Westinghouse Air Brake Technologies 10-Q 2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2021

OR

For the transition period from to

Commission file number: 033-90866

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

412-825-1000

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 22, 2021, there were 186,821,013 shares of common stock, par value $.01 per share, of the registrant outstanding.

WESTINGHOUSE AIR BRAKE

TECHNOLOGIES CORPORATION

September 30, 2021

FORM 10-Q

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and Westinghouse Air Brake Technologies Corporation’s Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on February 19, 2021.

OVERVIEW

Wabtec is one of the world’s largest providers of locomotives, value-added, technology-based equipment, systems and services for the global freight rail and passenger transit industries. Our highly engineered products, which are intended to enhance safety, improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight cars, passenger transit cars and buses around the world. Many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in over 50 countries and our products can be found in more than 100 countries throughout the world. In the first nine months of 2021, approximately 58% of the Company’s revenues came from customers outside the United States.

Business Update

The COVID-19 pandemic has continued to impact our sales channels, supply chain, manufacturing operations, workforce and other key aspects of our operations. The Company continues to monitor the situation and guidance from international and domestic authorities, including federal, state, and local public health authorities; however, there are numerous uncertainties, including the duration and severity of the pandemic, availability and effectiveness of vaccines, impact of variants of the disease, actions that may be taken by governmental authorities and private industry, including preventing or curtailing the operations of our plants, the potential impact on global economic activity, global supply chain operations, our employees, our customers, suppliers and end-markets and other consequences that could negatively impact our business. We also face the possibility that government policies may become more restrictive especially if COVID-19 transmission rates increase in certain areas. As a result of these numerous uncertainties, we are unable to specifically predict the extent and length of time the COVID-19 pandemic will negatively impact our business.

The COVID-19 pandemic has increased the uncertainty around global economic and market conditions, which impacts our sales and operations. To the extent that these factors cause, or exacerbate, instability of capital markets, shortages of raw materials or component parts, longer sales cycles, deferral or delay of customer orders or an inability to market our products effectively, our business and results of operations could be materially adversely affected, and the materially adverse impacts that we have experienced as a result of the COVID-19 pandemic could continue or worsen. In addition, we face risks associated with our growth strategy including the level of investment that customers are willing to make in new technologies developed by the industry and the Company, and risks inherent in global expansion. When necessary, we will modify our financial and operating strategies to address changes in market conditions and risks.

Although the U.S. and other international governments deemed rail transportation as “critical infrastructure” providing essential services during the COVID-19 pandemic, the COVID-19 pandemic had a materially adverse impact on our operations and business results for the nine months ended September 30, 2021 and 2020, which is discussed in more detail in the Results of Operations section below. Supply chain disruptions and labor availability have caused component and chip shortages resulting in an adverse effect on the timing of the Company’s revenue generation. Additionally, broad-based inflation, escalation of metals and commodities costs, transportation and logistics costs and labor costs have all resulted from the COVID-19 pandemic. The Company has implemented various mitigating actions to lessen the impact of supply chain disruptions caused by the COVID-19 pandemic. These actions include price escalations in long-term contracts, implementing price surcharges, driving operational efficiencies through various cost mitigation efforts and discretionary spend management, strategic sourcing alignments, and accelerating integration synergies where possible. The Company expects to continue to realize these increased costs over the next few quarters.

Cybersecurity Exposure

During the third quarter 2021, one of our vendors publicly disclosed vulnerabilities in one of its operating systems that is used in a range of products across the rail sector and other industries, including in certain Wabtec products. In response, Wabtec reviewed its digital onboard locomotive products and locomotive control systems to determine which products may be affected and the potential impact to Wabtec, our customers and other relevant parties. To date, no known vulnerabilities in our products have been exploited; however, we are working closely with our vendor to appropriately address potentially impacted products. Additionally, we have communicated with potentially affected customers and discussed mitigation strategies.

RESULTS OF OPERATIONS

Consolidated Results

THIRD QUARTER 2021 COMPARED TO THIRD QUARTER 2020

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

The following table shows the major components of the change in sales in the three months ended September 30, 2021 from the three months ended September 30, 2020:

Net sales

Net sales for the three months ended September 30, 2021 increased by $42 million, or 2.2%, to $1.91 billion compared to the same period in 2020. Organic sales in the Freight Segment increased $12 million due to an increase in Services and Components, partially offset by lower Equipment and Digital Electronics sales. Transit segment organic sales decreased by $31

million due to global supply chain and COVID-19 related disruptions. Sales from the acquisition of Nordco were $38 million and favorable changes in foreign currency exchange rates increased sales by $23 million.

Cost of sales

Cost of sales for the three months ended September 30, 2021 increased by $6 million, or 0.4%, to $1.30 billion compared to the same period in 2020. Cost of sales for the three months ended September 30, 2021 includes $23 million of restructuring costs, primarily for footprint rationalization in Europe. Cost of sales in the three months ended September 30, 2020 included $5 million of restructuring costs, primarily for the exit of certain product lines, footprint rationalization, and related headcount actions as part of the GE Transportation acquisition and in response to the COVID-19 pandemic. Excluding these charges in both years, cost of sales as a percentage of sales was 67.2% in 2021 and 69.4% in 2020, representing a 2.2 percentage point decrease. The decrease can be attributed to a favorable product mix, the realization of synergies and the effects of prior year restructuring programs, partially offset by increased metals, transportation and labor costs.

Operating expenses

Total operating expenses increased $26 million, or 7.2% to $385 million, for the three months ended September 30, 2021 to 20.2% of sales compared to $360 million, or 19.3% of sales in the same period of 2020. Restructuring and transaction costs included in selling, general, and administrative expense ("SG&A") were $12 million for both the three months ended September 30, 2021 and 2020, respectively, and were primarily for footprint rationalization and related headcount actions. Excluding restructuring and transaction costs and $4 million of incremental expense from the acquisition of Nordco, SG&A increased $13 million primarily for higher employee compensation and benefit costs. Engineering expense increased $7 million due to investments in new technologies and products and amortization expense increased $2 million due to the acquisition of Nordco.

Interest expense, net

Interest expense, net, decreased $3 million for the three months ended September 30, 2021 compared to the same period in 2020 attributable to lower overall average debt balances and lower interest rates.

Other income, net

Other income, net, was $1 million of income for the three months ended September 30, 2021 compared to $14 million of income in the same period of 2020. The variance is primarily driven by foreign exchange gains in the prior year compared to losses in the current year.

Income taxes

The effective income tax rate was 24.8% and 26.7% for the three months ended September 30, 2021 and 2020, respectively. The decrease in the effective tax rate is primarily the result of tax expense on a restructuring that was incurred during the three months ended September 30, 2020 that did not recur in 2021.

Freight Segment

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

The following table shows the major components of the change in net sales for the Freight Segment in the third quarter of 2021 from the third quarter of 2020:

Net sales

Freight Segment sales for the three months ended September 30, 2021 increased by $58 million, or 4.7%, to $1.30 billion, compared to the same period in 2020. Organic sales increased $12 million primarily in Services due to lower locomotive parkings and increased Components sales. These increases were partially offset by a decrease in Equipment sales due to lower locomotive deliveries primarily in North America and supply chain disruptions. Sales from acquisitions contributed $38 million and favorable foreign currency exchange rates increased net sales by $8 million.

Cost of sales

Freight Segment cost of sales for the three months ended September 30, 2021 increased by $9 million, or 1.0%, to $851 million, compared to the same period in 2020. Excluding restructuring and transaction costs, cost of sales as a percentage of sales was 65.7% in 2021 and 68.0% in 2020, representing a 2.3 percentage point decrease. The decrease can be attributed to a favorable mix of sales and improved absorption of fixed costs as the prior year was particularly affected by the COVID-19 pandemic, partially offset by increased metals, transportation and labor costs.

Operating expenses

Freight Segment operating expenses increased $14 million, or 6.1%, in 2021 to $249 million, or 19.2% of sales compared to $234 million or 18.9% of sales in the same period in 2020. Restructuring and transaction costs included in SG&A were $3 million and $7 million for the three months ended September 30, 2021 and 2020, respectively . Excluding restructuring

and transaction costs and $4 million of additional costs for acquisitions, SG&A increased $6 million primarily due to higher employee compensation and benefit costs. Engineering costs increased $6 million due to investments in new technologies and products and amortization expenses increased due to the addition of Nordco.

Transit Segment

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

The following table shows the major components of the change in net sales for the Transit Segment in the third quarter of 2021 from the third quarter of 2020:

Net sales

Transit Segment sales for the three months ended September 30, 2021 decreased by $16 million, or 2.5%, to $612 million compared to the same period in 2020. The decrease is primarily attributed to global supply chain and COVID-19 pandemic disruptions, partially offset by favorable foreign currency exchange rate changes.

Cost of sales

Transit Segment cost of sales for the three months ended September 30, 2021 decreased by $3 million, or 0.6%, to $453 million compared to the same period in 2020. Cost of sales for the three months ended September 30, 2021 and 2020 includes $22 million and $3 million of restructuring costs, respectively, primarily due to footprint rationalization in Europe. Excluding these charges, cost of sales as a percentage of sales was 70.4% in 2021 and 72.2% in 2020, representing a 1.8 percentage point decrease. The decrease can be attributed to improved operational performance stemming from the effects of prior year restructuring programs and disruption from the COVID-19 pandemic, partially offset by increased metals, transportation and labor costs.

Operating expenses

Transit Segment operating expenses increased $7 million, or 6.6%, in 2021 to $115 million or 18.7% of sales, compared to $108 million or 17.1% of sales in the same period in 2020. Restructuring and transaction costs included in SG&A were $5 million and $3 million for the three months ended September 30, 2021 and 2020, respectively, and were primarily for footprint rationalization and related headcount actions. Excluding restructuring and transaction costs, SG&A increased $4 million primarily due to employee compensation and benefit costs. Additionally, engineering and amortization expenses remained consistent year over year.

FIRST NINE MONTHS OF 2021 COMPARED TO FIRST NINE MONTHS OF 2020

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

The following table shows the major components of the change in sales in the nine months ended September 30, 2021 from the nine months ended September 30, 2020:

Net sales

Net sales for the nine months ended September 30, 2021 increased by $217 million, or 3.9%, to $5.7 billion compared to the same period in 2020. Transit segment organic sales increased $19 million due to improved demand for original equipment door, HVAC, and brakes systems. This increase is partially offset by an organic decrease in the Freight segment of $31 million due to lower locomotive Equipment sales, particularly in North America and lower Digital Electronics sales due to supply chain disruptions partially offset by an increase in Services sales from higher locomotive modernizations and a decrease in

locomotive parkings. Favorable changes in foreign exchange rates increased sales by $152 million and sales from the acquisition of Nordco contributed $77 million.

Cost of sales

Cost of sales for the nine months ended September 30, 2021 increased by $132 million, or 3.4%, to $4.0 billion compared to the same period in 2020. Cost of sales for the nine months ended September 30, 2021 includes $48 million of restructuring costs, primarily for footprint rationalization and headcount actions in Europe. Cost of sales in the first nine months of 2020 included $23 million of restructuring costs, primarily for the exit of certain product lines, footprint rationalization and related headcount actions as part of the integration of the GE Transportation acquisition and in response to the COVID-19 pandemic. Excluding these charges in both years, cost of sales as a percentage of sales was 69.3% in 2021 and 70.1% in 2020, representing a 0.8 percentage point decrease. The decrease can be attributed to synergy savings and the structural cost actions taken in the prior year, partially offset by increased metals, transportation and labor costs.

Operating expenses

Total operating expenses increased $57 million, or 5.4%, in the first nine months of 2021 compared to the same period in 2020. Operating expenses as a percentage of sales was 19.2% and 18.9% for the nine months ended September 30, 2021 and 2020, respectively. Restructuring and transaction costs included in SG&A were $32 million and $41 million for the nine months ended September 30, 2021 and 2020, respectively and were primarily for headcount actions and footprint rationalization programs. Excluding restructuring and transaction costs and $9 million of incremental expense from the acquisition of Nordco, SG&A increased $54 million primarily due to higher employee compensation and benefit costs and costs incurred to support the higher sales volumes. Engineering expense remained flat and amortization expense increased $3 million due to the acquisition of Nordco.

Interest expense, net

Interest expense, net, decreased $16 million in the first nine months of 2021 compared to the same period in 2020 attributable to lower overall average debt balances and lower interest rates.

Other income, net

Other income, net, was $25 million of income in the first nine months of 2021 compared to $6 million of income in the same period of 2020. The variance is primarily driven by foreign exchange gains in the current year as compared to losses in the prior year as well as higher equity income in the current year.

Income taxes

The effective income tax rate was 26.0% and 25.8% for the nine months ended September 30, 2021 and 2020, respectively. The increase in the effective rate is primarily the result of withholding tax expense on intercompany dividends incurred during the nine months ended September 30, 2021.

Freight Segment

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

The following table shows the major components of the change in net sales for the Freight Segment in the first nine months of 2021 from the first nine months of 2020:

Net sales

Freight Segment sales for the nine months ended September 30, 2021 increased by $71 million, or 1.9%, to $3.81 billion, compared to the same period in 2020. Organic sales decreased by $31 million primarily due to lower locomotive Equipment sales, particularly in North America and lower Digital Electronics sales due to supply chain constraints and COVID-19 disruptions, partially offset by an increase in Services sales due to higher locomotive modernizations and overhauls and a decrease in parking of locomotives. The organic sales decrease was more than offset by sales from acquisitions of $77 million and the effects of favorable foreign exchange rates of $25 million.

Cost of sales

Freight Segment cost of sales for the nine months ended September 30, 2021 increased by $7 million, to $2.60 billion, compared to the same period in 2020. Cost of sales for the nine months ended September 30, 2021 includes $6 million of restructuring and transaction costs, primarily for a charge related to purchase price accounting for the step-up of Nordco inventory and headcount actions as part of the ongoing integration actions related to the GE Transportation acquisition. Cost of sales in the first nine months of 2020 included $16 million of restructuring costs, primarily for the exit of certain product lines, costs for site closures, and related headcount actions as part of the integration of the GE Transportation acquisition and in response to the COVID-19 pandemic. Excluding these charges in both years, cost of sales as a percentage of sales was 68.0% and 68.9% in for the nine months ended September 30, 2021 and 2020, respectively, representing a 0.9 percentage point

decrease. The decrease can be attributed to a favorable mix of sales and improved absorption of fixed costs, partially offset by increased metals, transportation and labor costs.

Operating expenses

Freight Segment operating expenses for the nine months ended September 30, 2021 increased $18 million compared to the same period in 2020. Restructuring and transaction costs included in SG&A were $11 million and $28 million for the nine months ended September 30, 2021 and 2020, respectively and were primarily for headcount actions and footprint rationalization as part of the integration of GE Transportation. Excluding restructuring and transaction and $9 million of incremental expense for acquisitions, SG&A increased $26 million primarily due to higher employee compensation and benefit costs. Engineering expense decreased $3 million due to cost control measures on research and development projects and amortization expense increased $3 million due to the acquisition of Nordco.

Transit Segment

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

The following table shows the major components of the change in net sales for the Transit Segment in the first nine months of 2021 from the first nine months of 2020:

Net sales

Transit Segment sales for the nine months ended September 30, 2021 increased by $146 million, or 8.1%, to $1.94 billion compared to the same period in 2020, with foreign exchange rates being the primary driver of the increase. Transit segment organic sales increased $19 million due to improved demand for original equipment door, HVAC, and brakes systems.

Cost of sales

Transit Segment cost of sales for the nine months ended September 30, 2021 increased by $125 million, or 9.6%, to $1.43 billion compared to the same period in 2020. Cost of sales for the nine months ended September 30, 2021 and 2020 includes $43 million and $8 million of restructuring and transactions costs, respectively, primarily for footprint rationalization in Europe. Excluding these costs, cost of sales as a percentage of sales was 71.8% in 2021 and 72.6% in 2020, a 0.8 percentage point decrease over the comparable period in 2020, attributable to improved operational efficiency and the impact that the COVID-19 pandemic had on margins in 2020, partially offset by increased metals, transportation and labor costs.

Operating expenses

Transit Segment operating expenses increased $34 million, or 11.0%, in 2021 to 17.8% of sales. Restructuring and transaction costs included within SG&A were $12 million and $6 million for the nine months ended September 30, 2021 and 2020, respectively, and were primarily for headcount actions and footprint rationalization in Europe. Excluding restructuring and transaction costs, SG&A increased $25 million primarily due to higher employee compensation and benefit costs and to support the increase in sales volumes. Engineering expense increased $3 million and amortization expense remained consistent year over year.

Liquidity and Capital Resources

Liquidity is provided primarily by operating cash flow and borrowings under the Company’s Senior Notes and Senior Credit Facility with a consortium of commercial banks. The following is a summary of selected cash flow information and other relevant data:

Operating activities In the first nine months of 2021, cash provided by operations was $759 million compared to cash provided by operations of $458 million in the first nine months of 2020. Significant changes to the sources and (uses) of cash for the nine month periods include the following:

• ($6) million from net changes in working capital driven by: ($210) million related to changes in receivables due to timing and volume of sales and the net change in the Revolving Receivables Program; ($40) million unfavorable change in inventory primarily from inventory build-ups in response to supply chain challenges; $244 million improvement from accounts payable, primarily due to the timing of payments to suppliers and the COVID-19 related impacts on expenditures in 2020;

• approximately $140 million related to cash payments made during 2020 for costs related to the GE Transportation acquisition and settlement of litigation that did not recur;

• and $114 attributable to higher Net income and other changes in the related statement of income.

Investing activities In the first nine months of 2021 and 2020, cash used for investing activities was $475 million and $120 million, respectively. The major components of the cash outflow in 2021 were $79 million in additions to property, plant and equipment for investments in our facilities and manufacturing processes, and $405 million in net cash paid for the acquisition of Nordco. This compares to $99 million in property, plant, and equipment for additions in the first nine months of 2020 and $40 million in net cash paid for acquisitions during 2020. Additional information with respect to acquisitions is included in Note 3 of the “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report.

Financing activities In the first nine months of 2021, cash used for financing activities was $433 million which included $4.3 billion in proceeds from debt, $4.5 billion in repayments of debt, $200 million in stock repurchases and $69 million of dividend payments. In the first nine months of 2020, cash used for financing activities was $361 million, which included $2.9 billion in proceeds from debt, $3.1 billion in repayments of debt, $105 million in stock repurchases and $69 million of dividend payments.

As of September 30, 2021, the Company held approximately $456 million of cash, cash equivalents and restricted cash, of which $29 million of cash was classified as restricted cash. Of the $456 million, approximately $55 million was held within the United States and approximately $401 million was held outside of the United States, primarily in Europe, India, Brazil, 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.

Additional information with respect to credit facilities and long-term debt is included in Note 8 of the "Notes to Condensed Consolidated Financial Statements" included in Part I, Item 1 of this report.

Revolving Receivables Program

In May 2020, the Company entered into a revolving agreement to transfer up to $150 million of certain receivables of the Originators through our bankruptcy-remote subsidiary to a financial institution on a recurring basis in exchange for cash equal to the gross receivables transferred. 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. During the first quarter of 2021, the Company amended its revolving agreement to increase the amount of certain receivables that can be transferred from $150 million to $200 million. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary which held additional receivables of $284.8 million at September 30, 2021 that are pledged as collateral under this agreement. The transfers are recorded at the fair value of the proceeds received and obligations assumed less derecognized receivables. No obligation was recorded at September 30, 2021 as the estimated expected credit

losses on receivables sold is insignificant. Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding. The Company has agreed to guarantee the performance of the Originators respective obligations under the revolving agreement. None of the Company (except for the bankruptcy-remote consolidated subsidiary referenced above) nor the Originators guarantees the collectability of the receivables under the revolving agreements.

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 and does not receive an economic benefit from the financial institutions. 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 consolidated balance sheet.

Guarantor Summarized Financial Information

The obligations under the Company's US Notes, Senior Credit Facility, and 364 Day Facility have been fully and unconditionally guaranteed by certain of the Company's U.S. subsidiaries. Each guarantor is 100% owned by the parent company, with the exception of GE Transportation, a Wabtec Company, which has 15,000 shares outstanding of Class A Non-Voting Preferred Stock held by General Electric Company. The Euro Notes are issued by Wabtec Netherlands and are fully and unconditionally guaranteed by the Company.

The following tables present summarized financial information of the parent and the guarantor subsidiaries on a combined basis for the Company's US Notes, Senior Credit Facility, and 364 Day Facility. The combined summarized financial information eliminates intercompany balances and transactions among the parent and guarantor subsidiaries and equity in earnings and investments in any guarantor subsidiaries or non-guarantor subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and guarantor subsidiaries.

Summarized Statement of Income

Summarized Balance Sheet

The following is a description of the transactions between the combined Westinghouse Air Brake Technologies Corp. and guarantor subsidiaries with non-guarantor subsidiaries.

Summarized Financial Information—Euro Notes

The obligations under Wabtec Netherlands’ Euro Notes are fully and unconditionally guaranteed by the Company. Wabtec Netherlands is a wholly-owned, indirect subsidiary of the Company. Wabtec Netherlands is a holding company and does not have any independent operations. Its assets consist of its investments in subsidiaries, which are separate and distinct legal entities that are not guarantors of the Euro Notes and have no obligations to pay amounts due under Wabtec Netherlands’ obligations.

The following tables present summarized financial information of Wabtec Netherlands, as the issuer of the Euro Notes, and the Company, as the parent guarantor, on a combined basis. The combined summarized financial information eliminates all intercompany balances and transactions among Wabtec Netherlands and the Company as well as all equity in earnings from and investments in any subsidiary of the Company, other than Wabtec Netherlands, which we refer to below as the Non-Issuer and Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and parent guarantor.

Summarized Statement of Income

Summarized Balance Sheet

The following is a description of the transactions between the combined Westinghouse Air Brake Technologies Corp. and Wabtec Netherlands, with the subsidiaries of Westinghouse Air Brake Technologies Corp., other than Wabtec Netherlands,

none of which are guarantors of the Euro Notes.

Company Stock Repurchase Plan

On February 11, 2021, the Board of Directors increased its stock repurchase authorization to increase the amount available for stock repurchases to $500 million of the Company’s outstanding shares. This new stock repurchase authorization supersedes the previous authorization of $500 million of which about $292.2 million remained. No time limit was set for the completion of the program which conforms to the requirements under the Senior Credit Facility and the Senior Notes currently outstanding. The Company may repurchase shares in the future at any time, depending upon market conditions, our capital needs and other factors. 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.

Forward Looking Statements

We believe that all statements other than statements of historical facts included in this report, including certain statements under “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure that our assumptions and expectations are correct.

These forward-looking statements are subject to various risks, uncertainties and assumptions about us, including, among other things:

Economic and industry conditions

• prolonged unfavorable economic and industry conditions in the markets served by us, including North America, South America, Europe, Australia, Asia and Africa;

• decline in demand for freight cars, locomotives, passenger transit cars, buses and related products and services;

• reliance on major original equipment manufacturer customers;

• original equipment manufacturers’ program delays;

• demand for services in the freight and passenger rail industry;

• demand for our products and services;

• orders either being delayed, canceled, not returning to historical levels, or reduced or any combination of the foregoing;

• consolidations in the rail industry;

• continued outsourcing by our customers;

• industry demand for faster and more efficient braking equipment;

• fluctuations in interest rates and foreign currency exchange rates; or

• availability of credit;

Operating factors

• supply disruptions;

• technical difficulties;

• changes in operating conditions and costs;

• increases in raw material costs;

• successful introduction of new products;

• performance under material long-term contracts;

• labor relations;

• the outcome of our existing or any future legal proceedings, including litigation involving our principal customers and any litigation with respect to environmental matters, asbestos-related matters, pension liabilities, warranties, product liabilities or intellectual property claims;

• completion and integration of acquisitions, including the acquisition of Faiveley Transport and the GE Transportation Business; or

• the development and use of new technology;

Competitive factors

• the actions of competitors; or

• the outcome of negotiations with partners, suppliers, customers or others;

Political/governmental factors

• political stability in relevant areas of the world;

• future regulation/deregulation of our customers and/or the rail industry;

• levels of governmental funding on transit projects, including for some of our customers;

• political developments and laws and regulations, including those related to Positive Train Control; or

• tax law, regulation and policy; or

• the outcome of negotiations with governments.

COVID-19 factors

• the severity and duration of the pandemic;

• deterioration of general economic conditions;

• shutdown of one or more of our operating facilities;

• supply chain and sourcing disruptions;

• ability of our customers to pay timely for goods and services delivered;

• health of our employees;

• ability to retain and recruit talented employees; or

• difficulty in obtaining debt or equity financing.

Statements in this Quarterly Report on Form 10-Q apply only as of the date on which such statements are made, and we undertake no obligation to update any statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Reference is also made to the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Critical Accounting Policies

A summary of critical accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In particular, judgment is used in areas such as accounts receivable and the allowance for doubtful accounts, inventories, goodwill and indefinite-lived intangibles, business combinations, warranty reserves, stock-based compensation, income taxes and revenue recognition. There have been no significant changes in accounting policies since December 31, 2020.

Contractual Obligations

On June 3, 2021, Wabtec Netherlands completed a public offering and sale of €500.0 million aggregate principal amount of Euro Notes. The Euro Notes will bear interest from June 3, 2021, at a rate equal to 1.250% per year, with payments made annually commencing on December 3, 2021. Additionally, during the second quarter of 2021, all U.S. dollar-denominated Term Loans were repaid. As a result of these collective changes, interest payment obligations related to total debt as of September 30, 2021 are expected to be $164.8 million for 2021, $310.8 million for 2022-2023, $230.6 million for 2024-2025, and $226.0 million thereafter for a combined total of $932.2 million. Further, as of September 30, 2021, contractual obligations related to the repayment of Long-term debt are expected to be $3.8 million for 2021, $250.0 million for 2022-2023, $1,261.4 million for 2024-2025, and $2,579.7 million thereafter for a combined total of $4,094.9 million.

See "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of Part II of our Annual Report on Form 10-K for the year ended December 31, 2020. Our exposure to market risk has not changed materially since December 31, 2020. Refer to Note 13 - Derivative Financial Instruments and Hedging of "Notes to Condensed Consolidated Financial Statements" included in Part I, Item 1 of this report for additional information regarding interest rate and foreign currency exchange risk.

Wabtec’s principal executive officer and its principal financial officer have evaluated the effectiveness of Wabtec’s “disclosure controls and procedures,” (as defined in Exchange Act Rule 13a-15(e)) as of September 30, 2021. Based upon their evaluation, the principal executive officer and principal financial officer concluded that Wabtec’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by Wabtec in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by Wabtec in such reports is accumulated and communicated to Wabtec’s Management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There was no change in Wabtec’s “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2021, that has materially affected, or is reasonably likely to materially affect, Wabtec’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Additional information with respect to legal proceedings is included in Note 15 of “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report.

In response to the cybersecurity exposure discussed in Part I Item II - Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q, the Company has reviewed and updated the below risk factor. Other than the below risk factor, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

We face cybersecurity and data protection risks relating to cyber-attacks and information technology failures that could cause loss of confidential information and other business disruptions.

We rely extensively on the security, stability, and availability of technology systems in our business. We also collect, process, and retain sensitive and confidential customer information, including proprietary business information, personal data and other information that may be subject to privacy and security laws, regulations and/or customer-imposed data protection controls. Our business may be adversely impacted by unintentional technology disruptions, including those resulting from programming errors, employee operational errors, software defects, and product vulnerabilities.

We also provide technological products integral to train operation. Accordingly, our business may be adversely impacted by disruptions to our own or third-party information technology infrastructure, which could result from cybersecurity incidents, including, but not limited to, unauthorized access to the Company’s information technology systems, data access or acquisition, and/or encryption of the Company’s environment. For instance, one of our vendors publicly disclosed vulnerabilities in its operating system that we use for certain Wabtec products. A successful exploitation of our own or our vendors’ information technology infrastructure could result in service interruptions, safety hazards, misappropriation of confidential information, process failures, security breaches or other operational difficulties. Such an event could result in decreased revenues and increased capital, insurance or operating costs, including the increased costs of security to protect the Company’s infrastructure, among other results. Insurance maintained by the Company to protect against loss of business and other related consequences resulting from cyber incidents may not be sufficient to cover all damages. A disruption or compromise of the Company’s technology systems, even for short periods of time, could have a material adverse effect.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes the Company's stock repurchase activity for the three months ended September 30, 2021:

(1) On February 11, 2021, the Board of Directors increased its stock repurchase authorization such that the Company has $500 million available for stock repurchases of the Company’s outstanding shares. This new stock repurchase authorization supersedes the previous authorization of $500 million of which about $292.2 million remained. No time limit was set for the completion of the program which conforms to the requirements under the Senior Credit Facility and the Senior Notes currently outstanding. The Company may repurchase shares in the future at any time, depending upon market conditions, our capital needs and other factors. 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.

Item 4. MINE SAFETY DISCLOSURES

Not Applicable

The following exhibits are being filed with this report:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.