What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-23 compared with 2024-07-24 · 134 added, 128 removed, 323 unchanged (45% of the section changed)

5 unchanged sentences

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 2024, approximately 50% of the Company’s Net sales came from customers outside the United States.

In the first nine months of 2024, approximately 52% of the Company’s Net sales came from customers outside the United States.

Business Update

During the first six months of 2024, Wabtec continued to execute on our value creation framework by signing several key agreements including:

a multi-year Tier 4 locomotive order in North America for over $600 million, Wabtec's first multi-year service contract with a customer in Brazil worth over $240 million, a long term parts agreement with a customer in Asia, and a multi-year order for new locomotives in Africa.

During the first nine months of 2024, Wabtec continued to execute on our value creation framework by signing several key agreements including:

a multi-year Tier 4 locomotive order in North America for over $600 million, a multi-year locomotive order in Kazakhstan for over $400 million, and a multi-year order for new locomotives in Africa.

Additionally, Wabtec won a long-term parts agreement with a Class I railroad for over $300 million, signed its first multi-year service contract with a customer in Brazil worth over $240 million, and secured a long-term parts agreement with a customer in Asia.

Operationally, Wabtec began commercial operations for its Green Friction braking solution in Paris and launched the next generation of railcar movers with its Shuttlewagon Commander NXT.

4 unchanged sentences

Management will also consider additional capital investments to further simplify and streamline the business.

The Company anticipates that it will incur one-time restructuring charges of approximately $135 million to $165 million related to this initiative, of which approximately $130 million has been incurred through June 30, 2024.

The Company anticipates that it will incur one-time restructuring charges of approximately $135 million to $165 million related to this initiative, of which approximately $140 million has been incurred through September 30, 2024.

Total estimated initiative charges could change based on the specific programs approved or changes to the scope of the review.

During the three and six months ended June 30, 2024, the Company incurred one-time restructuring charges for programs included in the initiative of approximately $4 million and $12 million, respectively, and $8 million and $17 million for the three and six months ended June 30, 2023, respectively, primarily for employee-related costs and asset write downs associated with site consolidations in Europe.

During the three and nine months ended September 30, 2024, the Company incurred one-time restructuring charges for programs included in the initiative of approximately $10 million and $22 million, respectively, and $13 million and $30 million for the three and nine months ended September 30, 2023, respectively, primarily for employee-related costs and asset write downs associated with site consolidations in Europe.

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

1 unchanged sentence

Wabtec expects to incur approximately $85 million in net exit charges related to Portfolio Optimization, which will be predominately non-cash asset write downs.

Wabtec recorded charges of approximately $2 million and $5 million during the three and six months ended June 30, 2024, respectively, for asset write downs related to Portfolio Optimization.

No charges related to Portfolio Optimization were recorded during the six months ended June 30, 2023.

Wabtec recorded charges of approximately $8 million and $13 million during the three and nine months ended September 30, 2024, respectively, for asset write downs related to Portfolio Optimization.

No charges related to Portfolio Optimization were recorded during the nine months ended September 30, 2023.

Total one-time restructuring charges related to Portfolio Optimization to date are approximately $41 million.

2 unchanged sentences

The Company utilizes various mitigating actions intended to lessen the impact of macroeconomic volatility.

These actions include implementing price escalations and surcharges, driving operational efficiencies through various cost mitigation efforts and discretionary spend management, strategically sourcing materials, reviewing and modifying distribution logistics, and accelerating integration synergies through Integration 2.0.

These actions include implementing price escalations and surcharges, driving

operational efficiencies through various cost mitigation efforts and discretionary spend management, strategically sourcing materials, reviewing and modifying distribution logistics, and accelerating integration synergies through Integration 2.0.

During the first quarter of 2024, Company Management determined that certain parts of the business would be better aligned with Management oversight in different product lines.

2 unchanged sentences

Consolidated Results

SECOND QUARTER 2024 COMPARED TO SECOND QUARTER 2023

THIRD QUARTER 2024 COMPARED TO THIRD QUARTER 2023

The following table shows our Condensed Consolidated Statements of Operations for the periods indicated.

Three Months Ended

September 30,

In millions 2024 2023

15 unchanged sentences

Interest expense, net (52) (60)

Other income, net 4 2

Other (expense) income, net (3) 10

Income before income taxes 378 320

3 unchanged sentences

Net income attributable to Wabtec shareholders $ 283 $ 240

The following table shows the major components of the change in Net sales in the three months ended June 30, 2024 from the three months ended June 30, 2023:

The following table shows the major components of the change in Net sales in the three months ended September 30, 2024 from the three months ended September 30, 2023:

In millions Freight Segment Transit Segment Total

Second Quarter 2023 Net sales $ 1,697 $ 710 $ 2,407

Third Quarter 2023 Net sales $ 1,881 $ 669 $ 2,550

Acquisitions 2 — 2

1 unchanged sentence

Organic 58 56 114

Second Quarter 2024 Net sales $ 1,920 $ 724 $ 2,644

Net sales for the three months ended June 30, 2024 increased by $237 million, or 9.8%, to $2.64 billion compared to the same period in 2023.

Organic sales increased $221 million which was attributable to both Freight and Transit Segments.

Freight Equipment sales increased from higher North American and international locomotive sales and increased mining sales.

Components sales increased due to higher international railcar sales and growth in industrial end-markets.

Freight Services sales increased from higher deliveries of locomotive modernizations and overhauls and higher parts sales.

Transit sales increased from higher demand for Aftermarket products driven by increased infrastructure investment, partially offset by lower Original Equipment sales.

Sales from acquisitions contributed $34 million in the Freight Segment and unfavorable changes in foreign exchange rates decreased sales by $18 million from both the Freight and Transit Segments.

Third Quarter 2024 Net sales $ 1,930 $ 733 $ 2,663

Net sales for the three months ended September 30, 2024 increased by $113 million, or 4.4%, to $2.66 billion compared to the same period in 2023.

Organic sales increased $114 million which was attributable to both the Freight and Transit Segments.

Freight Services sales increased from higher deliveries of locomotive modernizations and engine overhauls.

Digital Intelligence sales increased due to higher international sales, including Positive Train Control ("PTC"), on-board locomotive solutions, and digital mining products.

Freight Equipment sales decreased from lower locomotive deliveries, partially offset by increased mining sales.

Transit sales increased from higher demand for Original Equipment Manufacturing and Aftermarket products driven by increased investments in sustainable infrastructure.

Cost of sales

Cost of sales for the three months ended June 30, 2024 increased by $86 million, or 5.1%, to $1.77 billion compared to the same period in 2023.

Cost of sales for the three months ended September 30, 2024 increased by $25 million, or 1.4%, to $1.78 billion compared to the same period in 2023.

The increase is primarily due to the increase in Net sales.

Cost of sales as a percentage of net sales was 67.0% and 69.9% for the three months ended June 30, 2024 and 2023, respectively.

The improvement in gross margin is attributable to favorable mix within and between the Freight and Transit segments, strong productivity and favorable fixed cost absorption.

Costs of sales for the three months ended June 30, 2024 and 2023 included $6 million and $8 million, respectively, of restructuring costs, primarily for headcount actions and footprint rationalization related to Integration 2.0 in both years and Portfolio Optimization in 2024.

Cost of sales as a percentage of Net sales was 67.0% and 69.0% for the three months ended September 30, 2024 and 2023, respectively.

The improvement in gross margin is attributable to favorable mix within the Freight segment, strong productivity and the impacts of Integration 2.0.

Costs of sales for the three months ended September 30, 2024 and 2023 included $7 million and $13 million, respectively, of restructuring costs, primarily for headcount actions and footprint rationalization related to Integration 2.0 in both years and Portfolio Optimization in 2024.

Operating expenses

Total operating expenses increased $33 million, or 8.0%, for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to the increase in net sales.

Operating expenses as a percentage of sales was 16.8% and 17.1% for the three months ended June 30, 2024 and 2023, respectively.

Selling, general and administrative expenses ("SG&A") increased $31 million for the three months ended June 30, 2024 compared to the same period in 2023.

Total operating expenses increased $25 million, or 5.9%, for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to the increase in Net sales and higher restructuring costs.

Operating expenses as a percentage of sales was 16.8% and 16.5% for the three months ended September 30, 2024 and 2023, respectively.

Selling, general and administrative expenses ("SG&A") increased $23 million for the three months ended September 30, 2024 compared to the same period in 2023.

The increase is primarily from costs incurred to support the higher sales volume and higher employee compensation and benefit costs, partially offset by the impacts of Integration 2.0.

Restructuring costs included in SG&A were $3 million and $2 million for the three months ended June 30, 2024 and 2023, respectively, primarily for headcount actions and footprint rationalization programs related to Integration 2.0.

Restructuring costs included in SG&A were $5 million for the three months ended September 30, 2024, primarily for headcount actions and footprint rationalization programs related to Integration 2.0 and Portfolio Optimization.

There were no restructuring amounts recorded in SG&A for the three months ended September 30, 2023.

Interest expense, net

Interest expense, net, decreased $6 million to $49 million for the three months ended June 30, 2024 compared to the same period in 2023 primarily due to lower average overall debt balances in the current period, partially offset by higher effective interest rates.

Other income, net

Other income, net, increased $2 million to $4 million for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to lower foreign exchange losses, partially offset by lower equity income.

The effective income tax rate was 24.5% and 25.5% for the three months ended June 30, 2024 and 2023, respectively.

The year over year decrease was primarily driven by a change in the jurisdictional mix of earnings for the three months ended June 30, 2024.

Interest expense, net, decreased $8 million to $52 million for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to lower average debt balances in the current period.

Other (expense) income, net

Other (expense) income, net, decreased $13 million from $10 million to $(3) million for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to higher foreign exchange losses and lower equity income.

The effective income tax rate was 24.2% and 24.5% for the three months ended September 30, 2024 and 2023, respectively.

The year over year decrease was primarily driven by a change in the jurisdictional mix of earnings for the three months ended September 30, 2024 and audit closures.

Freight Segment

1 unchanged sentence

Three Months Ended

September 30,

In millions 2024 2023 Change % Change

11 unchanged sentences

Income from operations (% of Net sales) 20.2 % 17.3 % 2.9

The following table shows the major components of the change in Net sales for the Freight Segment in the second quarter of 2024 from the second quarter of 2023:

Second Quarter 2023 Net sales $ 1,697

The following table shows the major components of the change in Net sales for the Freight Segment in the third quarter of 2024 from the third quarter of 2023:

Third Quarter 2023 Net sales $ 1,881

Acquisitions 2

2 unchanged sentences

Equipment (100)

Components 15

Digital Intelligence 22

Second Quarter 2024 Net sales $ 1,920

Freight Segment organic sales increased by $197 million driven primarily by:

• Equipment sales from higher North America and international locomotive sales and increased mining sales,

• Components sales from higher international railcar sales and growth in industrial end-markets, and

• Services sales from higher deliveries of locomotive modernizations and overhauls and higher parts sales

Additionally, Freight Segment sales also benefited from our strategic acquisition of L&M Radiator, Inc.

by $34 million.

Third Quarter 2024 Net sales $ 1,930

Freight Segment organic sales increased by $58 million driven primarily by Services sales from higher deliveries of locomotive modernizations and engine overhauls and Digital Intelligence due to higher international sales, including PTC, on-board locomotive solutions, and digital mining products.

Equipment sales decreased from lower locomotive deliveries, partially offset by increased mining sales.

Cost of sales

Freight Segment Cost of sales increased $92 million from higher sales volume, and Cost of sales as a percentage of Net sales decreased 3.0 percentage points.

The improvement in gross margin is attributable to favorable mix within the Freight Segment product lines, strong productivity and favorable fixed cost absorption.

Cost of sales for the three months ended June 30, 2023 was also impacted by manufacturing inefficiencies related to labor negotiations at our Erie facility.

Cost of sales for each of the three months ended June 30, 2024 and 2023 included $5 million of restructuring costs, primarily related to Integration 2.0 in both years and Portfolio Optimization in 2024.

Freight Segment Cost of sales decreased $15 million, and Cost of sales as a percentage of Net sales decreased 2.6 percentage points.

The improvement in gross margin is attributable to favorable mix within the Freight Segment product lines and strong productivity.

Cost of sales for the three months ended September 30, 2023 was also impacted by manufacturing inefficiencies related to labor negotiations at our Erie facility.

Cost of sales for each of the three months ended September 30, 2024 and 2023 included $2 million of restructuring costs, respectively, primarily related to Integration 2.0 in both years and Portfolio Optimization in 2024.

Operating expenses

Freight Segment operating expenses increased by $9 million primarily driven by higher SG&A expenses resulting from higher costs to support increased sales volume, higher employee compensation and benefit costs and incremental expense from acquisitions.

Freight Segment operating expenses decreased by $1 million primarily driven by lower professional services spend and a reduction in research and development costs, partially offset by higher SG&A expenses resulting from higher costs to support increased sales volume, higher employee compensation and benefit costs and incremental expense from acquisitions.

Freight Segment operating expenses for the three months ended September 30, 2023 were also impacted by labor negotiations at our Erie facility.

Freight SG&A expenses for the three months ended September 30, 2024 included $2 million of restructuring costs, primarily related to Portfolio Optimization.

The amounts recorded in the three months ended September 30, 2023 were not significant.

Transit Segment

1 unchanged sentence

Three Months Ended

September 30,

In millions 2024 2023 Change % Change

6 unchanged sentences

Income from operations (% of Net sales) 10.8 % 10.3 % 0.5

The following table shows the major components of the change in Net sales for the Transit Segment in the second quarter of 2024 from the second quarter of 2023:

Second Quarter 2023 Net sales $ 710

The following table shows the major components of the change in Net sales for the Transit Segment in the third quarter of 2024 from the third quarter of 2023:

Third Quarter 2023 Net sales $ 669

Foreign Exchange 8

2 unchanged sentences

Original Equipment Manufacturing 40

Second Quarter 2024 Net sales $ 724

Transit Segment organic sales increased by $24 million driven by strong Aftermarket sales primarily as a result of increased demand for products and services and increased infrastructure investment.

This increase was partially offset by a decrease in Original Equipment Manufacturing sales.

Changes in foreign exchange rates also decreased sales by $10 million.

Third Quarter 2024 Net sales $ 733

Transit Segment organic sales increased by $56 million driven by strong Original Equipment Manufacturing and Aftermarket sales primarily as a result of increased demand for products and services and increased investments in sustainable infrastructure.

Changes in foreign exchange rates also increased sales by $8 million.

Cost of sales

Transit Segment Cost of sales decreased by $6 million, and Costs of sales as a percentage of sales decreased by 2.3 percentage points primarily from favorable mix within the Transit product lines, partially offset by higher sales volume.

The increase in gross margin was also attributable to benefits from structured cost actions taken through Integration 2.0 and prior years' restructuring and integration projects.

Transit Cost of sales for the three months ended June 30, 2024 and 2023 includes $1 million and $3 million of restructuring costs, respectively, primarily for footprint rationalization and headcount actions in Europe related to Integration 2.0.

Transit Segment Cost of sales increased by $40 million, primarily due to higher sales volume.

Costs of sales as a percentage of sales decreased by 1.0 percentage points.

The increase in gross margin was attributable to benefits from structured cost actions taken through Integration 2.0 and prior years' restructuring and integration projects, partially offset by unfavorable mix within the Transit Segment.

Transit Cost of sales for the three months ended September 30, 2024 and 2023 included $5 million and $11 million of restructuring costs, respectively, primarily for footprint rationalization and headcount actions in Europe related to Integration 2.0.

Operating expenses

1 unchanged sentence

Higher SG&A expenses to support higher sales volume and higher employee compensation and benefit costs were partially offset by benefits from structured cost actions taken through Integration 2.0 and prior years' restructuring and integration projects.

Transit SG&A expenses for each of the three months ended June 30, 2024 and 2023 include $3 million of restructuring costs, primarily for footprint rationalization and headcount actions in Europe related to Integration 2.0.

FIRST SIX MONTHS OF 2024 COMPARED TO FIRST SIX MONTHS OF 2023

Transit SG&A expenses for the three months ended September 30, 2024 included $3 million of restructuring costs, primarily for footprint rationalization and headcount actions in Europe related to Integration 2.0.

The amounts recorded in the three months ended September 30, 2023 were not significant.

FIRST NINE MONTHS OF 2024 COMPARED TO FIRST NINE MONTHS OF 2023

The following table shows our Condensed Consolidated Statements of Operations for the periods indicated.

Six Months Ended

Nine Months Ended

September 30,

In millions 2024 2023

15 unchanged sentences

Interest expense, net (148) (163)

Other income, net 2 7

Other (expense) income, net (1) 17

Income before income taxes 1,126 812

3 unchanged sentences

Net income attributable to Wabtec shareholders $ 844 $ 600

The following table shows the major components of the change in Net sales in the six months ended June 30, 2024 from the six months ended June 30, 2023:

The following table shows the major components of the change in Net sales in the nine months ended September 30, 2024 from the nine months ended September 30, 2023:

In millions Freight Segment Transit Segment Total

First Six Months of 2023 Net sales $ 3,253 $ 1,348 $ 4,601

First Nine Months of 2023 Net sales $ 5,134 $ 2,017 $ 7,151

Acquisitions 72 — 72

1 unchanged sentence

Organic 486 111 597

First Six Months of 2024 Net sales $ 3,744 $ 1,397 $ 5,141

Net sales for the six months ended June 30, 2024 increased by $540 million, or 11.7%, to $5.14 billion compared to the same period in 2023.

Organic sales increased $483 million which was attributable to both Freight and Transit Segments.

First Nine Months of 2024 Net sales $ 5,674 $ 2,130 $ 7,804

Net sales for the nine months ended September 30, 2024 increased by $653 million, or 9.1%, to $7.80 billion compared to the same period in 2023.

Organic sales increased $597 million which was attributable to both the Freight and Transit Segments.

Freight Equipment sales increased from higher North American and international locomotive sales and increased mining sales.

Freight Services sales increased from higher deliveries of locomotive modernizations and overhauls and higher parts sales.

Transit sales increased from higher demand for Aftermarket products driven by increased infrastructure investment, partially offset by lower Original Equipment sales.

Freight Services sales increased from higher deliveries of locomotive modernizations and engine overhauls and higher parts sales.

Transit sales increased from higher demand for Original Equipment Manufacturing and Aftermarket products driven by increased investments in sustainable infrastructure.

Sales from acquisitions contributed $72 million in the Freight Segment and unfavorable changes in foreign exchange rates decreased sales by $16 million.

Cost of sales

Cost of sales for the six months ended June 30, 2024 increased by $239 million, or 7.4%, to $3.45 billion compared to the same period in 2023.

Cost of sales for the nine months ended September 30, 2024 increased by $264 million, or 5.3%, to $5.24 billion compared to the same period in 2023.

The increase is primarily due to the increase in Net sales.

Cost of sales as a percentage of net sales was 67.2% and 69.8% for the six months ended June 30, 2024 and 2023, respectively.

The improvement in gross margin is attributable to improved pricing, favorable mix between the Freight and Transit segments and improved productivity.

Cost of sales for both the six months ended June 30, 2024 and 2023 included $12 million of restructuring costs, primarily for headcount actions and footprint rationalization related to Integration 2.0 in both years and Portfolio Optimization in 2024.

Cost of sales as a percentage of Net sales was 67.1% and 69.5% for the nine months ended September 30, 2024 and 2023, respectively.

The improvement in gross margin is attributable to improved pricing, favorable mix between the Freight and Transit segments, improved productivity and favorable fixed cost absorption.

Cost of sales for the nine months ended September 30, 2024 and 2023 included $19 million and $25 million, respectively, of restructuring costs, primarily for headcount actions and footprint rationalization related to Integration 2.0 in both years and Portfolio Optimization in 2024.

Operating expenses

Total operating expenses increased $47 million, or 5.9%, for the six months ended June 30, 2024 compared to the same period in 2023, primarily due to the increase in net sales.

Operating expenses as a percentage of sales was 16.5% and 17.4% for the six months ended June 30, 2024 and 2023, respectively.

Selling, general and administrative expenses ("SG&A") increased $49 million for the six months ended June 30, 2024 compared to the same period in 2023.

Total operating expenses increased $72 million, or 5.9%, for the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to the increase in Net sales.

Operating expenses as a percentage of sales was 16.6% and 17.1% for the nine months ended September 30, 2024 and 2023, respectively.

SG&A expenses increased $72 million for the nine months ended September 30, 2024 compared to the same period in 2023.

The increase is primarily from costs incurred to support the higher sales volume and higher employee compensation and benefit costs, partially offset by the impacts of Integration 2.0.

Restructuring costs included in SG&A were $6 million and $7 million for the six months ended June 30, 2024 and 2023, respectively, primarily for headcount actions and footprint rationalization programs related to Integration 2.0.

Restructuring costs included in SG&A were $11 million and $7 million for the nine months ended September 30, 2024 and 2023, respectively, primarily for headcount actions and footprint rationalization programs related to Integration 2.0 in both years and Portfolio Optimization in 2024.

Interest expense, net

Interest expense, net, decreased $7 million to $96 million for the six months ended June 30, 2024 compared to the same period in 2023 primarily due to lower average overall debt balances in the current period, partially offset by higher effective interest rates.

Other income, net

Other income, net, decreased $5 million to $2 million for the six months ended June 30, 2024 compared to the same period in 2023, primarily due to lower equity income.

The effective income tax rate was 24.1% and 25.5% for the six months ended June 30, 2024 and 2023, respectively.

The year over year decrease was primarily driven by higher discrete equity compensation tax deductions for the six months ended June 30, 2024 and a change in the jurisdictional mix of earnings.

Interest expense, net, decreased $15 million to $148 million for the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to lower average debt balances in the current period, partially offset by higher effective interest rates.

Other (expense) income, net

Other (expense) income, net, decreased $18 million from $17 million to $(1) million for the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to lower equity income.

The effective income tax rate was 24.1% and 25.1% for the nine months ended September 30, 2024 and 2023, respectively.

The year over year decrease was primarily driven by higher discrete equity compensation tax deductions for the nine months ended September 30, 2024, audit closures, and a change in the jurisdictional mix of earnings.

Freight Segment

The following table shows our Condensed Consolidated Statements of Operations for our Freight Segment for the periods indicated:

Six Months Ended

Nine Months Ended

September 30,

In millions 2024 2023 Change % Change

11 unchanged sentences

Income from operations (% of Net sales) 20.2 % 16.0 % 4.2

The following table shows the major components of the change in Net sales for the Freight Segment in the first six months of 2024 from the first six months of 2023:

First Six Months of 2023 Net Sales $ 3,253

The following table shows the major components of the change in Net sales for the Freight Segment in the first nine months of 2024 from the first nine months of 2023:

First Nine Months of 2023 Net sales $ 5,134

Acquisitions 72

4 unchanged sentences

Digital Intelligence 19

First Six Months of 2024 Net Sales $ 3,744

Freight Segment organic sales increased by $428 million driven primarily by:

• Equipment sales from higher North America and international locomotive sales and increased mining sales, and

• Services sales from higher deliveries of locomotive modernizations and overhauls and higher parts sales

Additionally, Freight Segment sales also benefited from our strategic acquisition of L&M Radiator, Inc.

by $70 million.

First Nine Months of 2024 Net sales $ 5,674

Freight Segment organic sales increased by $486 million driven primarily by Services sales from higher deliveries of locomotive modernizations and engine overhauls and higher parts sales, and Equipment sales from higher North American and international locomotive sales and increased mining sales.

Additionally, Freight Segment sales also benefited from acquisitions by $72 million, primarily from our strategic acquisition of L&M Radiator, Inc.

Cost of sales

1 unchanged sentence

The improvement in gross margin is attributable to improved pricing, favorable mix within the Freight Segment product lines and improved productivity.

Cost of sales for the six months ended June 30, 2023 was also impacted by manufacturing inefficiencies related to labor negotiations at our Erie facility and costs related to next generation product development in Digital Intelligence.

Cost of sales for the six months ended June 30, 2024 and 2023 included $8 million and $6 million, respectively, of restructuring costs, primarily related to Integration 2.0 in both years and Portfolio Optimization in 2024.

Cost of sales for the nine months ended September 30, 2023 was also impacted by manufacturing inefficiencies related to labor negotiations at our Erie facility and costs related to next generation product development in Digital Intelligence.

Cost of sales for the nine months ended September 30, 2024 and 2023 included $10 million and $8 million, respectively, of restructuring costs, primarily related to Integration 2.0 in both years and Portfolio Optimization in 2024.

Operating expenses

Freight Segment operating expenses increased by $13 million primarily driven by higher SG&A expenses resulting from higher costs to support increased sales volume, higher employee compensation and benefit costs and incremental expense from acquisitions.

Freight SG&A expenses for the nine months ended September 30, 2024 included $2 million of restructuring costs, primarily related to Portfolio Optimization.

The amounts recorded in the nine months ended September 30, 2024 were not significant.

Transit Segment

The following table shows our Condensed Consolidated Statements of Operations for our Transit Segment for the periods indicated:

Six Months Ended

Nine Months Ended

September 30,

In millions 2024 2023 Change % Change

6 unchanged sentences

Income from operations (% of Net sales) 11.0 % 10.3 % 0.7

The following table shows the major components of the change in Net sales for the Transit Segment in the first six months of 2024 from the first six months of 2023:

First Six Months of 2023 Net Sales $ 1,348

The following table shows the major components of the change in Net sales for the Transit Segment in the first nine months of 2024 from the first nine months of 2023:

First Nine Months of 2023 Net sales $ 2,017

Foreign Exchange 2

2 unchanged sentences

Original Equipment Manufacturing 38

First Six Months of 2024 Net Sales $ 1,397

Transit Segment organic sales increased by $55 million driven by strong Aftermarket sales primarily as a result of increased demand for products and services and increased infrastructure investment, partially offset by lower Original Equipment Manufacturing sales.

Unfavorable changes in foreign exchange rates also decreased sales by $6 million.

First Nine Months of 2024 Net sales $ 2,130

Transit Segment organic sales increased by $111 million driven by strong Original Equipment Manufacturing and Aftermarket sales primarily as a result of increased demand for products and services and increased investments in sustainable infrastructure.

Cost of sales

1 unchanged sentence

The increase in gross margin is primarily attributable to favorable mix within the Transit Segment and the benefits from structured cost actions taken through Integration 2.0 and prior years' restructuring and integration projects.

Transit Cost of sales for the six months ended June 30, 2024 and 2023 includes $4 million and $6 million of restructuring costs, respectively, primarily for footprint rationalization and headcount actions in Europe related to Integration 2.0.

Transit Cost of sales for the nine months ended September 30, 2024 and 2023 included $9 million and $17 million of restructuring costs, respectively, primarily for footprint rationalization and headcount actions in Europe related to Integration 2.0.

Operating expenses

1 unchanged sentence

Transit SG&A expenses for the six months ended June 30, 2024 and 2023 includes $6 million and $5 million of restructuring costs, respectively, primarily for footprint rationalization and headcount actions in Europe related to Integration 2.0.

Transit SG&A expenses for the nine months ended September 30, 2024 and 2023 included $9 million and $6 million of restructuring costs, respectively, primarily for footprint rationalization and headcount actions in Europe related to Integration 2.0.

Liquidity and Capital Resources

Liquidity is provided by operating cash flows and borrowings under the Company’s Senior Notes, the 2022 Credit Agreement and the 2024 Credit Agreement, each with a consortium of commercial banks.

Liquidity is provided by operating cash flows and borrowings under the 2022 Credit Agreement and the 2024 Credit Agreement, each with a consortium of commercial banks, and proceeds from the Company’s Senior Notes.

Additionally, the Company utilizes the revolving receivables program and supply chain financing program described below, as well as other short-term financing agreements with certain banks, for added flexibility as part of our liquidity management strategy.

The following is a summary of selected cash flow information and other relevant data:

Six Months Ended

Nine Months Ended

September 30,

In millions 2024 2023

3 unchanged sentences

Financing activities $ (1,209) $ (323)

Operating activities In the first six months of 2024, cash provided by operating activities was $569 million compared to $90 million in the first six months of 2023.

Significant changes to the sources and (uses) of cash for the six month periods include the following:

Operating activities In the first nine months of 2024, cash provided by operating activities was $1,111 million compared to $515 million in the first nine months of 2023.

Significant changes to the sources and (uses) of cash for the nine month periods include the following:

• $246 million from increased Net income;

• $128 million from changes in Inventory primarily from the inventory build during the first six months of 2023 in anticipation of a strike at the manufacturing facility in Erie, Pennsylvania, as well as supply chain disruptions;

• $137 million from changes in Accounts payable due to timing of payments;

• $4 million from favorable changes in accounts receivables driven by $179 million of higher collections on receivables, mostly offset by $(175) million of higher remittance for the Revolving Receivables Program;

• $(96) million from changes in the timing of customer deposits expected to be consumed in one year;

• approximately $115 million from changes in long term deposits from customers.

Investing activities In the first six months of 2024 and 2023, cash used for investing activities was $(57) million and $(293) million, respectively.

During the first six months of 2024, Wabtec used $(77) million for additions to property, plant and equipment for investments in our facilities and manufacturing processes and received $20 million of proceeds from disposals of property, plant and equipment.

During the first six months of 2023, Wabtec acquired L&M Radiator Inc., a leading manufacturer of heavy-duty equipment radiators and heat exchangers, for net cash of approximately $(223) million and used $(70) million for additions to property, plant, and equipment.

Financing activities In the first six months of 2024, cash used for financing activities was $(523) million which included $(58) million from net changes in debt, $(375) million in stock repurchases, $(71) million of dividend payments, and $(23) million of payments for income tax withholding on share-based compensation.

In the first six months of 2023, cash provided by financing activities was $30 million, which included $374 million from net changes in debt, $(252) million in stock repurchases, $(62) million of dividend payments, $(15) million of payments for income tax withholding on share-based compensation, and $(12) million for distributions to noncontrolling interest.

• $122 million from favorable changes in Accounts receivables driven by $202 million of higher collections on receivables, partially offset by $(80) million of higher remittance for the Revolving Receivables Program;

• $86 million from changes in Inventory primarily from the inventory build during the first nine months of 2023 due to a strike at the manufacturing facility in Erie, Pennsylvania, as well as supply chain disruptions.

Investing activities In the first nine months of 2024 and 2023, cash used for investing activities was $(106) million and $(336) million, respectively.

During the first nine months of 2024, Wabtec used $(123) million for additions to property, plant and equipment for investments in our facilities and manufacturing processes, received $17 million of proceeds from dispositions of businesses, received $13 million of proceeds from disposals of property, plant and equipment, and used $(13) million for acquisitions.

During the first nine months of 2023, Wabtec acquired L&M Radiator Inc., a leading manufacturer of heavy-duty equipment radiators and heat exchangers, for net cash of approximately $(229) million and used $(109) million for additions to property, plant, and equipment.

Financing activities In the first nine months of 2024, cash used for financing activities was $(1,209) million which included $(62) million from net changes in debt, $(974) million in stock repurchases, $(106) million of dividend payments, $(42) million of contingent consideration payments related to the GE Transportation acquisition, $(24) million of payments for income tax withholding on share-based compensation, and $(6) million for distributions to noncontrolling interest.

In the first nine months of 2023, cash used for financing activities was $(323) million, which included $49 million from net changes in debt, $(252) million in stock repurchases, $(92) million of dividend payments, $(16) million of payments for income tax withholding on share-based compensation, and $(12) million for distributions to noncontrolling interest.

During the first quarter of 2024, the Company entered into the 2024 Credit Agreement for a term loan of $225 million.

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Proceeds from the 2034 Notes, combined with the proceeds from the term loan under the 2024 Credit Agreement and cash on hand, were utilized to repay the outstanding amount of 2024 Notes at maturity.

As of June 30, 2024, the Company held approximately $595 million of cash, cash equivalents and restricted cash, of which approximately $210 million was held within the United States and approximately $385 million was held outside of the United States, primarily in India, Europe, Brazil, and China.

As of September 30, 2024, the Company held approximately $410 million of cash, cash equivalents and restricted cash, of which approximately $9 million was held within the United States and approximately $401 million was held outside of the United States, primarily in India, Brazil, Europe and China.

While repatriation of some cash held outside the United States may be restricted by local laws, most of the Company’s foreign cash could be repatriated to the United States net of any tax impacts.

As of June 30, 2024, approximately $5 million of the Company's $595 million of cash balance was classified as restricted.

may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

As of September 30, 2024, approximately $9 million of the Company's $410 million of cash balance was classified as restricted.

We or our affiliates may, from time to time, seek to retire or purchase outstanding debt through negotiated or open-market cash purchases, exchanges, or otherwise, and such transactions, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Revolving Receivables Program

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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 customer collections remitted to the financial institution for any applicable periods.

Net cash (payments) proceeds included in cash from operations from the revolving receivables program were $(20) million and $155 million for the six months ended June 30, 2024 and 2023, respectively.

Net cash proceeds included in cash from operations from the revolving receivables program were $75 million and $155 million for the nine months ended September 30, 2024 and 2023, respectively.

Additional information with respect to the Revolving Receivables Program is included in Note 2 of "Notes to Condensed Consolidated Financial Statements" included in Part I, Item 1 of this report.

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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 Company does not provide any guarantees under these arrangements, does not have an economic interest in our suppliers' 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 and does not result in a change in the classification of amounts due as Accounts payable in the Condensed Consolidated Balance Sheets.

Additional information with respect to the Supply Chain Financing Program is included in Note 2 of "Notes to Condensed Consolidated Financial Statements" included in Part I, Item 1 of this report.

Intra-Quarter Uncommitted Money Market Line Credit Agreement

During the third quarter of 2024, the Company entered into an uncommitted bilateral money market line credit agreement which provides an aggregate borrowing capacity of $150 million, for general business purposes and working capital needs within a quarter.

Guarantor Summarized Financial Information

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Parent Company and Guarantor Subsidiaries

In millions Six Months Ended June 30, 2024

In millions Nine Months Ended September 30, 2024

Net sales $ 4,567

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Parent Company and Guarantor Subsidiaries

In millions June 30, 2024 December 31, 2023

In millions September 30, 2024 December 31, 2023

Current assets $ 1,225 $ 1,513

5 unchanged sentences

Parent Company and Guarantor Subsidiaries

In millions Six Months Ended June 30, 2024

In millions Nine Months Ended September 30, 2024

Net sales to non-guarantor subsidiaries $ 665

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Parent Company and Guarantor Subsidiaries

In millions June 30, 2024

In millions September 30, 2024

Amount due to non-guarantor subsidiaries $ 11,786

9 unchanged sentences

Issuer and Guarantor

In millions Six Months Ended June 30, 2024

In millions Nine Months Ended September 30, 2024

Net sales $ 418

3 unchanged sentences

Issuer and Guarantor

In millions June 30, 2024 December 31, 2023

In millions September 30, 2024 December 31, 2023

Current assets $ 170 $ 493

5 unchanged sentences

Issuer and Guarantor

In millions Six Months Ended June 30, 2024

In millions Nine Months Ended September 30, 2024

Net sales to non-guarantor subsidiaries $ 36

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Issuer and Guarantor

In millions June 30, 2024

In millions September 30, 2024

Amount due to non-guarantor subsidiaries $ 8,081

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Purchases of shares may be made by open market purchases or privately negotiated purchases and may be made pursuant to Rule 10b5-1 plan or otherwise.

As of June 30, 2024, approximately $723 million was remaining under the stock repurchase plan.

As of September 30, 2024, approximately $123 million was remaining under the stock repurchase plan.

Forward Looking Statements

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As a result of these transactions, contractual obligations related the repayment of Long-term debt for 2029 and beyond has increased to $725 million.

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 2. Management’s Discussion and Analysis