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Item 1. Financial Statements

2023-04-26 compared with 2022-11-01 · 173 added, 260 removed, 462 unchanged (48% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

In millions, except par value September 30,

In millions, except par value March 31,

2023 December 31,

Cash and cash equivalents $ 514 $ 473

Cash, cash equivalents and restricted cash $ 417 $ 541

Accounts receivable 956 975

Unbilled accounts receivable 620 544

Inventories 2,023 1,689

Inventories, net 2,228 2,034

Other current assets 275 233

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500.0 shares authorized and 226.9 shares issued:

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

179.8 and 181.2 outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 7,940 7,953

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

Treasury stock, at cost, 47.1 and 45.7 shares, at March 31, 2023 and December 31, 2022, respectively

( 1,941 ) ( 1,769 )

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited Unaudited

Three Months Ended

September 30, Nine Months Ended

September 30,

In millions, except per share data 2023 2022

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited Unaudited

Three Months Ended

September 30, Nine Months Ended

September 30,

In millions 2023 2022

Net income attributable to Wabtec shareholders $ 169 $ 149

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

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

Foreign currency translation gain 25 13

Unrealized gain on derivative contracts 5 3

Unrealized gain on pension benefit plans and post-retirement benefit plans 1 1

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

Other comprehensive income before tax 31 17

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

Other comprehensive income, net of tax 30 17

Comprehensive income attributable to Wabtec shareholders $ 199 $ 166

The accompanying notes are an integral part of these statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

In millions 2023 2022

1 unchanged sentence

Net income $ 173 $ 150

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

Adjustments to reconcile net income to net cash (used for) provided by operating activities:

Depreciation and amortization 123 122

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Other assets and liabilities ( 26 ) ( 65 )

Net cash provided by operating activities 628 759

Net cash (used for) provided by operating activities ( 25 ) 161

Investing Activities

Purchase of property, plant and equipment ( 32 ) ( 20 )

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

Proceeds from disposal of property, plant and equipment — 2

5 unchanged sentences

Cash dividends ( 31 ) ( 28 )

Payment of income tax withholding on share-based compensation ( 14 ) ( 2 )

Other financing activities ( 3 ) ( 2 )

1 unchanged sentence

Effect of changes in currency exchange rates 5 5

Increase (decrease) in cash 41 ( 143 )

Cash and cash equivalents, beginning of period 473 599

Cash and cash equivalents, end of period $ 514 $ 456

(Decrease) increase in cash ( 124 ) 15

Cash, cash equivalents and restricted cash, beginning of period 541 473

Cash, cash equivalents and restricted cash, end of period $ 417 $ 488

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

In millions 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

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Balance, March 31, 2023 226.9 $ 2 $ 7,940 ( 47.1 ) $ ( 1,941 ) $ 4,715 $ ( 631 ) $ 49 $ 10,134

Cash dividends ($ 0.15 dividend per share)

— — — — — ( 27 ) — — ( 27 )

Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax — — ( 1 ) 0.1 4 — — — 3

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

Net income — — — — — 166 — 3 169

Other comprehensive loss, net of tax — — — — — — ( 192 ) — ( 192 )

Stock repurchase — — — ( 1.1 ) ( 103 ) — — — ( 103 )

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, 2021 226.9 $ 2 $ 7,916 ( 41.1 ) $ ( 1,306 ) $ 4,055 $ ( 466 ) $ 38 $ 10,239

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Net income — — — — — 149 — 1 150

Other comprehensive loss, net of tax — — — — — — ( 70 ) — ( 70 )

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

Balance, March 31, 2021 226.9 $ 2 $ 7,884 ( 38.0 ) $ ( 1,011 ) $ 3,678 $ ( 409 ) $ 33 $ 10,177

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 — — — 1

Stock based compensation — — 14 — — — — — 14

Net income — — — — — 125 — — 125

Other comprehensive income, net of tax — — — — — — 17 — 17

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 — — — ( 3.1 ) ( 296 ) — — — ( 296 )

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

Balance, March 31, 2022 226.9 $ 2 $ 7,917 ( 44.0 ) $ ( 1,597 ) $ 4,176 $ ( 449 ) $ 39 $ 10,088

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 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.

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023 (UNAUDITED)

Except as the context otherwise requires, all references to “we”, “our”, “us”, the “Company” and “Wabtec” refer to Westinghouse Air Brake Technologies Corporation and its consolidated subsidiaries.

References to the “Parent Company” refer to Westinghouse Air Brake Technologies Corporation alone.

Wabtec 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.

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.

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

In the first three months of 2023, approximately 55 % of the Company’s net sales came from customers outside the United States.

ACCOUNTING POLICIES

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Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation.

Results for these interim periods are not necessarily indicative of results to be expected for the full year particularly in light of the ongoing COVID-19 pandemic, supply chain disruptions, labor availability, broad-based inflation, and the impacts resulting from Russia's invasion of Ukraine.

Results for these interim periods are not necessarily indicative of results to be expected for the full year particularly in light of ongoing volatility in the macroeconomic environment caused by supply chain disruptions, labor availability, broad-based inflation, and the impacts resulting from Russia's invasion of Ukraine.

These factors continue to impact our sales channels, supply chain, manufacturing operations, workforce, and other key aspects of our operations.

We are unable to reasonably predict the full impact of these factors due to the high degree of uncertainty regarding their duration and severity, their potential impact on global economic activity, and the impact that current and new sanctions may have on our business, global supply chain operations and our customers, suppliers, and end-markets.

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 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.

As of March 31, 2023, Wabtec had approximately $ 14 million of assets related to Russian operations, which were primarily cash and inventory.

Assets related to Ukraine and Belarus operations are no t significant.

The Company operates on a four-four-five week accounting quarter, and the quarters end on or about March 31, June 30, September 30, and December 31.

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Generally, the Company uses an input method for determining the amount of revenue, cost and gross margin to recognize over time for these customer agreements.

The input methods used for these agreements include costs of material and labor, both of which give an accurate representation of the progress made toward complete satisfaction of a particular performance obligation.

revenues and cost estimates are reviewed and revised periodically throughout the year and adjustments are reflected in the accounting period as such amounts are determined.

The input methods used for these agreements include costs of material and labor, both of which give an

accurate representation of the progress made toward complete satisfaction of a particular performance obligation.

Contract revenues and cost estimates are reviewed and revised periodically throughout the year and adjustments are reflected in the accounting period as such amounts are determined.

Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment.

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Pricing is defined in our contracts on a line item basis and includes an estimate of variable consideration when required by the terms of the individual customer contract.

Types of variable consideration the Company typically has include volume discounts, prompt payment discounts, liquidating damages and performance bonuses.

Sales returns and allowances are also estimated and recognized in the same period the related revenue is recognized, based upon the Company’s experience.

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

Types of variable consideration the Company typically has include volume discounts, prompt payment discounts, price escalation clauses, liquidating damages and performance bonuses.

Sales returns and allowances are also estimated and recognized in the same period the related revenue is recognized, based upon the Company’s experience and future expectations.

Remaining performance obligations represent the allocated transaction price of unsatisfied or partially unsatisfied performance obligations.

As of March 31, 2023, the Company's remaining performance obligations were approximately $ 22.1 billion.

The Company expects to recognize revenue of approximately 30 % of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

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

Revolving Receivables Program The Company utilizes a revolving facility to sell up to $ 350 million of 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 results in our gross receivables sold exceeding collections reinvested for any applicable period.

As customers pay their balances, we transfer additional receivables into the program, which could result in our gross receivables sold being higher or lower than 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.

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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.

At March 31, 2023 and 2022 the bankruptcy-remote subsidiary held receivables of $ 585 million and $ 367 million, respectively, which are included in the Company's Condensed Consolidated Balance Sheets.

The receivables held by the bankruptcy-remote subsidiary collateralize the outstanding receivables sold, which was $ 225 million and $ 175 million at March 31, 2023 and 2022, 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.

No obligation was recorded at March 31, 2023 or December 31, 2022 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 Nine Months Ended

September 30, 2022 Nine Months Ended

September 30, 2021

In millions Three Months Ended

March 31, 2023 Three Months Ended

March 31, 2022

Gross receivables sold/cash proceeds received $ 519 $ 312

1 unchanged sentence

Net cash proceeds received $ 145 $ 155

Restricted Cash At March 31, 2023 and December 31, 2022, the Company classified cash of $ 7 million as restricted for cash held in escrow related to a 2022 acquisition.

Depreciation Expense Depreciation of property, plant and equipment related to the manufacturing of products or services provided is included in Cost of goods or Cost of services.

Depreciation of other property, plant and equipment that is not attributable to the manufacturing of products or services provided is included in Selling, general and administrative expenses or Engineering expenses depending on how the property, plant and equipment is used.

Depreciation of other property, plant and equipment that is not attributable to the manufacturing of products or services provided is included in Selling, general and administrative expenses or Engineering expenses to the extent the property, plant, and equipment is used for research and development purposes.

Goodwill and Intangible Assets Goodwill and other intangible assets with indefinite lives are not amortized.

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

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

Amortizable 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.

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

Accounting Standards Recently Adopted 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.

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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.

The amendments in this update provide specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination and address how to determine whether a contract liability is recognized by the acquirer in a business combination.

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.

The amendments in this update were effective for Wabtec's reporting periods beginning January 1, 2023, except for the amendments on roll forward information which will be effective for reporting periods beginning January 1, 2024.

The amendments will require increased interim and annual disclosures be provided on current and comparable reporting periods presented in annual and interim company filings.

Supply Chain Financing Program

The Company has entered into supply chain financing arrangements with third-party financial institutions to provide our vendors with enhanced payment options while providing the Company with added working capital flexibility.

The Company does not provide any guarantees under these arrangements, does not have an economic interest in our supplier's voluntary participation, does not receive an economic benefit from the financial institutions, and no assets are pledged under the arrangements.

The arrangements do not change the payable terms negotiated by the Company and our vendors, which range between net 45 and net 180 days, and does not result in a change in the classification of amounts due as Accounts payable in the Condensed Consolidated Balance Sheets.

Suppliers utilized the program to accelerate receipt of payment from these financial institutions for $ 334 million and $ 296 million of the Company's outstanding Accounts payable as of March 31, 2023 and December 31, 2022, respectively.

The supplier invoices included under the program require payment in full to the financial institutions consistent with the Company’s normal terms and conditions as agreed upon with the vendor.

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

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:

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the three months ended March 31, 2023 and 2022 are as follows:

Foreign currency translation Derivative contracts Pension and postretirement benefit plans Total

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Balance at beginning of year $ ( 596 ) $ ( 396 ) $ ( 9 ) $ ( 5 ) $ ( 56 ) $ ( 65 ) $ ( 661 ) $ ( 466 )

Other comprehensive (loss) income before reclassifications ( 352 ) ( 88 ) 3 ( 6 ) 6 ( 2 ) ( 343 ) ( 96 )

Other comprehensive income before reclassifications 25 13 4 3 — — 29 16

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

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

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."

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

Nordco's products and services portfolio includes mobile railcar movers and ultrasonic rail flaw detection technologies.

The purchase price paid for 100 % ownership of Nordco was approximately $ 410 million.

The following table summarizes the fair value of the Nordco assets acquired and liabilities assumed:

Assets acquired

Cash and cash equivalents $ 5

Accounts receivable 23

Other current assets 2

Property, plant and equipment 17

Other intangible assets 168

Other noncurrent assets 12

Total assets acquired 476

Liabilities assumed

Current liabilities 20

Noncurrent liabilities 46

Total liabilities assumed 66

Net assets acquired $ 410

The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches.

Discounted cash flow models were used to estimate the fair values of acquired intangibles.

The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3 in the fair value hierarchy.

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

Contingent liabilities assumed as part of the transaction were not material.

Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the assembled workforce and the future economic benefits, including synergies, that are expected to be achieved as a result of the acquisition.

The purchased goodwill is not expected to be deductible for tax purposes.

The results of this business since the date of acquisition are reported within the Services product line of the Freight Segment.

The pro forma impact on Wabtec’s sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, was not significant.

During the second quarter of 2022 the Company made two strategic acquisitions for a combined purchase price of $ 69 million within the Digital Electronics product line of the Freight Segment which are individually and collectively immaterial.

The Company also made acquisitions in prior periods not listed above which are individually and collectively immaterial.

Other comprehensive income, net 25 13 4 3 1 1 30 17

Balance at March 31 $ ( 571 ) $ ( 383 ) $ ( 5 ) $ ( 2 ) $ ( 55 ) $ ( 64 ) $ ( 631 ) $ ( 449 )

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

During the twelve months ended December 31, 2022, the Freight Segment made three strategic acquisitions for a combined purchase price of $ 89 million.

Two of the acquisitions are reported in the Digital Intelligence product line and one is reported in the Services product line.

Each of the acquisitions in 2022 are individually and collectively immaterial.

The components of inventory, net of reserves, were:

In millions September 30,

In millions March 31,

2023 December 31,

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Foreign currency impact 8 17 25

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.

Balance at March 31, 2023 $ 7,100 $ 1,440 $ 8,540

As of March 31, 2023 and December 31, 2022, the Company’s trade names had a net carrying amount of $ 603 million and $ 602 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 September 30,

2022 December 31,

Backlog, net of accumulated amortization of $ 391 and $ 309

$ 1,035 $ 1,114

Customer relationships, net of accumulated amortization of $ 359 and $ 331

Acquired technology, net of accumulated amortization of $ 412 and $ 334

March 31, 2023 December 31, 2022

In millions Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Backlog $ 1,427 $ ( 443 ) $ 984 $ 1,425 $ ( 415 ) $ 1,010

Customer relationships 1,277 ( 382 ) 895 1,274 ( 362 ) 912

Acquired technology 1,272 ( 421 ) 851 1,273 ( 395 ) 878

Total $ 3,976 $ ( 1,246 ) $ 2,730 $ 3,972 $ ( 1,172 ) $ 2,800

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 $ 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.

At March 31, 2023 the weighted average remaining useful lives of backlog, customer relationships and acquired technology were 9 years, 16 years and 8 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.

Amortization expense for intangible assets was $ 75 million and $ 73 million for the three months ended March 31, 2023 and 2022, respectively.

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

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Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract.

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 $ 198 million at September 30, 2022 and $ 153 million at December 31, 2021.

Noncurrent contract assets were $ 187 million at March 31, 2023 and $ 162 million at December 31, 2022.

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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Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract and advanced customer payments that are in excess of revenue recognized.

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 $ 79 million at September 30, 2022 and $ 88 million at December 31, 2021.

Noncurrent contract liabilities were $ 120 million at March 31, 2023 and $ 86 million at December 31, 2022.

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 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:

Provisions for loss contracts were $ 97 million and $ 98 million at March 31, 2023 and December 31, 2022, respectively.

These provisions for estimated losses are classified as current liabilities and included within the caption “Other accrued liabilities” on the Condensed Consolidated Balance Sheets.

The change in the carrying amount of contract assets and contract liabilities for the three months ended March 31, 2023 and 2022 is as follows:

Contract Assets

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Balance at beginning of year $ 706 $ 545

Acquisitions 28 —

Acquisitions/adjustments ( 2 ) —

Recognized in current year 235 165

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Foreign currency impact 3 ( 2 )

Balance at September 30

Balance at March 31

Contract Liabilities

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Balance at beginning of year $ 956 $ 824

Acquisitions 12 2

Recognized in current year 271 231

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Foreign currency impact 7 ( 4 )

Balance at September 30 $ 880 $ 760

Balance at March 31 $ 914 $ 816

The Company leases certain property, buildings and equipment.

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Many of the Company's leases include rental escalation clauses, renewal options, and/or termination options that are factored into our determination of lease payments when appropriate.

The right-of-use assets are classified as noncurrent and included within the caption "Other noncurrent assets" on the Condensed 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 Condensed Consolidated Balance Sheets.

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

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

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.

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 %.

Operating lease expense was $ 16 million and $ 15 million for the three months ended March 31, 2023 and 2022, respectively.

New operating leases of $ 14 million and $ 2 million were added during the three months ended March 31, 2023 and 2022, respectively.

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

Scheduled payments of lease liabilities are as follows:

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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,

2023 December 31,

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Long-term debt consisted of the following:

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

Effective Interest Rate Face Value March 31, 2023 December 31, 2022

In millions Book Value Fair Value 1

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See Note 13 for information on the fair value measurement of the Company's long-term debt.

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

Variances between Face Value and Book Value are the result of unamortized discounts and debt issuance fees as well as foreign exchange on the Euro Notes.

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

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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 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.

As of March 31, 2023 and December 31, 2022, the Company had total combined unamortized discount and debt issuance costs of $ 19 million and $ 21 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 ("Term Loans") 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.

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.

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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.

The applicable interest rate for borrowings under the Restated Credit Agreement includes a base rate (per the Interest Election terms of the agreement) 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.

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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:

The Company was in compliance with all financial covenants in the Restated Credit Agreement as of March 31, 2023.

The following table presents availability under the Restated Credit Agreement at March 31, 2023:

Maximum Revolving Credit Facility Availability $ 1,500

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Each series of the Senior Notes may be redeemed at 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.

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 and the Company'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.

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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 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 Restated Credit Agreement.

The Euro Notes were issued by Wabtec Transportation Netherlands B.V.

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STOCK-BASED COMPENSATION

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.

As of March 31, 2023, 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 10, 2027, and as of March 31, 2023, the number of shares available for future grants under the 2011 Plan was approximately 4.9 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 $ 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.

New options granted become exercisable over a three-year vesting period.

Options expire 10 years from the date of grant.

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:

Stock-based compensation expense was $ 12 million and $ 11 million for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, unamortized compensation expense related to stock options, non-vested restricted shares and incentive stock units expected to vest is approximately $ 90 million.

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

Under the 2011 Plan and the 2000 Plan, options become exercisable over a three-year vesting period and expire 10 years from the date of grant.

No stock options were granted during the three months ended March 31, 2023 or during the twelve months ended December 31, 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 three months ended March 31, 2023:

Options Weighted

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Canceled ( 113 ) $ 80.52

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

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

Outstanding at March 31, 2023 379,291 $ 77.67 5.8 $ 9

Exercisable at March 31, 2023 343,239 $ 77.48 5.7 $ 8

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.

Under the Directors Plan, restricted stock awards vest one year from the date of grant.

The restricted stock units are liability-classified equity awards as they can be settled in cash.

In addition, the Company has issued incentive stock units to eligible employees that vest upon attainment of certain cumulative three-year performance goals.

Based on the Company’s performance for each three-year period then ended, the incentive stock units can vest, with underlying shares of common stock being awarded in an amount ranging from 0 % to 200 % of the amount of initial incentive stock units granted.

Significant judgments and estimates are used in determining the estimated three-year performance, which is then used to estimate the total shares expected to vest over the three year vesting cycle and corresponding expense based on the grant date fair value of the award.

When determining the estimated three-year performance, the Company utilizes a combination of historical actual results, budgeted results and forecasts.

Upon the initial grant of a performance cycle, the Company estimates the three-year performance at 100 %.

Quarterly, the Company reviews and updates performance estimates based on actual performance results and current projections.

Based on the Company’s performance for each three-year period then ended, the incentive stock units can vest and be awarded ranging from 0 % to 200 % of the initial

incentive stock units granted.

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 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 nine months ended September 30, 2022:

As of March 31, 2023, the Company estimates that it will achieve 125 %, 120 % and 100 % for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2023, 2024, and 2025, respectively, and has recorded incentive compensation expense accordingly.

If the estimates of the number of these incentive stock units expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease and will be recognized 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 closing price of the Company's common stock on the date of grant and recognized over the applicable vesting period.

Expense for incentive stock units is updated as necessary based on the Company's performance.

The following table summarizes the restricted stock activity and related information for the 2011 Plan, the 2000 Plan, and Directors Plan, and incentive stock units activity and related information for the 2011 Plan and the 2000 Plan with related information for the three months ended March 31, 2023:

and Units Incentive

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Canceled ( 3,285 ) ( 1,528 ) $ 85.39

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.

Outstanding at March 31, 2023 804,085 659,821 $ 92.92

The overall effective tax rate of 25.5 % for the three months ended March 31, 2023 differs from the U.S.

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

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law.

This act includes a new book minimum tax on certain large corporations and an excise tax on corporate stock buybacks among other provisions.

This act has not had, and is not expected to have, a material impact on our consolidated financial position, results of operations, or cash flows.

EARNINGS PER SHARE

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Three Months Ended

September 30, Nine Months Ended

September 30,

In millions, except per share data 2023 2022

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Diluted $ 0.93 $ 0.80

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:

The following table reconciles the changes in the Company’s product warranty reserve for the three months ended March 31, 2023 and 2022:

In millions 2023 2022

Balance at beginning of year $ 242 $ 259

Acquisitions 3 2

Warranty expense 27 27

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Foreign currency impact/other 1 ( 2 )

Balance at September 30

Balance at March 31

FAIR VALUE MEASUREMENT AND DERIVATIVE INSTRUMENTS

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Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

and, Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value.

Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value.

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 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 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.

These investments are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity securities, corporate and governmental bonds, and money markets.

Trusts are valued at the net asset value (“NAV”) as determined by their custodian.

NAV represents the accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates.

The Company’s cash, cash equivalents and restricted cash 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, cash equivalents and restricted cash approximated the carrying value at March 31, 2023 and December 31, 2022.

The Senior Notes are considered Level 2 based on the fair value valuation hierarchy.

Contingent consideration related to the GE Transportation acquisition is considered Level 3 based on the fair value valuation hierarchy.

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.

At March 31, 2023 and December 31, 2022, $ 105 million was classified as "Other accrued liabilities" on the Company's Condensed Consolidated Balance Sheets and $ 48 million and $ 47 million, respectively, was included within long-term liabilities classified as "Contingent consideration" on the Company's Condensed Consolidated Balance Sheets.

The fair value approximates the carrying value at March 31, 2023 and December 31, 2022.

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.

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

For the three months ended March 31, 2023 and 2022, 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.

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We are also exposed to foreign currency exchange rate risk related to our foreign subsidiaries, including intercompany loans denominated in non-functional currencies.

We hedge these exposures using foreign currency swap contracts and cross-currency swaps to offset the potential income statement effects on intercompany loans denominated in non-functional currencies.

We hedge these exposures using

foreign currency swap contracts and cross-currency swaps to offset the potential income statement effects on intercompany loans denominated in non-functional currencies.

These programs reduce but do not eliminate foreign currency exchange rate risk entirely.

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 $ 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 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 gain related to these contracts was $ 1 million for the three months ended March 31, 2023 and the net loss related to these contracts was $ 1 million for the three months ended March 31, 2022.

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 September 30, 2022, which are included in "Other current assets" and "Other accrued liabilities" on the Consolidated Balance Sheets:

The following table summarizes the assets, liabilities, gross notional amounts, fair values, and fair value hierarchy classification of the designated and non-designated hedges discussed in the above sections as of March 31, 2023, which are included in other current assets and liabilities on the Condensed Consolidated Balance Sheets:

Fair Value Gross Notional Amount

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Other current liabilities 2 ( 10 ) ( 2 ) 648 181

Cross-currency Swaps

Other current liabilities 2 — — 12 —

Interest Rate Contracts

Other current assets 2 — — 50 —

Total $ ( 2 ) $ — $ 1,131 $ 295

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, 2021, which are included in "Other current assets" and "Other accrued liabilities" on the Consolidated Balance Sheets:

The following table summarizes the assets, liabilities, gross notional amounts, fair values, and fair value hierarchy classification of the designated and non-designated hedges discussed in the above sections as of December 31, 2022, which are included in other current assets and liabilities on the Condensed Consolidated Balance Sheets:

Fair Value Gross Notional Amount

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Other current liabilities 2 ( 11 ) ( 3 ) 769 152

Cross-currency Swaps

Other current assets 2 — — 14 —

Total $ ( 3 ) $ — $ 1,047 $ 308

Interest Rate Risk

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

Accordingly, the Company has entered into interest rate hedges to manage interest rate risk for a portion of future expected debt transactions.

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

For the three months ended March 31, 2023 and 2022 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 nine months ended September 30, 2022 and 2021 the amounts recognized as income or expense were not material.

The Company may use commodity forward swaps to manage its exposure to commodity price changes and to reduce its overall cost of manufacturing.

For the three months ended March 31, 2023 and 2022 the amounts recognized as income or expense were not material.

COMMITMENTS AND CONTINGENCIES

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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.

The vast majority of the claims are submitted to insurance carriers for defense and indemnity, or to non-affiliated companies that retain the liabilities for the asbestos-containing products at issue.

The vast majority of the claims are submitted to insurance carriers for defense and indemnity, or to non-affiliated companies that retain the liabilities for the

asbestos-containing products at issue.

We cannot, however, assure that all of these claims will be fully covered by insurance, or that the indemnitors or insurers will remain financially viable.

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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.

DTC’s complaint generally supports Xorail’s position and does not name or implicate Xorail.

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

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

On February 10, 2023, the court issued a decision in favor of RTD, denying DTC's damages claim.

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

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SEGMENT INFORMATION

Wabtec has two reportable segments—the Freight Segment and the Transit Segment.

The Company has two reportable segments—the Freight Segment and the Transit Segment.

The key factors used to identify these reportable segments are the organization and alignment of the Company’s internal operations, the nature of the products and services and customer type.

Freight Segment primarily builds new locomotives, manufactures and services components for new and existing freight cars and locomotives, rebuilds freight locomotives, supplies railway electronics, positive train control equipment, signal design and engineering services and provides related heat exchange and cooling systems.

Customers include large, publicly traded railroads, leasing companies, manufacturers of original equipment such as locomotives and freight cars and utilities.

The Company's business segments are:

Freight Segment builds, rebuilds, upgrades, and overhauls locomotives, services locomotives and freight cars, and provides a range of component and digital solutions for customers in the freight and transit rail, mining, and marine industries.

Wabtec manufactures and services components for new and existing freight cars and locomotives, supplies railway electronics, positive train control equipment, signal design and engineering services, maintenance of way, and provides heat exchange and cooling systems for locomotives and power generation equipment.

Customers include large, publicly traded railroads, leasing companies, manufacturers of original equipment such as locomotives and freight cars, and utilities, and also serves companies in the mining, marine, and industrial markets.

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.

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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 September 30, 2022 is as follows:

In millions Freight

Segment Transit

Segment Corporate

Activities and

Elimination Total

Sales to external customers $ 1,531 $ 550 $ — $ 2,081

Intersegment sales/(elimination) 13 7 ( 20 ) —

Total sales $ 1,544 $ 557 $ ( 20 ) $ 2,081

Income (loss) from operations $ 233 $ 53 $ ( 25 ) $ 261

Interest expense and other, net — — ( 44 ) ( 44 )

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

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

In millions Freight

Segment Transit

Segment Corporate

Activities and

Elimination Total

Sales to external customers $ 1,295 $ 612 $ — $ 1,907

Intersegment sales/(elimination) 12 8 ( 20 ) —

Total sales $ 1,307 $ 620 $ ( 20 ) $ 1,907

Income (loss) from operations $ 195 $ 44 $ ( 22 ) $ 217

Interest expense and other, net — — ( 42 ) ( 42 )

Income (loss) before income taxes $ 195 $ 44 $ ( 64 ) $ 175

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

Segment financial information for the three months ended March 31, 2023 is as follows:

In millions Freight

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Income (loss) before income taxes $ 227 $ 69 $ ( 63 ) $ 233

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

Segment financial information for the three months ended March 31, 2022 is as follows:

In millions Freight

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Three Months Ended

September 30, Nine Months Ended

September 30,

In millions 2023 2022

3 unchanged sentences

Components 279 229

Digital Electronics 187 155 504 473

Digital Intelligence 187 153

Total Freight Segment $ 1,566 $ 1,322

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

In millions 2023 2022

Foreign currency (loss) gain $ ( 6 ) $ ( 4 ) $ ( 5 ) $ 7

Foreign currency gain $ 2 $ 3

Equity income 1 —

Expected return on pension assets/amortization 2 3

Other miscellaneous income (expense), net 2 ( 2 ) — —

Other miscellaneous expense, net — ( 2 )

Total Other income, net $ 5 $ 4

RESTRUCTURING

During the first quarter of 2022, Wabtec announced a three-year strategic initiative (“Integration 2.0”) to review and consolidate our operating footprint, reduce headcount, streamline the end-to-end manufacturing process, restructure the North America distribution channels, expand operations in low-cost countries, and simplify the business through systems enablement.

Through this initiative, Management will also evaluate additional capital investments to further simplify and streamline the business.

The Company anticipates that it will incur one-time restructuring charges related to Integration 2.0 of approximately $ 135 million to $ 165 million.

During three months ended March 31, 2023, the Company incurred one-time restructuring charges for programs included in the initiative of approximately $ 9 million, of which approximately $ 4 million was included in Cost of goods sold and approximately $ 5 million was included in Selling, general and administrative expenses on the Condensed Consolidated Statements of Income.

These charges are primarily for employee-related costs and asset write downs associated with site consolidations in Europe.

Approximately $ 7 million is related to actions in the Transit Segment and approximately $ 2 million is related to actions in the Freight Segment.

No significant charges related to Integration 2.0 were recorded during the three months ended March 31, 2022.

Total one-time restructuring charges related to Integration 2.0 to date are approximately $ 78 million, which includes amounts recorded in the fourth quarter 2021 and the year ended December 31, 2022, primarily for similar actions in Europe.

Programs approved to date are expected to result in approximately 15 facility closures and impact approximately 1,100 employees.

Cash payments made during three months ended March 31, 2023 or 2022 were not material.

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