative and qualitative disclosure requirements for entities that use supplier finance programs in connection with the purchase of goods or services.

The amendments in this update do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs.

The amendments in this update will be effective for Wabtec's reporting periods beginning January 1, 2023 and will require increased interim and annual disclosures be provided on current and comparable reporting periods presented in annual and interim company filings.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

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The amendments in this update will be effective for Wabtec on January 1, 2023 and will be applied prospectively to business combinations occurring on or after the effective date.

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

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the three months ended June 30, 2022 and 2021 are as follows:

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

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the three months ended September 30, 2022 and 2021 are as follows:

Foreign currency translation Derivative contracts Pension and postretirement benefit plans Total

In millions 2022 2021 2022 2021 2022 2021 2022 2021

Balance at March 31 $ ( 383 ) $ ( 322 ) $ ( 2 ) $ ( 3 ) $ ( 64 ) $ ( 84 ) $ ( 449 ) $ ( 409 )

Other comprehensive (loss) income before reclassifications ( 195 ) 34 — — 3 ( 2 ) ( 192 ) 32

Amounts reclassified from Accumulated other comprehensive loss — — — — — 1 — 1

Other comprehensive (loss) income, net ( 195 ) 34 — — 3 ( 1 ) ( 192 ) 33

Balance at June 30 $ ( 578 ) $ ( 288 ) $ ( 2 ) $ ( 3 ) $ ( 61 ) $ ( 85 ) $ ( 641 ) $ ( 376 )

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the six months ended June 30, 2022 and 2021 are as follows:

Other comprehensive (loss) income, net ( 170 ) ( 60 ) — — 3 3 ( 167 ) ( 57 )

Balance at September 30 $ ( 748 ) $ ( 348 ) $ ( 2 ) $ ( 3 ) $ ( 58 ) $ ( 82 ) $ ( 808 ) $ ( 433 )

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the nine months ended September 30, 2022 and 2021 are as follows:

Foreign currency translation Derivative contracts Pension and postretirement benefit plans Total

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Other comprehensive (loss) income, net ( 352 ) ( 88 ) 3 ( 6 ) 7 — ( 342 ) ( 94 )

Balance at June 30 $ ( 578 ) $ ( 288 ) $ ( 2 ) $ ( 3 ) $ ( 61 ) $ ( 85 ) $ ( 641 ) $ ( 376 )

Balance at September 30 $ ( 748 ) $ ( 348 ) $ ( 2 ) $ ( 3 ) $ ( 58 ) $ ( 82 ) $ ( 808 ) $ ( 433 )

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

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The components of inventory, net of reserves, were:

In millions June 30,

In millions September 30,

2022 December 31,

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Foreign currency impact ( 40 ) ( 208 ) ( 248 )

Balance at June 30, 2022 $ 7,070 $ 1,389 $ 8,459

As of June 30, 2022 and December 31, 2021, the Company’s trade names had a net carrying amount of $ 597 million and $ 635 million, respectively.

Balance at September 30, 2022 $ 7,057 $ 1,304 $ 8,361

As of September 30, 2022 and December 31, 2021, the Company’s trade names had a net carrying amount of $ 568 million and $ 635 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,

2022 December 31,

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Total $ 2,842 $ 3,070

The weighted average remaining useful lives of backlog, customer relationships and acquired technology were 10 years, 16 years and 9 years, respectively.

At September 30, 2022 the weighted average remaining useful lives of backlog, customer relationships and acquired technology were 10 years, 16 years and 9 years, respectively.

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 million and $ 145 million for the three and six months ended June 30, 2022, respectively, and $ 72 million and $ 142 million for the three and six months ended June 30, 2021, respectively.

Amortization expense for intangible assets was $ 73 million and $ 218 million for the three and nine months ended September 30, 2022, respectively, and $ 73 million and $ 215 million for the three and nine months ended September 30, 2021, 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 sheets.

Noncurrent contract assets were $ 190 million at June 30, 2022 and $ 153 million at December 31, 2021.

Noncurrent contract assets were $ 198 million at September 30, 2022 and $ 153 million at December 31, 2021.

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.

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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 sheets.

Noncurrent contract liabilities were $ 89 million at June 30, 2022 and $ 88 million at December 31, 2021.

Noncurrent contract liabilities were $ 79 million at September 30, 2022 and $ 88 million at December 31, 2021.

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 $ 110 million and $ 107 million at June 30, 2022 and December 31, 2021, 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, 2022 and 2021 is as follows:

Provisions for loss

contracts were $ 110 million and $ 107 million at September 30, 2022 and December 31, 2021, 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 nine months ended September 30, 2022 and 2021 is as follows:

Contract Assets

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Foreign currency impact ( 36 ) ( 6 )

Balance at June 30

Balance at September 30

Contract Liabilities

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Foreign currency impact ( 33 ) ( 10 )

Balance at June 30 $ 826 $ 786

Balance at September 30 $ 880 $ 760

The Company leases certain property, buildings and equipment.

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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.

Operating lease expense was $ 14 million and $ 29 million for the three and six months ended June 30, 2022, respectively, and $ 14 million and $ 28 million for the three and six months ended June 30, 2021, respectively.

New operating leases of $ 22 million and $ 24 million were added during the three and six months ended June 30, 2022, respectively.

Operating lease expense was $ 15 million and $ 44 million for the three and nine months ended September 30, 2022, respectively, and $ 16 million and $ 44 million for the three and nine months ended September 30, 2021, respectively.

New operating leases of $ 34 million and $ 58 million were added during the three and nine months ended September 30, 2022, respectively.

Wabtec does not have material financing leases, short-term or variable leases or sublease income.

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

September 30,

2022 December 31,

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Long-term debt consisted of the following:

Effective Interest Rate Face Value June 30, 2022 December 31, 2021

Effective Interest Rate Face Value September 30, 2022 December 31, 2021

In millions Book Value Fair Value 1

Book Value Fair Value 1

Senior Credit Facility:

Multi-Currency Revolving loan facility 2.9 % N/A $ 217 $ 217 $ — $ —

Restated Credit Agreement:

Revolving Credit Facility 4.8 % $ 122 $ 118 $ 122 $ — $ —

Senior Notes:

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Variances between Face Value and Book Value are the result of unamortized discounts and debt issuance fees.

Amortization of discounts and debt issuance fees are included in the calculation of Effective Interest Rate.

For those debt securities that have a premium or discount at the time of issuance, the Company amortizes the amount through interest expense based on the maturity date or the first date the holders may require the Company to repurchase the debt securities, if applicable.

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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, 2022 and December 31, 2021, the Company had total combined unamortized discount and debt issuance costs of $ 20 million and $ 23 million, respectively.

Senior Credit Facility

On June 8, 2018, the Company entered into a credit agreement ("Senior Credit Facility"), which replaced the Company's then-existing credit agreement.

The Senior Credit Facility is with a syndicate of lenders and provides for borrowings consisting of (i) term loans denominated in euros and U.S.

dollars ("Term Loans");

and (ii) a multi-currency revolving loan facility, providing for an equivalent in U.S.

dollars of up to $ 1,200 million in multi-currency revolving loans (inclusive of swingline

loans of up to $ 75 million and letters of credit of up to $ 450 million (the "Revolving Credit Facility")).

The Revolving Credit Facility will mature on June 8, 2023.

The Company is currently negotiating an extension of the maturity of the Senior Credit Facility and management expects that this can be accomplished at market rates.

Under the Senior Credit Facility, we can elect to receive advances bearing interest based on either the Alternate Base Rate ("ABR"), the London Interbank Offered Rate ("LIBOR") or the adjusted risk-free rate (each as defined in the Senior Credit Facility) plus applicable margin that is determined based on our credit ratings or the Company's Leverage (as defined in the Senior Credit Facility).

As of September 30, 2022 and December 31, 2021, the Company had total combined unamortized discount and debt issuance costs of $ 22 million and $ 23 million, respectively.

Credit Agreement

On June 8, 2018, the Company entered into a credit agreement (“Original Credit Agreement”) consisting of (i) term loans denominated in euros and U.S.

dollars and (ii) a multi-currency revolving loan facility, providing for an equivalent in U.S.

dollars of up to $ 1.2 billion.

On August 15, 2022, the Company entered into a new unsecured credit agreement ("Restated

Credit Agreement"), which amended, restated and replaced the Original Credit Agreement.

The Restated Credit Agreement is with a syndicate of lenders and provides for borrowings consisting of (i) a multi-currency revolving credit facility, providing for an equivalent in U.S.

dollars of up to $ 1.5 billion (the “Revolving Credit Facility”) and (ii) a new $ 250 million delayed draw term loan facility (the “Delayed Draw Term Loan”), all pursuant to the terms and conditions of the Restated Credit Agreement (which are substantially similar with the terms of the Original Credit Agreement).

The Restated Credit Agreement allows the Company to request, at prevailing market rates, an aggregate amount not to exceed $ 750 million, (a) increases to the borrowing commitments under the Revolving Credit Facility and/or (b) new incremental term loan commitments.

The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type.

The obligations under the Senior Credit Facility are guaranteed by Wabtec and certain of Wabtec's U.S.

subsidiaries, as guarantors.

The Company has agreed that, so long as any lender has any commitment under the Senior Credit Facility, any letter of credit is outstanding under the Senior Credit Facility, or any loan or other obligation is outstanding under the Senior Credit Facility, it will maintain the following as of the end of each fiscal quarter or the period of four quarters then ended:

Interest Coverage Ratio 1

Leverage Ratio 2

The interest coverage ratio is defined as EBITDA (earnings before interest, taxes, depreciation, and amortization) to net interest expense (each as defined in the Senior Credit Facility) for the four quarters then ended.

The leverage ratio is defined as net debt as of the last day of such fiscal quarter to EBITDA, as defined in the Senior Credit Facility, for the four quarters then ended.

The Senior Credit Facility was amended in the second quarter of 2021 so the Company may increase the maximum leverage ratio to (x) 3.75 to 1.00 at the end of the fiscal quarter in which the Nordco acquisition was consummated and each of the three fiscal quarters immediately following such fiscal quarter and (y) 3.50 to 1.00 at the end of each of the fourth and fifth full fiscal quarters after the consummation of the Nordco acquisition upon the Company's request.

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, 2022.

The following table presents availability under the Senior Credit Facility at June 30, 2022:

In millions Senior Credit Facility

Maximum Availability $ 1,200

The Revolving Credit Facility matures on August 15, 2027.

The Delayed Draw Term Loan is available for borrowings until February 15, 2024 and any borrowings under the Delayed Draw Term Loan will mature on August 15, 2027.

Amounts borrowed and repaid under the Delayed Draw Term Loan may not be reborrowed.

The applicable interest rate for borrowings under the Restated Credit Agreement includes a base rate plus an interest rate spread up to 1.75 % based on the lower of the pricing corresponding to (i) the Company’s financial leverage or (ii) the Company’s public rating.

Obligations under the Restated Credit Agreement have been guaranteed by certain of the Company’s subsidiaries.

Under the Restated Credit Agreement, the Company has agreed to maintain an Interest Coverage Ratio of at least 3.0 to 1.0, and a Leverage Ratio not to exceed 3.5 to 1.0.

The Interest Coverage Ratio is defined as EBITDA (earnings before interest, taxes, depreciation, and amortization) to Interest Expense for the four quarters then ended.

The Leverage Ratio is defined as Net Debt as of the last day of such fiscal quarter to EBITDA for the four quarters then ended.

Additionally, the Company may submit a request for an increased maximum Leverage Ratio in contemplation of a Material Acquisition.

All terms are as defined in the Restated Credit Agreement.

The Company was in compliance with all financial covenants in the Restated Credit Agreement as of September 30, 2022.

The following table presents availability under the Restated Credit Agreement at September 30, 2022:

Maximum Revolving Credit Facility Availability $ 1,500

Delayed Draw Term Loan 250

Outstanding Borrowings ( 122 )

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STOCK-BASED COMPENSATION

As of June 30, 2022, 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 as of June 30, 2022 the number of shares available for future grants under the 2011 Plan was 6.0 million shares, which includes remaining shares available under the 2000 Plan.

As of September 30, 2022, 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 as of September 30, 2022 the number of shares available for future grants under the 2011 Plan was approximately 5.3 million shares.

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

Stock-based compensation expense was $ 12 million and $ 23 million for the three and six months ended June 30, 2022, respectively, and $ 16 million and $ 24 million for the three and six months ended June 30, 2021, respectively.

At June 30, 2022, unamortized compensation expense related to stock options, non-vested restricted shares and incentive stock units expected to vest totaled $ 69 million.

Stock-based compensation expense was $ 12 million and $ 35 million for the three and nine months ended September 30, 2022, respectively, and $ 10 million and $ 34 million for the three and nine months ended September 30, 2021, respectively.

At September 30, 2022, unamortized compensation expense related to stock options, non-vested restricted shares and incentive stock units expected to vest totaled $ 57 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.

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Options expire 10 years from the date of grant.

No stock options were granted during the six months ended June 30, 2022.

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, 2022:

No stock options were granted during the nine months ended September 30, 2022.

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, 2022:

Options Weighted

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Canceled ( 21,052 ) $ 74.59

Outstanding at June 30, 2022 461,726 $ 75.56 6.0 $ 4

Exercisable at June 30, 2022 350,898 $ 74.39 5.8 $ 3

Outstanding at September 30, 2022 454,919 $ 75.53 5.8 $ 3

Exercisable at September 30, 2022 347,995 $ 74.44 5.6 $ 3

Restricted Stock, Restricted Units and Incentive Stock As provided for under the 2011 Plan and 2000 Plan, eligible employees are granted restricted stock that generally vests over three years from the date of grant.

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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, 2022, the Company estimates that it will achieve 132 %, 117 % and 103 % for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2022, 2023, and 2024, respectively, and has recorded incentive compensation expense accordingly.

As of September 30, 2022, the Company estimates that it will achieve 135 %, 120 % and 106 % for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2022, 2023, and 2024, 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, 2022:

The following table summarizes the restricted stock activity and incentive stock units' activity for the nine months ended September 30, 2022:

and Units Incentive

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Canceled ( 37,548 ) ( 38,313 ) $ 75.69

Outstanding at June 30, 2022 717,044 726,319 $ 84.25

The overall effective tax rate of 25.5 % and 25.3 % for the three and six months ended June 30, 2022, respectively, differs from the U.S.

Outstanding at September 30, 2022 706,183 728,628 $ 84.56

The overall effective tax rate of 24.7 % and 25.1 % for the three and nine months ended September 30, 2022, respectively, differs from the U.S.

federal statutory rate of 21.0% primarily due to the impact of state and foreign taxes .

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

In millions, except per share data 2022 2021 2022 2021

7 unchanged sentences

Diluted $ 0.88 $ 0.69 $ 2.59 $ 1.95

Approximately 0.2 million outstanding shares of stock options for the three and six months ended June 30, 2021 were not included in the computation of quarterly 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 for the six months ended June 30, 2022 and 2021:

Approximately 0.1 million outstanding shares of stock options for the three and nine months ended September 30, 2021 were not included in the computation of 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 for the nine months ended September 30, 2022 and 2021:

In millions 2022 2021

4 unchanged sentences

Foreign currency impact/other ( 16 ) ( 9 )

Balance at June 30

Balance at September 30

FAIR VALUE MEASUREMENT AND DERIVATIVE INSTRUMENTS

9 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, 2022 and December 31, 2021.

The fair value of cash and cash equivalents approximated the carrying value at September 30, 2022 and December 31, 2021.

The Company’s defined benefit pension plan assets consist primarily of equity security funds, debt security funds, insurance contracts, 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.

At June 30, 2022 and December 31, 2021, $ 110 million was classified as "Other accrued liabilities" on the Company's Consolidated Balance Sheets and $ 143 million and $ 141 million, respectively, was included within long-term liabilities classified as "Contingent consideration" on the Company's Consolidated Balance Sheets.

The fair value approximates the carrying value at June 30, 2022 and December 31, 2021.

At September 30, 2022 and December 31, 2021, $ 110 million was classified as "Other accrued liabilities" on the Company's Consolidated Balance Sheets and $ 143 million and $ 141 million, respectively, was included within long-term liabilities classified as "Contingent consideration" on the Company's Consolidated Balance Sheets.

The fair value approximates the carrying value at September 30, 2022 and December 31, 2021.

Hedging Activities In the normal course of business, the Company is exposed to market risk related to interest rates, commodity prices and foreign currency exchange rate fluctuations, which may adversely affect our operating results and financial position.

8 unchanged sentences

The effective portion of gains and losses is deferred as a component of Accumulated other comprehensive loss and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item.

For the three and six months ended June 30, 2022 and 2021, the amounts reclassified into income were not material.

For the three and nine months ended September 30, 2022 and 2021, the amounts reclassified into income were not material.

The Company has also established balance sheet risk management and net investment hedging programs to protect its balance sheet against foreign currency exchange rate volatility.

6 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, net.

The net loss related to these contracts was $ 7 million and $ 8 million for the three and six

months ended June 30, 2022, respectively, and a net loss of $ 1 million and $ 3 million for the three and six months ended June 30, 2021, 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 $ 3 million and $ 11 million for the three and nine months ended September 30, 2022, respectively, and a net loss of $ 3 million for the nine months ended September 30, 2021.

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, 2022, which are included in "Other current assets" and "Other accrued liabilities" on the Consolidated Balance Sheets:

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, 2022, which are included in "Other current assets" and "Other accrued liabilities" on the Consolidated Balance Sheets:

Fair Value Gross Notional Amount

18 unchanged sentences

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, 2022 and 2021 the amounts reclassified into income were not material.

For the nine months ended September 30, 2022 and 2021 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, 2022 and 2021 the amounts recognized as income or expense were not material.

For the nine months ended September 30, 2022 and 2021 the amounts recognized as income or expense were not material.

COMMITMENTS AND CONTINGENCIES

11 unchanged sentences

Xorail has successfully completed a remediation plan concerning the TMDS issues.

With regard to the wireless crossing issue, as of September 8, 2017, DTC alleged that total damages were $ 37 million through July 31, 2017 and are continuing to accumulate.

With regard to the wireless crossing issue, as of September 8, 2017, DTC alleged that total damages were $ 37 million through July 31, 2017 and were continuing to accumulate.

The majority of the damages stems from a delay in approval of the wireless crossing system by the Federal Railway Administration ("FRA") and the Public Utility Commission ("PUC"), resulting in the use of flaggers at all of the crossings pending approval of the wireless crossing system and certification of the crossings.

3 unchanged sentences

the FRA and PUC have both approved modified wireless crossing system, and as of August 2018, DTC completed the process of certifying the crossings and eliminated the use of flaggers.

DTC has not updated its notices against Xorail, nor have they filed any formal claim against Xorail.

DTC has not updated its claim notices or alleged damages against Xorail, nor have they filed any formal claim against Xorail.

On September 21, 2018, DTC filed a complaint against RTD in Colorado state court for breach of contract related to non-payments and the costs for the flaggers, asserting a change-in-law arising from the FRA/PUC’s new certification requirements.

1 unchanged sentence

DTC's claim against RTD proceeded to trial on September 21, 2020;

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

the trial has been completed, including post-trial submissions.

From time to time the Company is involved in litigation relating to claims arising out of its operations in the ordinary course of business.

12 unchanged sentences

Corporate activities include general corporate expenses, elimination of intersegment transactions, interest income and expense, and other unallocated charges.

Segment financial information for the three months ended June 30, 2022 is as follows:

Segment financial information for the three months ended September 30, 2022 is as follows:

In millions Freight

9 unchanged sentences

Income (loss) before income taxes $ 233 $ 53 $ ( 69 ) $ 217

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 $ 44 $ ( 64 ) $ 175

Segment financial information for the six months ended June 30, 2022 is as follows:

Segment financial information for the nine months ended September 30, 2022 is as follows:

In millions Freight

9 unchanged sentences

Income (loss) before income taxes $ 655 $ 168 $ ( 179 ) $ 644

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

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

In millions 2022 2021 2022 2021

12 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

In millions 2022 2021 2022 2021

5 unchanged sentences

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