UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________________

FORM 10-Q

____________________________________

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

For the quarterly period ended June 30, 2022

OR

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

For the transition period from                      to                     

Commission file number: 033-90866

____________________________________

WESTINGHOUSE AIR BRAKE TECHNOLOGIES

CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________

Delaware	25-1615902
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
30 Isabella Street Pittsburgh, Pennsylvania	15212
(Address of principal executive offices)	(Zip code)

412-825-1000

(Registrant’s telephone number, including area code)

Not applicable

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

____________________________________

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

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  ☒    No ☐

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

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

Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
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  ☒

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

As of July 29, 2022, there were 181,874,780 shares of common stock, par value $.01 per share, of the registrant outstanding.

WESTINGHOUSE AIR BRAKE

TECHNOLOGIES CORPORATION

June 30, 2022

FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements - (Unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021	6
	Condensed Consolidated Statements of Shareholders' Equity for the three and six months ended June 30, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4.	Controls and Procedures	40
	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 4.	Mine Safety Disclosures	41
Item 6.	Exhibits	42
	Signatures	43

2

PART I—FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	Unaudited
In millions, except par value	June 30, 2022		December 31, 2021
Assets
Assets
Cash and cash equivalents	$	501	$	473
Accounts receivable	1,000		1,085
Unbilled accounts receivable	422		392
Inventories	1,918		1,689
Other current assets	205		193
Total current assets	4,046		3,832
Property, plant and equipment, net	1,428		1,497
Goodwill	8,459		8,587
Other intangible assets, net	3,531		3,705
Other noncurrent assets	869		833
Total noncurrent assets	14,287		14,622
Total Assets	$	18,333	$	18,454
Liabilities and Shareholders’ Equity
Liabilities
Accounts payable	$	1,178	$	1,012
Customer deposits	627		629
Accrued compensation	228		335
Accrued warranty	216		228
Current portion of long-term debt	226		2
Other accrued liabilities	715		704
Total current liabilities	3,190		2,910
Long-term debt	3,987		4,056
Accrued postretirement and pension benefits	68		77
Deferred income taxes	289		288
Contingent consideration	143		141
Other long-term liabilities	709		743
Total Liabilities	8,386		8,215
Commitments and contingencies (Note 14)
Equity
Common stock, $.01 par value; 500.0 shares authorized and 226.9 shares issued: 181.9 and 185.8 outstanding at June 30, 2022 and December 31, 2021, respectively	2		2
Additional paid-in capital	7,926		7,916
Treasury stock, at cost, 45.0 and 41.1 shares, at June 30, 2022 and December 31, 2021, respectively	(1,696)		(1,306)
Retained earnings	4,314		4,055
Accumulated other comprehensive loss	(641)		(466)
Total Westinghouse Air Brake Technologies Corporation shareholders’ equity	9,905		10,201
Noncontrolling interest	42		38
Total Equity	9,947		10,239
Total Liabilities and Equity	$	18,333	$	18,454

The accompanying notes are an integral part of these statements.

3

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Unaudited				Unaudited
	Three Months Ended June 30,				Six Months Ended June 30,
In millions, except per share data	2022		2021		2022		2021
Net sales:
Sales of goods	$	1,584	$	1,588	$	3,089	$	3,073
Sales of services	464		424		886		769
Total net sales	2,048		2,012		3,975		3,842
Cost of sales:
Cost of goods	(1,147)		(1,185)		(2,231)		(2,293)
Cost of services	(256)		(247)		(504)		(435)
Total cost of sales	(1,403)		(1,432)		(2,735)		(2,728)
Gross profit	645		580		1,240		1,114
Operating expenses:
Selling, general and administrative expenses	(259)		(263)		(497)		(497)
Engineering expenses	(50)		(42)		(95)		(80)
Amortization expense	(72)		(72)		(145)		(142)
Total operating expenses	(381)		(377)		(737)		(719)
Income from operations	264		203		503		395
Other income and expenses:
Interest expense, net	(44)		(45)		(87)		(93)
Other income, net	7		11		11		25
Income before income taxes	227		169		427		327
Income tax expense	(58)		(44)		(108)		(87)
Net income	169		125		319		240
Less: Net income attributable to noncontrolling interest	(3)		—		(4)		(3)
Net income attributable to Wabtec shareholders	$	166	$	125	$	315	$	237
Earnings Per Common Share
Basic
Net income attributable to Wabtec shareholders	$	0.91	$	0.66	$	1.71	$	1.25
Diluted
Net income attributable to Wabtec shareholders	$	0.91	$	0.66	$	1.71	$	1.25
Weighted average shares outstanding
Basic	181.9		188.6		183.2		188.5
Diluted	182.4		188.9		183.7		188.9

The accompanying notes are an integral part of these statements.

4

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Unaudited				Unaudited
	Three Months Ended June 30,				Six Months Ended June 30,
In millions	2022		2021		2022		2021
Net income attributable to Wabtec shareholders	$	166	$	125	$	315	$	237
Foreign currency translation (loss) gain	(195)		34		(182)		(28)
Unrealized gain (loss) on derivative contracts	—		—		3		(8)
Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans	4		(1)		5		(4)
Other comprehensive (loss) income before tax	(191)		33		(174)		(40)
Income tax (expense) benefit related to components of other comprehensive (loss) income	(1)		—		(1)		3
Other comprehensive (loss) income, net of tax	(192)		33		(175)		(37)
Comprehensive (loss) income attributable to Wabtec shareholders	$	(26)	$	158	$	140	$	200

The accompanying notes are an integral part of these statements.

5

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Unaudited
	Six Months Ended June 30,
In millions	2022		2021
Operating Activities
Net income	$	319	$	240
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	240		246
Stock-based compensation expense	20		24
Below market intangible amortization	(25)		(20)
Net loss on disposal of property, plant and equipment	3		3
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable and unbilled accounts receivable	45		(29)
Inventories	(256)		8
Accounts payable	185		82
Accrued income taxes	32		19
Accrued liabilities and customer deposits	(93)		(38)
Other assets and liabilities	(46)		(20)
Net cash provided by operating activities	424		515
Investing Activities
Purchase of property, plant and equipment	(50)		(55)
Proceeds from disposal of property, plant and equipment	2		8
Acquisitions of businesses, net of cash acquired	(69)		(405)
Net cash used for investing activities	(117)		(452)
Financing Activities
Proceeds from debt, net of issuance costs	3,416		3,008
Payments of debt	(3,216)		(3,170)
Repurchase of stock	(399)		(1)
Cash dividends	(55)		(46)
Other financing activities	(2)		(4)
Net cash used for financing activities	(256)		(213)
Effect of changes in currency exchange rates	(23)		5
Increase (decrease) in cash	28		(145)
Cash and cash equivalents, beginning of period	473		599
Cash and cash equivalents, end of period	$	501	$	454

The accompanying notes are an integral part of these statements.

6

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

In millions	Common Stock Shares	Common Stock Amount		Additional Paid-in Capital		Treasury Stock Shares	Treasury Stock Amount		Retained Earnings		Accumulated Other Comprehensive Loss		Non-controlling Interest		Total
Balance, December 31, 2021	226.9	$	2	$	7,916	(41.1)	$	(1,306)	$	4,055	$	(466)	$	38	$	10,239
Cash dividends ($0.15 dividend per share)	—	—		—		—	—		(28)		—		—		(28)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(9)		0.2	5		—		—		—		(4)
Stock based compensation	—	—		10		—	—		—		—		—		10
Net income	—	—		—		—	—		149		—		1		150
Other comprehensive income, net of tax	—	—		—		—	—		—		17		—		17
Stock repurchase	—	—		—		(3.1)	(296)		—		—		—		(296)
Balance, March 31, 2022	226.9	$	2	$	7,917	(44.0)	$	(1,597)	$	4,176	$	(449)	$	39	$	10,088
Cash dividends ($0.15 dividend per share)	—	—		—		—	—		(27)		—		—		(27)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(1)		0.1	4		—		—		—		3
Stock based compensation	—	—		10		—	—		—		—		—		10
Net income	—	—		—		—	—		166		—		3		169
Other comprehensive loss, net of tax	—	—		—		—	—		—		(192)		—		(192)
Stock repurchase	—	—		—		(1.1)	(103)		—		—		—		(103)
Balance, June 30, 2022	226.9	$	2	$	7,926	(45.0)	$	(1,696)	$	4,314	$	(641)	$	42	$	9,947

Balance, December 31, 2020	226.9	$	2	$	7,881	(38.0)	$	(1,010)	$	3,589	$	(339)	$	30	$	10,153
Cash dividends ($0.12 dividend per share)	—	—		—		—	—		(23)		—		—		(23)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(6)		—	—		—		—		—		(6)
Stock based compensation	—	—		9		—	—		—		—		—		9
Net income	—	—		—		—	—		112		—		3		115
Other comprehensive loss, net of tax	—	—		—		—	—		—		(70)		—		(70)
Stock repurchase	—	—		—		—	(1)		—		—		—		(1)
Balance, March 31, 2021	226.9	$	2	$	7,884	(38.0)	$	(1,011)	$	3,678	$	(409)	$	33	$	10,177
Cash dividends ($0.12 dividend per share)	—	—		—		—	—		(23)		—		—		(23)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(1)		0.1	2		—		—		—		1
Stock based compensation	—	—		14		—	—		—		—		—		14
Net income	—	—		—		—	—		125		—		—		125
Other comprehensive income, net of tax	—	—		—		—	—		—		33		—		33
Balance, June 30, 2021	226.9	$	2	$	7,897	(37.9)	$	(1,009)	$	3,780	$	(376)	$	33	$	10,327

The accompanying notes are an integral part of these statements.

7

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 (UNAUDITED)

1. BUSINESS

Westinghouse Air Brake Technologies Corporation (“Wabtec” or the "Company") is one of the world’s largest providers of value-added, technology-based locomotives, equipment, systems, and services for the global freight rail and passenger transit industries, as well as the mining, marine and industrial markets. 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 the first six months of 2022, approximately 55% of the Company’s net sales 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. Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation.

Results for these interim periods are not necessarily indicative of results to be expected for the full year particularly in light of the ongoing COVID-19 pandemic, supply chain disruptions, labor availability, broad-based inflation, and the impacts resulting from Russia's invasion of Ukraine. These factors continue to impact our sales channels, supply chain, manufacturing operations, workforce, and other key aspects of our operations. We are unable to reasonably predict the full impact of these factors due to the high degree of uncertainty regarding their duration and severity, their potential impact on global economic activity, and the impact that current and new sanctions may have on our business, global supply chain operations and our customers, suppliers, and end-markets.

For the year ended December 31, 2021, Wabtec had earnings of approximately $40 million attributable to customers in Russia, while earnings from customers in Ukraine and Belarus were not significant. As of June 30, 2022, Wabtec had approximately $18 million of assets related to Russian operations, which were primarily cash and inventory. Assets related to Ukraine and Belarus operations are not significant.

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

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, 2021. The December 31, 2021 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates The preparation of financial statements in conformity with 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.

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 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

8

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

Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment. 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 this process, management 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 typically has include volume discounts, prompt payment discounts, liquidating damages and performance bonuses. Sales returns and allowances are also estimated and recognized in the same period the related revenue is recognized, based upon the Company’s experience.

Remaining performance obligations represent the transaction price of firm customer orders subject to standard industry cancellation provisions and substantial scope-of-work adjustments. As of June 30, 2022, the Company's remaining performance obligations were approximately $22.8 billion. The Company expects to recognize revenue of approximately 25% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

Revolving Receivables Program The Company utilizes a revolving agreement to transfer up to $200 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 gross receivables transferred. The bankruptcy remote subsidiary is a separate legal entity with its own creditors, and its assets are not available to pay creditors of the Company or any other affiliates of the Company. As customers pay their balances, we transfer additional receivables into the program, which resulted in our gross receivables sold exceeding collections reinvested for the periods presented. The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary, which holds additional receivables that are pledged as collateral under this agreement.

At June 30, 2022 and 2021 the bankruptcy-remote subsidiary held receivables of $410 million and $333 million, respectively. The transfers are recorded at the fair value of the proceeds received and obligations assumed less derecognized receivables. No obligation was recorded at June 30, 2022 or 2021 as the estimated expected credit losses on receivables sold is insignificant. Our maximum exposure to losses related to these receivables transferred is limited to the amount outstanding. The Company has agreed to guarantee the performance of the Originators respective obligations under the revolving agreement. Neither the Company (except for the bankruptcy-remote consolidated subsidiary referenced above) nor the Originators guarantees the collectability of the receivables under the revolving agreements.

The following table sets forth a summary of receivables sold:

In millions	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
Gross receivables sold/cash proceeds received	$	864	$	569
Collections reinvested under revolving agreement	(684)		(487)
Net cash proceeds received	$	180	$	82

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

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 reporting unit level and at least annually. The Company performs its

9

annual impairment test during the fourth quarter after the annual forecasting process is completed, and also tests for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Periodically, management of the Company assesses whether or not an indicator of impairment is present that would necessitate an impairment analysis to be performed.

Accounting Standards Recently Issued In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update provide specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination and address how to determine whether a contract liability is recognized by the acquirer in a business combination. The amendments in this update will be effective for Wabtec on January 1, 2023 and will be applied prospectively to business combinations occurring on or after the effective date.

Accumulated Other Comprehensive Loss Comprehensive income comprises both net income and Other comprehensive (loss) income resulting from the change in equity from transactions and other events and circumstances from non-owner sources.

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the three months ended June 30, 2022 and 2021 are as follows:

	Foreign currency translation				Derivative contracts				Pension and postretirement benefit plans				Total
In millions	2022		2021		2022		2021		2022		2021		2022		2021
Balance at March 31	$	(383)	$	(322)	$	(2)	$	(3)	$	(64)	$	(84)	$	(449)	$	(409)
Other comprehensive (loss) income before reclassifications	(195)		34		—		—		3		(2)		(192)		32
Amounts reclassified from Accumulated other comprehensive loss	—		—		—		—		—		1		—		1
Other comprehensive (loss) income, net	(195)		34		—		—		3		(1)		(192)		33
Balance at June 30	$	(578)	$	(288)	$	(2)	$	(3)	$	(61)	$	(85)	$	(641)	$	(376)

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the six months ended June 30, 2022 and 2021 are as follows:

	Foreign currency translation				Derivative contracts				Pension and postretirement benefit plans				Total
In millions	2022		2021		2022		2021		2022		2021		2022		2021
Balance at beginning of year	$	(396)	$	(260)	$	(5)	$	3	$	(65)	$	(82)	$	(466)	$	(339)
Other comprehensive (loss) income before reclassifications	(182)		(28)		3		(6)		3		(5)		(176)		(39)
Amounts reclassified from Accumulated other comprehensive loss	—		—		—		—		1		2		1		2
Other comprehensive (loss) income, net	(182)		(28)		3		(6)		4		(3)		(175)		(37)
Balance at June 30	$	(578)	$	(288)	$	(2)	$	(3)	$	(61)	$	(85)	$	(641)	$	(376)

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

10

3. ACQUISITIONS

Nordco

On March 31, 2021, the Company acquired Nordco, a leading North American supplier of new, rebuilt and used maintenance of way equipment. Nordco's products and services portfolio includes mobile railcar movers and ultrasonic rail flaw detection technologies. The purchase price paid for 100% ownership of Nordco was approximately $410 million.

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

In millions
Assets acquired
Cash and cash equivalents	$	5
Accounts receivable	23
Inventory	34
Other current assets	2
Property, plant and equipment	17
Goodwill	215
Other intangible assets	168
Other noncurrent assets	12
Total assets acquired	476
Liabilities assumed
Current liabilities	20
Noncurrent liabilities	46
Total liabilities assumed	66
Net assets acquired	$	410

The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. Discounted cash flow models were used to estimate the fair values of acquired intangibles. The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3 in the fair value hierarchy. Intangible assets acquired include customer relationships and acquired technology that are subject to amortization, and trade names that were assigned an indefinite life and are not subject to amortization. Contingent liabilities assumed as part of the transaction were not material.

Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the assembled workforce and the future economic benefits, including synergies, that are expected to be achieved as a result of the acquisition. The purchased goodwill is not expected to be deductible for tax purposes. The results of this business since the date of acquisition are reported within the Services product line of the Freight Segment. The pro forma impact on Wabtec’s sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, was not significant.

During the second quarter of 2022 the Company made two strategic acquisitions for a combined purchase price of $69 million within the Digital Electronics product line of the Freight Segment which are individually and collectively immaterial. The Company also made acquisitions in prior periods not listed above which are individually and collectively immaterial.

4. INVENTORIES

The components of inventory, net of reserves, were:

In millions	June 30, 2022		December 31, 2021
Raw materials	$	882	$	757
Work-in-progress	427		316
Finished goods	609		616
Total inventories	$	1,918	$	1,689

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5. GOODWILL AND INTANGIBLE ASSETS

The change in the carrying amount of goodwill by segment is as follows:

In millions	Freight Segment		Transit Segment		Total
Balance at December 31, 2021	$	7,073	$	1,514	$	8,587
Additions/adjustments	17		(2)		15
Foreign currency impact	(20)		(123)		(143)
Balance at June 30, 2022	$	7,070	$	1,389	$	8,459

As of June 30, 2022 and December 31, 2021, the Company’s trade names had a net carrying amount of $597 million and $635 million, respectively. The Company believes these intangibles have indefinite lives, with the exception of the right to use the GE Transportation trade name, to which the Company has assigned a useful life of 5 years.

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

In millions	June 30, 2022		December 31, 2021
Backlog, net of accumulated amortization of $366 and $309	$	1,065	$	1,114
Customer relationships, net of accumulated amortization of $352 and $331	935		979
Acquired technology, net of accumulated amortization of $386 and $334	934		977
Total	$	2,934	$	3,070

The weighted average remaining useful lives of backlog, customer relationships and acquired technology were 10 years, 16 years and 9 years, respectively. The backlog intangible asset primarily consists of in-place long-term service agreements acquired by the Company in conjunction with the acquisition of GE Transportation in 2019. Amortization expense for intangible assets was $72 million and $145 million for the three and six months ended June 30, 2022, respectively, and $72 million and $142 million for the three and six months ended June 30, 2021, respectively.

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

In millions
Remainder of 2022	$	147
2023	$	293
2024	$	284
2025	$	266
2026	$	262

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 sheets. Noncurrent contract assets were $190 million at June 30, 2022 and $153 million at December 31, 2021. Included in noncurrent contract assets are certain costs that are specifically related to a contract but do not directly contribute to the transfer of control of the tangible product being created, such as non-recurring engineering costs. 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 sheets. Noncurrent contract liabilities were $89 million at June 30, 2022 and $88 million at December 31, 2021. These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract or revenue associated with the contract liabilities is expected to be recognized within one year. Contract liabilities also include provisions for estimated losses from uncompleted contracts. Provisions for loss contracts were $110 million and $107 million at June 30, 2022 and December 31, 2021, respectively. These provisions for

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estimated losses are classified as current liabilities and included within the caption “Other accrued liabilities” on the consolidated balance sheets.

The change in the carrying amount of contract assets and contract liabilities for the six months ended June 30, 2022 and 2021 is as follows:

	Contract Assets
In millions	2022		2021
Balance at beginning of year	$	545	$	544
Acquisitions	28		—
Recognized in current year	284		370
Reclassified to accounts receivable	(225)		(364)
Foreign currency impact	(20)		(5)
Balance at June 30	$	612	$	545
	Contract Liabilities
In millions	2022		2021
Balance at beginning of year	$	824	$	832
Acquisitions	12		2
Recognized in current year	453		339
Amounts in beginning balance reclassified to revenue	(277)		(317)
Current year amounts reclassified to revenue	(169)		(63)
Foreign currency impact	(17)		(7)
Balance at June 30	$	826	$	786

7. LEASES

The Company leases certain property, buildings and equipment. 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. The right-of-use assets are classified as noncurrent and included within the caption "Other noncurrent assets" on the consolidated balance sheets. The current portion of lease liabilities are classified under the caption "Other accrued liabilities," while the noncurrent portion of lease liabilities are classified under the caption "Other long-term liabilities" on the consolidated balance sheets.

Operating lease expense was $14 million and $29 million for the three and six months ended June 30, 2022, respectively, and $14 million and $28 million for the three and six months ended June 30, 2021, respectively. New operating leases of $22 million and $24 million were added during the three and six months ended June 30, 2022, respectively. Wabtec does not have material financing leases, short-term or variable leases or sublease income.

As most of the Company's leases do not provide a readily stated discount rate, the Company must estimate the rate to discount lease payments using its incremental borrowing rate. The Company has established discount rates by geographic region ranging from 1% to 9%.

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Scheduled payments of lease liabilities are as follows:

In millions	Operating Leases
Remaining 2022	$	30
2023	54
2024	48
2025	42
2026	35
Thereafter	117
Total lease payments	326
Less: Present value discount	(25)
Present value of lease liabilities	$	301

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

	June 30, 2022		December 31, 2021
Weighted-average remaining lease term (years)	7.9		8.2
Weighted-average discount rate	2.3	%	2.3	%

8. LONG-TERM DEBT

Long-term debt consisted of the following:

	Effective Interest Rate		Face Value		June 30, 2022				December 31, 2021
In millions					Book Value		Fair Value1		Book Value		Fair Value1
Senior Credit Facility:
Multi-Currency Revolving loan facility	2.9	%	N/A		$	217	$	217	$	—	$	—
Senior Notes:
4.375% Senior Notes, due 2023	4.5	%	$	250	250		249		250		260
4.15% Senior Notes, due 2024	4.6	%	$	725	723