

x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Delaware									25-1615902
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

~~1001 Air Brake Avenue~~ ~~Wilmerding, PA~~ 30 Isabella Street Pittsburgh, Pennsylvania									~~15148~~15212
(Address of principal executive offices)									(Zip code)

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


Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	WAB	New York Stock Exchange

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 x☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes x☒ 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.

Large accelerated filer

x☒

Accelerated filer

¨☐

Non-accelerated filer

~~(Do not check if smaller reporting company)~~☐

Emerging growth company

☐

Smaller reporting company

☐

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 x☒

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

As of April 22, 2021, there were 188,997,682 shares of common stock, par value $.01 per share, of the registrant outstanding.



~~Class~~		~~Outstanding at October 27, 2017~~
~~Common Stock, $.01 par value per share~~	~~95,999,248 shares~~

WESTINGHOUSE AIR BRAKE

TECHNOLOGIES CORPORATION

~~September 30, 2017~~March 31, 2021

FORM 10-Q

TABLE OF CONTENTS


				Page
		PART I—FINANCIAL INFORMATION

			~~Page~~
	~~PART I—FINANCIAL INFORMATION~~

Item 1.	Financial Statements - (Unaudited)		3

	Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31 , 202 1 and December 31, ~~2016~~20 20		3

	Condensed Consolidated ~~Statement~~Statements of Income for the three ~~and nine~~ months ended ~~September 30, 2017~~M arch 31 , 2021 and ~~2016~~2020		4

	Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31 , 202 1 and ~~2016~~20 20		5

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~Mar ch 31, 202 1 and ~~2016~~2020		6
		Condensed Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2021 and 2020		7
		Notes to Condensed Consolidated Financial Statements		78

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		3523

Item 3.		Quantitative and Qualitative Disclosures about Market Risk		4635

Item 4.		Controls and Procedures		4835

	PART II—OTHER INFORMATION

Item 1.		Legal Proceedings		4936

Item 1A.		Risk Factors		4936

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		4936

Item 4.		Mine Safety Disclosures		4936

Item 6.		Exhibits		4937

	Signatures		5138

PART I—FINANCIAL INFORMATION


~~Item 1.~~	~~FINANCIAL STATEMENTS~~

Item 1. FINANCIAL STATEMENTS

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


								Unaudited
	Unaudited
In thousands, except shares and par value	September 30, 2017			December 31, 2016
In millions, except par value							In millions, except par value	March 31, 2021		December 31, 2020
Assets							Assets
Current Assets							Current Assets
Cash and cash equivalents	$	228,080		$	398,484		Cash and cash equivalents	$	483.5	$	598.7
Accounts receivable	792,726			667,596			Accounts receivable	985.3		969.3
Unbilled accounts receivable	351,613			274,912			Unbilled accounts receivable	417.7		443.2
Inventories	764,781			658,510			Inventories	1,671.5		1,642.1
Deposit in escrow	—			744,748
Other current assets	139,925			123,381			Other current assets	221.0		226.5
Total current assets	2,277,125			2,867,631			Total current assets	3,779.0		3,879.8
Property, plant and equipment	988,223			912,230
Accumulated depreciation	(437,856		)	(393,854		)
Property, plant and equipment, net	550,367			518,376			Property, plant and equipment, net	1,575.5		1,601.6
Other Assets
Goodwill	2,384,758			2,078,765			Goodwill	8,625.7		8,485.2
Other intangibles, net	1,140,387			1,053,860
Other intangible assets, net							Other intangible assets, net	3,927.2		3,869.2
Other noncurrent assets	97,013			62,386			Other noncurrent assets	635.8		618.7
Total other assets	3,622,158			3,195,011			Total other assets	13,188.7		12,973.1
Total Assets	$	6,449,650		$	6,581,018		Total Assets	$	18,543.2	$	18,454.5

Liabilities and Shareholders’ Equity							Liabilities and Shareholders’ Equity
Current Liabilities							Current Liabilities
Accounts payable	$	512,905		$	530,211		Accounts payable	$	955.0	$	909.4
Customer deposits	373,815			256,591			Customer deposits	640.7		642.7
Accrued compensation	151,952			145,324			Accrued compensation	261.5		242.3
Accrued warranty	134,964			123,190			Accrued warranty	235.6		240.1
Current portion of long-term debt	49,748			129,809			Current portion of long-term debt	353.9		447.2
Other accrued liabilities	242,056			261,514			Other accrued liabilities	722.2		744.6
Total current liabilities	1,465,440			1,446,639			Total current liabilities	3,168.9		3,226.3
Long-term debt	1,824,156			1,762,967			Long-term debt	3,923.3		3,792.2
Accrued postretirement and pension benefits	108,182			110,597			Accrued postretirement and pension benefits	110.0		113.5
Deferred income taxes	282,557			245,680			Deferred income taxes	186.4		168.4
Accrued warranty	13,800			15,802
Other long-term liabilities	19,146			22,508
Contingent consideration							Contingent consideration	218.6		218.1
Other long term liabilities							Other long term liabilities	758.9		783.3
Total Liabilities	3,713,281			3,604,193			Total Liabilities	8,366.1		8,301.8
Commitments and contingent liabilities (Note 14)
Commitments and contingencies (Note 15)							Commitments and contingencies (Note 15)	0		0
Equity							Equity
Preferred stock, 1,000,000 shares authorized, no shares issued	—			—
Common stock, $0.01 par value; 200,000,000 shares authorized:
132,349,534 shares issued and 95,999,582 and 95,425,432 outstanding
at September 30, 2017 and December 31, 2016, respectively	1,323			1,323
Common stock, $.01 par value; 500.0 shares authorized: 226.9 shares issued and 188.9 outstanding at March 31, 2021 and December 31, 2020							Common stock, $.01 par value; 500.0 shares authorized: 226.9 shares issued and 188.9 outstanding at March 31, 2021 and December 31, 2020	2.0		2.0
Additional paid-in capital	900,536			869,951			Additional paid-in capital	7,883.9		7,880.6
Treasury stock, at cost, 36,349,952 and 36,924,102 shares,
at September 30, 2017 and December 31, 2016, respectively	(828,103		)	(838,950		)
Treasury stock, at cost, 38.0 shares, at March 31, 2021 and December 31, 2020							Treasury stock, at cost, 38.0 shares, at March 31, 2021 and December 31, 2020	(1,011.1)		(1,010.1)
Retained earnings	2,735,876			2,553,258			Retained earnings	3,678.3		3,588.9
Accumulated other comprehensive loss	(91,930		)	(379,605		)	Accumulated other comprehensive loss	(409.0)		(339.1)
Total Westinghouse Air Brake Technologies Corporation shareholders' equity	2,717,702			2,205,977
Total Westinghouse Air Brake Technologies Corporation shareholders’ equity							Total Westinghouse Air Brake Technologies Corporation shareholders’ equity	10,144.1		10,122.3
Noncontrolling interest	18,667			770,848			Noncontrolling interest	33.0		30.4
Total Equity	2,736,369			2,976,825			Total Equity	10,177.1		10,152.7
Total Liabilities and Equity	$	6,449,650		$	6,581,018		Total Liabilities and Equity	$	18,543.2	$	18,454.5

The accompanying notes are an integral part of these statements.

Unaudited Unaudited
Three Months Ended
September 30, Nine Months Ended
September 30,
In thousands 2017 2016 2017 2016

Net income attributable to Wabtec shareholders $ 67,399
$ 82,428
$ 213,313
$ 267,076

Foreign currency translation gain (loss) 82,905
2,734
277,984
(7,385 )
Unrealized gain (loss) on derivative contracts 15,021
1,169
18,400
(1,740 )
Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans 27
982
(3,017 ) (652 )
Other comprehensive income (loss) before tax 97,953
4,885
293,367
(9,777 )
Income tax (expense) benefit related to components of
other comprehensive income (5,333 ) (594 ) (5,692 ) 441

Other comprehensive income (loss), net of tax 92,620
4,291
287,675
(9,336 )
Comprehensive income attributable to Wabtec shareholders $ 160,019
$ 86,719
$ 500,988
$ 257,740


	Unaudited
	Three Months Ended March 31,
In millions	2021		2020

Net income attributable to Wabtec shareholders	$	112.4	$	111.6
Foreign currency translation loss	(61.7)		(181.4)
Unrealized (loss) gain on derivative contracts	(7.9)		8.1
Unrealized loss on pension benefit plans and post-retirement benefit plans	(3.3)		(3.6)
Other comprehensive loss before tax	(72.9)		(176.9)
Income tax benefit (expense) related to components of other comprehensive income	3.0		(1.1)
Other comprehensive loss, net of tax	(69.9)		(178.0)
Comprehensive income (loss) attributable to Wabtec shareholders	$	42.5	$	(66.4)


In millions, except per share data	Common Stock Shares	Common Stock Amount		Additional Paid-in Capital		Treasury Stock Shares		Treasury Stock Amount		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interest		Total
Balance, December 31, 2020	226.9	$	2.0	$	7,880.6	(38.0)		$	(1,010.1)	$	3,588.9	$	(339.1)	$	30.4	$	10,152.7
Cash dividends ($0.12 dividend per share)	—	—		—		—		—		(23.0)		—		—		(23.0)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(5.4)		—		0.2		—		—		—		(5.2)
Stock based compensation	—	—		8.7		—		—		—		—		—		8.7
Net income	—	—		—		—		—		112.4		—		2.3		114.7
Other comprehensive loss, net of tax	—	—		—		—		—		—		(69.9)		—		(69.9)
Stock repurchase	—	—		—		—		(1.2)		—		—		—		(1.2)
Other	—	—		—		—		—		—		—		0.3		0.3
Balance, March 31, 2021	226.9	$	2.0	$	7,883.9	(38.0)		$	(1,011.1)	$	3,678.3	$	(409.0)	$	33.0	$	10,177.1

Balance, December 31, 2019	226.9	$	2.0	$	7,877.2	(35.3)		$	(807.1)	$	3,267.0	$	(382.6)	$	37.1	$	9,993.6
Cash dividends ($0.12 dividend per share)	—	—		—		—		—		(23.0)		—		—		(23.0)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(7.9)		0.2		2.2		—		—		—		(5.7)
Stock based compensation	—	—		10.0		—		—		—		—		—		10.0
Net income (loss)	—	—		—		—		—		111.6		—		(0.4)		111.2
Other comprehensive loss, net of tax	—	—		—		—		—		—		(178.0)		—		(178.0)
Stock repurchase	—	—		—		(1.6)		(105.3)		—		—		—		(105.3)
Other	—	—		(4.3)		—		—		—		—		(0.8)		(5.1)
Balance, March 31, 2020	226.9	$	2.0	$	7,875.0	$	(36.7)	$	(910.2)	$	3,355.6	$	(560.6)	$	35.9	$	9,797.7

The accompanying notes are an integral part of these statements.

Westinghouse Air Brake Technologies Corporation (“Wabtec” or the "Company") is one of the world’s largest providers of locomotives, value-added, technology-based ~~products~~equipment, systems and services for the global freight rail ~~industry.~~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 ~~virtually all U.S.~~most locomotives, freight cars, ~~and~~ passenger transit ~~vehicles, as well as in more than 100 countries throughout~~cars and buses around the world. Our products enhance safety, improve productivity and reduce maintenance costs for customers, and 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 ~~31 countries.~~over 50 countries and our products can be found in more than 100 countries throughout the world. In the first ~~nine~~three months of ~~2017,~~2021, approximately ~~65%~~64% of the Company’s revenues came from customers outside the United States.

2. ACCOUNTING POLICIES

Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America and the rules and regulations of the Securities and Exchange Commission and include the accounts of Wabtec and its subsidiaries in which Wabtec has a controlling interest. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented. Results for these interim periods are not necessarily indicative of results to be expected for the full ~~year.~~year particularly in light of the ongoing COVID-19 pandemic that is continuing to impact our sales channels, supply chain, manufacturing operations, workforce, and other key aspects of our operations and the high degree of uncertainty regarding the pandemic's duration and severity, availability and effectiveness of vaccines, impact of variants of the disease, actions to control it, and the potential impact on global economic activity, global supply chain operations and our customers, suppliers, and end-markets.

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

The notes included herein should be read in conjunction with the audited consolidated financial statements included in Wabtec’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. The December 31, ~~2016~~2020 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020.

~~Revenue Recognition~~ Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 605 “Revenue Recognition.” Revenue is recognized when products have been shipped to the respective customers, title has passed and the price for the product has been determined.

In general, the Company recognizes revenue from long-term contracts based on the percentage of completion method of accounting. The units-of-delivery method or other input-based or output-based measures, as appropriate, are used to measure the progress toward completion of individual contracts. Contract revenues and cost estimates are reviewed and revised quarterly at a minimum and adjustments are reflected in the accounting period as such amounts are determined. Provisions are made currently for estimated losses on uncompleted contracts. Unbilled accounts receivables were $351.6 million and $274.9 million, customer deposits were $373.8 million and $256.6 million, and provisions for loss contracts were $93.8 million and $60.5 million at September 30, 2017 and December 31, 2016, respectively.

~~Pre-Production Costs~~ Certain pre-production costs relating to long-term production and supply contracts have been deferred and will be recognized over the life of the contracts. Deferred pre-production costs were $28.8 million and $29.4 million at September 30, 2017 and December 31, 2016, respectively.

~~Reclassifications~~ ~~Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation. Refer to Recently Adopted Accounting Pronouncements below.~~

Use of Estimates The preparation of financial statements in conformity with ~~generally accepted accounting principles~~GAAP in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

~~Financial Derivatives~~Revenue Recognition A majority of the Company’s revenues are derived from performance obligations that are satisfied at a point in time when control passes to the customer. The remaining revenues are earned over time. Generally, for performance obligations satisfied at a point in time control passes at the time of shipment in accordance with agreed upon delivery terms.

The Company also has long-term customer agreements involving the design and ~~Hedging Activities~~production of highly engineered products that require revenue to be recognized over time because these products have no alternative use without significant economic loss and the agreements contain an enforceable right to payment including a reasonable profit margin from the customer in the event of contract termination. Additionally, the Company has customer agreements involving the creation or enhancement of an asset that the customer controls which also require revenue to be recognized over time. Generally, the Company uses an input method for determining the amount of revenue, cost and gross margin to recognize over time for these customer agreements. The input methods used for these agreements include costs of material and labor, both of which give an accurate representation of the progress made toward complete satisfaction of a particular performance obligation. Contract revenues and cost estimates are reviewed and revised periodically through the year and adjustments are reflected in the accounting period as such amounts are determined.

Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment. Contract estimates related to long-term projects are based on various assumptions to project the outcome of future events that could span several years. These

assumptions include cost of materials; labor availability and productivity; complexity of the work to be performed; and the performance of suppliers, customers and subcontractors that may be associated with the contract. We have a disciplined process where management reviews the progress of long term-projects periodically throughout the year. As part of ~~its risk~~this process, management ~~strategy,~~reviews information including key contract matters, progress towards completion, identified risks and opportunities and any other information that could impact the Company’s estimates of revenue and costs. After completing this analysis, any adjustments to net sales, cost of goods sold, and the related impact to operating income are recognized as necessary in the period they become known.

Generally, the Company’s revenue contains a single performance obligation for each distinct good or service; however, a single contract may have multiple performance obligations comprising multiple promises to customers. When there are multiple performance obligations, revenue is allocated based on the relative stand-alone selling price. Pricing is defined in our contracts on a line item basis and includes an estimate of variable consideration when required by the terms of the individual customer contract. Types of variable consideration the Company ~~utilizes derivative financial instruments to manage its exposure due to changes in foreign currencies~~typically has include volume discounts, prompt payment discounts, liquidating damages and ~~interest rates. For further information regarding financial derivatives~~performance bonuses. Sales returns and ~~hedging activities, refer to Footnotes 12~~allowances are also estimated and ~~13.~~

~~Foreign Currency Translation~~ Assets and liabilities of foreign subsidiaries, except for the Company’s Mexican operations whose functional currency is the U.S. Dollar, are translated at the rate of exchange in effect on the balance sheet date while income and expenses are translated at the average rates of exchange prevailing during the period. Foreign currency gains and losses resulting from transactions and the translation of financial statements are recordedrecognized in the ~~Company’s consolidated financial statements~~same period the related revenue is recognized, based upon the Company’s experience.

Remaining performance obligations represent the transaction price of firm customer orders subject to standard industry cancellation provisions and substantial scope-of-work adjustments. As of ~~ASC 830 “Foreign Currency Matters.”~~March 31, 2021, the Company's remaining performance obligations were $21.0 billion. The ~~effects~~Company expects to recognize revenue of ~~currency exchange rate changes~~approximately 25% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

SEC regulations require that revenue categories that exceed 10% of total revenue are presented separately on ~~intercompany transactions and balances~~the company's Statement of a long-term investment nature are accumulated and carried as a component of accumulated other comprehensive loss. The effects of currency exchange rate changes on intercompany transactions that are denominated in a currency other than an entity’s functional currency are charged or credited to earnings.

~~Noncontrolling Interests~~ ~~In accordance with ASC 810 "Consolidation",~~income. As such, the Company has ~~classified noncontrolling interests~~displayed sales of goods and sales of services, and the related cost, in line with those regulations. Additionally, those regulations also require that goods are to include all sales of tangible products, and services must include all other sales. In Note 16 we refer to sales of both goods, such as ~~equity~~spare parts and equipment upgrades, and related services, such as monitoring, maintenance and repairs, as sales in our Services product line.

Revolving Receivables Program In May 2020, the Company entered into a revolving agreement to transfer up to $150 million of certain receivables of certain subsidiaries of the Company (the "Originators") through our bankruptcy-remote subsidiary to a financial institution on a recurring basis in exchange for cash equal to the ~~condensed~~gross receivables transferred. 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 $259.7 million at March 31, 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 March 31, 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 ~~balance sheets as~~subsidiary referenced above) nor the Originators guarantees the collectability of ~~September 30, 2017~~the receivables under the revolving agreements.

The following table sets forth a summary of receivables sold:


In millions	Three Months Ended March 31, 2021
Gross receivables sold/cash proceeds received	$	257.9
Collections reinvested under revolving agreement	165.0
Net cash proceeds received	$	92.9

Depreciation Expense Depreciation of property, plant and ~~December 31, 2016. Net income~~equipment related to the manufacturing of products or services provided is included in Cost of goods or Cost of services. Depreciation of other property, plant and equipment that is not attributable to ~~noncontrolling interests~~the manufacturing of products or services provided is included in Selling, general and administrative expenses or Engineering expense depending on how the property, plant and equipment is used.

Goodwill and Intangible Assets Goodwill and other intangible assets with indefinite lives are not amortized. Other intangibles (with definite lives) are amortized on a straight-line basis over their estimated economic lives. Amortizable intangible assets are reviewed for impairment when indicators of impairment are present. The Company tests goodwill and indefinite-lived intangible assets for impairment at the ~~three~~reporting unit level and ~~nine months ended September 30, 2017 was a $1.0 million gain~~at least annually. The Company performs its annual impairment test during the fourth quarter after the annual forecasting process is completed, and ~~a $0.7 million loss, respectively, and was~~also tests for impairment whenever events or changes in circumstances indicate the carrying value may not ~~material for~~be recoverable. Periodically, management of the ~~three and nine months ended September 30, 2016. Other comprehensive income attributable to noncontrolling interests for the three and nine months ended September 30, 2017 and 2016 was~~Company assesses whether or not ~~material.~~an indicator of impairment is present would necessitate an impairment analysis be performed.

Accounting Standards Recently ~~Issued Accounting Pronouncements~~Adopted In ~~March 2017,~~December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~No. 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving~~2019-12, “Income Taxes: Simplifying the ~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost".~~Accounting for Income Taxes.” The amendments in this update ~~require~~simplify the ~~service cost component of net benefit costs~~accounting for certain income tax transactions by removing specific exceptions to ~~be reported~~the general principles in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outside income from operations.Accounting Standards Codification ("ASC") 740, "Income Taxes." This ~~update also allows the service cost component to be eligible for capitalization when applicable. The ASU~~guidance is effective for ~~public companies in the~~ fiscal years beginning after December 15, ~~2017, and interim periods within those fiscal years. Early~~2020 with early adoption ~~was permitted as of the beginning of an annual period.~~permitted. The amendments should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company does not expect the adoption of this ~~guidance in 2018 to~~standard did not have a material impact on the Company's ~~financial statements.~~

In January 2017, the FASB issued ASU No. 2017-04 "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The amendments in this update eliminate the requirement to perform Step 2 of the goodwill impairment test. Instead, an entity should perform a goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value up to the carrying amount of the goodwill. The ASU is effective for public companies in the fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The impact of adopting this guidance could result in a change in the overall conclusion as to whether or not a reporting units' goodwill is impaired and the amount of an impairment charge recognized in the event a reporting units' carrying value exceeds its fair value. All of the Company's reporting units had fair values that were substantially greater than the carrying value as of the Company's last quantitative goodwill impairment test, which was performed as of October 1, 2016.

In November 2016, the FASB issued ASU No. 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash". The amendments in this update require a statement of cash flows to explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU is effective for public companies in the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 814)" which requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with terms less than 12 months, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right of use asset and lease liability. The ASU is effective for public companies in the fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contract with Customers.” The ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Board voted to propose that the standard would take effect for reporting periods beginning after December 15, 2017 and that early adoption would be allowed as of the original effective date. The impact of adopting the new standard on net sales and operating income for the three and nine months ended September 30, 2017 and 2016 is not expected to be material. The Company also does not expect a material impact to the consolidated balance sheet. The impact to results is not anticipated to be material because the analysis of the Company's current contracts under the new revenue recognition standard supports how the Company is currently recognizing revenue over time and at a point in time; however, the Company's conclusions may evolve as management completes its contract reviews and evaluation. The Company plans to adopt this accounting standard update using the modified retrospective method, with the cumulative effect of initially applying this update recognized in the first reporting period of 2018. The Company is in the process of drafting an updated accounting policy, evaluating new disclosure requirements and identifying and implementing appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new guidance. The Company believes it is following an appropriate timeline to appropriately adopt this new standard on January 1, 2018.

~~Recently Adopted Accounting Pronouncements~~ In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The ASU simplifies several aspects for the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU became effective for public companies during interim and annual reporting periods beginning after December 15, 2016. In accordance with this update, the Company began recognizing all excess tax deficiencies and tax benefits from share-based payment awards as a benefit or expense to income tax in the income statement. This update has been adopted prospectively in accordance with the ASU and the impact of adoption on the income statement was not material. Additionally in accordance with this update, the Company began classifying excess income tax benefits from exercise of stock options as an operating activity on the consolidated statement of cash flows. The Company elected to adopt this amendment retrospectively and the impact of the adoption on operating and financing cash flows for the three and nine months ended September 30, 2016 was not material.

In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The Company elected to early adopt this ASU as of December 31, 2016; therefore, all deferred income tax assets and liabilities are classified in the noncurrent deferred income taxes line-items on the consolidated balance sheets.

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

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2021 are as follows:


In millions	Foreign currency translation		Derivative contracts		Pension and post retirement benefit plans		Total
Balance at December 31, 2020	$	(260.2)	$	2.4	$	(81.3)	$	(339.1)
Other comprehensive loss before reclassifications	(61.7)		(5.9)		(3.0)		(70.6)
Amounts reclassified from accumulated other comprehensive loss	0		0		0.7		0.7
Net current-period other comprehensive loss	(61.7)		(5.9)		(2.3)		(69.9)
Balance at March 31, 2021	$	(321.9)	$	(3.5)	$	(83.6)	$	(409.0)

The changes in accumulated other comprehensive loss by component, net of tax, for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 are as follows:

In thousands
Foreign
currency
translation

Derivative
contracts

Pension and
post
retirement
benefit plans
Total
Balance at December 31, 2016 $ (321,033 ) $ (2,957 ) $ (55,615 ) $ (379,605 )
Other comprehensive income (loss) before reclassifications 277,984
11,424
(4,715 ) 284,693
Amounts reclassified from accumulated other
comprehensive income —
1,206
1,776
2,982
Net current period other comprehensive income (loss) 277,984
12,630
(2,939 ) 287,675
Balance at September 30, 2017 $ (43,049 ) $ 9,673
$ (58,554 ) $ (91,930 )


In millions	Foreign currency translation		Derivative contracts		Pension and post retirement benefit plans		Total
Balance at December 31, 2019	$	(308.6)	$	(3.3)	$	(70.7)	$	(382.6)
Other comprehensive (loss) income before reclassifications	(181.4)		6.1		(3.4)		(178.7)
Amounts reclassified from accumulated other comprehensive loss	0		0		0.7		0.7
Net current-period other comprehensive (loss) income	(181.4)		6.1		(2.7)		(178.0)
Balance at March 31, 2020	$	(490.0)	$	2.8	$	(73.4)	$	(560.6)

Reclassifications out of accumulated other comprehensive ~~loss for~~income (loss) are recognized in "Other income (expense), net" with the ~~three months ended September 30, 2017 are as follows:~~tax impact recognized in "Income tax expense."

In thousands
Amount reclassified from
accumulated other
comprehensive income

Affected line item in the
Condensed Consolidated
Statements of Income
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost $ (422 ) Cost of sales
Amortization of net loss 1,240
Cost of sales
818
Income from Operations
(226 ) Income tax expense
$ 592
Net income

Derivative contracts
Realized loss on derivative contracts $ 497
Interest expense, net
(131 ) Income tax expense
$ 366
Net income

~~Reclassifications out of accumulated other comprehensive loss for the nine months ended September 30, 2017 are as follows:~~

In thousands
Amount reclassified from
accumulated other
comprehensive income

Affected line item in the
Condensed Consolidated
Statements of Income
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost $ (1,266 ) Cost of sales
Amortization of net loss 3,720
Cost of sales
2,454
Income from Operations
(678 ) Income tax expense
$ 1,776
Net income

Derivative contracts
Realized loss on derivative contracts $ 1,653
Interest expense, net
(447 ) Income tax expense
$ 1,206
Net income

~~The changes in accumulated other comprehensive loss by component, net of tax, for the nine months ended September 30, 2016 are as follows:~~

Foreign
currency
translation Derivative
contracts Pension and
post
retirement
benefit plans Total
Balance at December 31, 2015 $ (227,349 ) $ (2,987 ) $ (46,383 ) $ (276,719 )
Other comprehensive income (loss) before reclassifications (7,385 ) (2,192 ) (1,969 ) (11,546 )
Amounts reclassified from accumulated other
comprehensive income —
883
1,327
2,210
Net current period other comprehensive (loss) (7,385 ) (1,309 ) (642 ) (9,336 )
Balance at September 30, 2016 $ (234,734 ) $ (4,296 ) $ (47,025 ) $ (286,055 )

~~Reclassifications out of accumulated other comprehensive loss for the three months ended September 30, 2016 are as follows:~~

In thousands Amount reclassified from
accumulated other
comprehensive income Affected line item in the
Condensed Consolidated
Statements of Operations
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost $ 6
Cost of sales
Amortization of net loss 611
Cost of sales
617
Income from Operations
(175 ) Income tax expense
$ 442
Net income

Derivative contracts
Realized loss on derivative contracts $ 338
Interest expense, net
(96 ) Income tax expense
$ 242
Net income

~~Reclassifications out of accumulated other comprehensive loss for the nine months ended September 30, 2016 are as follows:~~

In thousands Amount reclassified from
accumulated other
comprehensive income Affected line item in the
Condensed Consolidated
Statements of Operations
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost $ (801 ) Cost of sales
Amortization of net loss 2,702
Cost of sales
1,901
Income from Operations
(574 ) Income tax expense
$ 1,327
Net income

Derivative contracts
Realized loss on derivative contracts $ 1,265
Interest expense, net
(382 ) Income tax expense
$ 883
Net income

~~Faiveley Transport~~Nordco

On ~~November 30, 2016,~~March 31, 2021, the Company acquired ~~majority ownership of Faiveley Transport S.A. (“Faiveley Transport”) under the terms of a Share Purchase Agreement (“Share Purchase Agreement”). Faiveley Transport is~~Nordco, a leading ~~global provider~~North American supplier of ~~value-added, integrated systems~~new, rebuilt and used maintenance of way equipment. Nordco's products and services ~~for the railway industry with annual sales of about $1.2 billion~~portfolio includes mobile railcar movers and more than 5,700 employees in 24 countries. Faiveley Transport supplies railway manufacturers, operators and maintenance providers with a range of value-added, technology-based systems and services in Energy & Comfort (air conditioning, power collectors and converters, and passenger information), Access & Mobility (passenger access systems and platform doors), and Brakes and Safety (braking systems and couplers).ultrasonic rail flaw detection technologies. The ~~transaction was structured as a step acquisition as follows:~~

49% of the outstanding voting shares of Faiveley Transport. Upon completion of the share purchase under the Share Purchase Agreement, Wabtec commenced a tender offer for the remaining publicly traded Faiveley Transport shares. The public shareholders had the option to elect to receive €100 per share in cash or 1.1538 shares of Wabtec common stock per share of Faiveley Transport. The common stock portion of the consideration was subject to a cap on issuance of Wabtec common shares that was equivalent to the rates of cash and stock elected by the 51% owners.

~~The aggregate value of consideration~~price paid for 100% ownership of ~~Faiveley Transport~~Nordco was ~~$1,736.1 million including $944.3 million in cash, $560.2 million in stock or~~ approximately ~~6.6 million shares, $409.9 million in debt assumed, less $178.3 million in cash acquired.~~ $407 million.

The ~~$744.7 million included as deposits in escrow on~~following table summarizes the ~~consolidated balance sheet at December 31, 2016 was cash designated for use as consideration for~~preliminary fair value of the ~~tender offers.~~Nordco assets acquired and liabilities assumed:


In millions
Assets acquired
Cash and cash equivalents	$	5.1
Accounts receivable	22.7
Inventory	34.3
Other current assets	1.7
Property, plant and equipment	16.5
Goodwill	214.5
Other intangible assets	163.5
Other noncurrent assets	9.4
Total assets acquired	467.7
Liabilities assumed
Current liabilities	18.3
Noncurrent liabilities	42.9
Total liabilities assumed	61.2
Net assets acquired	$	406.5

The fair values of the assets acquired and liabilities assumed ~~are preliminarily~~were determined using the income, cost and market approaches. Discounted cash flow models were used to estimate the fair values of acquired intangibles. The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3. The December 31, 2016 consolidated balance sheet includes the assets and liabilities of Faiveley Transport, which have been measured at fair value. The fair value of the noncontrolling interest was preliminarily determined using the market price of Faiveley Transport’s publicly traded common stock multiplied by the number of publicly traded common shares outstanding at the acquisition date and is considered Level 1. The acquisition of the noncontrolling interest in the three months ended March 31, 2017 resulted in a $8.9 million increase to additional paid-in capital on the consolidated balance sheet which represents the difference in consideration paid to acquire the noncontrolling interest and the carrying value of noncontrolling interest at acquisition.

~~The following table summarizes the preliminary estimated fair values of the Faiveley Transport assets acquired and liabilities assumed:~~

In thousands
Assets acquired
Cash and cash equivalents $ 178,318
Accounts receivable 444,741
Inventories 205,649
Other current assets 70,930
Property, plant, and equipment 148,746
Goodwill 1,257,360
Trade names 346,328
Customer relationships 233,529
Patents 1,201
Other noncurrent assets 183,252
Total assets acquired 3,070,054
Liabilities assumed
Current liabilities 805,992
Debt 409,899
Other noncurrent liabilities 347,348
Total liabilities assumed 1,563,239
Net assets acquired $ 1,506,815

These estimates are preliminary in nature and subject to adjustments, which could be ~~material.~~material, as the Company has not completed its valuation of assets acquired and liabilities assumed. Any necessary adjustments will be finalized within one year from the date of acquisition. During the nine months ended September 30, 2017, the estimated fair values for customer relationships and current liabilities were adjusted by $21.8 million and $51.8 million, respectively, for changes to initial estimates based on information that existed at the date of acquisition. Additionally, the estimated fair values for accounts receivable and current liabilities were adjusted by $2.8 million and $36.2 million, respectively, to correct errors in the preliminary estimated fair values of the Faiveley Transport assets acquired and liabilities assumed. Other noncurrent assets were adjusted by $29.0 millionto record the deferred tax impact of these adjustments. As a result of these adjustments and other immaterial adjustments related to changes to initial estimates based on information that existed at the date of acquisition, goodwill increased by $69.1 million. Accounts receivable and current liabilities were adjusted by $64.3 million to correct an error in the preliminary estimated fair values of Faiveley Transport assets and liabilities assumed related to a factoring arrangement with recourse.

Substantially all of the accounts receivable acquired are expected to be collectible. ~~Included in current liabilities is $25.9 million of accrued compensation for~~Intangible assets acquired ~~share-based stock plans~~include customer relationships and intellectual property that are ~~obligated~~subject to ~~be settled in cash.~~amortization, and trade names that were assigned an indefinite life and are not subject to amortization. Contingent liabilities assumed as part of the transaction were not material. These contingent liabilities are related to contract disputes, environmental, legal and tax matters. Contingent liabilities are recorded at fair value in purchase accounting, aside from those pertaining to uncertainty in income taxes which is an exception to the fair value basis of accounting.

Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the assembled workforce and the future economic benefits, including synergies, ~~and assembled workforce, the Company expects~~that are expected to ~~achieve~~be achieved as a result of the acquisition. ~~Purchased~~The purchased goodwill is not expected to be deductible for tax purposes. The ~~goodwill has been preliminarily allocated to the Transit segment.~~

~~For the three and nine months ended September 30, 2017, the Company’s consolidated statement~~results of ~~income included $294.4 million and $851.8 million of revenues, respectively, from Faiveley Transport.~~

~~Other Acquisitions~~

~~The Company has made the following acquisitions operating as a~~this business ~~unit or component of a business unit in the Freight Segment:~~

~~The Company has made the following acquisitions operating as a business unit or component of a business unit in the Transit Segment:~~

~~The acquisitions listed above include escrow deposits of $38.4 million, which act as security for indemnity and other claims in accordance with the purchase and related escrow agreements.~~

~~The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at~~since the date of acquisition will be reported within the Freight segment and the Services product line. The pro-forma impact on Wabtec’s sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, for TTC, ATP, Workhorse, and Precision Turbo. For the Unitrac and Gerken acquisitions, the following table summarizes the final fair value of the assets acquired and liabilities assumed at the date of acquisition.was not significant.

TTC ATP Workhorse Precision Turbo Gerken Unitrac
In thousands April 5,
2017 March 14,
2017 December 14,
2016 November 17,
2016 August 1,
2016 May 5,
2016
Current assets $ 3,746
$ 11,666
$ 9,137
$ 4,145
$ 32,706
$ 11,476
Property, plant & equipment 5,909
5,354
—
1,346
7,667
1,768
Goodwill 16,309
31,934
24,373
4,019
17,470
2,442
Other intangible assets 12,300
22,100
19,400
5,200
30,560
1,230
Other assets —
—
—
—
1,706
—
Total assets acquired 38,264
71,054
52,910
14,710
90,109
16,916
Total liabilities assumed (5,753 ) (5,800 ) (9,083 ) (884 ) (27,262 ) (2,145 )
Net assets acquired $ 32,511
$ 65,254
$ 43,827
$ 13,826
$ 62,847
$ 14,771

Of the $671.8 million of total acquired other intangible assets, $367.6 million was assigned to trade names, $296.7 million was assigned to customer relationships, and $5.0 million was assigned to intellectual property. The trade names were determined to have indefinite useful lives, while the intellectual property and customer relationships’ average useful lives are 20 years, and the non-compete agreements' useful life is five years.

~~The Company also made smaller acquisitions not listed above which are individually and collectively immaterial.~~

~~The following unaudited pro forma consolidated financial information presents income statement results as if the acquisitions listed above had occurred on January 1, 2016:~~

In thousands Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Net sales $ 957,931
$ 995,869
$ 2,817,550
$ 3,168,195
Gross profit 253,203
301,554
799,695
977,743
Net income attributable to Wabtec shareholders 67,399
99,085
214,370
323,878
Diluted earnings per share
As Reported $ 0.70
$ 0.91
$ 2.22
$ 2.92
Pro forma $ 0.70
$ 1.02
$ 2.23
$ 3.30

The components of inventory, net of reserves, were:


In millions	March 31, 2021		December 31, 2020
Raw materials	$	681.5	$	669.4
Work-in-progress	329.8		339.4
Finished goods	660.2		633.3
Total inventories	$	1,671.5	$	1,642.1

In thousands September 30,
2017 December 31,
2016
Raw materials $ 391,207
$ 331,465
Work-in-progress 196,319
145,462
Finished goods 177,255
181,583
Total inventories $ 764,781
$ 658,510

5. ~~INTANGIBLES~~GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill by segment for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 is as follows:

In thousands
Freight
Segment

Transit
Segment
Total
Balance at December 31, 2016 $ 550,902
$ 1,527,863
$ 2,078,765
Adjustment to preliminary purchase allocation (13,395 ) 77,302
63,907
Acquisitions 62,158
4,999
67,157
Foreign currency impact 9,407
165,522
174,929
Balance at September 30, 2017 $ 609,072
$ 1,775,686
$ 2,384,758


In millions	Freight Segment		Transit Segment		Total
Balance at December 31, 2020	$	6,872.2	$	1,613.0	$	8,485.2
Additions / opening balance sheet adjustments	214.6		0		214.6
Foreign currency impact	(9.0)		(65.1)		(74.1)
Balance at March 31, 2021	$	7,077.8	$	1,547.9	$	8,625.7

As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, the Company’s trade names had a net carrying amount of ~~$583.7~~$659.2 million and ~~$510.5~~$650.7 million, ~~respectively, and the~~respectively. The Company believes these intangibles have indefinite ~~lives.~~lives, with the exception of the right to use the GE Transportation trade name, to which the Company has assigned a useful life of 5 years.

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

In thousands September 30,
2017 December 31,
2016
Patents, non-compete and other intangibles, net of accumulated
amortization of $42,237 and $42,538 $ 15,001
$ 15,360
Customer relationships, net of accumulated amortization
of $117,676 and $87,334 541,705
528,068
Total $ 556,706
$ 543,428


In millions	March 31, 2021		December 31, 2020

Intellectual property, patents, and other intangibles, net of accumulated amortization of $248.6 and $223.7	$	1,038.1	$	1,007.6
Backlog, net of accumulated amortization of $231.8 and $206.9	1,192.6		1,224.7
Customer relationships, net of accumulated amortization of $287.4 and $276.3	1,037.3		986.2
Total	$	3,268.0	$	3,218.5

The weighted average remaining useful life of ~~patents,~~backlog, intellectual property, customer relationships and other ~~intangibles~~intangible assets were 1013 years, 12 years, 17 years and 158 years, respectively. The backlog intangible asset primarily consists of in-place long-term service agreements acquired by the Company in conjunction with the acquisition of GE Transportation in 2019. Amortization expense for intangible assets was ~~$8.6~~$69.5 million and ~~$27.0~~$69.0 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2021 and ~~$5.3 million and $16.1 million for the three and nine months ended September 30, 2016,~~2020, respectively.

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


In millions
Remainder of 2021	$	217.9
2022	289.9
2023	289.3
2024	279.8
2025	277.1

6. CONTRACT ASSETS AND CONTRACT LIABILITIES

Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. The current portion of the contract assets are classified as current assets under the caption “Unbilled accounts receivable” while the noncurrent contract assets are classified as other assets under the caption "Other noncurrent assets" on the consolidated balance sheet. Noncurrent contract assets were $112.4 million at March 31, 2021 and $101.0 million at December 31, 2020, respectively. Included in noncurrent contract assets are certain costs that are specifically related to a contract, however, do not directly contribute to the transfer of control of the tangible product being created, such as non-recurring engineering costs. The Company has elected to use the practical expedient and does not consider unbilled amounts anticipated to be paid within one year as significant financing components.

Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract and advanced customer payments that are in excess of revenue recognized. The current portion of contract liabilities are classified as current liabilities under the caption “Customer deposits” while the noncurrent contract liabilities are classified as noncurrent liabilities under the caption "Other long-term liabilities" on the consolidated balance sheet. Noncurrent contract liabilities were $72.3 million at March 31, 2021 and $79.6 million at December 31, 2020. These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract or revenue associated with the contract liabilities is expected to be recognized within one year. Contract liabilities also include provisions for estimated losses from uncompleted contracts. Provisions for loss contracts were

Remainder of 2017 $ 8,873
2018 34,794
2019 33,537
2020 32,014
2021 31,827
$120.2 million and $108.9 million at March 31, 2021 and December 31, 2020, respectively. These provisions for estimated losses are classified as current liabilities and included within the caption “Other accrued liabilities” on the consolidated balance sheet.

The change in the carrying amount of contract assets and contract liabilities for the three months ended March 31, 2021 and 2020 is as follows:


	Contract Assets
In millions	2021		2020
Balance at beginning of year	$	544.2	$	623.4
Acquisitions	0		4.1
Recognized in current year	233.4		293.0
Reclassified to accounts receivable	(242.0)		(282.9)
Foreign currency impact	(5.5)		(8.3)
Balance at March 31	$	530.1	$	629.3

	Contract Liabilities
In millions	2021		2020
Balance at beginning of year	$	831.2	$	799.7
Acquisitions	1.7		6.9
Recognized in current year	233.6		290.2
Amounts in beginning balance reclassified to revenue	(213.5)		(317.6)
Current year amounts reclassified to revenue	(11.4)		(11.8)
Foreign currency impact	(8.4)		(6.2)
Balance at March 31	$	833.2	$	761.2

7. LEASES

The Company leases property and equipment under finance and operating leases. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments. Many of the Company's leases include rental escalation clauses, renewal options, and/or termination options that are factored into our determination of lease payments when appropriate. The Company does not separate lease and non-lease components contracts.

As most of the Company's leases do not provide a readily stated discount rate, the Company must estimate our incremental borrowing rate to discount lease payments. The Company has established discount rates by geographic region ranging from 1.0% to 12.3%.

The components of lease expense are as follows:


	Three Months Ended March 31,
In millions	2021		2020
Operating lease expense	$	14.2	$	14.7
Finance lease expense amortization of leased assets	0		0.3

Short-term and variable lease expense	0.1		0.1
Sublease income	(0.1)		(0.1)
Total	$	14.2	$	15.0

Scheduled payments of lease liabilities are as follows:


In millions	Operating Leases		Finance Leases		Total
Remaining 2021	$	42.8	$	0.3	$	43.1
2022	51.7		0.3		52.0
2023	45.6		0.2		45.8
2024	40.3		0.2		40.5
2025	34.8		0.1		34.9
Thereafter	114.2		0.1		114.3
Total lease payments	329.4		1.2		330.6
Less: Present value discount	(28.3)		0		(28.3)
Present value of lease liabilities	$	301.1	$	1.2	$	302.3

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


	March 31, 2021
Weighted-average remaining lease term (years)
Operating leases	7.8
Finance leases	4.5
Weighted-average discount rate
Operating leases	2.7	%
Finance leases	1.5	%

8. LONG-TERM DEBT

Long-term debt consisted of the following:


	Effective		March 31, 2021				December 31, 2020
In millions	Interest Rate		Book Value		Fair Value 1		Book Value		Fair Value 1
Senior Credit and 364 Day Facility:
U.S. dollar-denominated Term Loans, net of unamortized debt issuance costs of $0.5 and $0.9	2.3	%	625.5		625.5		645.1		645.1
Multi-Currency Revolving loan facility net of unamortized debt issuance costs of $0.4 and $0.8	1.5	%	149.6		149.6		0		0
Senior Notes:
4.375% Senior Notes, due 2023, net of unamortized discount and debt issuance costs of $0.6 and $0.7	4.5	%	249.4		266.4		249.3		267.0
4.15% Senior Notes, due 2024, net of unamortized debt issuance costs of $4.0 and $4.3	4.6	%	746.0		810.8		745.7		817.3
3.20% Senior Notes, due 2025, net of unamortized debt discount and debt issuance costs of $4.1 and $4.4	3.4	%	495.9		524.8		495.6		533.4
3.45% Senior Notes, due 2026, net of unamortized debt issuance costs of $1.2 and $1.3	3.5	%	748.8		803.1		748.7		819.5
4.70% Senior Notes, due 2028, net of unamortized debt issuance costs of $8.0 and $8.2	5.0	%	1,242.1		1,419.1		1,241.8		1472.2
Other Borrowings			19.9		19.9		113.2		113.1
Total			4,277.2		4,619.2		4,239.4		4,667.6
Less - current portion			353.9		353.9		447.2		447.2
Long-term portion			$	3,923.3	$	4,265.3	$	3,792.2	$	4,220.4

In thousands September 30,
2017 December 31,
2016
3.45% Senior Notes, due 2026, net of unamortized debt
issuance costs of $2,410 and $2,526 $ 747,590
$ 747,474
4.375% Senior Notes, due 2023, net of unamortized
discount and debt issuance costs of $1,498 and $1,690 248,502
248,310
Revolving Credit Facility, net of unamortized
debt issuance costs of $2,801 and $3,850 855,321
796,150
Schuldschein Loan 11,812
98,671
Other Borrowings 9,150
1,153
Capital Leases 1,529
1,018
Total 1,873,904
1,892,776
Less - current portion 49,748
129,809
Long-term portion $ 1,824,156
$ 1,762,967

~~Wabtec's acquisition~~1. See Note 14 for information on the fair value measurement of the ~~controlling stake~~Company's long-term debt.

For those debt securities that have a premium or discount at the time of ~~Faiveley Transport triggered~~issuance, the ~~early repayment~~Company amortizes the amount through interest expense based on the maturity date or the first date the holders may require the Company to repurchase the debt securities, if applicable. A premium would result in a decrease in interest expense, and a discount would result in an increase in interest expense in future periods. Additionally, the Company has debt issuance costs related to certain financing transactions which are also amortized through interest expense. As of March 31, 2021 and December 31, 2020, the Company had total

unamortized debt issuance costs of $18.8 million and $20.5 million, respectively. At March 31, 2021, the weighted average interest rate on the Company's variable rate debt was 1.5%

Credit Facilities

Senior Credit Facility

On June 8, 2018, the Company entered into a ~~syndicated~~credit agreement ("Senior Credit Facility"), which replaced the Company's then-existing credit agreement. The Senior Credit Facility is with a syndicate of lenders and provides for borrowings consisting of (i) term loans denominated in euros and U.S. dollars ("Term Loans"); and (ii) a multi-currency revolving loan facility, providing for an equivalent in U.S. dollars of up to $1,200.0 million in multi-currency revolving loans (inclusive of swingline loans of up to $75.0 million and letters of credit of up to $450.0 million (the "Revolving Credit Facility")). The Revolving Credit Facility will mature on June 8, 2023.

Under the Senior Credit Facility, we can elect to receive advances bearing interest based on either the Alternate Base Rate ("ABR") or the London Interbank Offered Rate ("LIBOR") (each as defined in the Senior Credit Facility) plus applicable margin that is determined based on our credit ratings or the Company's Leverage (as defined in the Senior Credit Facility). The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type. The obligations under the Senior Credit Facility are guaranteed by Wabtec and certain of Wabtec's U.S. subsidiaries, as guarantors.

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


Interest Coverage Ratio 1						3.0x
Leverage Ratio 2						3.25x

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

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

The company was in compliance with all covenants in the Senior Credit Facility as of March 31, 2021.

364-Day Facility

On April 10, 2020 the Company entered into a new $600 million 364 day credit facility ("364 Day Facility") initially scheduled to mature in April 2021 with a group of banks which includes a $144.0 million revolving credit facility ("364 Day Revolver") and a $456.0 million term loan ("364 Term Loan"), of which $305.9 million was outstanding at March 31, 2021. The agreement calls for interest at either a LIBOR-based rate, or a rate based on the prime lending rate of the agent bank, at the Company's option. The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type and substantially similar to our existing Senior Credit Facility. The obligations under the 364 Day Facility are guaranteed by certain of the Company's U.S. subsidiaries, as guarantors. On June 12, 2020 the Company amended the 364 Day Facility maturity to July 9, 2021. The Company was in compliance with all covenants in the 364 Senior Credit Facility as of March 31, 2021.

The following table presents availability under the Revolving Credit Facility and the ~~mandatory offer to investors to repay the U.S. and Schuldschein private placements. Both the syndicated loan and U.S. private placements were repaid in full in December 2016.~~364 Day Revolver (the "Revolving Facilities"):


(in millions)	Revolving Credit Facility		364 Day Revolver
Maximum Availability	$	1,200.0	$	144.0
Outstanding Borrowings	(149.6)		0
Letters of Credit Under Credit Agreement	(5.8)		0
Current Availability	$	1,044.6	$	144.0

Senior Notes

The "Senior Notes" comprises our 4.375% Senior Notes due 2023, 4.15% Senior Notes due 2024, 3.20% Senior Notes due 2025, 3.45% Senior Notes ~~Due November~~due 2026

~~On November 3 2016, the Company issued $750.0 million of~~ and 4.70% Senior Notes due ~~in 2026 (the "2016 Notes"). The 2016 Notes were issued at 99.965% of face value.~~2028. Interest on the ~~2016~~Senior Notes ~~accrues~~is payable semi-annually. The Company may redeem each series of the notes at any time in whole or from time to time in part in accordance with the provisions of the indenture, under which such series of notes was issued. Each of the Senior Notes may be redeemed at a ~~rate~~redemption price of ~~3.45% per annum and is payable semi-annually on May 15 and November 15 of each year. The proceeds were used to finance the cash portion~~100% of the ~~Faiveley Transport acquisition, refinance Faiveley Transport's indebtedness,~~principal amount plus a specified make-whole premium and ~~for general corporate purposes.~~accrued interest. The ~~principal balance is due in full at maturity. The Company incurred $2.7 million of deferred financing costs related to the issuance of the 2016 Notes.~~Senior

~~The 2016~~

Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the Company.

The ~~indenture~~indentures under which the ~~2016~~Senior Notes were issued ~~contains~~contain covenants and restrictions which limit, ~~among other things, the following:~~subject to certain exceptions, certain sale and leaseback transactions with respect to principal properties, the incurrence of ~~indebtedness, payment of dividends~~secured debt without equally and ratably securing the Senior Notes, and certain ~~distributions, sale~~merger and consolidation transactions. The covenants do not require the Company to maintain any financial ratios or specified levels of ~~assets, change in control, mergers~~net worth or liquidity. The Senior Notes are fully and ~~consolidations~~unconditionally guaranteed, jointly and severally, on an unsecured basis by each of the ~~incurrence of liens.~~Company's subsidiaries that is a guarantor under the Revolving Facilities.

The Company is in compliance with the restrictions and covenants in the ~~indenture~~indentures under which the ~~2016~~Senior Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.

~~4.375% Senior Notes Due August 2023~~

In August 2013, the Company issued $250.0 million of Senior Notes due in 2023 (the “2013 Notes”). The 2013 Notes were issued at 99.879% of face value. Interest on the 2013 Notes accrues at a rate of 4.375% per annum and is payable semi-annually on February 15 and August 15 of each year. The proceeds were used to repay debt outstanding under the Company’s existing credit agreement, and for general corporate purposes. The principal balance is due in full at maturity. The Company incurred $2.6 million of deferred financing costs related to the issuance of the 2013 Notes.

The 2013 Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the Company. The indenture under which the 2013 Notes were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness,

~~payment of dividends and certain distributions, sale of assets, change in control, mergers and consolidations and the incurrence of liens.~~

The Company is in compliance with the restrictions and covenants in the indenture under which the 2013 Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.

~~2016 Refinancing Credit Agreement~~

On June 22, 2016, the Company amended and restated its existing revolving credit facility with a consortium of commercial banks. The “2016 Refinancing Credit Agreement” provides the Company with a $1.2 billion, five years revolving credit facility and a $400.0 million delayed draw term loan (the “Term Loan”). The Company incurred approximately $3.3 million of deferred financing costs related to the 2016 Refinancing Credit Agreement. The facility expires on June 22, 2021. The 2016 Refinancing Credit Agreement borrowings bear variable interest rates indexed as described below. At September 30, 2017, the Company had available bank borrowing capacity, net of $35.4 million of letters of credit, of approximately $686.7 million, subject to certain financial covenant restrictions.

~~The Term Loan was initially drawn on November 25, 2016. The Company incurred 10 basis point commitment fee from June 22, 2016 until the initial draw.~~

Under the 2016 Refinancing Credit Agreement, the Company may elect a Base Rate of interest for U.S. Dollar denominated loans or, for certain currencies, an interest rate based on the London Interbank Offered Rate (“LIBOR”) of interest, or other rates appropriate for such currencies (in any case, “the Alternate Rate”). The Base Rate adjusts on a daily basis and is the greater of the Federal Funds Effective Rate plus 0.5% per annum, the PNC, N.A. prime rate or the Daily LIBOR Rate plus 100 basis points, plus a margin that ranges from 0 to 75 basis points. The Alternate Rate is based on the quoted rates specific to the applicable currency, plus a margin that ranges from 75 to 175 basis points. Both the Base Rate and Alternate Rate margins are dependent on the Company’s consolidated total indebtedness to EBITDA ratios. The initial Base Rate margin is 0 basis points and the Alternate Rate margin is 175 basis points.

At September 30, 2017, the weighted average interest rate on the Company’s variable rate debt was 2.89%. On January 12, 2012, the Company entered into a forward starting interest rate swap agreement with a notional value of $150.0 million. The effective date of the interest rate swap agreement was July 31, 2013, and the termination date was November 7, 2016. The impact of the interest rate swap agreement converted a portion of the Company’s outstanding debt from a variable rate to a fixed-rate borrowing. During the term of the interest rate swap agreement the interest rate on the notional value was fixed at 1.415% plus the Alternate Rate margin. On June 5, 2014, the Company entered into a forward starting interest rate swap agreement with a notional value of $150.0 million. The effective date of the interest rate swap agreement was November 7, 2016, and the termination date is December 19, 2018. The impact of the interest rate swap agreement converts a portion of the Company’s outstanding debt from a variable rate to a fixed-rate borrowing. During the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 2.56% plus the Alternate Rate margin. As for these agreements, the Company is exposed to credit risk in the event of nonperformance by the counterparties. However, since only the cash interest payments are exchanged, exposure is significantly less than the notional amount. The counterparties are large financial institutions with excellent credit ratings and history of performance. The Company currently believes the risk of nonperformance is negligible.

The 2016 Refinancing Credit Agreement limits the Company’s ability to declare or pay cash dividends and prohibits the Company from declaring or making other distributions, subject to certain exceptions. The 2016 Refinancing Credit Agreement contains various other covenants and restrictions including the following limitations: incurrence of additional indebtedness; mergers, consolidations, sales of assets and acquisitions; additional liens; sale and leasebacks; permissible investments, loans and advances; certain debt payments; and imposes a minimum interest expense coverage ratio of 3.0 and a maximum debt to EBITDA ratio of 3.25. The Company is in compliance with the restrictions and covenants of the 2016 Refinancing Credit Agreement and does not expect that these measurements will limit the Company in executing its operating activities.

~~2013 Refinancing Credit Agreement~~

On December 19, 2013, the Company amended its then existing revolving credit facility with a consortium of commercial banks. This “2013 Refinancing Credit Agreement” provided the Company with an $800.0 million, five-year revolving credit facility. The Company incurred approximately $1.0 million of deferred financing cost related to the 2013 Refinancing Credit Agreement. The 2013 Refinancing Credit Agreement was replaced by the 2016 Refinancing Credit Agreement.

Under the 2013 Refinancing Credit Agreement, the Company could have elected a Base Rate of interest for U.S. Dollar denominated loans or, for certain currencies, an interest rate based on the LIBOR of interest, or other rates appropriate for such currencies (in any case, “the Alternate Rate”). The Base Rate adjusted on a daily basis and was the greater of the Federal Funds

Effective Rate plus 0.5% per annum, the PNC, N.A. prime rate or the Daily LIBOR Rate plus 100 basis points, plus a margin that ranged from 0 to 75 basis points. The Alternate Rate was based on the quoted rates specific to the applicable currency, plus a margin that ranged from 75 to 175 basis points. Both the Base Rate and Alternate Rate margins were dependent on the Company’s consolidated total indebtedness to EBITDA ratios.

~~Schuldschein Loan, Due 2024~~

In conjunction with the acquisition of Faiveley Transport, Wabtec acquired $137.2 million of a Schuldschein private placement loan which was originally issued by Faiveley Transport on March 5, 2014 in Germany, in which approximately 20 international investors participated. This loan is denominated in euros. Subsequent to the acquisition of Faiveley Transport, the Company repaid $125.8 million of the outstanding Schuldshein loan. The remaining balance of $11.8 million as of September 30, 2017 has a maturity of seven years and bears a fixed rate of 4.00%.

The Schuldschein loan is senior unsecured and ranks pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the Company. The Schuldshein loan agreement contains covenants and undertakings which limit, among other things, the following: factoring of receivables, the incurrence of indebtedness, sale of assets, change of control, mergers and consolidations and incurrence of liens. At September 30, 2017, the Company is in compliance with the undertakings and covenants contained in the loan agreement.

~~7. EMPLOYEE BENEFIT PLANS~~

~~Defined Benefit Pension Plans~~

The Company sponsors defined benefit pension plans that cover certain U.S., Canadian, German and United Kingdom employees and which provide benefits of stated amounts for each year of service of the employee.

~~The Company uses a December 31 measurement date for the plans.~~

~~The following tables provide information regarding the Company’s defined benefit pension plans summarized by U.S. and international components.~~

U.S. International
Three Months Ended September 30, Three Months Ended September 30,
In thousands, except percentages 2017 2016 2017 2016
Net periodic benefit cost
Service cost $ 86
$ 84
$ 614
$ 258
Interest cost 356
369
1,677
1,257
Expected return on plan assets (433 ) (519 ) (2,910 ) (2,437 )
Net amortization/deferrals 248
229
685
397
Net periodic benefit cost $ 257
$ 163
$ 66
$ (525 )

U.S. International
Nine Months Ended
September 30, Nine Months Ended
September 30,
In thousands, except percentages 2017 2016 2017 2016
Net periodic benefit cost
Service cost $ 258
$ 252
$ 1,842
$ 986
Interest cost 1,068
1,107
5,031
4,193
Expected return on plan assets (1,299 ) (1,557 ) (8,730 ) (7,723 )
Net amortization/deferrals 744
687
2,055
1,452
Curtailment loss recognized —
—
—
240
Net periodic benefit (credit) cost $ 771
$ 489
$ 198
$ (852 )

Assumptions
Discount Rate 3.95 % 4.21 % 2.51 % 3.56 %
Expected long-term rate of return 4.95 % 5.70 % 4.93 % 5.81 %
Rate of compensation increase 3.00 % 3.00 % 2.54 % 3.10 %

The Company’s funding methods are based on governmental requirements and differ from those methods used to recognize pension expense. The Company expects to contribute $7.1 million and $0.5 million to the international and U.S. plans, respectively, during 2017.

~~Post Retirement Benefit Plans~~

In addition to providing pension benefits, the Company has provided certain unfunded postretirement health care and life insurance benefits for a portion of North American employees. The Company is not obligated to pay health care and life insurance benefits to individuals who had retired prior to 1990.

~~The Company uses a December 31 measurement date for all post retirement plans.~~

~~The following tables provide information regarding the Company’s postretirement benefit plans summarized by U.S. and international components.~~

U.S. International
Three Months Ended September 30, Three Months Ended September 30,
In thousands, except percentages 2017 2016 2017 2016
Net periodic benefit cost
Service cost $ 1
$ 1
$ 7
$ 7
Interest cost 88
97
24
25
Net amortization/deferrals (73 ) (105 ) (7 ) (9 )
Net periodic benefit (credit) cost $ 16
$ (7 ) $ 24
$ 23

U.S. International
Nine Months Ended
September 30, Nine Months Ended
September 30,
In thousands, except percentages 2017 2016 2017 2016
Net periodic benefit cost
Service cost $ 3
$ 3
$ 21
$ 21
Interest cost 264
291
72
75
Net amortization/deferrals (219 ) (315 ) (21 ) (27 )
Net periodic (credit) benefit cost $ 48
$ (21 ) $ 72
$ 69

Assumptions
Discount Rate 3.76 % 3.95 % 3.46 % 3.90 %

8.9. STOCK-BASED COMPENSATION

As of ~~September 30, 2017,~~March 31, 2021, the Company maintains employee stock-based compensation plans for stock options, restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan, as amended and restated (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The 2011 Plan has a term through May ~~10, 2027~~15, 2030 and provides a maximum of ~~3,800,000~~9.1 million shares for grants or awards, plus any shares which remain available under the 2000 Plan. The amendment and restatement of the 2011 Plan was approved by stockholders of Wabtec on May ~~11, 2011, and an amendment and restatement of the 2011 Plan was approved by the Stockholders of Wabtec on May 10, 2017.~~15, 2020. The Company also maintains a 1995 Non-Employee Directors’ Fee and Stock Option Plan as amended and restated (“the Directors Plan”).

Stock-based compensation expense was ~~$14.5~~$8.2 million and ~~$14.8~~$7.3 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, respectively. Included in stock-based compensation expense for the nine months ended September 30, 2017 is $1.2 million of expense related to stock options, $5.3 million related to restricted stock, $3.2 million related to restricted stock units, $3.7 million related to incentive stock units and $1.1 million related to units issued for Directors’ fees. At ~~September 30, 2017,~~March 31, 2021, unamortized compensation expense related to stock options, non-vested restricted shares ~~units~~ and incentive stock units expected to vest totaled ~~$29.7 million and will be recognized over a weighted average period of 1.4 years.~~$60.2 million.

Stock Options Stock options are granted to eligible employees ~~and directors~~ at an exercise price equivalent to the stock's fair market value, which is the average of the high and low Wabtec stock price on the date of grant. Under the 2011 Plan and the 2000 Plan, options granted prior to 2019 become exercisable over a four-year vesting period, while options granted in 2019 and after become exercisable over a three-year vesting period. Both vesting periods expire 10 years from the date of grant.

The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2021:


									Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic value (in millions)
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic value (in thousands)
Outstanding at December 31, 2016	1,098,823		$	35.39	4.3	$	52,332
Outstanding at December 31, 2020								Outstanding at December 31, 2020	552,669	$	69.82	6.1	$	4.2
Granted	65,522		87.09			0		Granted	126,794	$	81.21
Exercised	(133,927	)	21.84			7,220		Exercised	(10,128)	$	40.28
Canceled	(4,266	)	72.91			13		Canceled	(12,422)	$	71.87
Outstanding at September 30, 2017	1,026,152		40.30		4.1	36,377
Exercisable at September 30, 2017	838,004		32.15		3.4	36,537
Outstanding at March 31, 2021								Outstanding at March 31, 2021	656,913	$	72.15	6.6	$	5.6
Exercisable at March 31, 2021								Exercisable at March 31, 2021	406,953	$	57.82	6.0	$	5.2

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

Nine Months Ended
September 30,
2017 2016
Dividend yield 0.23 % 0.26 %
Risk-free interest rate 2.17 % 1.47 %
Stock price volatility 23.4 % 26.9 %
Expected life (years) 5.0
5.0


	Three Months Ended March 31, 2021
Dividend yield	0.60	%
Risk-free interest rate	0.81	%
Stock price volatility	36.1	%
Expected life (years)	5.0

The dividend yield is based on the Company’s dividend rate and the current market price of the underlying common stock at the date of grant. Expected life in years is determined from historical stock option exercise data. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the U.S. Treasury bond rates for the expected life of the option.

Restricted Stock, Restricted Units and Incentive Stock Beginning in 2006, the Company adopted a restricted stock program. As provided for under the 2011 Plan and 2000 Plan, eligible employees are granted restricted stock that generally vests over three or four years from the date of grant. Under the Directors Plan, restricted stock ~~units~~awards vest one year from the date of grant.

In addition, the Company has issued incentive stock units to eligible employees that vest upon attainment of certain cumulative three-year performance goals. Based on the Company’s performance for each three-year period then ended, the incentive stock units can vest, with underlying shares of common stock being awarded in an amount ranging from 0% to 200% of the amount of initial incentive stock units granted. The incentive stock units included in the table below represent the number of incentive stock units that are expected to vest based on the Company’s estimate for meeting those established performance targets. As of ~~September 30, 2017,~~March 31, 2021, the Company estimates that it will achieve ~~73%~~0%, ~~68%~~100% and ~~80%~~100% for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, ~~2017, 2018,~~2021, 2022, and ~~2019,~~2023, respectively, and has recorded incentive compensation expense accordingly. If ~~our~~the estimate of the number of these incentive stock units expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease and will be recognized in the current period for the elapsed portion of the vesting period and would change future expense for the remaining vesting period.

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

The following table summarizes the restricted stock activity and ~~related information for the 2011 Plan, the 2000 Plan and the Directors Plan, and~~ incentive stock units activity for the ~~2011 Plan and the 2000 Plan with related information for the nine~~three months ended ~~September 30, 2017:~~March 31, 2021:


	Restricted Stock and Units	Incentive Stock Units	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2020	656,006	270,645	$	73.80
Granted	184,646	241,467	81.21
Vested	(260,675)	(37,672)	73.17
Canceled	(15,661)	(7,498)	75.56
Outstanding at March 31, 2021	564,316	466,942	77.00

Restricted
Stock
and Units

Incentive
Stock
Units

Weighted
Average Grant
Date Fair
Value
Outstanding at December 31, 2016 396,295
424,750
$ 72.18
Granted 153,571
157,025
86.11
Vested (131,553 ) (153,271 ) 70.02
Adjustment for incentive stock awards expected to vest —
(100,424 ) 75.43
Canceled (6,590 ) (5,158 ) 74.99
Outstanding at September 30, 2017 411,723
322,922

The overall effective ~~income~~ tax rate was ~~15.7%~~27.5% and ~~23.4%~~25.5% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2021 and ~~28.5% and 29.7% for the three and nine months ended September 30, 2016,~~2020, respectively. ~~For the three and nine months ended September 30, 2017, the decrease~~The increase in the effective rate is primarily ~~due to $9.5 million~~the result of ~~favorable deferred~~withholding tax ~~net benefits recorded in~~expense on intercompany dividends incurred during the three months ended September 30, 2017 and the result of a lower earnings mix in higher tax rate jurisdictions. The net favorable deferred tax benefits related to the adjustment of deferred tax liabilities which had originally been established in prior periods in several foreign jurisdictions. These adjustments were not material to the current year-to-date financial statements or prior years annual financial statements.March 31, 2021.

As of ~~September 30, 2017 and December~~March 31, ~~2016,~~2021, the liability for income taxes associated with uncertain tax positions was ~~$5.7~~$16.4 million, of which ~~$3.2~~$14.7 million, if recognized, would favorably affect the Company’s effective ~~tax rate.~~

~~The Company includes interest and penalties related to uncertain tax positions in~~ income tax ~~expense. As of September 30, 2017, the total accrued interest and penalties were $0.6 million and $0.3 million, respectively.~~rate. As of December 31, ~~2016,~~2020, the ~~total accrued interest and penalties were $0.8~~liability for income taxes associated with unrecognized tax benefits was $16.4 million, ~~and $0.3~~of which $14.8 million, ~~respectively.~~if recognized, would favorably affect the Company's effective tax rate.

At this time, the Company believes it is reasonably possible that unrecognized tax benefits of approximately ~~$3.6~~$11.7 million may change within the next 12 months due to the expiration of statutory review periods and current examinations. ~~With limited exceptions, the Company is no longer subject to examination by various U.S. and foreign taxing authorities for years before 2013.~~

11. EARNINGS PER SHARE

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

Three Months Ended
September 30,
In thousands, except per share data 2017 2016
Numerator
Numerator for basic and diluted earnings per common
   share - net income attributable

to Wabtec shareholders $ 67,399
$ 82,428
Less: dividends declared - common shares
   and non-vested restricted stock
(11,518 ) (8,958 )
Undistributed earnings 55,881
73,470
Percentage allocated to common shareholders (1) 99.7 % 99.7 %
55,713
73,250
Add: dividends declared - common shares 11,485
8,933
Numerator for basic and diluted earnings per
   common share
$ 67,198
$ 82,183
Denominator
Denominator for basic earnings per common
   share - weighted average shares
95,709
89,589
Effect of dilutive securities:
Assumed conversion of dilutive stock-based
   compensation plans
607
704
Denominator for diluted earnings per common share -
adjusted weighted average shares and assumed conversion 96,316
90,293
Net income attributable to Wabtec
      shareholders per common share

Basic $ 0.70
$ 0.92
Diluted $ 0.70
$ 0.91

(1) Basic weighted-average common shares outstanding 95,709
89,589
Basic weighted-average common shares outstanding and
non-vested restricted stock expected to vest
95,983
89,838
Percentage allocated to common shareholders 99.7 % 99.7 %

Nine Months Ended
September 30,
In thousands, except per share data 2017 2016
Numerator
Numerator for basic and diluted earnings per common
   share - net income attributable

to Wabtec shareholders $ 213,313
$ 267,076
Less: dividends declared - common shares
   and non-vested restricted stock
(30,693 ) (23,523 )
Undistributed earnings 182,620
243,553
Percentage allocated to common shareholders (1) 99.4 % 99.7 %
181,524
242,822
Add: dividends declared - common shares 30,508
23,452
Numerator for basic and diluted earnings per
   common share
$ 212,032
$ 266,274
Denominator
Denominator for basic earnings per common
   share - weighted average shares
95,163
90,546
Effect of dilutive securities:
Assumed conversion of dilutive stock-based
   compensation plans
645
770
Denominator for diluted earnings per common share -
adjusted weighted average shares and assumed conversion 95,808
91,316
Net income attributable to Wabtec
      shareholders per common share

Basic $ 2.23
$ 2.94
Diluted $ 2.22
$ 2.92

Basic weighted-average common shares outstanding and

non-vested restricted stock expected to vest

The Company’s non-vested restricted stock contains rights to receive nonforfeitable dividends, and thus are participating securities requiring the two-class method of computing earnings per share. The calculation of earnings per share for common stock shown above excludes the income attributable to the non-vested restricted stock from the numerator and excludes the dilutive impact of those shares from the denominator. Options to purchase approximately 349,000 shares of Common Stock were outstanding at March 31, 2021, but were not included in the computation of diluted earnings per share because their exercise price exceeded the average market price of the Company's common stock.

~~11.~~12. WARRANTIES

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


In millions	2021		2020
Balance at beginning of year	$	278.5	$	267.7
Acquisitions	1.7		4.3
Warranty expense	29.2		22.7
Warranty claim payments	(28.8)		(34.0)
Foreign currency impact/other	(6.8)		(3.3)
Balance at March 31	$	273.8	$	257.4

In thousands 2017 2016
Balance at beginning of year $ 138,992
$ 92,064
Warranty expense 33,108
22,788
Acquisitions 3,412
7,571
Warranty claim payments (33,492 ) (27,693 )
Foreign currency impact/other 6,744
(620 )
Balance at September 30 $ 148,764
$ 94,110

~~12.~~13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

Hedging Activities In the normal course of business, we are exposed to interest rate, commodity price and foreign currency exchange rate fluctuations. At times, we mitigate these risk exposures through the use of derivatives such as cross-

currency swaps, foreign currency forward contracts, interest rate swaps, commodity forwards and futures. In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes.

Foreign Currency ~~Hedging~~Exchange Risk

The Company uses forward contracts to mitigate its foreign currency exchange rate exposure due to forecasted sales of finished goods and future settlement of foreign currency denominated assets and liabilities. Derivatives used to hedge forecasted transactions and specific cash flows associated with foreign currency denominated financial assets and liabilities that meet the criteria for hedge accounting are designated as cash flow hedges. The effective portion of ~~gain~~gains and losses is deferred as a component of accumulated other comprehensive income (loss) and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. The contracts are scheduled to mature within two years. For the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~September 30, 2016,~~2020, the amounts reclassified into income were not material.

~~Other Activities~~The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates. We conduct our business worldwide in U.S. dollars and the functional currencies of our foreign subsidiaries, including euro, Indian rupee, British pound sterling, Australian dollars and several other foreign currencies. Changes in foreign currency exchange rates could have a material adverse impact on our financial results that are reported in U.S. dollars. We are also exposed to foreign currency exchange rate risk related to our foreign subsidiaries, including intercompany loans denominated in non-functional currencies and net purchases and sales in non-functional currencies. We have certain foreign currency exchange rate risk management programs that use foreign currency forward contracts and cross-currency swaps. These forward contracts and cross-currency swaps are generally used to offset the potential income statement effects from intercompany loans denominated in non-functional currencies. These programs mitigate but do not entirely eliminate foreign currency exchange rate risk.

The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting, but which have the impact of largely mitigating foreign currency exposure. These foreign exchange contracts are accounted for on a full mark to market basis through earnings, with gains and losses recorded as a component of other ~~expense,~~income (expense), net. The net ~~unrealized gain~~loss related to these contracts was ~~$0.2~~$1.6 million for the three months ended ~~September 30, 2017.~~March 31, 2021. These contracts are scheduled to mature within one year.

The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of ~~September 30, 2017.~~March 31, 2021:

The following table summarizes the gross notional amounts and fair values of the designated and non-designated ~~hedges~~hedged discussed in the above sections as of December 31, ~~2016.~~2020:


	Fair Value				Gross Notional Amount
In millions	Designated		Non-Designated		Designated		Non-Designated
Foreign Exchange Contracts
Other current assets	$	9.2	$	0.5	$	793.6	$	1.3
Other current liabilities	(3.9)		(1.5)		928.0		319.6
Cross-currency Swaps
Other current liabilities	(26.0)		0		613.2		0
Total	$	(20.7)	$	(1.0)	$	2,334.8	$	320.9

In millions Designated Non-Designated Total
Gross notional amount $ 911.0
$ 490.0
$ 1,401.0

Fair Value:
Other current assets 1.1
0.4
1.5
Other current liabilities (0.5 ) (0.2 ) (0.7 )
Total $ 0.6
$ 0.2
$ 0.8

Interest Rate ~~Hedging~~Risk

The Company ~~uses~~ may use interest rate ~~swaps~~swap contracts on certain investing and borrowing transactions to manage ~~interest rate exposures. The Company is exposed~~its net exposure to interest rate ~~volatility with regard~~changes and to ~~existing floating rate debt. Primary~~reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk.For the three months ended March 31, 2021 and 2020 the amounts reclassified into income were not material.

Commodity Price Risk

The Company may use commodity forward contracts and futures to mitigate its exposure ~~includes~~to commodity price changes and to reduce its overall cost of manufacturing. For the ~~London Interbank Offered Rates (LIBOR). Derivatives used to hedge risk associated with changes in~~three months ended March 31, 2021 and 2020 the ~~fair value of certain variable-rate debt are primarily designated~~amounts recognized as fair value hedges. Consequently, changes in the fair value of these derivatives, along with changes in the fair value of debt obligations are recognized in current period earnings. Refer to footnote 13 for further information on interest rate swaps.income or expense were not material.

~~As of September 30, 2017, the Company has recorded a current liability of $2.0 million and an accumulated other comprehensive loss of $1.2 million, net of tax, related to these agreements~~.

~~13.~~14. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value and explains the related disclosure requirements. ASC 820 indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit price model.

Valuation ~~Hierarchy~~Hierarchy. ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of ~~September 30, 2017,~~March 31, 2021 which are included in other current assets and liabilities on the ~~Condensed Consolidated Balance~~consolidated balance sheet:

Fair Value Measurements at September 30, 2017 Using
In thousands Total Carrying
Value at
September 30,
2017
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Interest rate swap agreements $ 1,952
$ —
$ 1,952
$ —
Total $ 1,952
$ —
$ 1,952
$ —

The following table provides the liabilities carried at fair value measured on a recurring basis as of December 31, 2016, which is included in other current liabilities on the Condensed Consolidated Balance sheet:

Fair Value Measurements at December 31, 2016 Using
In thousands Total Carrying
Value at
December 31,
2016
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Interest rate swap agreements $ 3,888
$ —
$ 3,888
$ —
Total $ 3,888
$ —
$ 3,888
$ —

To reduce the impact of interest rate changes on a portion of its variable-rate debt, the Company entered into interest rate swaps which effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contracts. For certain derivative contracts whose fair values are based upon trades in liquid markets, such as interest rate swaps, valuation model inputs can generally be verified and valuation techniques do not involve significant management judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy.


			Fair Value Measurements at March 31, 2021 Using
	Total Carrying Value at March 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
In millions	2021		(Level 1)		(Level 2)		(Level 3)
Foreign Exchange Contracts
Other current assets	$	21.2	$	0	$	21.2	$	0
Other current liabilities	0		0		0		0
Cross-Currency Swap Agreement
Other current liabilities	(3.1)		0		(3.1)		0

As a result of our global operating activities, the Company is exposed to market risks from changes in foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, the Company ~~minimizes~~mitigates these risks through entering into foreign currency forward contracts. The foreign currency forward contracts are valued using broker quotations, or market transactions in either the listed or over-the counter markets. As such, these derivative instruments are classified within ~~Level~~level 2.

The Company’s cash and cash equivalents are highly liquid investments purchased with an original maturity of three months or less and are considered Level 1 on the fair value valuation hierarchy. The fair value of cash and cash equivalents approximated the carrying value at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016.~~2020. The Company’s defined benefit pension plan assets consist primarily of equity security funds, debt security funds and temporary cash and cash equivalent investments. ~~Generally, all plan assets are considered Level 2 based on the fair value valuation hierarchy.~~ These investments are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity securities, corporate and governmental bonds, and money markets. Trusts are valued at the net asset value (“NAV”) as determined by their custodian. NAV ~~represent~~represents the accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates. The ~~2013 and 2016~~Senior Notes are considered Level 2 based on the fair value valuation hierarchy.

~~The estimated~~ Contingent consideration related to the GE Transportation acquisition is considered Level 3 based on the fair ~~values~~value valuation hierarchy and ~~related carrying values of~~includes $130.0 million classified as "Other accrued liabilities" on the ~~Company’s financial instruments are~~Company's consolidated balance sheet and $218.6 million in long-term liabilities classified as ~~follows:~~

September 30, 2017 December 31, 2016
In thousands
Carry
Value

Fair
Value
Carry
Value Fair
Value
Interest rate swap agreement $ 1,952
$ 1,952
$ 3,888
$ 3,888
4.375% Senior Notes 248,502
264,000
248,310
260,265
3.45% Senior Notes 747,590
739,050
747,474
719,273

"Contingent consideration" on the Company's consolidated balance sheet. The fair value ofapproximates the Company’s interest rate swap agreements and the 2013 and 2016 Notes were based on dealer quotes and represent the estimated amount the Company would pay to the counterparty to terminate the agreement.

carrying value at March 31, 2021.

15. COMMITMENTS AND CONTINGENCIES

Claims have been filed against the Company and certain of its affiliates in various jurisdictions across the United States by persons alleging bodily injury as a result of exposure to asbestos-containing products. Further information and detail on these claims is described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, in Note 19 therein, filed on February 28, 2017. During the first nine months of 2017, there were no material changes to the information described in the Form 10-K.

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

detail on ~~any potentially material litigation is as~~these claims are described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016, in Note 19 therein, filed on February 28, 2017. Except as described below,~~2020. During the first three months of 2021, there ~~have been~~were no material changes to the information described in the Form 10-K ~~including with respect~~related to claims arising from asbestos exposure or the ~~litigation with Siemens described therein.~~Company's ordinary operations.

Xorail, Inc., a wholly owned subsidiary of the Company (“Xorail”), has received notices from Denver Transit Constructors (“~~Denver Transit”~~DTC”) alleging breach of contract related to the operating of constant warning wireless crossings, and late delivery of the Train Management & Dispatch System (“TMDS”) for the Denver Eagle P3 Project, which is owned by the Denver Regional Transit District ("RTD"). No damages have been asserted for the alleged late delivery of the TMDS, and no formal claim has been filed; Xorail ~~is in the final stages of~~has successfully ~~implementing~~completed a ~~recovery~~remediation plan concerning the TMDS issues. With regard to the wireless ~~crossings,~~crossing issue, as of September 8, 2017, ~~Denver Transit~~DTC alleged that total damages were $36.8 million through July 31, 2017 and are continuing to accumulate. The ~~crossings have not been certified for use without flaggers, which Denver Transit alleges is due to Xorail's failure to achieve constant warning times satisfactory to~~majority of the damages stems from a delay in approval of the wireless crossing system by the Federal Railway Administration ("FRA") and the Public Utility Commission ("PUC")~~. No claims have been filed~~, resulting in the use of flaggers at all of the crossings pending approval of the wireless crossing system and certification of the crossings. DTC has alleged that the delay is due to Xorail's failure to achieve constant warning times for the crossings in accordance with the approval requirements imposed by ~~Denver Transit with regard to either issue.~~the FRA and PUC. Xorail has denied ~~Denver Transit’s~~DTC's assertions, ~~regarding~~stating that its system satisfied the wireless crossings, and Denver Transit has also notified RTD that Denver Transit considers the new certification requirements imposed by FRA and/or PUC as a change in law, for which neither Denver Transit nor its subcontractors are liable.contractual requirements. Xorail has worked with ~~Denver Transit~~DTC to modify its system ~~to meet~~and implement the ~~FRA’s~~FRA's and PUC's previously undefined ~~and evolving, certification requirements. On September 28, 2017,~~approval requirements; the FRA ~~granted a 5 year approval of the~~and PUC have both approved modified wireless crossing system, and as ~~currently implemented; however,~~of August 2018, DTC completed the ~~PUC~~process of certifying the crossings and eliminated the use of flaggers. DTC has not ~~granted approval~~updated its notices against Xorail, nor have they filed any formal claim against Xorail. On September 21, 2018, DTC filed a complaint against RTD in Colorado state court for breach of contract related to non-payments and the costs for the flaggers, asserting a change-in-law arising from the FRA/PUC’s new certification requirements. DTC’s complaint generally supports Xorail’s position and does not name or implicate Xorail. DTC's claim against RTD proceeded to trial on September 21, 2020; the trial has been completed, included post-trial submission. No decision is expected until the second half of 2021.

As of the ~~modified system and therefore~~date hereof, the ~~crossings are still not certified for use without flaggers. Denver Transit and RTD are continuing to seek approval from PUC. The~~ Company ~~does not believe~~is involved in no litigation that ~~it has any liability with respect to~~ the ~~wireless crossing issue.~~Company believes will have a material adverse effect on its financial condition, results of operations or liquidity.

~~15.~~16. SEGMENT INFORMATION

Wabtec has ~~two~~2 reportable segments—the Freight Segment and the Transit Segment. The key factors used to identify these reportable segments are the organization and alignment of the Company’s internal operations, the nature of the products and services and customer type. The Company’s business segments are:

Freight Segment primarily builds new locomotives, manufactures and services components for new and existing freight cars and ~~locomotives, builds new switcher~~ locomotives, rebuilds freight locomotives, supplies railway electronics, positive train control equipment, signal design and engineering services and provides related heat exchange and cooling systems. Customers include large, publicly traded railroads, leasing companies, manufacturers of original equipment such as locomotives and freight cars and utilities.

Transit Segment primarily manufactures and services components for new and existing passenger transit vehicles, typically regional trains, high speed trains, subway cars, light-rail vehicles and buses, builds new commuter locomotives, refurbishes subway cars, ~~provides~~ heating, ventilation, and air conditioning equipment and doors for buses and ~~subways.~~subway cars. Customers include public transit authorities and municipalities, leasing companies and manufacturers of subway cars and buses around the world.

The Company evaluates its business segments’ operating results based on income from operations. Intersegment sales are accounted for at prices that are generally established by reference to similar transactions with unaffiliated customers. Corporate activities include general corporate expenses, elimination of intersegment transactions, interest income and expense and other unallocated charges. Since certain administrative and other operating expenses have not been allocated to business segments, the results in the following tables are not necessarily a measure computed in accordance with generally accepted accounting principles and may not be comparable to other companies.

Segment financial information for the three months ended ~~September 30, 2017~~March 31, 2021 is as follows:

Segment financial information for the three months ended ~~September 30, 2016 is as follows:~~

In thousands
Freight
Segment

Transit
Segment

Corporate
Activities and
Elimination
Total
Sales to external customers $ 361,998
$ 313,576
$ —
$ 675,574
Intersegment sales/(elimination) 10,341
1,823
(12,164 ) —
Total sales $ 372,339
$ 315,399
$ (12,164 ) $ 675,574
Income (loss) from operations $ 77,999
$ 51,164
$ (9,067 ) $ 120,096
Interest expense and other, net —
—
(4,869 ) (4,869 )
Income (loss) from operations before income taxes $ 77,999
$ 51,164
$ (13,936 ) $ 115,227

~~Segment financial information for the nine months ended September 30, 2017~~March 31, 2020 is as follows:


In millions	Freight Segment		Transit Segment		Corporate Activities and Elimination		Total
Sales to external customers	$	1,301.0	$	628.9	$	—	$	1,929.9
Intersegment sales/(elimination)	12.5		9.1		(21.6)		—
Total sales	$	1,313.5	$	638.0	$	(21.6)	$	1,929.9
Income (loss) from operations	$	161.7	$	68.6	$	(13.0)	$	217.3
Interest expense and other, net	0		0		(68.1)		(68.1)
Income (loss) before income taxes	$	161.7	$	68.6	$	(81.1)	$	149.2

In thousands
Freight
Segment

Transit
Segment

Corporate
Activities and
Elimination
Total
Sales to external customers $ 1,032,959
$ 1,773,259
$ —
$ 2,806,218
Intersegment sales/(elimination) 27,602
16,253
(43,855 ) —
Total sales $ 1,060,561
$ 1,789,512
$ (43,855 ) $ 2,806,218
Income (loss) from operations $ 196,328
$ 155,901
$ (21,659 ) $ 330,570
Interest expense and other, net —
—
(53,191 ) (53,191 )
Income (loss) from operations before income taxes $ 196,328
$ 155,901
$ (74,850 ) $ 277,379

~~Segment financial information for the nine months ended September 30, 2016 is as follows:~~

In thousands Freight
Segment Transit
Segment Corporate
Activities and
Elimination Total
Sales to external customers $ 1,201,734
$ 969,472
$ —
$ 2,171,206
Intersegment sales/(elimination) 29,765
7,606
(37,371 ) —
Total sales $ 1,231,499
$ 977,078
$ (37,371 ) $ 2,171,206
Income (loss) from operations $ 276,990
$ 148,321
$ (29,750 ) $ 395,561
Interest expense and other, net —
—
(15,784 ) (15,784 )
Income (loss) from operations before income taxes $ 276,990
$ 148,321
$ (45,534 ) $ 379,777

Sales to external customers by product line are as follows:

Three Months Ended September 30,
In thousands 2017 2016
Specialty Products & Electronics $ 335,143
$ 334,349
Transit Products 276,913
44,996
Brake Products 177,165
134,900
Remanufacturing, Overhaul & Build 132,018
129,264
Other 36,692
32,065
Total sales $ 957,931
$ 675,574


	Three Months Ended March 31,
In millions	2021		2020
Freight Segment
Equipment	$	261.8	$	408.0
Components	202.5		220.4
Digital Electronics	156.5		173.6
Services	562.5		499.0
Total Freight Segment	$	1,183.3	$	1,301.0

Transit Segment
Original Equipment Manufacturer	$	286.8	$	287.0
Aftermarket	360.1		341.9
Total Transit Segment	$	646.9	$	628.9

Nine Months Ended
September 30,
In thousands 2017 2016
Specialty Products & Electronics $ 975,006
$ 1,051,806
Transit Products 789,096
143,434
Brake Products 550,181
428,785
Remanufacturing, Overhaul & Build 387,634
444,278
Other 104,301
102,903
Total sales $ 2,806,218
$ 2,171,206

~~16. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION~~

The obligations under the Company's 2016 Notes, 2013 Notes, and Revolving Credit Facility and Term Loan are fully and unconditionally guaranteed by all U.S. subsidiaries as guarantors. Each guarantor is 100% owned by the parent company. In accordance with positions established by the Securities and Exchange Commission, the following shows separate financial information with respect to the parent, the guarantor subsidiaries and the non-guarantor subsidiaries. The principal elimination entries eliminate investment in subsidiaries and certain intercompany balances and transactions.

~~Balance Sheet for September 30, 2017:~~

In thousands Parent Guarantors Non-Guarantors Elimination Consolidated
Cash and cash equivalents $ 3,049
$ 6,082
$ 218,949
$ —
$ 228,080
Receivables, net 75,123
232,060
837,156
—
1,144,339
Inventories 132,044
140,745
491,992
—
764,781
Current assets - other 39,216
4,283
96,426
—
139,925
Total current assets 249,432
383,170
1,644,523
—
2,277,125
Property, plant and equipment, net 51,196
134,397
364,774
—
550,367
Goodwill 25,276
549,198
1,810,284
—
2,384,758
Investment in subsidiaries 6,304,037
2,508,725
—
(8,812,762 ) —
Other intangibles, net 30,905
251,485
857,997
—
1,140,387
Other long term assets 29,724
6,273
61,016
—
97,013
Total assets $ 6,690,570
$ 3,833,248
$ 4,738,594
$ (8,812,762 ) $ 6,449,650
Current liabilities $ 162,470
199,511
$ 1,103,459
—
$ 1,465,440
Inter-company 2,031,256
(1,942,433 ) (88,823 ) —
—
Long-term debt 1,740,541
25
83,590
—
1,824,156
Long-term liabilities - other 38,601
87,935
297,149
—
423,685
Total liabilities 3,972,868
(1,654,962 ) 1,395,375
—
3,713,281
Shareholders' equity 2,717,702
5,489,597
3,323,165
(8,812,762 ) 2,717,702
Non-controlling interest —
(1,387 ) 20,054
—
18,667
Total shareholders' equity $ 2,717,702
$ 5,488,210
$ 3,343,219
$ (8,812,762 ) $ 2,736,369
Total Liabilities and Shareholders' Equity $ 6,690,570
$ 3,833,248
$ 4,738,594
$ (8,812,762 ) $ 6,449,650

~~Balance Sheet for December 31, 2016:~~

In thousands Parent Guarantors Non-Guarantors Elimination Consolidated
Cash and cash equivalents $ 2,522
$ 9,496
$ 386,466
$ —
$ 398,484
Receivables, net 79,041
202,779
660,688
—
942,508
Inventories 120,042
128,076
410,392
—
658,510
Current assets - other 52,576
(17,844 ) 833,397
—
868,129
Total current assets 254,181
322,507
2,290,943
—
2,867,631
Property, plant and equipment, net 49,031
126,661
342,684
—
518,376
Goodwill 25,275
477,472
1,576,018
—
2,078,765
Investment in subsidiaries 5,388,613
1,325,150
—
(6,713,763 ) —
Other intangibles, net 31,897
204,512
817,451
—
1,053,860
Other long term assets 9,592
(1,914 ) 54,708
—
62,386
Total assets $ 5,758,589
$ 2,454,388
$ 5,081,804
$ (6,713,763 ) $ 6,581,018
Current liabilities $ 194,983
196,956
$ 1,054,700
—
$ 1,446,639
Inter-company 1,562,399
(1,848,777 ) 286,378
—
—
Long-term debt 1,761,933
58
976
—
1,762,967
Long-term liabilities - other 33,298
74,977
286,312
—
394,587
Total liabilities 3,552,613
(1,576,786 ) 1,628,366
—
3,604,193
Shareholders' equity 2,205,976
4,032,250
2,681,514
(6,713,763 ) 2,205,977
Non-controlling interest —
(1,076 ) 771,924
—
770,848
Total shareholders' equity $ 2,205,976
$ 4,031,174
$ 3,453,438
$ (6,713,763 ) $ 2,976,825
Total Liabilities and Shareholders' Equity $ 5,758,589
$ 2,454,388
$ 5,081,804
$ (6,713,763 ) $ 6,581,018

~~Income Statement for the~~ ~~Three Months Ended September 30, 2017~~:

In thousands Parent Guarantors Non-Guarantors Elimination Consolidated
Net Sales $ 134,906
$ 270,116
$ 587,289
$ (34,380 ) $ 957,931
Cost of sales (111,775 ) (176,291 ) (444,704 ) 28,042
(704,728 )
Gross profit (loss) 23,131
93,825
142,585
(6,338 ) 253,203
Total operating expenses (22,714 ) (29,991 ) (98,487 ) —
(151,192 )
Income (loss) from operations 417
63,834
44,098
(6,338 ) 102,011
Interest (expense) income, net (19,222 ) 1,143
186
—
(17,893 )
Other income (expense), net 274
(356 ) (2,851 ) —
(2,933 )
Equity earnings (loss) 80,874
19,806
—
(100,680 ) —
Pretax income (loss) 62,343
84,427
41,433
(107,018 ) 81,185
Income tax expense 5,056
(5 ) (17,797 ) —
(12,746 )
Net income (loss) 67,399
84,422
23,636
(107,018 ) 68,439
Less: Net income attributable to noncontrolling interest —
155
(1,195 ) —
(1,040 )
Net income (loss) attributable to Wabtec shareholders $ 67,399
$ 84,577
$ 22,441
$ (107,018 ) $ 67,399

Comprehensive income (loss) attributable to Wabtec shareholders $ 66,813
$ 84,577
$ 115,647
$ (107,018 ) $ 160,019

~~Income Statement for the Three Months Ended September 30, 2016:~~

In thousands Parent Guarantors Non-Guarantors Elimination Consolidated
Net Sales $ 155,731
$ 259,174
$ 295,336
$ (34,667 ) $ 675,574
Cost of sales (109,414 ) (186,546 ) (211,392 ) 44,259
(463,093 )
Gross profit (loss) 46,317
72,628
83,944
9,592
212,481
Total operating expenses (21,979 ) (29,019 ) (41,387 ) —
(92,385 )
(Loss) income from operations 24,338
43,609
42,557
9,592
120,096
Interest (expense) income, net (7,854 ) 1,728
69
—
(6,057 )
Other income (expense), net 6,600
(86 ) (5,326 ) —
1,188
Equity earnings (loss) 86,731
27,099
—
(113,830 ) —
Pretax income (loss) 109,815
72,350
37,300
(104,238 ) 115,227
Income tax expense (27,387 ) 1,567
(6,979 ) —
(32,799 )
Net income (loss) 82,428
73,917
30,321
(104,238 ) 82,428
Less: Net income attributable to noncontrolling interest —
—
—
—
—
Net income attributable to Wabtec shareholders $ 82,428
$ 73,917
$ 30,321
$ (104,238 ) $ 82,428

Comprehensive income (loss) attributable to Wabtec shareholders $ 82,987
$ 73,916
$ 34,054
$ (104,238 ) $ 86,719

~~Income Statement for the Nine Months Ended September 30, 2017:~~

In thousands Parent Guarantors Non-Guarantors Elimination Consolidated
Net Sales $ 417,156
$ 778,893
$ 1,708,646
$ (98,477 ) $ 2,806,218
Cost of sales (311,037 ) (503,686 ) (1,270,668 ) 76,046
(2,009,345 )
Gross profit (loss) 106,119
275,207
437,978
(22,431 ) 796,873
Total operating expenses (79,960 ) (89,935 ) (296,408 ) —
(466,303 )
Income (loss) from operations 26,159
185,272
141,570
(22,431 ) 330,570
Interest (expense) income, net (52,565 ) 5,554
(4,014 ) —
(51,025 )
Other income (expense), net 3,127
(2,233 ) (3,060 ) —
(2,166 )
Equity earnings (loss) 246,103
69,954
—
(316,057 ) —
Pretax income (loss) 222,824
258,547
134,496
(338,488 ) 277,379
Income tax expense (9,511 ) (22 ) (55,243 ) —
(64,776 )
Net income (loss) 213,313
258,525
79,253
(338,488 ) 212,603
Less: Net income attributable to noncontrolling interest —
311
399
—
710
Net income (loss) attributable to Wabtec shareholders $ 213,313
$ 258,836
$ 79,652
$ (338,488 ) $ 213,313

Comprehensive income (loss) attributable to Wabtec shareholders $ 214,482
$ 258,838
$ 366,156
$ (338,488 ) $ 500,988

~~Income Statement for the Nine Months Ended September 30, 2016:~~

In thousands Parent Guarantors Non-Guarantors Elimination Consolidated
Net Sales $ 494,350
$ 865,850
$ 924,559
$ (113,553 ) $ 2,171,206
Cost of sales (356,575 ) (561,361 ) (641,550 ) 93,330
(1,466,156 )
Gross profit (loss) 137,775
304,489
283,009
(20,223 ) 705,050
Total operating expenses (88,916 ) (91,967 ) (128,606 ) —
(309,489 )
(Loss) income from operations 48,859
212,522
154,403
(20,223 ) 395,561
Interest (expense) income, net (21,608 ) 5,049
662
—
(15,897 )
Other income (expense), net 17,640
(3,956 ) (13,571 ) —
113
Equity earnings (loss) 308,681
111,917
—
(420,598 ) —
Pretax income (loss) 353,572
325,532
141,494
(440,821 ) 379,777
Income tax expense (86,495 ) (380 ) (25,826 ) —
(112,701 )
Net income (loss) 267,077
325,152
115,668
(440,821 ) 267,076
Less: Net income attributable to noncontrolling interest —
—
—
—
—
Net income attributable to Wabtec shareholders $ 267,077
$ 325,152
$ 115,668
$ (440,821 ) $ 267,076

Comprehensive income (loss) attributable to Wabtec shareholders $ 266,355
$ 325,152
$ 107,054
$ (440,821 ) $ 257,740

~~Condensed Statement of Cash Flows for the Nine Months Ended September 30, 2017:~~

In thousands Parent Guarantors Non-Guarantors Elimination Consolidated
Net cash (used for) provided by operating activities $ (38,954 ) $ 115,816
$ (27,921 ) $ (22,430 ) $ 26,511
Net cash used for investing activities (12,591 ) (110,741 ) (26,492 ) —
(149,824 )
Net cash provided by (used for) financing activities 52,072
(8,489 ) (136,062 ) 22,430
(70,049 )
Effect of changes in currency exchange rates —
—
22,958
—
22,958
Increase (decrease) in cash 527
(3,414 ) (167,517 ) —
(170,404 )
Cash, beginning of period 2,522
9,496
386,466
—
398,484
Cash, end of period $ 3,049
$ 6,082
$ 218,949
$ —
$ 228,080

~~Condensed Statement of Cash Flows for the Nine Months Ended September 30, 2016:~~

In thousands Parent Guarantors Non-Guarantors Elimination Consolidated
Net cash (used for) provided by operating activities $ (53,967 ) $ 220,963
$ 100,120
$ (20,223 ) $ 246,893
Net cash used for investing activities (5,067 ) (26,693 ) (84,131 ) —
(115,891 )
Net cash provided by (used for) financing activities 70,272
(193,669 ) (9,162 ) 20,223
(112,336 )
Effect of changes in currency exchange rates —
—
5,525
—
5,525
Increase (decrease) in cash
11,238
601
12,352
—
24,191
Cash, beginning of period —
13,157
213,034
—
226,191
Cash, end of period $ 11,238
$ 13,758
$ 225,386
$ —
$ 250,382

17. OTHER INCOME (EXPENSE), NET

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


	Three Months Ended March 31,
In millions	2021		2020
Foreign currency gain (loss)	$	8.6	$	(13.8)
Equity income	2.7		(0.9)
Expected return on pension assets/amortization	2.7		2.4
Other miscellaneous income (expense)	0.2		(2.5)
Total other income (expense), net	$	14.2	$	(14.8)

Three Months Ended
September 30, Nine Months Ended September 30,
In thousands 2017 2016 2017 2016
Foreign currency (loss) gain $ (4,113 ) $ 880
$ (5,202 ) $ (488 )
Equity income 520
—
1,587
—
Other miscellaneous expense 660
308
1,449
601
Total other income (expense), net $ (2,933 ) $ 1,188
$ (2,166 ) $ 113


~~Item 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, ~~2016,~~2020, filed with the Securities and Exchange Commission on February ~~28, 2017.~~19, 2021.

OVERVIEW

Wabtec is one of the world’s largest providers of locomotives, value-added, technology-based ~~products~~equipment, systems and services for the global ~~rail industry. Our products are found on virtually all U.S. locomotives,~~ freight ~~cars~~rail and passenger transit ~~vehicles, as well as in more than 100 countries throughout the world.~~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, and 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 ~~31 countries. For~~over 50 countries and our products can be found in more than 100 countries throughout the ~~nine~~world. In the first three months ~~ended September 30, 2017,~~of 2021, approximately ~~65%~~64% of the Company’s revenues came from customers outside the United States.

COVID-19 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 U.S. and other international governments have deemed rail transportation as “critical infrastructure” providing essential services during the COVID-19 pandemic. As a supplier and service provider for the global freight rail and passenger transit industries, Wabtec has an obligation to continue operations to support the safe and efficient operation of these industries; however, the COVID-19 pandemic had a materially adverse impact on our operations and business results for the three months ended March 31, 2021 which is discussed in the Results of Operations section below. We continue to work with our employees, customers, and suppliers to navigate the impacts of COVID-19. We also continue to assess possible implications to our business, customers, supply chain and end-markets and to take actions in an effort to mitigate adverse consequences.

Management Review and Future Outlook

Wabtec’s long-term financial goals are to ~~generate~~drive strong cash flow ~~from operations in excess of net income,~~conversion, maintain a strong credit profile while minimizing our overall cost of capital, increase margins through strict attention to cost controls, ~~and implementation of~~drive improved efficiencies across the ~~Wabtec Excellence Program,~~business and increase revenues through a focused growth strategy, including product innovation and new technologies, global and market expansion, aftermarket products and services and acquisitions. In addition, ~~management~~Management evaluates the Company’s current operational performance through measures such as quality and on-time delivery.

The Company primarily serves the worldwide freight and transit rail industries. As such, our operating results are largely dependent on the level of activity, financial condition and capital spending plans of railroads and passenger transit agencies around the world and transportation equipment manufacturers who serve those markets. Many factors influence these industries, including general economic conditions; traffic volumes, as measured by freight ~~carloadings~~carloads and passenger ridership; government spending on public transportation; and investment in new technologies. In general, trends such as increasing urbanization, a focus on sustainability and ~~environmental awareness,~~decarbonization, an aging equipment fleet and growth in global trade flows are expected to drive continued investment in freight and transit rail.

The Company monitors a variety of factors and statistics to gauge market activity. Freight rail markets around the world are driven primarily by overall economic conditions and activity, while Transit markets are driven primarily by government funding and passenger ridership. Changes in these market drivers can cause fluctuations in demand for Wabtec's products and services.

According to the ~~2016~~2020 bi-annual edition of a market study by UNIFE, the Association of the European Rail Industry, the accessible global market for railway products and services is more than ~~$100~~$120 billion and it is expected to grow at ~~about 3.2% annually~~a compounded annual growth rate of 2.3% through ~~2021.~~2025. As the long-term effects of COVID-19 are still uncertain, UNIFE included a second, less likely scenario in which the recovery is more moderate. This alternative scenario shows a compounded annual growth rate

of 0.9% through 2025 for the total accessible market. The three largest geographic markets, which ~~represent~~represented about ~~80%~~85% of the total accessible market, ~~are~~were Europe, North America and Asia Pacific. ~~Over the next five years,~~ UNIFE ~~projects~~projected above-average growth rates in Latin America, Eastern Europe, North America and Africa-Middle East, with the more mature markets of Western Europe, North America and Asia Pacific ~~and Europe due to overall economic growth and~~accounting for the largest share of absolute growth. UNIFE said trends such as urbanization, digitalization, legislative action and ~~increasing mobility, deregulation, investments in new technologies,~~government support and an increased focus on energy and environmental issues ~~and increasing government support.~~continue to drive investment. The largest product segments of the market ~~are~~were rolling stock, services and infrastructure, which represent almost 90% of the accessible market. ~~Over the next five years,~~ UNIFE ~~projects~~projected spending ongrowth in all product segments, with turnkey management projects, rolling stock and infrastructure to grow ~~at an above-average rate due to increased investment in passenger transit vehicles.~~the fastest. UNIFE ~~estimates~~estimated that the global installed base of diesel and electric locomotives iswas about ~~114,000~~118,200 units, with about 32% in Asia Pacific, about 25% in North America and about 18% in Russia-CIS (Commonwealth of Independent States). Wabtec estimates that about ~~3,400~~3,000 new locomotives were delivered worldwide in ~~2016, and it expects deliveries of about 3,200 in 2017.~~2020. UNIFE ~~estimates~~estimated the global installed base of freight cars iswas about ~~5.5~~5.2 million, ~~units,~~ with about ~~37%~~35% in North America, about ~~26%~~24% in Russia-CIS and about ~~20%~~24% in Asia Pacific. Wabtec estimates that about ~~108,000~~155,000 new freight cars were delivered worldwide in ~~2016, and it expects deliveries of about 97,000 in 2017.~~2020. UNIFE ~~estimates~~estimated the global installed base of passenger transit vehicles to be about ~~569,000~~620,000 units, with about ~~43%~~45% in Asia Pacific, about ~~32%~~31% in Europe and about ~~14%~~10% in Russia-CIS. ~~UNIFE~~Wabtec estimates that about ~~208,000~~32,000 new passenger transit vehicles were ordered ~~annually from 2013-2015, and that about 184,000 will be ordered annually from 2016-2018.~~worldwide in 2020.

In Europe, the majority of the rail system serves the passenger transit market, which is expected to continue growing as energy and environmental ~~factors~~policies encourage continued investment in public mass ~~transit.~~transit and modal shift from car to rail, albeit this growth may be stunted in the near-term as a result of the COVID-19 pandemic. According to UNIFE, Germany, France ~~Germany~~ and the United

Kingdom ~~are~~were the largest Western European transit markets, representing ~~almost~~about two-thirds of industry spending in the European Union. UNIFE ~~projects~~projected the accessible Western European rail market to grow at about ~~3.6%~~2.0% annually, ~~during the next five years,~~ led by investments in new rolling stock in France and Germany. ~~Significant investments are also expected in Turkey, the largest market in Eastern Europe.~~ About 75% of freight traffic in Europe is hauled by truck, while rail accounts for about ~~20%~~19%. The largest freight markets in Europe are Germany, Poland and the United Kingdom. In recent years, the European Commission has adopted a series of measures designed to increase the efficiency of the European rail network by standardizing operating rules and certification requirements. UNIFE believes that adoption of these measures should have a positive effect on ridership and investment in public transportation over time.

In North America, railroads carry about 40% of intercity freight, as measured by ton-miles, which is more than any other mode of transportation. Through direct ownership and operating partnerships, U.S. railroads are part of an integrated network that includes railroads in Canada and Mexico, forming what is regarded as the world’s most-efficient and lowest-cost freight rail service. There are more than ~~500~~600 railroads operating in North America, with the largest railroads, referred to as “Class ~~I,”~~I”, accounting for more than 90% of the industry’s revenues. The railroads carry a wide variety of commodities and goods, including coal, metals, minerals, chemicals, grain and petroleum. These commodities represent about ~~55%~~50% of total rail ~~carloadings,~~carloads, with intermodal carloads accounting for the rest. Railroads operate in a competitive environment, especially with the trucking industry, and are always seeking ways to improve safety, cost and reliability. New technologies offered by Wabtec and others in the industry can provide some of these benefits. Demand for our freight related products and services in North America is driven by a number of factors, including rail traffic and production of new locomotives and new freight cars. In the U.S., the passenger transit industry is dependent largely on funding from federal, state and local governments, and from fare box revenues. Demand for North American passenger transit products is driven by a number of factors, including government funding, deliveries of new subway cars and buses and ridership. The U.S. federal government provides money to local transit authorities, primarily to fund the purchase of new equipment and infrastructure for their transit systems. Demand for both our freight and passenger transit products and services in North America has been negatively impacted by the COVID-19 pandemic.

Growth in the Asia Pacific market has been driven mainly by the continued urbanization of China and India, and by continued investments in freight rail rolling stock and infrastructure in Australia to serve its mining and natural resources markets. ~~During the next five years, UNIFE expects~~ India ~~to make~~is making significant investments in rolling stock and infrastructure to modernize its rail system; for example, ~~the country has awarded~~Wabtec is delivering on a ~~1,000-unit locomotive order to a U.S. manufacturer. UNIFE expects the increased spending in India to offset decreased spending on very-high-speed rolling stock in China during the next five years.~~1,000-locomotive contract over 10-years with Indian Railways.

Other key geographic markets include Russia-CIS and Africa-Middle East. With about ~~1.4~~1.3 million freight cars and about ~~20,000~~21,000 locomotives, Russia-CIS is among the largest freight rail markets in the world, and it’s expected to invest in both freight and transit rolling stock. PRASA, the Passenger Rail Agency of South Africa, is expected to continue to invest in new transit cars and new locomotives. According to UNIFE, emerging markets ~~are~~were expected to grow at above-average rates as global trade ~~creates increases in~~led to increased freight volumes and urbanization ~~leads~~led to increased demand for efficient mass-transportation systems. It is currently uncertain as to how the COVID-19 pandemic will impact the expected growth in these emerging markets especially in the near-term. As this growth occurs, Wabtec expects to have additional opportunities to provide products and services in these markets.

In its study, UNIFE also said it ~~expects~~expected increased investment in ~~digital tools for data~~digitalization, automation, and ~~asset management, and in rail control technologies, both~~predictive maintenance through artificial intelligence, all of which would improve efficiency in the global rail ~~industry during the next five years.~~industry. UNIFE said ~~data-driven asset management tools have~~these trends will increase the ~~potential~~overall attractiveness of the rail sector as these trends will lead to ~~reduce equipment maintenance costs and improve asset utilization, while~~significant cost savings, allowing rail ~~control technologies have been focused on increasing track capacity, improving operational efficiency and ensuring safer railway traffic.~~to be more

competitive in comparison to other modes of transportation. Wabtec offers products and services to help customers make ongoing investments in these initiatives.

In ~~2017~~2021 and beyond, general global economic and market conditions ~~in the United States and internationally~~ will have an impact on our sales and operations. The COVID-19 pandemic has increased the uncertainty around global economic and market conditions. To the extent that these factors cause 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. In addition, we face risks associated with our ~~four-point~~ 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 ~~reflect~~address changes in market conditions and risks.

~~ACQUISITION OF FAIVELEY TRANSPORT S.A.~~

On November 30, 2016, the Company acquired majority ownership of Faiveley Transport under the terms of the Share Purchase Agreement. Faiveley Transport is a leading global provider of value-added, integrated systems and services for the railway industry with annual sales of about $1.2 billion and more than 5,700 employees in 24 countries. Faiveley Transport supplies railway manufacturers, operators and maintenance providers with a range of value-added, technology-based systems and services in Energy & Comfort (air conditioning, power collectors and converters, and passenger information), Access &

~~Mobility (passenger access systems and platform doors), and Brakes and Safety (braking systems and couplers). The transaction was structured as a step acquisition as follows:~~

On November 30, 2016, the Company acquired majority ownership of Faiveley Transport, after completing the purchase of the Faiveley family’s ownership interest under the terms of the Share Purchase Agreement, which directed the Company to pay €100 per share of Faiveley Transport, payable between 25% and 45% in cash at the election of those shareholders and the remainder payable in Wabtec stock. The Faiveley family’s ownership interest acquired by the Company represented approximately 51% of outstanding share capital and approximately 49% of the outstanding voting shares of Faiveley Transport. Upon completion of the share purchase under the Share Purchase Agreement, Wabtec commenced a tender offer for the remaining publicly traded Faiveley Transport shares. The public shareholders had the option to elect to receive €100 per share in cash or 1.1538 shares of Wabtec common stock per share of Faiveley Transport. The common stock portion of the consideration was subject to a cap on issuance of Wabtec common shares that was equivalent to the rates of cash and stock elected by the 51% owners.

On February 3, 2017, the initial cash tender offer was closed, which resulted in the Company acquiring approximately 27% of additional outstanding share capital and voting rights of Faiveley Transport for approximately $411.8 million in cash and $25.2 million in Wabtec stock. After the initial cash tender offer, the Company owned approximately 78% of outstanding share capital and 76% of voting rights.

On March 6, 2017, the final cash tender offer was closed, which resulted in the Company acquiring approximately 21% of additional outstanding share capital and 22% of additional outstanding voting rights of Faiveley Transport for approximately $303.2 million in cash and $0.3 million in Wabtec stock. After the final cash tender offer, the Company owned approximately 99% of the share capital and 98% of the voting rights of Faiveley Transport.

On March 21, 2017, a mandatory squeeze-out procedure was finalized, which resulted in the Company acquiring the Faiveley Transport shares not tendered in the offers for approximately $17.5 million in cash. This resulted in the Company owning 100% of the share capital and voting rights of Faiveley Transport.

As of November 30, 2016, the date the Company acquired 51% of the share capital and 49% of the voting interest in Faiveley Transport, Faiveley Transport was consolidated under the variable interest entity model as the Company concluded that it was the primary beneficiary of Faiveley Transport as it then possessed the power to direct the activities of Faiveley Transport that most significantly impact its economic performance and it then possessed the obligation and right to absorb losses and benefits from Faiveley Transport. The aggregate value of consideration paid for 100% ownership of Faiveley Transport was $1,736.1 million, including $944.3 million in cash, $560.2 million in stock or approximately 6.6 million shares, $409.9 million in debt assumed, less $178.3 million in cash acquired. The $744.7 million included as deposits in escrow on the consolidated balance sheet at December 31, 2016 was cash designated for use as consideration for the tender offers.

RESULTS OF OPERATIONS

Consolidated Results

FIRST QUARTER 2021 COMPARED TO FIRST QUARTER 2020

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

Three Months Ended
September 30, Nine Months Ended
September 30,
In millions 2017 2016 2017 2016
Net sales $ 957,931
$ 675,574
$ 2,806,218
$ 2,171,206
Cost of sales (704,728 ) (463,093 ) (2,009,345 ) (1,466,156 )
Gross profit 253,203
212,481
796,873
705,050
Selling, general and administrative expenses (117,838 ) (70,757 ) (367,753 ) (241,118 )
Engineering expenses (24,709 ) (16,289 ) (71,511 ) (52,271 )
Amortization expense (8,645 ) (5,339 ) (27,039 ) (16,100 )
Total operating expenses (151,192 ) (92,385 ) (466,303 ) (309,489 )
Income from operations 102,011
120,096
330,570
395,561
Interest expense, net (17,893 ) (6,057 ) (51,025 ) (15,897 )
Other (expense) income, net (2,933 ) 1,188
(2,166 ) 113
Income from operations before income taxes 81,185
115,227
277,379
379,777
Income tax expense (12,746 ) (32,799 ) (64,776 ) (112,701 )
Net income 68,439
82,428
$ 212,603
$ 267,076
Less: Net (gain) loss attributable to noncontrolling interest (1,040 ) —
710
—
Net income attributable to Wabtec shareholders $ 67,399
$ 82,428
$ 213,313
$ 267,076

~~THIRD QUARTER 2017 COMPARED TO THIRD QUARTER 2016~~

~~The following table summarizes our results of operations for the periods indicated:~~

Three Months Ended September 30,
In thousands 2017 2016 Percent
Change
Freight Segment Sales $ 340,185
$ 361,998
(6.0 )%
Transit Segment Sales 617,746
313,576
97.0 %
Net sales 957,931
675,574
41.8 %
Income from operations 102,011
120,096
(15.1 )%
Net income attributable to Wabtec shareholders 67,399
82,428
(18.2 )%


	Three Months Ended March 31,
In millions	2021		2020
Net sales:
Sales of goods	$	1,485.1	$	1,590.8
Sales of services	345.1		339.1
Total net sales	1,830.2		1,929.9
Cost of sales:
Cost of goods	(1,107.7)		(1,155.9)
Cost of services	(188.3)		(195.3)
Total cost of sales	(1,296.0)		(1,351.2)
Gross profit	534.2		578.7
Operating expenses:
Selling, general and administrative expenses	(235.4)		(243.4)
Engineering expenses	(37.7)		(49.0)
Amortization expense	(69.5)		(69.0)
Total operating expenses	(342.6)		(361.4)
Income from operations	191.6		217.3
Other income and expenses:
Interest expense, net	(47.6)		(53.3)
Other income (expense), net	14.2		(14.8)
Income before income taxes	158.2		149.2
Income tax expense	(43.5)		(38.0)
Net income	114.7		111.2
Less: Net (income) loss attributable to noncontrolling interest	(2.3)		0.4
Net income attributable to Wabtec shareholders	$	112.4	$	111.6

The following table shows the major components of the change in sales in the ~~third quarter of 2017~~three months ended March 31, 2021 from the ~~third quarter~~three months ended March 31, 2020:


In millions	Freight Segment		Transit Segment		Total
First Three Months of 2020 Net Sales	$	1,301.0	$	628.9	$	1,929.9
Acquisitions	0.5		—		0.5
Foreign Exchange	(3.0)		48.6		$	45.6
Organic	(115.2)		(30.6)		$	(145.8)
First Three Months of 2021 Net Sales	$	1,183.3	$	646.9	$	1,830.2

Results of ~~2016:~~operations were negatively impacted during the three months ended March 31, 2021 as a result of the COVID-19 pandemic. Management’s discussion below includes analysis as to the impact of the COVID-19 pandemic where it could be explicitly identified; however, in many instances it is difficult to quantify with a high level of certainty the negative impact the COVID-19 pandemic had on our net sales, cost of goods, operating expenses, interest expense and income tax expense.

In thousands Freight
Segment Transit
Segment Total
Third Quarter 2016 Net Sales $ 361,998
$ 313,576
$ 675,574
Acquisitions 40,633
289,941
330,574
Change in Sales by Product Line:
Specialty Products & Electronics (40,429 ) 5,819
(34,610 )
Brake Products (12,579 ) (1,353 ) (13,932 )
Remanufacturing, Overhaul & Build (12,666 ) 3,351
(9,315 )
Transit Products —
2,400
2,400
Other 996
(615 ) 381
Foreign exchange 2,232
4,627
6,859
Third Quarter 2017 Net Sales $ 340,185
$ 617,746
$ 957,931

Net sales

Net sales for the three months ended ~~September 30, 2017 increased~~March 31, 2021 decreased by ~~$282.4~~$100 million, or ~~41.8%~~5.2%, to ~~$957.9 million.~~$1.8 billion compared to the same period in 2020. The ~~increase~~decrease is primarily due to an organic decrease of $115 million in the Freight Segment, due to lower

locomotive Equipment sales, ~~from acquisitions of $330.6 million with the majority related to the Faiveley Transport acquisition. This increase was~~particularly in North America, partially offset by a $34.6 million decrease for Specialty Products and Electronics due to lower demand for freight original equipment rail products, and a $13.9 million decrease for Brake Products primarily due to lower demand for original equipment brakes for freight customers. Favorable foreign exchange increasedan increase in Services sales ~~by $6.9 million.~~

~~Freight Segment sales decreased by $21.8 million, or 6.0%, primarily~~ due to a decrease in parking of ~~$40.4~~locomotives. Organic sales in the Transit Segment decreased $31 million, primarily due to COVID-19 related Original Equipment production delays offset by favorable changes in foreign currency exchange rates of $46 million.

Cost of sales

Cost of sales for ~~Specialty Products and Electronics sales from lower demand for freight original equipment rail products, a~~the three months ended March 31, 2021 decreased by $55 million, or 4.1%, to $1.3 billion compared to the same period in 2020. The decrease ~~of $12.7 million for Remanufacturing, Overhaul & Build sales~~is primarily due to the ~~absence of a large locomotive rebuild contract that completed in 2016, and a decrease of $12.6 million for Brake Products~~ sales ~~from lower demand for original equipment brakes for freight customers. Acquisitions increased sales by $40.6 million and favorable foreign exchange increased sales by $2.2 million.~~

Transit Segment sales increased by $304.2 million, or 97.0%, primarily due to sales from acquisitions of $289.9 million with the majority related to the Faiveley Transport acquisition. Favorable foreign exchange increased sales by $4.6 million.

decreases discussed above. Cost ~~of Sales~~ ~~The following table shows the major components of cost~~ of sales for the ~~periods indicated:~~

Three Months Ended September 30, 2017
In thousands Freight Percentage of
Sales Transit Percentage of
Sales Total Percentage of
Sales
Material $ 129,912
38.2 % $ 283,376
45.9 % $ 413,288
43.1 %
Labor 48,473
14.2 % 81,828
13.2 % 130,301
13.6 %
Overhead 54,712
16.1 % 90,508
14.7 % 145,220
15.2 %
Other/Warranty 2,630
0.8 % 13,288
2.2 % 15,918
1.7 %
Total cost of sales $ 235,727
69.3 % $ 469,000
76.0 % $ 704,727
73.6 %

Three Months Ended September 30, 2016
In thousands Freight Percentage of
Sales Transit Percentage of
Sales Total Percentage of
Sales
Material $ 135,798
37.5 % $ 136,311
43.5 % $ 272,109
40.3 %
Labor 44,583
12.3 % 38,317
12.2 % 82,900
12.3 %
Overhead 57,990
16.0 % 43,516
13.9 % 101,506
15.0 %
Other/Warranty 2,125
0.6 % 4,453
1.4 % 6,578
1.0 %
Total cost of sales $ 240,496
66.4 % $ 222,597
71.0 % $ 463,093
68.6 %

three months ended March 31, 2021 includes $4 million of restructuring costs, primarily for headcount reductions and footprint rationalization as part of the ongoing integration actions related to the GE Transportation acquisition and in response to the COVID-19 pandemic. Cost of sales ~~increased by $241.6 million to $704.7 million~~ in the ~~third quarter~~first three months of ~~2017 compared to $463.1~~2020 included $1 million of restructuring costs, primarily for headcount reductions. Excluding these charges in ~~the same period of 2016. In the third quarter of 2017,~~both years, cost of sales as a percentage of sales was ~~73.6%~~70.6% in 2021 and 69.9% in 2020, representing a 0.7 percentage point increase. The increase can be attributed to lower absorption of overhead costs due to the decrease in sales volumes discussed above, partially offset by increased synergy savings related to the GE Transportation acquisition.

Operating expenses

Total operating expenses decreased $19 million in the first three months of 2021 compared to ~~68.6%~~the same period in 2020. Operating expenses as a percentage of sales was 18.7% for both 2021 and 2020. Restructuring and transaction costs included in selling, general, and administrative expense ("SG&A") were $11 million and $16 million for the three months ended March 31, 2021 and 2020, respectively. Excluding restructuring and transaction costs, SG&A decreased $3 million and engineering expense decreased $11 million due to cost control measures on research and development projects.

Interest expense, net

Interest expense, net, decreased $6 million in the first three months of 2021 compared to the same period in 2020 attributable to lower overall average debt balances.

Other income (expense), net

Other income (expense), net, was $14 million of income in the first three months of 2021 compared to $15 million of expense in the same period of ~~2016.~~2020. The variance is primarily driven by foreign exchange gains in the current year and an increase ~~as a percentage of sales is due to product mix largely attributable to higher transit segment sales due to acquisitions, along with an unfavorable product mix within the freight segment~~in income from equity method investments.

Income taxes

The effective income tax rate was 27.5% and ~~higher project adjustments of $20.4 million on certain existing contracts.~~

~~Freight Segment cost of sales increased 2.9% as a percentage of sales to 69.3% in 2017 compared to 66.4%~~25.5% for the ~~same period in 2016. The increase is primarily related to lower demand for freight original equipment rail products~~three months ended March 31, 2021 and ~~higher project contract adjustments of $5.5 million on certain existing contracts primarily related to labor and warranty costs.~~

Transit Segment cost of sales increased 5.0% as a percentage of sales to approximately 76.0% in the third quarter of 2017 from 71.0% for the same period of 2016. The increase is primarily related to product mix largely attributable to the acquisition of Faiveley Transport, which has lower overall margins and higher project adjustments of $14.9 million on certain existing contracts primarily related to material costs.

Included in cost of sales is warranty expense. The provision for warranty expense is generally established for specific losses, along with historical estimates of customer claims as a percentage of sales, which can cause variability in warranty expense between quarters. Warranty expense was $17.1 million in the third quarter of 2017 compared to $6.8 million in the third quarter of 2016.2020, respectively. The increase in ~~warranty expense~~the effective rate is primarily ~~related to~~ the ~~increase in sales and~~result of withholding tax expense on intercompany dividends incurred during the ~~higher project costs on certain existing contacts discussed above.~~three months ended March 31, 2021.

~~Operating expenses~~ ~~The following table shows our operating expenses for the periods indicated:~~

Three Months Ended September 30,
In thousands 2017 Percentage of
Sales 2016 Percentage of
Sales
Selling, general and administrative expenses $ 117,838
12.3 % $ 70,757
10.5 %
Engineering expenses 24,709
2.6 % 16,289
2.4 %
Amortization expense 8,645
0.9 % 5,339
0.8 %
Total operating expenses $ 151,192
15.8 % $ 92,385
13.7 %

Total operating expenses were 15.8% and 13.7% of sales for the third quarters of 2017 and 2016, respectively. Selling, general, and administrative expenses increased $47.1 million, or 66.5%, primarily due to $56.7 million in incremental expense from acquisitions and $4.7 million in Faiveley Transport transaction and integration related charges partially offset by lower costs due to cost saving initiatives and lower organic sales volumes. Engineering expense increased by $8.4 million, or 51.7%, due to $5.1 million of incremental costs associated with acquisitions but remained relatively constant as a percentage of sales at 2.6%. Amortization expense increased $3.3 million due to amortization of intangibles associated with acquisitions.Freight Segment

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

Three Months Ended September 30,
In thousands 2017 2016 Percent
Change
Freight Segment $ 42,862
$ 40,270
6.4 %
Transit Segment 101,214
43,048
135.1 %
Corporate 7,116
9,067
(21.5 )%
Total operating expenses 151,192
92,385
63.7 %

Freight Segment operating expenses increased $2.6 million, or 6.4%, in 2017 and increased 150 basis points to 12.6% of sales. The increase is primarily attributable to $5.0 million of incremental operating expenses from acquisitions and $0.6 million of integration and restructuring costs, partially offset by cost saving initiatives across the freight business and lower selling expenses related to reduced volume.

Transit Segment operating expenses increased $58.2 million, or 135.1%, in 2017 and increased 270 basis points to 16.4% of sales. The increase is primarily attributable to acquisitions with $51.7 million of incremental operating expenses and $3.4 million of Faiveley Transport integration costs.

Corporate non-allocated operating expenses decreased $2.0 million in 2017 primarily due to lower Faiveley Transport transaction costs in the current quarter as well as lower costs associated with cost saving initiatives.

~~Interest expense, net~~ Interest expense, net, increased $11.8 million in 2017 attributable to higher overall debt balances in 2017 than 2016, primarily related to the Faiveley Transport acquisition and higher interest rates.

~~Other income (expense), net~~ ~~Other income/(expense), net, totaled $2.9 million of expense in 2017 compared to $1.2 million of income in 2016 primarily due to foreign currency losses.~~

~~Income taxes~~ The effective income tax rate was 15.7% and 28.5% for the third quarter of 2017 and 2016, respectively. The decrease in the effective rate is primarily due to $9.5 million of favorable deferred tax net benefits recorded in the three months ended September 30, 2017 and the result of a lower earnings mix in higher tax rate jurisdictions. The net favorable deferred tax benefits related to the adjustment of deferred tax liabilities which had originally been established in prior periods in several foreign jurisdictions.

~~FIRST NINE MONTHS OF 2017 COMPARED TO FIRST NINE MONTHS OF 2016~~

~~The following table summarizes our results of operations for the periods indicated:~~

Nine Months Ended September 30,
In thousands 2017 2016 Percent
Change
Freight Segment Sales $ 1,032,959
$ 1,201,734
(14.0 )%
Transit Segment Sales 1,773,259
969,472
82.9 %
Net sales 2,806,218
2,171,206
29.2 %
Income from operations 330,570
395,561
(16.4 )%
Net income attributable to Wabtec shareholders 213,313
267,076
267,076
(20.1 )%


	Three Months Ended March 31,
In millions	2021		2020
Net sales:
Sales of goods	$	844.7	$	970.6
Sales of services	338.6		330.4
Total net sales	1,183.3		1,301.0
Cost of sales:
Cost of goods	(643.8)		(711.2)
Cost of services	(183.3)		(188.2)
Total cost of sales	(827.1)		(899.4)

Gross profit	356.2		401.6

Operating expenses	(214.4)		(239.9)

Income from operations ($)	$	141.8	$	161.7
Income from operations (%)	12.0%		12.4%

The following table shows the major components of the change in net sales for the ~~nine~~Freight Segment in the first three months ~~ended September 30, 2017~~of 2021 from the ~~nine~~first three months ~~ended September 30, 2016:~~of 2020:

In thousands Freight
Segment Transit
Segment Total
First Nine Months of 2016 Net Sales $ 1,201,734
$ 969,472
$ 2,171,206
Acquisitions 121,246
843,251
964,497
Change in Sales by Product Line:

Specialty Products & Electronics (162,744 ) (12,403 ) (175,147 )
Remanufacturing, Overhaul, and Build (74,243 ) (1,930 ) (76,173 )
Brake Products (43,270 ) (5,887 ) (49,157 )
Transit Products —
(801 ) (801 )
Other (6,725 ) 606
(6,119 )
Foreign exchange (3,040 ) (19,048 ) (22,088 )
First Nine Months of 2017 Net Sales $ 1,032,958
$ 1,773,260
$ 2,806,218


In millions
First Three Months of 2020 Net Sales	$	1,301.0
Acquisitions	0.5
Changes in Sales by Product Line:
Equipment	(141.8)
Components	(23.2)
Digital Electronics	(20.3)
Services	70.1
Foreign Exchange	(3.0)
First Three Months of 2021 Net Sales	$	1,183.3

Net sales for the nine months ended September 30, 2017 increased by $635.0 million, or 29.2%, to $2,806.2 million from $2,171.2 million. The increase is due to sales from acquisitions of $964.5 million with the majority related to the Faiveley Transport acquisition. This increase was partially offset by a $175.1 million decrease for Specialty Products and Electronics due to lower demand for freight original equipment rail products and train control and signaling products and services, and a $76.2 million decrease for Remanufacturing, Overhaul and Build primarily due to the absence of a large locomotive rebuild contract that completed in 2016. Unfavorable foreign exchange decreased sales by $22.1 million.

Freight Segment sales for the three months ended March 31, 2021 decreased by ~~$168.8~~$118 million, or ~~14.0%~~9.0%, ~~primarily due~~ to a decrease of $162.7 million for Specialty Products and Electronics sales from lower demand for freight original equipment rail products as well as train control and signaling products and services, a decrease of $74.2 million for Remanufacturing, Overhaul & Build sales primarily due$1.2 billion, compared to the ~~absence of a large locomotive rebuild contract that completed~~same period in 2016, and a decrease of $43.3 million for Brake Products sales from lower demand for original equipment brakes for freight customers. Acquisitions increased sales by $121.2 million and unfavorable foreign exchange decreased sales by $3.0 million.

~~Transit Segment sales increased by $803.8 million, or 82.9%,~~2020 primarily due to an ~~increase in~~organic decrease of $115 million from lower locomotive Equipment sales from ~~acquisitions of $843.3 million with the majority related to the Faiveley Transport acquisition. This increase was~~a reduction in volumes, particularly in North America, partially offset by ~~a decrease of $12.4 million for Specialty Products and Electronics~~an increase in Services sales due to higher modernizations, lower ~~demand for original equipment conduction systems~~locomotive parkings and ~~current collectors. Unfavorable foreign exchange decreased sales by $19.0 million.~~higher mining sales.

Cost of ~~Sales~~ ~~The following table shows the major components of~~sales

Freight Segment cost of sales for the ~~periods indicated:~~

Nine Months Ended September 30, 2017
In thousands Freight Percentage of
Sales Transit Percentage of
Sales Total Percentage of
Sales
Material $ 395,683
38.3 % $ 778,222
43.9 % $ 1,173,905
41.8 %
Labor 140,679
13.6 % 241,400
13.6 % 382,079
13.6 %
Overhead 164,503
15.9 % 250,879
14.1 % 415,382
14.8 %
Other/Warranty 4,236
0.4 % 33,743
1.9 % 37,979
1.4 %
Total cost of sales $ 705,101
68.2 % $ 1,304,244
73.5 % $ 2,009,345
71.6 %

Nine Months Ended September 30, 2016
In thousands Freight Percentage of
Sales Transit Percentage of
Sales Total Percentage of
Sales
Material $ 450,990
37.5 % $ 410,244
42.3 % $ 861,234
39.7 %
Labor 139,867
11.6 % 119,553
12.3 % 259,420
11.9 %
Overhead 185,964
15.5 % 137,749
14.2 % 323,713
14.9 %
Other/Warranty 6,261
0.5 % 15,528
1.6 % 21,789
1.0 %
Total cost of sales $ 783,082
65.1 % $ 683,074
70.4 % $ 1,466,156
67.5 %

~~Cost of sales increased by $543.2 million to $2,009.3 million in the nine~~three months ended ~~September 30, 2017~~March 31, 2021 decreased by $72 million, or 8.0%, to $827 million, compared to ~~$1,466.2 million in~~ the same period in 2020. The decrease is attributable to the organic sales decrease discussed above. For each of ~~2016. For~~ the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021 and 2020, Freight Segment cost of sales included $1 million each of restructuring costs, primarily for footprint rationalization and headcount actions as part of the ongoing integration actions related to the GE Transportation acquisition and in response to the COVID-19 pandemic. Excluding these charges, cost of sales as a percentage of sales was ~~71.6% compared to 67.5%~~69.8% in ~~the same period of 2016.~~2021 and 69.0% in 2020, representing a 0.8 percentage point increase. The increase ~~as a percentage~~can be attributed to the mix of sales, islower absorption of fixed costs due to ~~product mix largely attributable~~the decrease in locomotive deliveries, partially offset by increased synergy savings related to ~~higher transit segment sales due~~the GE Transportation acquisition and efforts to ~~acquisitions, along with an unfavorable product mix within~~reduce costs in response to the ~~freight segment and higher project adjustments of $20.4 million recorded in~~COVID-19 pandemic.

Operating expenses

Freight Segment operating expenses for the three months ended ~~September 30, 2017 on certain existing contracts and $6.0~~March 31, 2021 decreased $26 million, ~~of restructuring and integration costs.~~

~~Freight Segment cost~~or 10.6%, in 2021 to 18.1% of sales, ~~increased 3.1% as a percentage of sales to 68.2% for the nine months ended September 30, 2017~~ compared to ~~65.1% for~~ the same period in ~~2016.~~2020. The ~~increase~~decrease is primarily ~~related~~due to a reduction in SG&A expense of $18 million from increased synergy savings and lower ~~demand~~transaction and restructuring charges. Restructuring and transaction costs included in SG&A were $6 million and $14 million for ~~freight original equipment rail products~~the three months ended March 31, 2021 and ~~train~~2020, respectively, and were primarily for headcount actions as part of the ongoing integration of GE Transportation. Additionally, engineering expense decreased $8 million due to cost control measures on research and ~~signaling products~~development projects. Amortization expensed remained consistent year over year.

Transit Segment

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


	Three Months Ended March 31,
In millions	2021			2020
Net sales	$	646.9		$	628.9
Cost of sales	(468.9)			(451.8)
Gross profit	178.0			177.1

Operating expenses	(107.9)			(108.5)

Income from operations ($)	$	70.1		$	68.6
Income from operations (%)	10.8		%	10.9		%

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


In millions
First Three Months of 2020 Net Sales	$	628.9
Changes in Sales by Product Line:
Original Equipment Manufacturing	(21.3)
Aftermarket	(9.3)
Foreign Exchange	48.6
First Three Months of 2021 Net Sales	$	646.9

Net sales

Transit Segment sales for the three months ended March 31, 2021 increased by $18 million, or 2.9%, to $647 million compared to the same period in 2020; however, Transit organic sales decreased $31 million, primarily due to disruptions to our operations caused by the COVID-19 pandemic. This impact was felt in both the Original Equipment Manufacturing and ~~services which typically offer a higher margin, higher project adjustments~~Aftermarket product lines as the COVID-19 pandemic has continued to affect factory output and ridership levels. Favorable foreign currency exchange rate changes increased net sales by $49 million.

Cost of ~~$5.5 million on certain existing contracts primarily related to labor and warranty costs, and $1.7 million of restructuring and integration costs.~~sales

Transit Segment cost of sales for the three months ended March 31, 2021 increased ~~3.1%~~by $17 million, or 3.8%, to $469 million compared to the same period in 2020, with foreign exchange rate changes being the primary driver of the increase partially offset by improved operational performance. The first three months of 2021 includes $3 million of restructuring costs, primarily for footprint rationalization in the UK. Excluding these costs, cost of sales as a percentage of sales was 72.1%, a 0.3 percentage point increase over the comparable period in 2020, attributable to ~~73.5%~~COVID-19 pandemic related disruption to our operations.

Operating expenses

Transit Segment operating expenses remained consistent year over year at $108 million and $109 million for the ~~nine~~three months ended September 30, 2017 from 70.4% for the same period of 2016. The increase is primarily related to product mix largely attributable to the acquisition of Faiveley Transport, which has lower overall marginsMarch 31, 2021 and ~~higher project adjustments of $14.9 million on certain existing contracts primarily related to material costs and $4.3 million of restructuring and integration costs.~~

~~Included in cost of sales is warranty expense. The provision for warranty expense is generally established for specific losses, along with historical estimates of customer claims~~2020, respectively. Operating expenses as a percentage of sales which can cause variability in warranty expense between quarters. Warranty expense was $33.1 million in the nine months ended September 30, 2017 compared to $22.8 million in the nine months ended September 30, 2016. The increase in warranty expense is primarily related to the increase in sales.

~~Operating expenses~~ ~~The following table shows our operating expenses~~were 16.7% and 17.3% for ~~the periods indicated:~~

Nine Months Ended September 30,
In thousands 2017 Percentage of
Sales 2016 Percentage of
Sales
Selling, general and administrative expenses $ 367,753
13.1 % $ 241,118
11.1 %
Engineering expenses 71,511
2.5 % 52,271
2.4 %
Amortization expense 27,039
1.0 % 16,100
0.7 %
Total operating expenses $ 466,303
16.6 % $ 309,489
14.2 %

Total operating expenses were 16.6% and 14.2% of sales for the nine months of 2017 and 2016, respectively. Selling, general, and administrative expenses increased $126.6 million, or 52.5%, primarily due to $145.4 million in incremental expense from acquisitions and $18.0 million of Faiveley Transport transaction and integration related charges partially offset by lower costs due to cost saving initiatives and lower organic sales volumes. Engineering expense increased by $19.2 million, or 36.7%, primarily due to $16.6 million in expenses from acquisitions and remained relatively consistent as a percentage of sales. Amortization expense increased $10.9 million due to amortization of intangibles associated with acquisitions.

~~The following table shows our segment operating expense for the periods indicated:~~

Nine Months Ended September 30,
In thousands 2017 2016 Percent
Change
Freight Segment $ 131,530
$ 135,544
(3.0 )%
Transit Segment 313,114
144,194
117.1 %
Corporate 21,659
29,751
(27.2 )%
Total operating expenses $ 466,303
$ 309,489
50.7 %

Freight Segment operating expenses decreased $4.0 million, or 3.0%, in the nine months ended September 30, 2017 and increased 140 basis points to 12.7% of sales. The decrease is primarily attributable to reduced sales volumes, and realized benefits from the cost saving initiatives undertaken in 2016 and 2017, partially offset by $15.6 million of incremental operating expenses from acquisitions and $2.8 million of restructuring and integration costs.

Transit Segment operating expenses increased $168.9 million, or 117.1%, in the nine months ended September 30, 2017 and increased 280 basis points to 17.7% of sales. The increase is attributed to $156.9 million of incremental operating expenses from acquisitions and $11.0 million of Faiveley Transport and integration costs.

Corporate non-allocated operating expenses decreased $8.1 million in the nine months ended September 30, 2017 primarily due to lower Faiveley Transport transaction and integration costs as well as benefits from cost savings initiatives undertaken in 2017 and 2016.

~~Interest expense, net~~ Interest expense, net, increased $35.1 million in the nine months ended September 30, 2017 attributable to higher overall debt balances in 2017 than 2016, primarily related to the Faiveley Transport acquisition and higher interest rates.

~~Other income (expense), net~~ Other income/(expense), net, totaled $2.2 million of expense in the nine months ended September 30, 2017 compared to $0.1 million of income for the comparable period in 2016 primarily due to foreign currency losses.

~~Income taxes~~ The effective income tax rate was 23.4% and 29.7% for the nine months ended September 30, 2017 and 2016, respectively. The decrease in the effective rate is primarily due to $9.5 million of favorable deferred tax net benefits recorded in the three months ended ~~September 30, 2017~~March 31, 2021 and 2020, respectively. The decrease of 0.6 percentage points can be attributed to improvement in operational performance, improved risk management and cost actions taken in the prior year as a result of ~~a lower earnings mix in higher tax rate jurisdictions. The net favorable deferred tax benefits related to~~ the ~~adjustment of deferred tax liabilities which had originally been established in prior periods in several foreign jurisdictions.~~COVID-19 pandemic.

Liquidity and Capital Resources

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


	Three Months Ended March 31,
In millions	2021		2020
Cash provided by (used for):
Operating activities	$	292.2	$	(81.9)
Investing activities	$	(422.0)	$	(62.6)
Financing activities	$	7.7	$	183.5

Nine Months Ended
September 30,
In thousands 2017 2016
Cash (used for) provided by:
Operating activities $ 26,511
$ 246,893
Investing activities (149,824 ) (115,891 )
Financing activities (70,049 ) (112,336 )
(Decrease)/increase in cash $ (170,404 ) $ 24,191

Operating activities In the first ~~nine~~three months of ~~2017,~~2021, cash provided by operations was ~~$26.5 million. In~~$292 million compared to cash used for operations of $82 million in the first ~~nine~~three months of ~~2016, cash provided by operations was $246.9 million. In comparison~~2020. Significant changes to the ~~first nine months~~sources of ~~2016,~~ cash ~~provided by operations~~ for the comparable period in 2017 decreased due to unfavorable working capital performance and lower net income of $54.5 million. The major components of working capital were as follows: an unfavorable change of $87.8three months periods include the following:

•$107 million in other assets and liabilities primarily due to an unfavorable change in accrued liabilities due to payments related to contract liabilities, accrued expenses, and acquisition costs during the first nine months of 2017, an unfavorable change inimprovement from accounts payable ~~of $77.6 million~~ due to the timing of payments to suppliers ~~an unfavorable~~for the three months ended March 31, 2021;

•$93 million related to cash received from the securitization of accounts receivable for the three months ended March 31, 2021;

•and $93 million related to cash payments made in the three months ended March 31, 2020 for costs related to the GE Transportation acquisition and settlement of litigation that did not recur;

The remaining change in ~~inventory of $55.7 million due~~cash from operating activities is primarily attributable to ~~efforts to ramp up production in anticipation of stronger product demand~~changes in the ~~fourth quarter~~related statement of ~~2017, an unfavorable change~~income and other changes in ~~accrued income taxes of $41.9 million, partially offset by a favorable change in accrued liabilities and customer deposits of $89.6 million primarily due to~~ the ~~timing of cash receipts from customers for long term projects.~~consolidated balance sheet.

Investing activities In the first ~~nine~~three months of ~~2017~~2021 and ~~2016,~~2020, cash used for investing activities was ~~$149.8~~$422 million and ~~$115.9~~$63 million, respectively. The major components of the cash outflow in ~~2017~~2021 were ~~$114.2~~$27 million in ~~net cash paid for acquisitions and $60.3 million in planned~~ additions to property, plant and equipment for investments in our facilities and manufacturing ~~processes. These outflows were partially offset by $23.5 million in cash released from escrow related to the Faiveley acquisition. This compares to $84.4~~processes, and $401 million in net cash paid for ~~acquisitions and $31.7~~the acquisition of Nordco. This compares to $33 million in property, plant, and equipment for ~~investments~~additions in the first ~~nine~~three months of ~~2016. Refer~~2020 and $36 million in net cash paid for acquisitions. Additional information with respect to acquisitions is included in Note 3 of the “Notes to Condensed Consolidated Financial Statements” ~~for additional information on acquisitions.~~included in Part I, Item 1 of this report.

Financing activities In the first ~~nine~~three months of ~~2017,~~2021, cash ~~used for~~from financing activities was ~~$70.0~~$8 million which included ~~$883.5 million~~$1.4 billion in proceeds from ~~the revolving credit facility, $918.9 million~~debt, $1.4 billion in repayments of debt, $1 million in stock repurchases and ~~$30.7~~$23 million of dividend payments. In the first ~~nine~~three months of ~~2016,~~2020, cash ~~used for~~provided by financing activities was ~~$112.3~~$184 million, which included ~~$346.0 million~~$1.0 billion in proceeds from ~~the revolving credit facility, $215.9 million~~debt, $0.7 billion in repayments of debt, ~~on the revolving credit facility, $212.2~~$105 million ~~for purchases of treasury~~in stock ~~$23.5~~repurchases and $23 million of dividend ~~payments,~~payments.

As of March 31, 2021, the Company held approximately $484 million of cash and ~~$9.0~~cash equivalents. Of this amount, approximately $39 million ~~related~~was held within the United States and approximately $445 million was held outside of the United States, primarily in Europe, India 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 ~~payment of income tax withholding on share-based compensation.~~the United States.

Additional information with respect to Senior Notes, ~~Due November 2026~~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

~~On November 3, 2016,~~In May 2020, the Company ~~issued $750.0~~entered into a revolving agreement to transfer up to $150 million of ~~Senior Notes due in 2026. The 2016 Notes were issued at 99.965%~~certain receivables of face value. Interest on the 2016 Notes accrues at a rate of 3.45% per annum and is payable semi-annually on May 15 and November 15 of each year. The proceeds were used to finance the cash portion of the Faiveley Transport acquisition, refinance Faiveley Transport's indebtedness, and for general corporate purposes. The principal balance is due in full at maturity.

~~The 2016 Notes are senior unsecured obligations~~certain subsidiaries of the Company (the "Originators") through our bankruptcy-remote subsidiary to a financial institution on a recurring basis in exchange for cash equal to the gross receivables transferred. 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 ~~rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness~~reinvest). The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary which held additional receivables of $259.7 million at March 31, 2021 that are pledged as collateral under this agreement. The transfers are recorded at the fair value of the ~~Company.~~proceeds received and obligations assumed less derecognized receivables.No obligation was recorded at March 31, 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 ~~indenture~~Company has agreed to guarantee the performance of the Originators respective obligations' under ~~which~~the

revolving agreement. None of the ~~2016 Notes were issued contains covenants~~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 ~~restrictions which limit among other things,~~does not receive an economic benefit from the ~~following:~~financial institutions. The arrangements do not change the ~~incurrence of indebtedness, payment of dividends~~payable terms negotiated by the Company and ~~certain distributions, sale of assets,~~our vendors and does not result in a change in ~~control, mergers~~the classification of amounts due as accounts payable in the consolidated balance sheet.

Guarantor Summarized Financial Information

The obligations under the Company's Senior Notes, Senior Credit Facility, and ~~consolidations~~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 following tables present summarized financial information of the parent and the ~~incurrence of liens.~~guarantor subsidiaries on a combined basis. The ~~Company~~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 ~~compliance~~accordance with the ~~restrictions~~reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and ~~covenants in the indenture under which the 2016 Notes were issued and expects that these restrictions and covenants will not be any type~~guarantor subsidiaries.

Summarized Statement of ~~limiting factor in executing our operating activities.~~Income


	Unaudited
	Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries
In millions	Three Months Ended March 31, 2021
Net sales	$	888.9
Gross profit	$	161.3
Net income attributable to Wabtec shareholders	$	5.3

~~Faiveley Transport Tender Offer~~Summarized Balance Sheet


	Unaudited
	Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries
In millions	March 31, 2021		December 31, 2020
Current assets	$	888.6	$	1,092.3
Noncurrent assets	$	1,838.5	$	1,835.7
Current liabilities	$	1,384.2	$	1,408.8
Long-term debt	$	3,911.3	$	3,779.6
Other non-current liabilities	$	364.5	$	373.9

On March 6, 2017, the final cash tender offer was closed, which resulted in the Company acquiring approximately 21% of additional outstanding share capital and 22% of additional outstanding voting rights of Faiveley Transport for approximately $303.2 million in cash and $0.3 million in Wabtec stock. After the final cash tender offer, the Company owned approximately 99%The following is a description of the ~~share capital~~transactions between the combined Westinghouse Air Brake Technologies Corp. and ~~98% of the voting rights of Faiveley Transport.~~guarantor subsidiaries with non-guarantor subsidiaries.


	Unaudited
	Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries
In millions	Three Months Ended March 31, 2021
Net sales to non-guarantor subsidiaries	$	176.7
Purchases from non-guarantor subsidiaries	$	457.0

	Unaudited
	Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries
In millions	March 31, 2021
Amount due (to) from non-guarantor subsidiaries	$	(1,009.7)

Company Stock Repurchase Plan

On February ~~8, 2016,~~11, 2021, the Board of Directors ~~amended~~increased its stock repurchase authorization to ~~$350~~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 ~~$350~~$500 million of which about ~~$33.3~~$292.2 million remained. During the first nine months of 2017, the Company did not repurchase any shares. The Company intends to purchase shares on the open market or in negotiated block trades from time to time depending on market conditions. No time limit was set for the completion of the ~~programs~~program which conforms to the requirements under the ~~2016 Refinancing~~Senior Credit ~~Agreement, as well as~~Facility, the ~~senior notes~~364 Day 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 ~~South~~ 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.~~

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;~~Transport and the GE Transportation Business; or

•the development and use of new ~~technology.~~technology;

Competitive factors

•the actions of ~~competitors.~~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

•federal and state income tax legislation; ~~and~~or

•the outcome of negotiations with ~~partners, governments, suppliers,~~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 ~~others.~~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, ~~2016.~~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, ~~2016.~~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, ~~pensions and postretirement benefits,~~stock-based compensation, income taxes and revenue recognition. There have been no significant changes in accounting policies since December 31, ~~2016.~~2020.


~~Item 3.~~	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Interest Rate Risk~~

InSee "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of Part II of our Annual Report on Form 10-K for the ordinary course of business, Wabtec is exposed to risks that increases in interest rates may adversely affect funding costs associated with its variable-rate debt. The Company’s variable rate debt represents 38% and 36% of total long-term debt at September 30, 2017 andyear ended December 31, 2016, respectively. To reduce the impact of interest rate changes on a portion of this variable-rate debt, the Company entered into forward interest rate swap agreements which convert a portion of the debt from variable2020. Our exposure to ~~fixed-rate borrowings during the term of the swap contract.~~market risk has not changed materially since December 31, 2020. Refer to Note ~~6 – Long Term Debt~~13 - Derivative Financial Instruments and Hedging of ~~“Notes~~"Notes to Condensed Consolidated Financial ~~Statements”~~Statements" included in Part I, Item 1 of this report for additional information regarding interest rate ~~risk.~~

~~Foreign Currency Exchange Risk~~

The Company is subject to certain risks associated with changes in foreign currency exchange rates to the extent our operations are conducted in currencies other than the U.S. dollar. For the first nine months of 2017, approximately 35% of Wabtec’s net sales were to customers in the United States, 9% in the United Kingdom, 7% in Canada, 6% in France, 6% in Germany, 4% in China, 4% in Mexico, 3% in Italy, 3% in Australia, and 23% in other international locations. To reduce the impact of changes in currency exchange rates, the Company has periodically entered into foreign currency forward contracts. Refer to “Financial Derivatives and Hedging Activities” in Note 2 of “Notes to Condensed Consolidated Financial Statements” for more information regarding foreign currency exchange risk.


~~Item 4.~~	~~CONTROLS AND PROCEDURES~~

Item 4. CONTROLS AND PROCEDURES

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, 2017.~~March 31, 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, 2017,~~March 31, 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~~

Except as described below, there have been no material changes regarding the Company’s commitments and contingencies as described in Note 19 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, includingItem 1. LEGAL PROCEEDINGS

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

Xorail, Inc., a wholly owned subsidiary of the Company (“Xorail”), has received notices from Denver Transit Constructors (“Denver Transit”) alleging breach of contract related to the operating of constant warning wireless crossings, and late delivery of the Train Management & Dispatch System (“TMDS”) for the Denver Eagle P3 Project, which is owned by the Denver Regional Transit District ("RTD"). No damages have been asserted for the alleged late delivery of the TMDS, and Xorail is in the final stages of successfully implementing a recovery plan concerning the TMDS issues. With regard to the wireless crossings, as of September 8, 2017, Denver Transit alleged that total damages were $36.8 million through July 31, 2017, and are continuing to accumulate. The crossings have not been certified for use without flaggers, which Denver Transit alleges is due to Xorail's failure to achieve constant warning times satisfactory to the Federal Railway Administration ("FRA") and the Public Utility Commission ("PUC"). No claims have been filed by Denver Transit with regard to either issue. Xorail has denied Denver Transit’s assertions regarding the wireless crossings, and Denver Transit has also notified RTD that Denver Transit considers the new certification requirements imposed by FRA and/or PUC as a change in law, for which neither Denver Transit nor its subcontractors are liable. Xorail has worked with Denver Transit to modify its system to meet the FRA’s and PUC's previously undefined, and evolving, certification requirements. On September 28, 2017, the FRA granted a 5 year approval of the modified wireless crossing system as currently implemented; however, the PUC has not granted approval of the modified system and therefore the crossings are still not certified for use without flaggers. Denver Transit and RTD are continuing to seek approval from PUC. The Company does not believe that it has any liability with respect to the wireless crossing issue.


~~Item 1A.~~	~~RISK FACTORS~~

Item 1A. RISK FACTORS

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, ~~2016.~~2020.


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

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, 2017:~~March 31, 2021:


Issuer Purchases of Common Stock
In millions, except shares and price per share	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (1)	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Programs (1)
January 2021	8,178	$	73.38	8,178	$	292.2
February 2021	7,686	$	73.30	7,686	$	499.4
March 2021	—	$	—	—	$	499.4
Total quarter ended March 31, 2021	15,864	$	73.34	15,864	$	499.4

(1) 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, the 364 Day 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.

~~Month~~

~~Total Number of Shares Purchased~~

~~Average Price Paid per Share~~

~~Total Number of Shares Purchased as Part of Publicly Announced Programs (1)~~

~~Maximum Dollar Value of Shares That May Yet Be Purchased Under the Programs (1)~~

~~July 2017~~

—

~~August 2017~~

—

~~September 2017~~

—

~~Total quarter ended September 30, 2017~~

—


~~(1)~~	On February 9, 2016, the Board of Directors amended its stock repurchase authorization to $350.0 million of the Company’s outstanding shares. No time limit was set for the completion of the programs which conforms to the requirements under the 2016 Refinancing Credit Agreement, as well as the senior notes currently outstanding.


~~Item 4.~~	~~MINE SAFETY DISCLOSURES~~

Item 4. MINE SAFETY DISCLOSURES

Not Applicable


~~Item 6.~~	~~EXHIBITS~~

Item 6. EXHIBITS

The following exhibits are being filed with this report:


3.1			Amended and Restated By-Laws of the Company, effective February 11, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on February 18, 2021)

10.1			~~Second Amendment to Second~~ Amended and Restated ~~Refinancing Credit Agreement, dated as of October 11, 2017,~~2011 Stock Incentive Plan (incorporated by ~~and among~~reference to Exhibit 10.1 to the ~~Company, Wabtec Cooperatief UA, as borrowers, the subsidiary guarantors named therein, and the lenders party thereto and PNC Bank, National Association, as Administrative Agent~~Current Report on Form 8-K filed on January 20, 2021)

~~31.1~~22.1			List of Subsidiary Guarantors

31.1			Rule 13a-14(a) Certification of Chief Executive Officer.

31.2			Rule 13a-14(a) Certification of Chief Financial Officer.

32.1			Section 1350 Certification of Chief Executive Officer and Chief Financial Officer.

101.INS			XBRL Instance Document.

101.SCH			XBRL Taxonomy Extension Schema Document.

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB			XBRL Taxonomy Extension Label Linkbase Document.

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document.

104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements ~~of Section 13 or 15(d)~~ 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.


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

~~WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION~~
By:
~~By:~~	/s/ PATRICK D. DUGAN
		Patrick D. Dugan,
		Executive Vice President ~~Finance~~ and Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)

DATE:		~~November 1, 2017~~April 29, 2021


								Unaudited
	Unaudited							Three Months Ended March 31,
	Nine Months Ended September 30,
In thousands, except per share data	2017			2016
In millions							In millions	2021		2020

Operating Activities							Operating Activities
Net income	$	212,603		$	267,076		Net income	$	114.7	$	111.2
Adjustments to reconcile net income to cash provided by operations:
Adjustments to reconcile net income to cash provided by (used for) operating activities:							Adjustments to reconcile net income to cash provided by (used for) operating activities:
Depreciation and amortization	76,970			49,375			Depreciation and amortization	120.0		115.8
Stock-based compensation expense	14,539			14,788			Stock-based compensation expense	8.2		7.3
Loss on disposal of property, plant and equipment	1,633			151
Excess income tax benefits from exercise of stock options	—			(446		)
Below market intangible amortization							Below market intangible amortization	(12.6)		(37.6)
Changes in operating assets and liabilities, net of acquisitions							Changes in operating assets and liabilities, net of acquisitions
Accounts receivable and unbilled accounts receivable	(60,246		)	(38,362		)	Accounts receivable and unbilled accounts receivable	9.3		(22.6)
Inventories	(53,365		)	2,301			Inventories	(11.2)		(23.5)
Accounts payable	(121,389		)	(43,777		)	Accounts payable	47.0		(60.2)
Accrued income taxes	(35,942		)	5,952			Accrued income taxes	13.4		(4.4)
Accrued liabilities and customer deposits	81,270			(8,353		)	Accrued liabilities and customer deposits	25.9		(84.7)
Other assets and liabilities	(89,562		)	(1,812		)	Other assets and liabilities	(22.5)		(83.2)
Net cash provided by operating activities	26,511			246,893
Net cash provided by (used for) operating activities							Net cash provided by (used for) operating activities	292.2		(81.9)
Investing Activities							Investing Activities
Purchase of property, plant and equipment	(60,263		)	(31,676		)	Purchase of property, plant and equipment	(26.5)		(33.3)
Proceeds from disposal of property, plant and equipment	1,066			140
Proceeds from disposal of assets and businesses							Proceeds from disposal of assets and businesses	5.9		6.4
Acquisitions of businesses, net of cash acquired	(114,175		)	(84,355		)	Acquisitions of businesses, net of cash acquired	(401.4)		(35.7)
Release of deposit in escrow	23,548			—
Net cash used for investing activities	(149,824		)	(115,891		)	Net cash used for investing activities	(422.0)		(62.6)
Financing Activities							Financing Activities
Proceeds from debt	883,473			346,000			Proceeds from debt	1,435.0		981.5
Payments of debt	(918,919		)	(215,850		)	Payments of debt	(1,398.0)		(663.8)
Purchase of treasury stock	—			(212,176		)
Proceeds from exercise of stock options and other benefit plans	2,888			1,773
Payment of income tax withholding on share-based compensation	(6,798		)	(9,006		)
Excess income tax benefits from exercise of equity options	—			446
Cash dividends ($0.32 and $0.26 per share for the nine months
ended September 30, 2017 and 2016, respectively)	(30,693		)	(23,523		)
Net cash used for financing activities	(70,049		)	(112,336		)
Repurchase of stock							Repurchase of stock	(1.2)		(105.3)
Cash dividends							Cash dividends	(23.0)		(23.0)
Other financing activities							Other financing activities	(5.1)		(5.9)
Net cash provided by financing activities							Net cash provided by financing activities	7.7		183.5
Effect of changes in currency exchange rates	22,958			5,525			Effect of changes in currency exchange rates	6.9		(27.3)
(Decrease) Increase in cash	(170,404		)	24,191
Cash, beginning of period	398,484			226,191
Cash, end of period	$	228,080		$	250,382
(Decrease) increase in cash							(Decrease) increase in cash	(115.2)		11.7
Cash and cash equivalents, beginning of period							Cash and cash equivalents, beginning of period	598.7		604.2
Cash and cash equivalents, end of period							Cash and cash equivalents, end of period	$	483.5	$	615.9



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Unaudited						Unaudited
	Three Months Ended September 30,						Nine Months Ended September 30,
In thousands	2017			2016			2017			2016

Net income attributable to Wabtec shareholders	$	67,399		$	82,428		$	213,313		$	267,076
Foreign currency translation gain (loss)	82,905			2,734			277,984			(7,385		)
Unrealized gain (loss) on derivative contracts	15,021			1,169			18,400			(1,740		)
Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans	27			982			(3,017		)	(652		)
Other comprehensive income (loss) before tax	97,953			4,885			293,367			(9,777		)
Income tax (expense) benefit related to components of
other comprehensive income	(5,333		)	(594		)	(5,692		)	441
Other comprehensive income (loss), net of tax	92,620			4,291			287,675			(9,336		)
Comprehensive income attributable to Wabtec shareholders	$	160,019		$	86,719		$	500,988		$	257,740



In thousands	Foreign currency translation			Derivative contracts			Pension and post retirement benefit plans			Total
Balance at December 31, 2016	$	(321,033	)	$	(2,957	)	$	(55,615	)	$	(379,605	)
Other comprehensive income (loss) before reclassifications	277,984			11,424			(4,715		)	284,693
Amounts reclassified from accumulated other
comprehensive income	—			1,206			1,776			2,982
Net current period other comprehensive income (loss)	277,984			12,630			(2,939		)	287,675
Balance at September 30, 2017	$	(43,049	)	$	9,673		$	(58,554	)	$	(91,930	)



In thousands	Amount reclassified from accumulated other comprehensive income			Affected line item in the Condensed Consolidated Statements of Income
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost	$	(422	)	Cost of sales
Amortization of net loss	1,240			Cost of sales
	818			Income from Operations
	(226		)	Income tax expense
	$	592		Net income

Derivative contracts
Realized loss on derivative contracts	$	497		Interest expense, net
	(131		)	Income tax expense
	$	366		Net income



	TTC			ATP			Workhorse			Precision Turbo			Gerken			Unitrac
In thousands	April 5, 2017			March 14, 2017			December 14, 2016			November 17, 2016			August 1, 2016			May 5, 2016
Current assets	$	3,746		$	11,666		$	9,137		$	4,145		$	32,706		$	11,476
Property, plant & equipment	5,909			5,354			—			1,346			7,667			1,768
Goodwill	16,309			31,934			24,373			4,019			17,470			2,442
Other intangible assets	12,300			22,100			19,400			5,200			30,560			1,230
Other assets	—			—			—			—			1,706			—
Total assets acquired	38,264			71,054			52,910			14,710			90,109			16,916
Total liabilities assumed	(5,753		)	(5,800		)	(9,083		)	(884		)	(27,262		)	(2,145		)
Net assets acquired	$	32,511		$	65,254		$	43,827		$	13,826		$	62,847		$	14,771



In thousands	Three Months Ended September 30, 2017		Three Months Ended September 30, 2016		Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
Net sales	$	957,931	$	995,869	$	2,817,550	$	3,168,195
Gross profit	253,203		301,554		799,695		977,743
Net income attributable to Wabtec shareholders	67,399		99,085		214,370		323,878
Diluted earnings per share
As Reported	$	0.70	$	0.91	$	2.22	$	2.92
Pro forma	$	0.70	$	1.02	$	2.23	$	3.30



Remainder of 2017	$	8,873
2018	34,794
2019	33,537
2020	32,014
2021	31,827



	U.S.						International
	Three Months Ended September 30,						Three Months Ended September 30,
In thousands, except percentages	2017			2016			2017			2016
Net periodic benefit cost
Service cost	$	86		$	84		$	614		$	258
Interest cost	356			369			1,677			1,257
Expected return on plan assets	(433		)	(519		)	(2,910		)	(2,437		)
Net amortization/deferrals	248			229			685			397
Net periodic benefit cost	$	257		$	163		$	66		$	(525	)



Assumptions
Discount Rate	3.95	%	4.21	%	2.51	%	3.56	%
Expected long-term rate of return	4.95	%	5.70	%	4.93	%	5.81	%
Rate of compensation increase	3.00	%	3.00	%	2.54	%	3.10	%



(1) Basic weighted-average common shares outstanding	95,709		89,589
Basic weighted-average common shares outstanding and non-vested restricted stock expected to vest	95,983		89,838
Percentage allocated to common shareholders	99.7	%	99.7	%



			Fair Value Measurements at September 30, 2017 Using
In thousands	Total Carrying Value at September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest rate swap agreements	$	1,952	$	—	$	1,952	$	—
Total	$	1,952	$	—	$	1,952	$	—



			Fair Value Measurements at December 31, 2016 Using
In thousands	Total Carrying Value at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest rate swap agreements	$	3,888	$	—	$	3,888	$	—
Total	$	3,888	$	—	$	3,888	$	—



	September 30, 2017				December 31, 2016
In thousands	Carry Value		Fair Value		Carry Value		Fair Value
Interest rate swap agreement	$	1,952	$	1,952	$	3,888	$	3,888
4.375% Senior Notes	248,502		264,000		248,310		260,265
3.45% Senior Notes	747,590		739,050		747,474		719,273



In thousands	Parent		Guarantors			Non-Guarantors			Elimination			Consolidated
Cash and cash equivalents	$	3,049	$	6,082		$	218,949		$	—		$	228,080
Receivables, net	75,123		232,060			837,156			—			1,144,339
Inventories	132,044		140,745			491,992			—			764,781
Current assets - other	39,216		4,283			96,426			—			139,925
Total current assets	249,432		383,170			1,644,523			—			2,277,125
Property, plant and equipment, net	51,196		134,397			364,774			—			550,367
Goodwill	25,276		549,198			1,810,284			—			2,384,758
Investment in subsidiaries	6,304,037		2,508,725			—			(8,812,762		)	—
Other intangibles, net	30,905		251,485			857,997			—			1,140,387
Other long term assets	29,724		6,273			61,016			—			97,013
Total assets	$	6,690,570	$	3,833,248		$	4,738,594		$	(8,812,762	)	$	6,449,650
Current liabilities	$	162,470	199,511			$	1,103,459		—			$	1,465,440
Inter-company	2,031,256		(1,942,433		)	(88,823		)	—			—
Long-term debt	1,740,541		25			83,590			—			1,824,156
Long-term liabilities - other	38,601		87,935			297,149			—			423,685
Total liabilities	3,972,868		(1,654,962		)	1,395,375			—			3,713,281
Shareholders' equity	2,717,702		5,489,597			3,323,165			(8,812,762		)	2,717,702
Non-controlling interest	—		(1,387		)	20,054			—			18,667
Total shareholders' equity	$	2,717,702	$	5,488,210		$	3,343,219		$	(8,812,762	)	$	2,736,369
Total Liabilities and Shareholders' Equity	$	6,690,570	$	3,833,248		$	4,738,594		$	(8,812,762	)	$	6,449,650



	Three Months Ended September 30,					Nine Months Ended September 30,
In thousands	2017			2016		2017			2016
Foreign currency (loss) gain	$	(4,113	)	$	880	$	(5,202	)	$	(488	)
Equity income	520			—		1,587			—
Other miscellaneous expense	660			308		1,449			601
Total other income (expense), net	$	(2,933	)	$	1,188	$	(2,166	)	$	113



	Three Months Ended September 30, 2017
In thousands	Freight		Percentage of Sales		Transit		Percentage of Sales		Total		Percentage of Sales
Material	$	129,912	38.2	%	$	283,376	45.9	%	$	413,288	43.1	%
Labor	48,473		14.2	%	81,828		13.2	%	130,301		13.6	%
Overhead	54,712		16.1	%	90,508		14.7	%	145,220		15.2	%
Other/Warranty	2,630		0.8	%	13,288		2.2	%	15,918		1.7	%
Total cost of sales	$	235,727	69.3	%	$	469,000	76.0	%	$	704,727	73.6	%



	Three Months Ended September 30, 2016
In thousands	Freight		Percentage of Sales		Transit		Percentage of Sales		Total		Percentage of Sales
Material	$	135,798	37.5	%	$	136,311	43.5	%	$	272,109	40.3	%
Labor	44,583		12.3	%	38,317		12.2	%	82,900		12.3	%
Overhead	57,990		16.0	%	43,516		13.9	%	101,506		15.0	%
Other/Warranty	2,125		0.6	%	4,453		1.4	%	6,578		1.0	%
Total cost of sales	$	240,496	66.4	%	$	222,597	71.0	%	$	463,093	68.6	%