WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP (WAB) FY 2022 MD&A

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Wabtec is one of the world’s largest providers of value-added, technology-based locomotives, equipment, systems and services for the global freight rail and passenger transit industries, and also serves customers in the mining, marine, and industrial markets. Our highly engineered products, which are intended to enhance safety, improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight cars, passenger transit cars and buses around the world. Our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in over 50 countries and our products can be found in more than 100 countries throughout the world. In 2022, approximately 55% of the Company’s net sales came from customers outside the U.S.

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

The Company primarily serves the worldwide freight and transit rail industries. 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 carloads and passenger ridership; number of locomotives and railcars in operation; government spending on public transportation; and investment in new technologies. In general, trends such as urbanization and growth in developing markets, sustainability and environmental awareness, investment in technology solutions, an aging equipment fleet, and growth in global trade are expected to drive continued investment in freight rail and passenger transit.

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.

Business Update

During 2022, Wabtec achieved a multitude of accomplishments while successfully navigating volatile market conditions. Through leveraging our installed customer base and our innovative scalable technologies, Wabtec was able to secure several key contracts globally that position the Company for long-term revenue generation. These contracts include the largest locomotive modernization deal in rail industry history, orders for our FLXdrive battery-electric powered locomotives, international locomotive orders, as well as a North American locomotive order with a Class I railroad. Wabtec executed on calculated market expansions through several strategic acquisitions that will allow us to leverage current and future product and service offerings for greater market share. Wabtec continued significant progress on our sustainability initiatives as exhibited in our completed green bond allocation and with our battery electric locomotive being recognized for sustainable innovation by the Business Intelligence Group and awarded “Commercial Technology of the Year” at the Platts Global Energy Awards. Management also launched Integration 2.0 to further poise the company for operational efficiencies into the future.

During the first quarter of 2022, Wabtec announced Integration 2.0, a three-year strategic initiative to target incremental run rate synergies estimated to be between $75 million and $90 million by 2025. The scope of the review includes consolidating our operating footprint, reducing headcount, streamlining the end-to-end manufacturing process, restructuring the North America distribution channels, expanding operations in low-cost countries and simplifying the business through systems enablement, including the source-to-pay process. Management will also consider additional capital investments to further simplify and streamline the business. The Company anticipates that it will incur one-time charges of approximately $135 million to $165 million related to this initiative. The estimate could change based on the specific programs approved or changes to the scope of the review. During 2022, the Company incurred one-time charges related to the initiative of approximately $46 million, primarily for employee-related costs associated with site consolidations in Europe and costs related to the restructuring of the North America distribution channels. See Note 21 of "Notes to Consolidated Financial Statements" included in Part II, Item 8 of this report for additional information.

The unfavorable global economic conditions driven by the impacts of the pandemic and supply chain disruptions, and further intensified by the Russian invasion of Ukraine, continue to have an adverse impact on our operations and business results. Impacts for the years ended December 31, 2022, and 2021 are discussed in more detail in the Results of Operations section below. Supply chain disruptions and labor availability have caused component, raw material and chip shortages

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resulting in an adverse effect on the timing of the Company’s revenue generation. Additionally, broad-based inflation, escalation of diesel, metals, energy and other commodity costs, transportation and logistics costs, labor costs, and foreign currency exchange rate fluctuations all continue to impact our results.

The Russian invasion of Ukraine and the resultant sanctions related to Russia and Belarus have further impacted our supply and distribution channels and caused significant price inflation which had, and are expected to continue to have, adverse effects on Wabtec’s business results. For the year ended December 31, 2021, prior to the Russian invasion of Ukraine and the resulting imposition of various sanctions against Russia and Belarus, Wabtec had earnings of approximately $40 million attributable to customers in Russia, while earnings from customers in Ukraine and Belarus were not significant. As of December 31, 2022 and 2021, Wabtec had approximately $14 million and $20 million of assets, respectively, related to Russian operations, which were primarily cash and inventory. Management has determined, based on information currently available, that these assets are expected to be recoverable and therefore no impairment was recorded during 2022. This will continue to be monitored and may result in a future impairment charge based on changes in the situation. Management determined that inventory related to operations in Ukraine were not expected to be recoverable and were written off resulting in an insignificant charge during the first quarter of 2022. Remaining assets related to Ukraine and those in Belarus were not significant.

The Company has implemented various mitigating actions intended to lessen the impact of these unfavorable economic conditions. These actions include implementing price escalations and surcharges, driving operational efficiencies through various cost mitigation efforts and discretionary spend management, strategically sourcing materials, reviewing and modifying distribution logistics, and accelerating integration synergies where possible, including Integration 2.0. Additionally, the Company has proactively built-up inventory ahead of expected growth and in response to supply chain challenges to minimize further interruption on customer orders. The Company expects to continue to incur increased costs in future quarters. We also face the possibility that additional actions may be taken by governmental authorities and private industry, or government policies may become more restrictive in response to the pandemic, especially if COVID-19 transmission rates increase in certain areas, which could result in curtailing operations of our plants. Uncertainty around the economic conditions driven by the pandemic and the Russian invasion of Ukraine could result in significant adverse impacts to the Company. Changes in trade regulations, retaliatory measures, advancements, or changes in the conflict in Ukraine could cause significant adverse impacts to our customers, suppliers, distribution channels and operating locations, and in turn could result in material adverse impacts to the business, including impairment charges from changes in estimates.

Management will continue to monitor the evolving situations but, as a result of the numerous uncertainties surrounding the pandemic, continued supply chain disruptions, labor shortages, inflation, and the Russian invasion of Ukraine, we are unable to specifically predict the extent and length of time that our business may be negatively impacted. Uncertainty around general global economic and market conditions, including fluctuations in currency exchange rates, could have an impact on our sales and operations in 2023 and beyond. To the extent that these factors cause further instability of capital markets, supply chain disruptions including shortages of raw materials or component parts, labor availability, longer sales cycles, deferral or delay of customer orders, or an inability to market or distribute our products effectively, our business and results of operations could be materially adversely affected.

Cyber Incident

As previously announced, on June 26, 2022, we detected a cyber security incident which impacted the Company’s network. The Company promptly activated incident response protocols, which included shutting down certain systems, and commenced an investigation of the incident. The Company also notified law enforcement and engaged legal counsel and other third-party incident response and cybersecurity professionals.

Based on the Company's assessment, the incident has not had a material financial impact and the Company does not believe the incident will have a material impact on its business, operations or financial results. The Company maintains cyber insurance, subject to certain deductibles and policy limitations typical for its size and industry.

ACQUISITIONS

During 2022, the Freight Segment made three strategic acquisitions for a combined purchase price of $89 million. Two of the acquisitions are reported in the Digital Electronics product line and one is reported in the Services product line. Each of the acquisitions in 2022 are individually and collectively immaterial. On March 31, 2021, the Services product line of the Freight Segment acquired Nordco, a leading North American supplier of new, rebuilt and used maintenance of way equipment. The Company also made acquisitions in prior periods not listed above which are individually and collectively immaterial. For additional information related to these acquisitions refer to Note 3 of "Notes to Consolidated Financial Statements" included in Part II, Item 8 of this report.

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RESULTS OF OPERATIONS

Consolidated Results

2022 COMPARED TO 2021

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

The following table shows the major components of the change in net sales in 2022 from 2021:

The following discussion compares our results for the year ended December 31, 2022 to the year ended December 31, 2021. The discussion comparing our results for the year ended December 31, 2021 to the year ended December 31, 2020 is included within Management's Discussion and Analysis of Financial Condition and Results of Operation in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022.

Net sales

Net sales for the year ended December 31, 2022 increased by $540 million, or 6.9%, to $8.36 billion compared to the same period in 2021. Organic sales increased $757 million which is primarily attributable to the Freight Segment driven by an increase in Services sales from higher locomotive modernizations and a larger active locomotive fleet, and an increase in Equipment sales due to higher international locomotive sales and higher mining equipment sales. In addition, Components sales increased due to a higher railcar build, increased railcars in operation, and growth in industrial end-markets and Digital Electronics sales increased due to higher demand for on-board locomotive products and technology upgrades. Sales from

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acquisitions contributed $87 million, primarily in the Freight Segment and unfavorable changes in foreign exchange rates decreased sales by $304 million, primarily in the Transit segment.

Cost of sales

Cost of sales for the year ended December 31, 2022 increased by $369 million, or 6.8%, to $5.82 billion compared to the same period in 2021. The increase is primarily due to the increase in sales and increased materials, labor and transportation costs. Cost of sales as a percentage of sales was 69.6% and 69.7% for the years ended December 31, 2022 and 2021, respectively. The decrease as a percentage of sales is primarily due to improved productivity and lower restructuring costs, partially offset by unfavorable product mix and the increase in the costs described above. Cost of sales for the years ended December 31, 2022 and 2021 included $43 million and $53 million, respectively, of restructuring costs primarily for footprint rationalization and headcount actions, with the amount in 2022 primarily related to Integration 2.0.

Operating expenses

Total operating expenses increased $36 million, or 2.4%, for the year ended December 31, 2022 compared to the same period in 2021. Operating expenses as a percentage of sales was 18.3% and 19.1% for the years ended December 31, 2022 and 2021, respectively. Selling, general and administrative expenses ("SG&A") decreased $1 million for the year ended December 31, 2022 compared to the same period in 2021. The decrease is primarily due to a decrease in restructuring costs, the effects of foreign exchange rates and lower employee compensation and benefit costs, partially offset by costs incurred to support the higher sales volume and incremental expense from acquisitions. Restructuring costs included in SG&A were $9 million and $25 million for the years ended December 31, 2022 and 2021, respectively, and were primarily for headcount actions and footprint rationalization programs, with the amount in 2022 primarily related to Integration 2.0. Engineering expense increased $33 million primarily due to investments in new technology and incremental costs from acquisitions. Amortization expense increased $4 million, due to acquisitions.

Interest expense, net

Interest expense, net, increased $9 million to $186 million for the year ended December 31, 2022 over the same period in 2021 primarily attributable to higher average interest rates.

Other income, net

Other income, net, decreased $9 million to $29 million for the year ended December 31, 2022 compared to the same period of 2021. The decrease is primarily attributable to lower foreign exchange gains and lower equity income in the current year compared to the prior year.

Income taxes

The effective income tax rate was 25.0% and 23.2% for the years ended December 31, 2022 and 2021, respectively, representing a 1.8 percentage point increase. The rate for the year ended December 31, 2021 was favorably impacted by filing amended federal and state income tax returns for a prior year to incorporate changes in tax regulations. The absence of this benefit in the current year was partially offset by a more favorable earnings mix across jurisdictions. See Note 11 of "Notes to Consolidated Financial Statements" included in Part II, Item 8 of this report for additional information.

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Freight Segment

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

The following table shows the major components of the change in net sales for the Freight Segment in 2022 from 2021:

Net sales

Freight Segment sales increased by $773 million, or 14.8%, to $6.01 billion, compared to the same period in 2021 which was primarily attributable to an increase in Services sales from higher locomotive modernizations and a larger active locomotive fleet, and an increase in Equipment sales due to higher international locomotive sales and higher mining equipment sales. In addition, Components sales increased due to a higher railcar build, increased railcars in operation, and growth in industrial end-markets and Digital Electronics sales increased due to higher demand for on-board locomotive products and technology upgrades. Sales from acquisitions contributed $83 million and the effects of unfavorable foreign exchange rates decreased sales by $62 million.

Cost of sales

Freight Segment cost of sales increased by $544 million, or 15.2%, to $4.12 billion, compared to the same period in 2021. The increase is primarily due to the increase in sales and increased materials, transportation and labor costs. Cost of sales as a percentage of sales was 68.5% and 68.2% for the years ended December 31, 2022 and 2021, respectively, representing a 0.3 percentage point increase primarily from the higher costs described above, higher restructuring costs and unfavorable product mix, partially offset by improved productivity. Cost of sales for the years ended December 31, 2022 and 2021 includes $15 million and $8 million, respectively, of restructuring costs, primarily for headcount actions and footprint rationalization, with the amount in 2022 primarily related to Integration 2.0.

Operating expenses

Freight Segment operating expenses increased $82 million, or 8.6%, for the year ended December 31, 2022 compared to the same period in 2021. SG&A increased $41 million for the year ended December 31, 2022 compared to the same period in 2021. The increase is primarily due to higher costs to support the increase in sales volumes, incremental expense from

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acquisitions and higher technology costs. Engineering expense increased $36 million primarily due to investments in new technology and incremental expense from acquisitions. Amortization expense increased $5 million due to acquisitions.

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Transit Segment

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

The following table shows the major components of the change in net sales for the Transit Segment in 2022 from 2021:

Net sales

Transit Segment sales for the year ended December 31, 2022 decreased by $233 million, or 9.0%, to $2.35 billion compared to the same period in 2021, with foreign exchange rates being the primary driver of the decrease. Transit segment organic sales increased $5 million with the primary driver being increased demand and an increase in government transportation spending, particularly for Aftermarket products. Additionally, both Original Equipment Manufacturing and Aftermarket sales were impacted by supply chain issues and manufacturing disruptions caused by the second quarter cyber incident.

Cost of sales

Transit Segment cost of sales for the year ended December 31, 2022 decreased by $175 million, or 9.3%, to $1.71 billion compared to the same period in 2021. The decrease is primarily due to the decreased sales discussed above, decreased restructuring costs and the effect of foreign exchange rates. Cost of sales as a percentage of sales was 72.6% and 72.8% for the years ended December 31, 2022 and 2021, respectively, representing a 0.2 percentage point decrease. This can be attributed to improved productivity and savings from prior year cost actions taken through restructuring programs, partially offset by increased materials, transportation and labor costs and inefficiencies associated with the cyber incident. Cost of sales for the years ended December 31, 2022 and 2021 included $28 million and $45 million of restructuring costs, respectively, primarily for headcount actions and footprint rationalization in Europe, with the amount in 2022 primarily related to Integration 2.0.

Operating expenses

Transit Segment operating expenses decreased $51 million, or 11.0%, in 2022 compared to the same period in 2021 driven primarily by a decrease in SG&A of $47 million. The decrease is due to the decrease in sales, the effects of foreign exchange rates, lower employee compensation and benefit costs, the cost actions taken in the prior year and decreased restructuring costs. Restructuring costs included within SG&A were $9 million and $14 million for the years ended December 31, 2022 and 2021, respectively, and were primarily for headcount actions for footprint rationalization in Europe, with the amount in 2022 primarily related to Integration 2.0. Engineering expense decreased $3 million and amortization expense decreased $1 million both due to the effects of foreign exchange rates.

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Liquidity and Capital Resources

Liquidity is provided by operating cash flows and borrowings under the Company’s Senior Notes and unsecured credit facility with a consortium of commercial banks. Additionally, the Company utilizes the revolving receivables program and supply chain financing program described below for added flexibility as part of our liquidity management strategy. The following is a summary of selected cash flow information and other relevant data:

Operating activities. Cash provided by operations decreased $35 million in 2022 to $1,038 million compared with $1,073 million in 2021. Significant changes to the sources and (uses) of cash for the twelve month periods include the following:

•$11 million attributable to higher Net income and other changes in the related statements of income amounts;

•$(106) million from net changes in working capital driven by: $(327) million unfavorable change in inventory from proactive inventory build-ups ahead of expected growth, in response to supply chain challenges, and in preparation for certain large contracts secured during 2022, as well as higher costs of inventory due to inflation; $197 million in accounts payable, primarily due to the timing of payments to suppliers; and, $24 million from changes in receivables due to timing and volume of sales and the net change in the Revolving Receivables Program;

•$143 million from changes in the timing of customer deposits; and,

•$(100) million from higher employee related benefits and the timing of payments related to severance accruals.

Investing activities. In 2022 and 2021, cash used for investing activities was $(235) million and $(540) million, respectively. The major components of the cash outflow in 2022 was planned additions to property, plant, and equipment of $(149) million for continued investments in our facilities and manufacturing processes, and $(89) million in net cash paid for acquisitions. The major components of the cash outflow in 2021 were $(435) million in net cash paid for acquisitions, primarily for Nordco, and $(130) million for additions to property, plant, and equipment.

Financing activities. In 2022, cash used for financing activities was $(708) million, which included $(473) million for share repurchases, $(111) million of dividend payments, $(101) million of contingent consideration payments related to the GE Transportation acquisition, and net debt payments of $(30) million, which includes the partial redemption of the 2024 Notes mentioned below. In 2021, cash used for financing activities was $(653) million which included, $(300) million for share repurchases, net debt payments of $(161) million, primarily resulting from the repayment of the 364 Day Facility and issuance of the Euro Notes mentioned below, $(99) million of contingent consideration payments related to the GE Transportation acquisition and $(92) million of dividend payments.

During the second quarter of 2022, the Company redeemed $25 million of principal from the 2024 Notes plus a premium and the related accrued interest.

On August 15, 2022, the Company amended, restated and replaced the then-existing credit agreement. The Restated Credit Agreement updated the multi-currency revolving credit facility from $1.2 billion to $1.5 billion and added a new Delayed Draw Term Loan of up to $250 million. The Company borrows and repays against the revolving credit facility for added flexibility in liquidity to manage cash during the operating cycle. The proceeds from borrowing and the repayments are shown within the "Proceeds from debt, net of issuance costs" and "Payments of debt" lines, respectively, presented in the Consolidated Statements of Cash Flows.

On June 3, 2021, Wabtec Transportation Netherlands B.V. ("Wabtec Netherlands") issued €500 million of 1.25% Senior Notes due in 2027, which are fully and unconditionally guaranteed by the Company, for approximately $599 million in proceeds after consideration of the discount. Also on June 3, 2021, the Company repaid all outstanding borrowings and interest related to the 364 Day Facility, effectively retiring the facility. Additional information with respect to credit facilities and long-term debt is included in Note 9 of "Notes to Consolidated Financial Statements” included in Part II, Item 8 of this report.

As of December 31, 2022, the Company held approximately $541 million of cash, cash equivalents, and restricted cash. Of this amount, approximately $88 million was held within the United States and approximately $453 million was held outside

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of the United States, primarily in India, China, Europe, and Brazil. While repatriation of some cash held outside the United States may be restricted by local laws, most of the Company’s foreign cash could be repatriated to the United States net of any tax impacts. As of December 31, 2022, $7 million of the Company's $541 million cash balance was classified as restricted cash.

Revolving Receivables Program

The Company utilizes a revolving receivables facility to sell up to $350 million of certain receivables through our bankruptcy-remote subsidiary to a financial institution on a recurring basis in exchange for cash equal to the gross receivables sold. As customers pay their balances, we transfer additional receivables into the program, which could result in our gross receivables sold being higher or lower than collections reinvested for any applicable periods. Net cash received/(remitted) from the revolving receivables program was $60 million and $(53) million for the years ended December 31, 2022 and 2021, respectively. Additional information with respect to the Revolving Receivables Program is included in Note 2 of "Notes to Consolidated Financial Statements" included in Part II, Item 8 of this report and incorporated by reference herein.

Supply Chain Financing Program

The Company has entered into supply chain financing arrangements with third-party financial institutions to provide our vendors with enhanced payment options while providing the Company with added working capital flexibility. The Company does not provide any guarantees under these arrangements, does not have an economic interest in our supplier's voluntary participation and does not receive an economic benefit from the financial institutions. The arrangements do not change the payable terms negotiated by the Company and our vendors and does not result in a change in the classification of amounts due as accounts payable in the Consolidated Balance Sheets.

Guarantor Summarized Financial Information—US Notes

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

On January 1, 2022, the Company completed an internal legal entity reorganization that resulted in changes to the subsidiaries and operating divisions serving as guarantors under the Company's US Notes. As such, certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation in line with the legal reorganization. Refer to Exhibit 22 for the updated list of guarantor subsidiaries.

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

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Summarized Statement of Income

Summarized Balance Sheets

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

Summarized Financial Information—Euro Notes

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

On January 1, 2022, the Company completed an internal legal entity reorganization that resulted in changes to the operating divisions serving as the parent guarantor under the Company's Euro Notes. As such, certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation in line with the legal reorganization.

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

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Summarized Statement of Income

Summarized Balance Sheets

The following is a description of the transactions between the combined Westinghouse Air Brake Technologies Corp. and Wabtec Netherlands, with the subsidiaries of Westinghouse Air Brake Technologies Corp., other than Wabtec Netherlands, none of which are guarantors of the Euro Notes.

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Contractual Obligations and Off-Balance Sheet Arrangements

The Company is obligated to make future payments under various contracts such as purchase, debt and lease agreements and has certain contingent commitments. The Company has grouped these contractual obligations and off-balance sheet arrangements into operating activities, financing activities, and investing activities in the same manner as they are classified in the Statement of Consolidated Cash Flows to provide a better understanding of the nature of the obligations and arrangements and to provide a basis for comparison to historical information. The table below provides a summary of contractual obligations and off-balance sheet arrangements as of December 31, 2022:

(1)Purchase obligations represent non-cancelable contractual obligations at December 31, 2022. In addition, the Company had approximately $1.7 billion of open purchase orders for which the related goods or services had not been received.  Although open purchase orders are considered enforceable and legally binding, their terms generally allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to the delivery of goods or performance of services.

(2)Operating leases represent multi-year obligations for rental of facilities and equipment.

(3)Pension and postretirement benefit payments includes expected payments to participants out of plan assets and corporate assets. The benefit payments are based on actuarial estimates using current assumptions for discount rates, expected return on long-term assets and rate of compensation increases. The Company expects to contribute $2 million to pension plan investments in 2023.

(4)Interest payments on the Senior Notes are based on interest rates in effect as of December 31, 2022 and are calculated on debt with maturities that extend to 2028.

(5)Shareholder dividends are subject to approval by the Company’s Board of Directors, currently at an annual rate of approximately $123 million.

(6)Contingent consideration represents the total remaining payable to General Electric (GE) resulting from the 2019 acquisition of GE Transportation. The timing of the cash payments to GE is directly related to the future timing of tax benefits received by the Company and could change.

The above table does not reflect uncertain tax positions of $33 million, the timing of which are uncertain. Refer to Note 11 of the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this report for additional information on uncertain tax positions. Additionally, the Company arranges for certain types of bank guarantees and letters of credit, such as performance bonds, bid bonds and financial guarantees, that are issued by certain banks and insurance companies to support customer contracts. At December 31, 2022, the total value of these bank guarantees and letters of credit were $865 million and expire on various dates through 2039. Amounts include interest payments based on contractual terms and the Company’s current interest rate.

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.

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

Economic and industry conditions

•changes in general economic and/or industry specific conditions, including the impacts of tax and tariff programs, inflation, supply chain disruptions, foreign currency exchange, and industry consolidation;

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

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

•reliance on major original equipment manufacturer customers;

•original equipment manufacturers’ program delays;

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

•demand for our products and services;

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

•consolidations in the rail industry;

•continued outsourcing by our customers;

•industry demand for faster and more efficient braking equipment;

•fluctuations in interest rates and foreign currency exchange rates;

•availability of credit; or

•changes in market consensus as to what attributes are required for projects to be considered "green" or "sustainable" or negative perceptions regarding determinations in such regard with respect to our Green Finance Framework;

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 availability and 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, competition and anti-trust matters or intellectual property claims;

•completion and integration of acquisitions;

•the development and use of new technology; or

•cybersecurity and data protection risks;

Competitive factors

•the actions of competitors; or

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

Political/governmental factors

•political stability in relevant areas of the world, including the impacts of war and conflicts;

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

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

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

•federal and state income tax legislation;

•sanctions imposed on countries and persons; or

•the outcome of negotiations with governments;

COVID-19 factors

•the severity and duration of the pandemic;

•deterioration of general economic conditions;

•shutdown of one or more of our operating facilities;

•supply chain and sourcing disruptions;

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

•health of our employees;

•ability to retain and recruit talented employees; or

•difficulty in obtaining debt or equity financing.

Statements in this Form 10-K apply only as of the date on which such statements are made, and except as required by law, 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.

Critical Accounting Estimates

The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Areas of uncertainty that require judgments, estimates and assumptions include the accounting for allowance for doubtful accounts, inventories, business combinations, goodwill and other intangible assets, warranty reserves, income taxes, and revenue recognition. Management uses historical experience and all available information to make these judgments and estimates, and actual results may differ from those estimates and assumptions that are used to prepare the Company’s financial statements at any given time. Despite these inherent limitations, management believes that Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and the financial statements and related footnotes provide a meaningful and fair perspective of the Company.

A summary of the Company’s significant accounting policies is included in Note 2 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this report. Management believes that the application of these policies on a consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company’s operating results and financial condition.

Accounts Receivable and Allowance for Doubtful Accounts:

Description The Company provides an allowance for doubtful accounts to cover anticipated losses on uncollectible accounts receivable.

Judgments and Uncertainties  The allowance for doubtful accounts receivable reflects our best estimate of expected losses inherent in our receivable portfolio determined on the basis of historical experience, relevant credit forecast information, changes to customer's solvency and other currently available evidence.

Effect if Actual Results Differ From Assumptions  If our estimates regarding the collectability of troubled accounts, and/or our actual losses within our receivable portfolio exceed our estimated losses, we may be exposed to the expense of increasing our allowance for doubtful accounts and loss of cash flows.

Inventories:

Description Inventories are stated at the lower of cost or net realizable value and are reviewed to ensure that an adequate provision is recognized for excess, slow moving and obsolete inventories, and net realizable value reserves.

Judgments and Uncertainties Cost is determined primarily using the first-in, first-out (FIFO) method. Inventory costs include material, labor and overhead. The Company compares inventory components to prior year sales history, current backlog and anticipated future requirements. To the extent that inventory parts exceed estimated usage and demand, a reserve is recognized

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to reduce the carrying value of inventory. Also, specific reserves are established for known inventory obsolescence, a decline in market value, or loss of a customer with specific inventory.

Effect if Actual Results Differ From Assumptions If the market value or demand for our products were to decrease due to changing market conditions, the Company could be at risk of incurring write-downs to adjust inventory value to a net realizable value lower than stated cost. If our estimates regarding sales and backlog requirements are inaccurate, we may be exposed to the expense of increasing our reserves for slow moving and obsolete inventory.

Business Combinations:

Description The Company accounts for business acquisitions in accordance with ASC 805, Business Combinations, which requires the purchase price of the acquired business to be allocated to tangible and intangible assets acquired and liabilities assumed based on the respective fair values. The amount of purchase price which is in excess of the fair values of assets acquired and liabilities assumed is recognized as goodwill.

Judgments and Uncertainties Discounted cash flow models are used to estimate the fair values of acquired contract backlog, customer relationships, intellectual property intangibles and trade names, and below-market customer contract liabilities. The significant assumptions used to estimate the value of the intangible assets and below-market customer contract liabilities include revenue growth rates, projected profit margins, discount rates, royalty rates, customer attrition rates, revenue obsolescence rates and market participant profit margins. These significant assumptions are forward-looking and could be affected by future economic and market conditions.

Effect if Actual Results Differ From Assumptions Different assumptions may result in materially different values for assets acquired and liabilities assumed, which may impact the Company's financial position and future results of operations, including potential future impairment charges.

Goodwill and Indefinite-Lived Intangible Assets:

Description Goodwill and indefinite-lived intangibles are required to be tested for impairment at least annually. The Company performs its annual impairment test during the fourth quarter and more frequently when indicators of impairment are present. The Company reviews goodwill for impairment at the reporting unit level. The Company has identified three reporting units for purposes of testing goodwill for impairment. Two reporting units exist within the Freight segment and the Transit segment is also a reporting unit. The evaluation of impairment involves comparing the current fair value of the business to the recorded value (including goodwill).

Judgments and Uncertainties A number of significant assumptions and estimates are involved in the application of the impairment test, including the identification of macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance. We also consider Wabtec-specific events and share price trends and making the assessment on whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such amount.

Effect if Actual Results Differ From Assumptions Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. However, actual amounts realized may differ from those used to evaluate the impairment of goodwill and indefinite lived intangible assets. If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to impairment losses that could be material to our results of operations.

Warranty Reserves:

Description The Company provides warranty reserves to cover expected costs from repairing or replacing products with durability, quality or workmanship issues occurring during established warranty periods.

Judgments and Uncertainties In general, reserves are provided for as a percentage of sales, based on historical experience. In addition, specific reserves are established for known warranty issues and their estimable losses.

Effect if Actual Results Differ From Assumptions If actual results are not consistent with the assumptions and judgments used to calculate our warranty liability, the Company may be exposed to the expense of increasing our reserves for warranty expense.

Income Taxes:

Description Wabtec records an estimated liability for income and other taxes based on what it determines will likely be paid in various tax jurisdictions in which it operates in accordance with ASC 740-10 Accounting for Income Taxes and Accounting for Uncertainty in Income Taxes.

Judgments and Uncertainties The estimate of our tax obligations are uncertain because management must use judgment to estimate the exposures associated with our various filing positions, as well as realization of our deferred tax assets. ASC 740-10 establishes a recognition and measurement threshold to determine the amount of tax benefit that should be recognized related to uncertain tax positions.

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Effect if Actual Results Differ From Assumptions Management uses its best judgment in the determination of these amounts. However, the liabilities ultimately realized and paid are dependent on various matters including the resolution of the tax audits in the various affected tax jurisdictions and may differ from the amounts recorded. An adjustment to the estimated liability would be recorded through income in the period in which new information changes the expected outcome of an uncertain tax position. A deferred tax valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Revenue Recognition:

Description Revenue is recognized in accordance with ASC 606 Revenue from Contracts with Customers. The Company recognizes a portion of its revenues on long-term customer agreements involving the design and 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. 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 method used for these agreements recognizes revenue based on our efforts to satisfy the performance obligation and includes costs of material and labor, both of which give an accurate representation of the progress made toward complete satisfaction of a particular performance obligation. The Company may also use the output method which recognizes revenue based on direct measurements of the value transferred to the customer.

Judgments and Uncertainties Accounting for long-term customer agreements involves a judgmental process of estimating the total sales and costs for each contract, which results in the development of estimated profit margin percentages. 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. Factors that influence these estimates include inflationary trends, foreign exchange rates, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements. Generally, pricing is defined in our contracts but may include an estimate of variable consideration when required by the terms of the individual customer contract. Types of variable consideration that the Company typically has include volume discounts, prompt payment discounts, price escalation clauses, liquidating damages, and performance bonuses.

Effect if Actual Results Differ From Assumptions Should market conditions and customer demands dictate changes to our standard shipping terms, the Company may be impacted by longer than typical revenue recognition cycles. The development of expected contract costs and contract profit margin percentages involves procedures and personnel in all areas that provide financial or production information on the status of contracts. Due to the significance of judgments in the estimation process, it is likely that materially different revenue and cost amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions/estimates, inflation or deflation, foreign currency exchange rates, supplier performance, or other circumstances may adversely or positively affect financial performance in future periods. Some of our contracts are expected to be completed in a loss position. Provisions are made currently for estimated losses on uncompleted contracts and are updated as necessary.