UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September 30, 2016~~March 31, 2017



¨	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.)

1001 Air Brake Avenue Wilmerding, PA	15148
(Address of principal executive offices)	(Zip code)

412-825-1000

(Registrant’s telephone number, including area code)

N/A

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

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 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, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer” and~~filer,” “smaller reporting ~~company”~~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.



Class		Outstanding at ~~November 4, 2016~~April 28, 2017
Common Stock, $.01 par value per share		~~89,073,431~~95,960,503 shares

WESTINGHOUSE AIR BRAKE

TECHNOLOGIES CORPORATION

~~September 30, 2016~~March 31, 2017

FORM 10-Q

TABLE OF CONTENTS



		Page
	PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements - (Unaudited)	3

	Condensed Consolidated Balance Sheets as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016	3

	Condensed Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~	4

	Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~	5

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~	6

	Notes to Condensed Consolidated Financial Statements	67

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2530

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3538

Item 4.	Controls and Procedures	3740

	PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	3841

Item 1A.	Risk Factors	3841

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3841

Item 4.	Mine Safety Disclosures	3841

Item 6.	Exhibits	3841

	Signatures	3943

PART I—FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	Unaudited						Unaudited
In thousands, except shares and par value	September 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Assets
Current Assets
Cash and cash equivalents	$	250,382		$	226,191		$	280,179		$	398,484
Accounts receivable	477,500			494,975			754,358			667,596
Unbilled accounts receivable	146,726			103,814			297,184			274,912
Inventories	495,998			478,574			703,881			658,510
Deposit in escrow	210,025			202,942			—			744,748
Deferred income taxes	75,741			71,658
Other current assets	38,760			33,524			130,631			123,381
Total current assets	1,695,132			1,611,678			2,166,233			2,867,631
Property, plant and equipment	750,547			717,295			935,900			912,230
Accumulated depreciation	(392,577		)	(364,102		)	(411,841		)	(393,854		)
Property, plant and equipment, net	357,970			353,193			524,059			518,376
Other Assets
Goodwill	877,054			858,532			2,188,503			2,078,765
Other intangibles, net	457,262			440,534			1,089,112			1,053,860
Other noncurrent assets	40,739			32,909			62,992			62,386
Total other assets	1,375,055			1,331,975			3,340,607			3,195,011
Total Assets	$	3,428,157		$	3,296,846		$	6,030,899		$	6,581,018

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	276,539		$	319,525		$	512,230		$	530,211
Customer deposits	108,718			106,127			351,599			256,591
Accrued compensation	54,984			69,892			141,762			145,324
Accrued warranty	76,465			72,678			123,817			123,190
Current portion of long-term debt	134			433			87,373			129,809
Other accrued liabilities	108,095			96,121			254,626			261,514
Total current liabilities	624,935			664,776			1,471,407			1,446,639
Long-term debt	819,770			691,805			1,782,624			1,762,967
Accrued postretirement and pension benefits	55,609			55,765			110,120			110,597
Deferred income taxes	156,900			139,852			258,228			245,680
Accrued warranty	17,645			19,386			13,849			15,802
Other long-term liabilities	22,807			23,923			25,903			22,508
Total liabilities	1,697,666			1,595,507			3,662,131			3,604,193
Commitments and contingent liabilities (Note15)
Shareholders’ Equity
Commitments and contingent liabilities (Note 14)
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 89,065,387 and 91,836,106 outstanding
at September 30, 2016 and December 31, 2015, respectively	1,323			1,323
132,349,534 shares issued and 95,896,236 and 95,425,432 outstanding
at March 31, 2017 and December 31, 2016, respectively							1,323			1,323
Additional paid-in capital	470,908			469,326			894,377			869,951
Treasury stock, at cost, 43,284,147 and 40,513,428 shares,
at September 30, 2016 and December 31, 2015, respectively	(983,456		)	(775,124		)
Treasury stock, at cost, 36,453,298 and 36,924,102 shares,
at March 31, 2017 and December 31, 2016, respectively							(830,032		)	(838,950		)
Retained earnings	2,524,354			2,280,801			2,617,575			2,553,258
Accumulated other comprehensive loss	(286,055		)	(276,719		)	(331,652		)	(379,605		)
Total Westinghouse Air Brake Technologies Corporation shareholders' equity	1,727,074			1,699,607			2,351,591			2,205,977
Non-controlling interest (minority interest)	3,417			1,732
Total shareholders’ equity	1,730,491			1,701,339
Total Liabilities and Shareholders’ Equity	$	3,428,157		$	3,296,846
Noncontrolling interest							17,177			770,848
Total equity							2,368,768			2,976,825
Total Liabilities and Equity							$	6,030,899		$	6,581,018

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Unaudited						Unaudited						Unaudited
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
In thousands, except per share data	2016			2015			2016			2015			2017			2016

Net sales	$	675,574		$	809,527		$	2,171,206		$	2,475,149		$	916,034		$	772,031
Cost of sales	(463,093		)	(552,458		)	(1,466,156		)	(1,694,961		)	(646,327		)	(516,851		)
Gross profit	212,481			257,069			705,050			780,188			269,707			255,180
Selling, general and administrative expenses	(70,757		)	(82,206		)	(241,118		)	(255,969		)	(122,341		)	(89,751		)
Engineering expenses	(16,289		)	(17,239		)	(52,271		)	(51,852		)	(23,464		)	(17,953		)
Amortization expense	(5,339		)	(5,546		)	(16,100		)	(16,009		)	(9,044		)	(5,295		)
Total operating expenses	(92,385		)	(104,991		)	(309,489		)	(323,830		)	(154,849		)	(112,999		)
Income from operations	120,096			152,078			395,561			456,358			114,858			142,181
Other income and expenses
Interest expense, net	(6,057		)	(4,351		)	(15,897		)	(12,698		)	(17,712		)	(4,871		)
Other income (expense), net	1,188			(2,937		)	113			(7,690		)	2,319			154
Income from operations before income taxes	115,227			144,790			379,777			435,970			99,465			137,464
Income tax expense	(32,799		)	(45,609		)	(112,701		)	(139,121		)	(27,461		)	(43,301		)
Net income													72,004			94,163
Less: Net loss attributable to noncontrolling interest													1,885			—
Net income attributable to Wabtec shareholders	$	82,428		$	99,181		$	267,076		$	296,849		$	73,889		$	94,163

Earnings Per Common Share
Basic
Net income attributable to Wabtec shareholders	$	0.92		$	1.03		$	2.94		$	3.08		$	0.77		$	1.03
Diluted
Net income attributable to Wabtec shareholders	$	0.91		$	1.02		$	2.92		$	3.05		$	0.77		$	1.02

Weighted average shares outstanding
Basic	89,589			96,369			90,546			96,135			95,243			91,258
Diluted	90,293			97,368			91,316			97,162			95,991			92,149

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Unaudited						Unaudited						Unaudited
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
In thousands	2016			2015			2016			2015			2017			2016

Net income attributable to Wabtec shareholders	$	82,428		$	99,181		$	267,076		$	296,849		$	73,889		$	94,163
Foreign currency translation gain (loss)	2,734			(48,474		)	(7,385		)	(100,323		)
Foreign currency translation gain													49,395			32,211
Unrealized gain (loss) on derivative contracts	1,169			(1,788		)	(1,740		)	(2,544		)	1,693			(2,193		)
Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans	982			2,586			(652		)	5,586
Other comprehensive income (loss) before tax	4,885			(47,676		)	(9,777		)	(97,281		)
Unrealized loss on pension benefit plans and post-retirement benefit plans													(3,074		)	(3,783		)
Other comprehensive income before tax													48,014			26,235
Income tax (expense) benefit related to components of
other comprehensive income (loss)	(594		)	164			441			(441		)
Other comprehensive income (loss), net of tax	4,291			(47,512		)	(9,336		)	(97,722		)
other comprehensive income													(61		)	1,387
Other comprehensive income, net of tax													47,953			27,622
Comprehensive income attributable to Wabtec shareholders	$	86,719		$	51,669		$	257,740		$	199,127		$	121,842		$	121,785

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Unaudited						Unaudited
	Nine Months Ended September 30,						Three Months Ended March 31,
In thousands, except per share data	2016			2015			2017			2016

Operating Activities
Net income attributable to Wabtec shareholders	$	267,076		$	296,849
Net income							$	72,004		$	94,163
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	49,375			48,167			25,229			16,232
Stock-based compensation expense	14,788			20,092			5,692			5,510
Loss on disposal of property, plant and equipment	151			1,804			153			18
Excess income tax benefits from exercise of stock options	(446		)	(2,683		)
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable and unbilled accounts receivable	(38,362		)	(881		)	(96,481		)	(23,844		)
Inventories	2,301			(15,847		)	(32,145		)	1,400
Accounts payable	(43,777		)	(80,701		)	(24,690		)	(18,002		)
Accrued income taxes	5,952			20,964			2,188			29,779
Accrued liabilities and customer deposits	(8,353		)	(12,911		)	85,303			(12,832		)
Other assets and liabilities	(1,812		)	(19,547		)	(63,349		)	(16,858		)
Net cash provided by operating activities	246,893			255,306
Net cash (used for) provided by operating activities							(26,096		)	75,566
Investing Activities
Purchase of property, plant and equipment	(31,676		)	(33,079		)	(19,327		)	(8,504		)
Proceeds from disposal of property, plant and equipment	140			354			284			84
Acquisitions of businesses, net of cash acquired	(84,355		)	(100,108		)	(67,581		)	(210		)
Deposit in escrow	—			(209,128		)
Release of deposit in escrow							23,548			—
Net cash used for investing activities	(115,891		)	(341,961		)	(63,076		)	(8,630		)
Financing Activities
Proceeds from debt	346,000			390,300			458,273			195,000
Payments of debt	(215,850		)	(460,308		)	(482,591		)	(85,453		)
Purchase of treasury stock	(212,176		)	(22,336		)	—			(133,738		)
Proceeds from exercise of stock options and other benefit plans	1,773			2,708			1,259			515
Excess income tax benefits from exercise of equity options	446			2,683
Payment of income tax withholding on share-based compensation	(9,006		)	(14,565		)	(6,842		)	(9,006		)
Cash dividends ($0.26 and $0.20 per share for the nine months
ended September 30, 2016 and 2015, respectively)	(23,523		)	(19,315		)
Cash dividends ($0.10 and $0.08 per share for the three months
ended March 31, 2017 and 2016, respectively)							(9,572		)	(7,355		)
Net cash used for financing activities	(112,336		)	(120,833		)	(39,473		)	(40,037		)
Effect of changes in currency exchange rates	5,525			(10,120		)	10,340			9,684
Increase (Decrease) in cash	24,191			(217,608		)
(Decrease) Increase in cash							(118,305		)	36,583
Cash, beginning of period	226,191			425,849			398,484			226,191
Cash, end of period	$	250,382		$	208,241		$	280,179		$	262,774

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2016~~MARCH 31, 2017 (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 products and services for the global rail industry. Our products are found on virtually all U.S. locomotives, freight cars and passenger transit vehicles, as well as in more than 100 countries throughout 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 2130 countries. In the first ~~nine~~three months of ~~2016, about 52%~~2017, approximately 65% of the Company’s revenues came from customers outside the U.S.

2. ~~PROPOSED TRANSACTION WITH FAIVELEY TRANSPORT S.A.~~

On July 27, 2015, the Company announced plans to acquire all of the issued and outstanding shares of Faiveley Transport S.A. ("Faiveley Transport") under the terms of the Share Purchase Agreement and the Tender Offer Agreement. On October 24, 2016, the Company entered into amendments to the Share Purchase Agreement and the Tender Offer 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 valued-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 & Safety (braking systems and couplers). Upon completion of the Acquisition, Faiveley Transport will become a subsidiary of Wabtec. The Acquisition has not yet been consummated and may not close on these terms, if at all:

~~The transaction has been structured in three steps:~~

Wabtec has made an irrevocable offer to the owners of approximately 51% of Faiveley Transport’s shares for a purchase price of €100 per share, payable between 25% and 45% in cash at the election of those shareholders with the remainder in common stock.

Upon completion of required labor group consultations, on October 6, 2015, the 51% shareholders entered into a definitive share purchase agreement, which was amended on October 24, 2016, and Faiveley Transport entered into the Tender Offer Agreement with Wabtec.

Upon completing the share purchase under the Share Purchase Agreement, Wabtec will commence a tender offer for the remaining publicly traded Faiveley Transport shares. The public shareholders will have the option to elect to receive €100 per share in cash or Wabtec common stock. The common stock portion of the consideration is subject to a cap on issuance of Faiveley common shares that will be equivalent to the rates of cash and stock elected by the 51% owners. Wabtec intends to delist Faiveley Transport from Euronext after the tender offer if minority interests represent less than 5%.

The total purchase price offered is about $1.7 billion, including assumed debt, net of cash acquired. Wabtec plans to fund the cash portion of the transaction with cash on hand (including cash held in escrow), existing credit facilities and new credit arrangements. Prior to December 31, 2015, Wabtec set aside €186.9 million as an escrow deposit for the Faiveley Transport purchase. The combination of Wabtec and Faiveley Transport would create one of the world’s largest public rail equipment companies, with revenues of over $4.3 billion and a presence in all key freight rail and passenger transit geographies worldwide.

~~Closing of the transaction is subject to various conditions, including completion of regulatory requirements. These steps are currently on-going and the timing of completion is unknown.~~

3. ACCOUNTING POLICIES

Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission and include the accounts of Wabtec and its majority owned subsidiaries. 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.

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, ~~2015.~~2016. The December 31, ~~2015~~2016 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

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 ~~revenues on~~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 ~~quarterly~~ 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 ~~$146.7~~$297.2 million and ~~$103.8~~$274.9 million, customer deposits were ~~$108.7~~$351.6 million and ~~$106.1~~$256.6 million, and provisions for loss contracts were ~~$13.9~~$81.4 million and ~~$11.8~~$60.5 million at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~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 ~~$28.1~~$31.4 million and ~~$30.3~~$29.4 million at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

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

Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 and Hedging Activities As part of its risk management strategy, the Company utilizes derivative financial instruments to manage its exposure due to changes in foreign currencies and interest rates. For further information regarding financial derivatives and hedging activities, refer to Footnotes 1312 and ~~14.~~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 recorded in the Company’s consolidated financial statements based upon the provisions of ASC 830 “Foreign Currency Matters.” The effects of currency exchange rate changes on intercompany transactions and balances 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.

~~Non-controlling~~Noncontrolling Interests In accordance with ASC 810 "Consolidation", the Company has classified ~~non-controlling~~noncontrolling interests as equity on our condensed consolidated balance sheets as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. Net ~~income~~loss attributable to ~~non-controlling~~noncontrolling interests for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 was $1.9 million and was not material for the three months ended March 31, 2016. Other comprehensive income attributable to noncontrolling interests for the three months ended March 31, 2017 and 2016 ~~and 2015~~ was not material.

~~Recent~~Recently Issued Accounting Pronouncements In ~~April 2015,~~March 2017, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. ~~2015-3, “Simplifying~~2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of ~~Debt Issuance Costs” (“ASU 2015-3”) which changes~~Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The amendments in this update require the ~~presentation~~service cost component of ~~debt issuance~~net benefit costs to be reported in ~~financial statements~~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 ~~present such costs as a direct deduction~~be presented in the income statement separately from the ~~related debt liability rather than as an asset.~~service cost component and outside income from operations. This update also allows the service cost component to be eligible for capitalization when applicable. The ASU ~~2015-3 became~~is effective for public companies ~~during interim and annual reporting periods~~in the fiscal years beginning after December 15, ~~2015.~~2017, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period. 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 ~~retrospectively adopted this ASU on January 1, 2016. The~~does not expect the adoption of this ~~ASU did not~~guidance in 2018 to 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 value that was 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. ~~2014-9,~~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 months ended March 31, 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 the recognition of revenue over time under the cost-to-cost method for the majority of our contracts, which is consistent with our current revenue recognition model. 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 ~~currently~~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 ~~impact the pronouncement will have on its consolidated financial statements and related disclosures.~~new guidance.

Recently Adopted Accounting PronouncementsIn March 2016, the FASB issued ~~Accounting Standards Update~~ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” ~~(ASU 2016-09”)~~. 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 isbecame effective for public companies ~~in the fiscal years~~during interim and annual reporting periods beginning after December 15, ~~2016,~~2016. In accordance with this update, the Company began recognizing all excess tax deficiencies and ~~interim periods within those fiscal years. Early~~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 ~~is permitted.~~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 ~~is currently evaluating~~elected to adopt this amendment retrospectively and the ~~potential~~ impact of ~~adopting~~the adoption on operating and financing cash flows for the three months ended March 31, 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 ~~guidance~~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 ~~its~~the consolidated ~~financial statements.~~balance sheets.

Other Comprehensive Income Comprehensive income ~~is defined as~~comprises both net income and ~~all~~the change in equity from transactions and other ~~non-owner changes in shareholders’ equity.~~events and circumstances from nonowner sources.

The changes in accumulated other comprehensive loss by component, net of tax, for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 are as follows:

In thousands
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 (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 )



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	49,395			903			(3,363		)	46,935
Amounts reclassified from accumulated other
comprehensive income	—			426			592			1,018
Net current period other comprehensive income (loss)	49,395			1,329			(2,771		)	47,953
Balance at March 31, 2017	$	(271,638	)	$	(1,628	)	$	(58,386	)	$	(331,652	)

Reclassifications out of accumulated other comprehensive loss for the three months ended ~~September 30,~~March 31, 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	$	(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	$	589		Interest expense, net
	(163		)	Income tax expense
	$	426		Net income

The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended March 31, 2016 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 $ 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



	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	32,211			(1,885		)	(3,533		)	26,793
Amounts reclassified from accumulated other
comprehensive income	—			325			504			829
Net current period other comprehensive (loss)	32,211			(1,560		)	(3,029		)	27,622
Balance at March 31, 2016	$	(195,138	)	$	(4,547	)	$	(49,412	)	$	(249,097	)

Reclassifications out of accumulated other comprehensive loss for the ~~nine~~three months ended ~~September 30,~~March 31, 2016 are as follows:


In thousands	Amount reclassified from accumulated other comprehensive income			Affected line item in the Condensed Consolidated Statements of Income	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	$	(385	)	Cost of sales
Amortization of net loss	2,702			Cost of sales	1,120			Cost of sales
	1,901			Income from Operations	735			Income from Operations
	(574		)	Income tax expense	(231		)	Income tax expense
	$	1,327		Net income	$	504		Net income

Derivative contracts
Realized loss on derivative contracts	$	1,265		Interest expense, net	$	474		Interest expense, net
	(382		)	Income tax expense	(149		)	Income tax expense
	$	883		Net income	$	325		Net income

3. ACQUISITIONS

Faiveley Transport

On November 30, 2016, 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 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 has been 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. 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 Faiveley common shares that will be 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.

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.

The fair values of the assets acquired and liabilities assumed are preliminarily determined using the income, cost and market approaches. 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	444,918
Inventories	206,516
Other current assets	66,152
Property, plant, and equipment	161,663
Goodwill	1,232,143
Trade names	333,823
Customer relationships	255,354
Patents	1,201
Other noncurrent assets	158,726
Total assets acquired	3,038,814
Liabilities assumed
Current liabilities	774,751
Debt	409,899
Other noncurrent liabilities	347,349
Total liabilities assumed	1,531,999
Net assets acquired	$	1,506,815

These estimates are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments will be finalized within one year from the date of acquisition. During the three months ended March 31, 2017, the estimated fair values for current liabilities were adjusted by $28.9 million 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 $27.9 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 $17.0 million to 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 $43.8 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 acquired share-based stock plans that are obligated to be settled in cash. 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 future economic benefits, including synergies and assembled workforce, the Company expects to achieve as a result of the acquisition. Purchased goodwill is not expected to be deductible for tax purposes. The goodwill has been preliminarily allocated to the Transit segment.

For the three months ended March 31, 2017, the Company’s consolidated statement of income included $274.7 million of revenues.

Other Acquisitions

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

On March 14, 2017, the Company acquired Aero Transportation Products ("ATP"), a manufacturer of engineered covering systems for hopper freight cars for a purchase price of approximately $65.2 million, net of cash acquired, resulting in preliminary goodwill of $35.1 million, none of which will be deductible for tax purposes.

On December 14, 2016, the Company acquired Workhorse Rail LLC ("Workhorse"), a supplier of engineered freight car components, mainly for the aftermarket for a purchase price of approximately $44.3 million, net of cash acquired, resulting in preliminary goodwill of $24.8 million, 37.8% of which will be deductible for tax purposes.

On November 17, 2016, the Company acquired the assets of Precision Turbo & Engine ("Precision Turbo"), a designer and manufacturer of high-performance, aftermarket turbochargers, wastegates, and heat exchangers for the automotive performance market for a purchase price of approximately $13.8 million, net of cash acquired, resulting in preliminary goodwill of $3.9 million, all of which will be deductible for tax purposes.

On May 5, 2016, the Company acquired Unitrac Railroad Materials ("Unitrac"), a leading designer and manufacturer of railroad products and track work services for a purchase price of approximately $14.4 million, net of cash acquired, resulting in preliminary goodwill of ~~$1.0 million, all of which will be deductible for tax purposes.~~

On October 30, 2015, the Company acquired Relay Monitoring Systems PTY Ltd. ("RMS"), an Australian based manufacturer of electrical protection and control products for a purchase price of approximately $18.7 million, net of cash acquired, resulting in preliminary goodwill of $8.8 million, none of which will be deductible for tax purposes.

On October 8, 2015, the Company acquired Track IQ, an Australian based manufacturer of wayside sensor systems for the global rail industry for a purchase price of approximately $9.3 million, net of cash acquired, resulting in preliminary goodwill of $6.3 million, all of which will be deductible for tax purposes.

On February 4, 2015, the Company acquired Railroad Controls L.P. ("RCL"), a provider of railway signal construction services, for a purchase price of approximately $78.0 million, net of cash acquired, resulting in goodwill of $14.8$1.4 million, all of which will be deductible for tax purposes.

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

On August 1, 2016, the Company acquired Gerken Group SA ("Gerken"), a manufacturer of specialty carbon and graphite products for rail and other industrial applications, for a purchase price of approximately $62.8 million, net of cash acquired, resulting in preliminary goodwill of ~~$16.2 million, none of which will be deductible for tax purposes.~~

On June 17, 2015, the Company acquired Metalocaucho (“MTC”), a manufacturer of transit products, primarily rubber components for suspension and vibration control systems, for a purchase price of approximately $23.4 million, net of cash acquired, resulting in goodwill of $13.2$17.5 million, none of which will be deductible for tax purposes.

The acquisitions listed above include escrow deposits of ~~$34.9~~$48.6 million, which act as security for indemnity and other claims in accordance with the purchase and related escrow agreements.

~~For the Gerken, Unitrac, RMS, and Track IQ acquisitions, the~~The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of the ~~acquisition. For the MTC~~acquisition for ATP, Workhorse, Precision Turbo, Gerken and ~~RCL acquisitions, the following table summarizes the final fair value of the assets acquired and liabilities assumed at the date of acquisition.~~Unitrac:


	Gerken			Unitrac			RMS			Track IQ			MTC			RCL			ATP			Workhorse			Precision Turbo			Gerken			Unitrac
In thousands	August 1, 2016			May 5, 2016			October 30, 2015			October 8, 2015			June 17, 2015			February 4, 2015			March 14, 2017			December 14, 2016			November 17, 2016			August 1, 2016			May 5, 2016
Current assets	$	33,003		$	12,526		$	3,605		$	660		$	10,348		$	16,421		$	10,882		$	9,137		$	4,183		$	32,706		$	12,136
Property, plant & equipment	7,667			1,768			1,378			172			1,450			12,136			2,787			0			1,346			7,667			1,768
Goodwill	16,191			998			8,847			6,333			13,198			14,787			35,146			24,838			3,942			17,470			1,388
Other intangible assets	32,098			1,230			8,621			3,246			7,650			40,403			34,800			19,400			5,200			30,560			1,230
Other assets	1,706			—			—			—			114			—			—			—			—			1,706			—
Total assets acquired	90,665			16,522			22,451			10,411			32,760			83,747			83,615			53,375			14,671			90,109			16,522
Total liabilities assumed	(27,818		)	(2,144		)	(3,741		)	(1,099		)	(9,400		)	(5,736		)	(18,403		)	(9,083		)	(825		)	(27,262		)	(2,144		)
Net assets acquired	$	62,847		$	14,378		$	18,710		$	9,312		$	23,360		$	78,011		$	65,212		$	44,292		$	13,846		$	62,847		$	14,378

Of the ~~$93.2~~$681.6 million of total acquired other intangible assets, ~~$70.4~~$357.1 million was assigned to trade names, $317.8 million was assigned to customer relationships, ~~$15.8 million was assigned to trade names, $0.4 million was assigned to non-compete agreements, $1.4 million was assigned to customer backlog,~~ and ~~$5.2~~$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~~5 years.

The Company also made smaller acquisitions not listed above.

The following unaudited pro forma consolidated financial information presents income statement results as if the acquisitions listed above had occurred on January 1, ~~2015:~~2016:


In thousands	Three Months Ended September 30, 2016		Three Months Ended September 30, 2015		Nine Months Ended September 30, 2016		Nine Months Ended September 30, 2015		Three Months Ended March 31, 2017		Three Months Ended March 31, 2016
Net sales	$	679,114	$	833,138	$	2,205,757	$	2,562,576	$	921,407	$	1,116,789
Gross profit	213,755		267,377		715,080		816,828		270,605		345,081
Net income attributable to Wabtec shareholders	82,848		101,766		270,368		304,568		72,250		114,444
Diluted earnings per share
As Reported	$	0.91	$	1.02	$	2.92	$	3.05	$	0.77	$	1.02
Pro forma	$	0.91	$	1.04	$	2.95	$	3.13	$	0.77	$	1.16

5.4. INVENTORIES

The components of inventory, net of reserves, were:


In thousands	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Raw materials	$	200,020	$	180,128	$	360,374	$	331,465
Work-in-progress	174,570		171,217		166,143		145,462
Finished goods	121,408		127,229		177,364		181,583
Total inventories	$	495,998	$	478,574	$	703,881	$	658,510

6.5. INTANGIBLES

The change in the carrying amount of goodwill by segment for the ~~nine~~three months ended ~~September 30, 2016~~months ended March 31, 2017 is as follows:


In thousands	Freight Segment			Transit Segment		Total			Freight Segment		Transit Segment		Total
Balance at December 31, 2015	$	531,965		$	326,567	$	858,532
Balance at December 31, 2016									$	550,902	$	1,527,863	$	2,078,765
Adjustment to preliminary purchase allocation	1,091			1,038		2,129			2,260		48,687		50,947
Acquisitions	2,956			16,191		19,147			35,165		—		35,165
Foreign currency impact	(6,782		)	4,028		(2,754		)	3,343		20,283		23,626
Balance at September 30, 2016	$	529,230		$	347,824	$	877,054
Balance at March 31, 2017									$	591,670	$	1,596,833	$	2,188,503

As of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the Company’s trade names had a net carrying amount of ~~$178.2~~$525.7 million and ~~$167.4~~$510.5 million, respectively, and the Company believes these intangibles have indefinite lives.

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


In thousands	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Patents, non-compete and other intangibles, net of accumulated
amortization of $42,771 and $40,936	$	13,850	$	11,403
amortization of $43,280 and $42,538					$	13,071	$	15,360
Customer relationships, net of accumulated amortization
of $82,462 and $70,493	265,208		261,751
of $95,984 and $87,334					550,317		528,068
Total	$	279,058	$	273,154	$	563,388	$	543,428

The weighted average remaining useful life of patents, customer relationships and other intangibles were 10 years, 1618 years and 1716 years, respectively. Amortization expense for intangible assets was ~~$5.3~~$9.0 million and ~~$16.1 million for three and nine months ended September 30, 2016, and $5.5 million and $16.0~~$5.3 million for the three ~~and nine~~ months ended ~~September 30, 2015.~~March 31, 2017, and 2016, respectively.

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


Remainder of 2016	$	5,410
2017	20,424
Remainder of 2017			$	25,308
2018	19,721		33,328
2019	19,016		32,284
2020	17,838		30,762
2021			30,774

7.6. LONG-TERM DEBT

Long-term debt consisted of the following:


In thousands	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
4.375% Senior Notes, due 2023, net of unamortized discount and debt issuance costs of $1,755 and $1,947	$	248,245	$	248,053
Revolving Credit Facility, net of unamortized debt issuance costs of $3,711 and $1,542	571,289		443,458
3.45% Senior Notes, due 2026, net of unamortized debt issuance costs of $2,485 and $2,526					$	747,515	$	747,474
4.375% Senior Notes, due 2023, net of unamortized discount and debt issuance costs of $1,626 and $1,690					248,374		248,310
Revolving Credit Facility, net of unamortized debt issuance costs of $3,500 and $3,850					825,773		796,150
Schuldschein Loan					41,718		98,671
Other Borrowings					5,359		1,153
Capital Leases	370		727		1,258		1,018
Total	819,904		692,238		1,869,997		1,892,776
Less - current portion	134		433		87,373		129,809
Long-term portion	$	819,770	$	691,805	$	1,782,624	$	1,762,967

Wabtec's acquisition of the controlling stake of Faiveley Transport triggered the early repayment of a syndicated loan 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.

3.45% Senior Notes Due November 2026

In October 2016, the Company issued $750.0 million of Senior Notes due in 2026 (the "2016 Notes"). The 2016 Notes were issued at 99.965% 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 Company incurred $2.6 million of deferred financing costs related to the issuance of the 2016 Notes.

The Company is in compliance with the restrictions and covenants in the indenture under which the 2016 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 its existing revolving credit facility with a consortium of commercial banks. This “2016 Refinancing Credit Agreement” provides the Company with a $1.2 billion, 5 year revolving credit facility and a $400.0 million delayed draw term loan (the “Term Loan”). The Company incurred approximately ~~$2.9~~$3.3 million of deferred financing cost 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, 2016,~~March 31, 2017, the Company had available bank borrowing capacity, net of ~~$22.5~~$32.7 million of letters of credit, of approximately ~~$602.5~~$728.0 million, subject to certain financial covenant restrictions.

The Term Loan ~~is available for advance~~was initially drawn on ~~or after June 22, 2016 until December 31,~~November 25, 2016. The Company ~~will incur~~incurred a 10 basis point commitment fee from June 22, 2016 until the initial ~~draw or cancellation of the Term Loan.~~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 ~~cash flow~~EBITDA ratios. The initial Base Rate margin is 0 basis points and the Alternate Rate margin is ~~100~~175 basis ~~points~~.points.

At ~~September 30, 2016,~~March 31, 2017, the weighted average interest rate on the Company’s variable rate debt was ~~1.53%~~2.61%. 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 iswas July 31, 2013, and the termination date iswas November 7, 2016. The impact of the interest rate swap agreement ~~converts~~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 ~~will be~~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 iswas 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 ~~cash flow~~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 ~~our~~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 ~~cash flow~~EBITDA ratios.

~~4.375% Senior Notes~~Schuldschein Loan, Due ~~August 2023~~

2016

In ~~August 2013,~~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 ~~issued $250.0~~repaid $95.5 million of ~~Senior Notes due in 2023 (the “2013 Notes”).~~the outstanding Schuldshein loan. The ~~2013 Notes were issued at 99.879%~~remaining balance of ~~face value. Interest on the 2013 Notes accrues at a rate~~$41.7 million as of ~~4.375% per annum~~March 31, 2017 is divided into three tranches with original maturities of 7 and ~~is payable semi-annually on February 15 and August 15~~10 years bearing fixed rates. The Company has notified investors of ~~each year. The proceeds were used~~its intention to repay ~~debt outstanding under~~ the ~~Company’s existing credit agreement, and for general corporate purposes. The principal balance is due~~remaining three tranches in ~~full at maturity. The Company incurred $2.6 million of deferred financing costs related to the issuance~~full. A summary of the ~~2013 Notes.~~ tranches as of March 31, 2017 are as follows:



Maturity	Rate	Amounts
December 2020	3.04%	$	21,390
March 2021	3.07%	9,630
March 2024	4.00%	10,698
Total		$	41,718

The ~~2013 Notes are~~Schuldschein loan is senior unsecured ~~obligations of the Company~~ and ~~rank~~ranks 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~~Schuldshein loan agreement contains covenants and ~~restrictions~~undertakings which limit among other things, the following: factoring of receivables, the incurrence of indebtedness, ~~payment of dividends and certain distributions,~~ sale of assets, change inof control, mergers and consolidations and ~~the~~ incurrence of liens.

~~The~~ At March 31, 2017, the Company is in compliance with the ~~restrictions~~undertakings and covenants contained in the ~~indenture under which~~loan agreement.

For the ~~2013 Notes were issued~~three months ended March 31, 2017, the Company has repaid $18.7 million of the private placement fixed tranches and ~~expects that these restrictions and covenants will not be any type of limiting factor~~$39.6 million in ~~executing our operating activities.~~floating tranches outstanding at December 31, 2016.

8.7. 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						U.S.						International
	Three Months Ended September 30,						Three Months Ended September 30,						Three Months Ended March 31,						Three Months Ended March 31,
In thousands, except percentages	2016			2015			2016			2015			2017			2016			2017			2016
Net periodic benefit cost
Service cost	$	84		$	95		$	258		$	506		$	86		$	84		$	614		$	473
Interest cost	369			479			1,257			1,801			356			369			1,677			1,486
Expected return on plan assets	(519		)	(542		)	(2,437		)	(2,434		)	(433		)	(519		)	(2,910		)	(2,405		)
Net amortization/deferrals	229			266			397			655			248			229			685			620
Net periodic benefit (credit) cost	$	163		$	298		$	(525	)	$	528
Curtailment loss recognized													—			—			—			240
Net periodic benefit cost													$	257		$	163		$	66		$	414

Assumptions
Discount Rate 4.21 % 3.95 % 3.56 % 3.48 %
Expected long-term rate of return 5.70 % 5.70 % 5.81 % 5.79 %
Rate of compensation increase 3.00 % 3.00 % 3.10 % 3.10 %

U.S. International
Nine Months Ended
September 30, Nine Months Ended
September 30,
In thousands, except percentages 2016 2015 2016 2015
Net periodic benefit cost
Service cost $ 252
$ 285
$ 986
$ 1,518
Interest cost 1,107
1,437
4,193
5,391
Expected return on plan assets (1,557 ) (1,626 ) (7,723 ) (7,284 )
Net amortization/deferrals 687
798
1,452
1,962
Curtailment loss recognized —
—
240
—
Net periodic benefit (credit) cost $ 489
$ 894
$ (852 ) $ 1,587


Assumptions
Discount Rate	4.21	%	3.95	%	3.56	%	3.48	%	3.95	%	4.21	%	2.51	%	3.56	%
Expected long-term rate of return	5.70	%	5.70	%	5.81	%	5.79	%	4.95	%	5.70	%	4.93	%	5.81	%
Rate of compensation increase	3.00	%	3.00	%	3.10	%	3.10	%	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 ~~$6.6~~$7.1 million and $0.5 million to the international ~~plans~~ and ~~does not expect to make a contribution to the~~ U.S. plans, respectively, during ~~2016.~~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						U.S.						International
	Three Months Ended September 30,						Three Months Ended September 30,						Three Months Ended March 31,						Three Months Ended March 31,
In thousands, except percentages	2016			2015			2016			2015			2017			2016			2017			2016
Net periodic benefit cost
Service cost	$	1		$	2		$	7		$	11		$	1		$	1		$	7		$	7
Interest cost	97			308			25			35			88			97			24			25
Net amortization/deferrals	(105		)	(234		)	(9		)	(10		)	(73		)	(105		)	(7		)	(9		)
Net periodic (credit) benefit cost	$	(7	)	$	76		$	23		$	36
Net periodic benefit (credit) cost													$	16		$	(7	)	$	24		$	23


Assumptions
Discount Rate	3.95	%	3.95	%	3.90	%	3.96	%	3.76	%	3.95	%	3.46	%	3.90	%

U.S. International
Nine Months Ended
September 30, Nine Months Ended
September 30,
In thousands, except percentages 2016 2015 2016 2015
Net periodic benefit cost
Service cost $ 3
$ 6
$ 21
$ 33
Interest cost 291
924
75
105
Net amortization/deferrals (315 ) (702 ) (27 ) (29 )
Net periodic (credit) benefit cost $ (21 ) $ 228
$ 69
$ 109

Assumptions
Discount Rate 3.95 % 3.95 % 3.90 % 3.96 %

At December 31, 2015, the Company changed the method it uses to estimate the service and interest cost components of net periodic benefit cost for pension and other postretirement benefit costs for all of its U.S. and International plans. Historically, the service and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period. The Company has elected to utilize an approach that discounts the individual expected cash flows underlying the service and interest cost using the applicable spot rates derived from the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The Company made this change to improve the correlation between projected benefit cash flows and the

corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. The Company estimates the service and interest cost of the pension and OPEB plans will be reduced by approximately $1.6 million in 2016 as a result of this change. The Company has accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly has accounted for it prospectively.

9.8. STOCK-BASED COMPENSATION

As of ~~September 30, 2016,~~March 31, 2017, 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 (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The 2011 Plan has a ~~10-year~~10 year term through March 27, 2021 and provides a maximum of 3,800,000 shares for grants or awards. The 2011 Plan was approved by stockholders of Wabtec on May 11, 2011. The Company also maintains a Non-Employee Directors’ Fee and Stock Option Plan (“the Directors Plan”).

Stock-based compensation expense was ~~$14.8~~$5.7 million and ~~$20.1~~$5.5 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively. Included in stock-based compensation expense for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 is ~~$1.3~~$0.4 million of expense related to stock options, ~~$4.5~~$1.7 million related to non-vested restricted stock, ~~$2.2~~$0.8 million related to restricted stock units, ~~$5.9~~$2.4 million related to incentive stock units and ~~$0.9~~$0.4 million related to units issued for Directors’ fees. At ~~September 30, 2016,~~March 31, 2017, unamortized compensation expense related to those stock options, non-vested restricted shares units and incentive stock units expected to vest totaled ~~$25.8~~$44.9 million and will be recognized over a weighted average period of ~~1.4~~1.6 years.

Stock Options Stock options are granted to eligible employees and directors at the 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 become exercisable over a four-year vesting period and 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, 2016:~~months ended March 31, 2017:


	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic value (in thousands)		Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic value (in thousands)
Outstanding at December 31, 2015	1,097,323		$	32.70	4.8	$	42,154
Outstanding at December 31, 2016								1,098,823		$	35.39	4.3	$	52,332
Granted	94,115		61.39			1,906		64,507		87.05			(584		)
Exercised	(72,746	)	26.57			4,007		(47,567	)	26.46			2,452
Canceled	(8,825	)	71.47			90		(471	)	83.14			(2		)
Outstanding at September 30, 2016	1,109,867		35.23		4.5	51,518
Exercisable at September 30, 2016	896,486		27.22		3.7	48,799
Outstanding at March 31, 2017								1,115,292		38.74		4.4	43,783
Exercisable at March 31, 2017								923,878		30.90		3.7	43,513

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,				Three Months Ended March 31,
	2016		2015		2017		2016
Dividend yield	0.26	%	0.14	%	0.23	%	0.26	%
Risk-free interest rate	1.47	%	1.82	%	2.17	%	1.47	%
Stock price volatility	26.9	%	27.3	%	23.4	%	26.9	%
Expected life (years)	5.0		5.0		5.0		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 and 2000 Plans, eligible employees are granted restricted stock that generally vests over four years from the date of grant. Under the Directors Plan, restricted stock units 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~~three-year performance goals. Based on the Company’s performance for each three-year period then ended, the incentive stock units can vest and be awarded ranging from 0% to 200% of the initial incentive stock units granted. The incentive stock units included in the table below represent the number of shares that are expected to vest based on the

Company’s estimate for meeting those established performance targets. As of ~~September 30, 2016,~~March 31, 2017, the Company estimates that it will achieve ~~119%~~92%, ~~92%~~95% and ~~92%~~100% for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, ~~2016,~~ 2017, 2018, and ~~2018,~~2019, respectively, and has recorded incentive compensation expense accordingly. If our estimate of the number of these 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, 2016:~~March 31, 2017:


	Restricted Stock and Units		Incentive Stock Awards		Weighted Average Grant Date Fair Value		Restricted Stock and Units		Incentive Stock Awards		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2015	356,885		541,638		$	65.89
Outstanding at December 31, 2016							396,295		424,750		$	72.18
Granted	144,525		167,850		62.24		128,985		155,575		87.02
Vested	(159,875	)	(236,591	)	51.79		(112,504	)	(153,271	)	69.38
Adjustment for incentive stock awards expected to vest	—		(38,164	)	74.42		—		(2,558	)	72.79
Canceled	(12,915	)	(9,983	)	71.40		(4,103	)	(2,458	)	77.20
Outstanding at September 30, 2016	328,620		424,750		71.18
Outstanding at March 31, 2017							408,673		422,038

~~10.~~9. INCOME TAXES

The overall effective income tax rate was ~~28.5%~~27.6% and ~~29.7%~~31.5% for the three ~~and nine~~ months ended ~~September 30, 2016, respectively,~~March 31, 2017 and ~~31.5% and 31.9% for the three and nine months ended September 30, 2015, respectively.~~2016. For the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, the decrease in the effective rate is primarily the result of a lower earnings mix in higher tax rate ~~jurisdictions as well as a favorable adjustment for tax benefits related to uncertain tax positions due to the expiration of certain statutes of limitation.~~ jurisdictions.

As of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the liability for income taxes associated with uncertain tax positions was ~~$9.5~~$8.4 million, of which ~~$4.3~~$4.2 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,~~March 31, 2017, the total accrued interest and penalties were $0.9 million and $0.3 million, respectively. As of December 31, 2016, the total accrued interest and penalties ~~are $1.6~~were $0.8 million and ~~$2.0 million, respectively. As of December 31, 2015, the total accrued interest and penalties were $2.0 million and $0.2~~$0.3 million, respectively.

At this time, the Company believes ~~that~~ it is reasonably possible that unrecognized tax benefits of approximately ~~$1.1~~$4.0 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 ~~2012.~~2013.

~~11.~~10. 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,						Three Months Ended March 31,
In thousands, except per share data	2016			2015			2017			2016
Numerator
Numerator for basic and diluted earnings per common share - net income attributable
to Wabtec shareholders	$	82,428		$	99,181		$	73,889		$	94,163
Less: dividends declared - common shares and non-vested restricted stock	(8,958		)	(7,735		)	(9,572		)	(7,355		)
Undistributed earnings	73,470			91,446			64,317			86,808
Percentage allocated to common shareholders (1)	99.7		%	99.7		%	99.7		%	99.7		%
	73,250			91,172			64,124			86,548
Add: dividends declared - common shares	8,933			7,713			9,542			7,332
Numerator for basic and diluted earnings per common share	$	82,183		$	98,885		$	73,666		$	93,880
Denominator
Denominator for basic earnings per common share - weighted average shares	89,589			96,369			95,243			91,258
Effect of dilutive securities:
Assumed conversion of dilutive stock-based compensation plans	704			999			748			891
Denominator for diluted earnings per common share -
adjusted weighted average shares and assumed conversion	90,293			97,368			95,991			92,149
Net income per common share attributable to Wabtec shareholders
Net income attributable to Wabtec shareholders per common share
Basic	$	0.92		$	1.03		$	0.77		$	1.03
Diluted	$	0.91		$	1.02		$	0.77		$	1.02

(1) Basic weighted-average common shares outstanding 89,589
96,369
Basic weighted-average common shares outstanding and
non-vested restricted stock expected to vest
89,838
96,647
Percentage allocated to common shareholders 99.7 % 99.7 %

Nine Months Ended
September 30,
In thousands, except per share data 2016 2015
Numerator
Numerator for basic and diluted earnings per common
   share - net income attributable

to Wabtec shareholders $ 267,076
$ 296,849
Less: dividends declared - common shares
   and non-vested restricted stock
(23,523 ) (19,315 )
Undistributed earnings 243,553
277,534
Percentage allocated to common shareholders (1) 99.7 % 99.7 %
242,822
276,701
Add: dividends declared - common shares 23,452
19,250
Numerator for basic and diluted earnings per
   common share
$ 266,274
$ 295,951
Denominator
Denominator for basic earnings per common
   share - weighted average shares
90,546
96,135
Effect of dilutive securities:
Assumed conversion of dilutive stock-based
   compensation plans
770
1,027
Denominator for diluted earnings per common share -
adjusted weighted average shares and assumed conversion 91,316
97,162
Net income per common share attributable to
   Wabtec shareholders

Basic $ 2.94
$ 3.08
Diluted $ 2.92
$ 3.05


(1) Basic weighted-average common shares outstanding	90,546		96,135		95,243		91,258
Basic weighted-average common shares outstanding and non-vested restricted stock expected to vest	90,819		96,462		95,544		91,543
Percentage allocated to common shareholders	99.7	%	99.7	%	99.7	%	99.7	%

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.

~~12.~~11. WARRANTIES

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


In thousands	2016			2015			2017			2016
Balance at beginning of year	$	92,064		$	87,849		$	138,992		$	92,064
Warranty expense	22,788			21,615			5,760			10,880
Acquisitions	7,571			6,001			62			—
Warranty claim payments	(27,693		)	(18,961		)	(8,224		)	(7,287		)
Foreign currency impact/other	(620		)	(1,554		)	1,076			(25		)
Balance at September 30	$	94,110		$	94,950
Balance at March 31							$	137,666		$	95,632

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

Foreign Currency Hedging 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 and losses is deferred as a component of accumulated other comprehensive income and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. At September 30, 2016, the Company had outstanding foreign exchange contracts with a notional value of $8.0 million. The fair value of these hedges was a net liability of $0.6 million at September 30, 2016. The notional amount and fair value of foreign exchange contracts at December 31, 2015 was not material. The contracts are scheduled to mature within two years. For the ~~nine~~three months ended ~~September 30,~~March 31, 2017 and March 31, 2016, the ~~amount~~amounts reclassified into income were not material.

Other Activities 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, net. The net unrealized gain related to these contracts was ~~$0.5 million.~~$0.4 million for the three months ended March 31, 2017. These contracts are schedule 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.



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 The Company uses interest rate swaps to manage interest rate exposures. The Company is exposed to interest rate volatility with regard to existing floating rate debt. Primary exposure includes the London Interbank Offered Rates (LIBOR). Derivatives used to hedge risk associated with changes in the fair value of certain variable-rate debt are primarily designated 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. ~~See long-term debt~~Refer to footnote ~~fair value measurement footnote~~13 for further information on ~~current~~ interest rate swaps.

As of ~~September 30, 2016,~~March 31, 2017, the Company has recorded a current liability of ~~$5.7~~$3.0 million and an accumulated other comprehensive loss of ~~$3.4~~$1.8 million, net of tax, related to these agreements.

~~Other Activities~~ 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. At September 30, 2016, the Company maintained foreign currency contracts with a notional value of $24.1 million. 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, net. The net unrealized loss related to these contracts was $0.5 million for the nine months ended September 30, 2016. The notional amount and fair value of foreign exchange contracts that did not meet the criteria for hedge accounting at December 31, 2015 was not material. These contracts are scheduled to mature within one year.

~~14.~~13. 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 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 liabilities carried at fair value measured on a recurring basis as of ~~September 30, 2016,~~March 31, 2017, which are included in other current liabilities on the Condensed Consolidated Balance sheet:


			Fair Value Measurements at September 30, 2016 Using								Fair Value Measurements at March 31, 2017 Using
In thousands	Total Carrying Value at September 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Carrying Value at March 31, 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	$	5,708	$	—	$	5,708	$	—	$	2,969	$	—	$	2,969	$	—
Total	$	5,708	$	—	$	5,708	$	—	$	2,969	$	—	$	2,969	$	—

The following table provides the liabilities carried at fair value measured on a recurring basis as of December 31, ~~2015,~~2016, which is included in other current liabilities on the Condensed Consolidated Balance sheet:


			Fair Value Measurements at December 31, 2015 Using								Fair Value Measurements at December 31, 2016 Using
In thousands	Total Carrying Value at December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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	$	4,474	$	—	$	4,474	$	—	$	3,888	$	—	$	3,888	$	—
Total	$	4,474	$	—	$	4,474	$	—	$	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.

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 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 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, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. 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 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 Notes are considered Level 2 based on the fair value valuation hierarchy.

The estimated fair values and related carrying values of the Company’s financial instruments are as follows:


	September 30, 2016				December 31, 2015				March 31, 2017				December 31, 2016
In thousands	Carry Value		Fair Value		Carry Value		Fair Value		Carry Value		Fair Value		Carry Value		Fair Value
Interest rate swap agreement	$	5,708	$	5,708	$	4,474	$	4,474	$	2,969	$	2,969	$	3,888	$	3,888
4.375% Senior Notes	248,245		267,613		248,053		254,075		248,374		260,710		248,310		260,265
3.45% Senior Notes									747,515		730,178		747,474		719,273

The fair value of 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.

~~15.~~

14. 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, ~~2015,~~2016, in Note 19 therein, filed on February ~~19, 2016.~~28, 2017. During the first ~~nine~~three months ended months of ~~2016,~~2017, there were no material changes to the information described in the Form 10-K.

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 described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015,~~2016, in Note 19 therein, filed on February ~~19, 2016.~~28, 2017. Except as described below, there have been no material changes to the information described in the Form 10-K.

Train Control technology. ~~Wabtec~~On November 2, 2016, Siemens amended its complaint to add six additional patents they also claim are infringed by the Company's Positive Train Control Products. The Company has filed ~~its answer~~answers, and asserted counterclaims, in response to ~~the complaint on June 17, 2016.~~Siemens' complaints. The case is still in ~~a very~~the preliminary ~~stage.~~stages, but the Company has begun filing for Inter-Parties Review proceedings before the U.S. Patent & Trademark Office seeking to invalidate the Siemens patents. Wabtec believes the claims are without merit and ~~intends to~~is vigorously ~~defend~~defending itself.

~~16.~~15. SEGMENT INFORMATION

Wabtec has two 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 business segments are:

Freight Segment primarily 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, ~~friction products,~~ 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, ~~friction products, and~~ refurbishes subway ~~cars.~~cars, provides heating, ventilation, and air conditioning equipment, and doors for buses and subways. 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, 2016~~March 31, 2017 is as follows:


In thousands	Freight Segment		Transit Segment		Corporate Activities and Elimination			Total			Freight Segment		Transit Segment		Corporate Activities and Elimination			Total
Sales to external customers	$	361,998	$	313,576	$	—		$	675,574		$	347,946	$	568,088	$	—		$	916,034
Intersegment sales/(elimination)	10,341		1,823		(12,164		)	—			9,087		5,686		(14,773		)	—
Total sales	$	372,339	$	315,399	$	(12,164	)	$	675,574		$	357,033	$	573,774	$	(14,773	)	$	916,034
Income (loss) from operations	$	77,999	$	51,164	$	(9,067	)	$	120,096		$	71,395	$	49,148	$	(5,685	)	$	114,858
Interest expense and other, net	—		—		(4,869		)	(4,869		)	—		—		(15,393		)	(15,393		)
Income (loss) from operations before income taxes	$	77,999	$	51,164	$	(13,936	)	$	115,227		$	71,395	$	49,148	$	(21,078	)	$	99,465

Segment financial information for the three months ended ~~September 30, 2015 is as follows:~~

In thousands Freight
Segment Transit
Segment Corporate
Activities and
Elimination Total
Sales to external customers $ 507,173
$ 302,354
$ —
$ 809,527
Intersegment sales/(elimination) 9,025
7,111
(16,136 ) —
Total sales $ 516,198
$ 309,465
$ (16,136 ) $ 809,527
Income (loss) from operations $ 119,930
$ 38,772
$ (6,624 ) $ 152,078
Interest expense and other, net —
—
(7,288 ) (7,288 )
Income (loss) from operations before income taxes $ 119,930
$ 38,772
$ (13,912 ) $ 144,790

~~Segment financial information for the nine months ended September 30,~~March 31, 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

~~Segment financial information for the nine months ended September 30, 2015 is as follows:~~


In thousands	Freight Segment		Transit Segment		Corporate Activities and Elimination			Total			Freight Segment		Transit Segment		Corporate Activities and Elimination			Total
Sales to external customers	$	1,553,734	$	921,415	$	—		$	2,475,149		$	442,669	$	329,362	$	—		$	772,031
Intersegment sales/(elimination)	26,982		8,227		(35,209		)	—			5,808		1,677		(7,485		)	—
Total sales	$	1,580,716	$	929,642	$	(35,209	)	$	2,475,149		$	448,477	$	331,039	$	(7,485	)	$	772,031
Income (loss) from operations	$	356,731	$	117,709	$	(18,082	)	$	456,358		$	106,675	$	45,010	$	(9,504	)	$	142,181
Interest expense and other, net	—		—		(20,388		)	(20,388		)	—		—		(4,717		)	(4,717		)
Income (loss) from operations before income taxes	$	356,731	$	117,709	$	(38,470	)	$	435,970		$	106,675	$	45,010	$	(14,221	)	$	137,464

Sales by product are as follows:


	Three Months Ended September 30,				Three Months Ended March 31,
In thousands	2016		2015		2017		2016
Specialty Products & Electronics	$	334,349	$	433,260	$	315,067	$	378,269
Transit Products					258,419		48,795
Brake Products	134,900		148,552		180,459		158,033
Remanufacturing, Overhaul & Build	129,264		146,424		129,058		151,906
Other Transit Products	44,996		45,547
Other	32,065		35,744		33,031		35,028
Total sales	$	675,574	$	809,527	$	916,034	$	772,031

16. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION

The obligations under the Company's 2016 Notes, 2013 Notes, and Revolving Credit Facility and Term Loan are full 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 March 31, 2017:

Nine Months Ended
September 30,
In thousands 2016 2015
Specialty Products & Electronics $ 1,051,806
$ 1,307,089
Remanufacturing, Overhaul & Build 444,278
437,101
Brake Products 428,785
472,855
Other Transit Products 143,434
143,214
Other 102,903
114,890
Total sales $ 2,171,206
$ 2,475,149



In thousands	Parent		Guarantors			Non-Guarantors		Elimination			Consolidated
Cash and cash equivalents	$	2,528	$	7,172		$	270,479	$	—		$	280,179
Receivables, net	71,106		207,705			772,731		—			1,051,542
Inventories	131,680		135,067			437,134		—			703,881
Current assets - other	34,516		3,923			92,192		—			130,631
Total current assets	239,830		353,867			1,572,536		—			2,166,233
Property, plant and equipment	49,179		127,726			347,154		—			524,059
Goodwill	25,275		537,949			1,625,279		—			2,188,503
Investment in subsidiaries	5,656,301		1,450,967			—		(7,107,268		)	—
Other intangibles, net	31,566		255,986			801,560		—			1,089,112
Other long term assets	32,504		6,312			24,176		—			62,992
Total assets	$	6,034,655	$	2,732,807		$	4,370,705	$	(7,107,268	)	$	6,030,899
Current liabilities	$	173,300	190,455			$	1,107,652	—			$	1,471,407
Inter-company	1,779,360		(1,889,230		)	109,870		—			—
Long-term debt	1,685,389		47			97,188		—			1,782,624
Long-term liabilities - other	45,015		101,756			261,329		—			408,100
Total liabilities	3,683,064		(1,596,972		)	1,576,039		—			3,662,131
Shareholders' equity	2,351,591		4,330,922			2,776,346		(7,107,268		)	2,351,591
Non-controlling interest	—		(1,143		)	18,320		—			17,177
Total shareholders' equity	$	2,351,591	$	4,329,779		$	2,794,666	$	(7,107,268	)	$	2,368,768
Total Liabilities and Shareholders' Equity	$	6,034,655	$	2,732,807		$	4,370,705	$	(7,107,268	)	$	6,030,899

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	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 March 31, 2017:



In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net Sales	$	144,544		$	258,712		$	544,388		$	(31,610	)	$	916,034
Cost of sales	(98,950		)	(167,607		)	(403,966		)	24,196			(646,327		)
Gross profit (loss)	45,594			91,105			140,422			(7,414		)	269,707
Total operating expenses	(24,293		)	(29,871		)	(100,685		)	—			(154,849		)
Income (loss) from operations	21,301			61,234			39,737			(7,414		)	114,858
Interest (expense) income, net	(14,611		)	2,160			(5,261		)	—			(17,712		)
Other income (expense), net	13,081			(1,260		)	(9,502		)	—			2,319
Equity earnings (loss)	68,285			11,942			—			(80,227		)	—
Pretax income (loss)	88,056			74,076			24,974			(87,641		)	99,465
Income tax expense	(14,165		)	(141		)	(13,155		)	—			(27,461		)
Net income (loss)	73,891			73,935			11,819			(87,641		)	72,004
Less: Net income attributable to noncontrolling interest	—			—			1,885			—			1,885
Net income (loss) attributable to Wabtec shareholders	$	73,891		$	73,935		$	13,704		$	(87,641	)	$	73,889

Comprehensive income (loss) attributable to Wabtec shareholders	$	74,747		$	73,935		$	60,801		$	(87,641	)	$	121,842

Income Statement for the Three Months Ended March 31, 2016:



In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net Sales	$	176,986		$	318,152		$	315,984		$	(39,091	)	$	772,031
Cost of sales	(129,081		)	(190,366		)	(220,126		)	22,722			(516,851		)
Gross profit (loss)	47,905			127,786			95,858			(16,369		)	255,180
Total operating expenses	(37,876		)	(32,351		)	(42,772		)	—			(112,999		)
(Loss) income from operations	10,029			95,435			53,086			(16,369		)	142,181
Interest (expense) income, net	(6,669		)	1,725			73			—			(4,871		)
Other income (expense), net	10,816			(4,480		)	(6,182		)	—			154
Equity earnings (loss)	113,022			38,699			—			(151,721		)	—
Pretax income (loss)	127,198			131,379			46,977			(168,090		)	137,464
Income tax expense	(33,035		)	(1,000		)	(9,266		)	—			(43,301		)
Net income (loss)	94,163			130,379			37,711			(168,090		)	94,163
Less: Net income attributable to noncontrolling interest	—			—			—			—			—
Net income attributable to Wabtec shareholders	$	94,163		$	130,379		$	37,711		$	(168,090	)	$	94,163

Comprehensive income (loss) attributable to Wabtec shareholders	$	93,932		$	130,378		$	65,565		$	(168,090	)	$	121,785

Condensed Statement of Cash Flows for the Three Months Ended March 31, 2017:



In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net cash (used in) provided by operating activities	$	(8,705	)	$	(5,829	)	$	(4,148	)	$	(7,414	)	$	(26,096	)
Net cash used in investing activities	(5,124		)	(68,173		)	10,221			—			(63,076		)
Net cash provided by (used in) financing activities	13,835			71,678			(132,400		)	7,414			(39,473		)
Effect of changes in currency exchange rates	—			—			10,340			—			10,340
Increase (decrease) in cash	6			(2,324		)	(115,987		)	—			(118,305		)
Cash, beginning of period	2,522			9,496			386,466			—			398,484
Cash, end of period	$	2,528		$	7,172		$	270,479		$	—		$	280,179

Condensed Statement of Cash Flows for the Three Months Ended March 31, 2016:



In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net cash provided by (used in) operating activities	$	(11,340	)	$	81,479		$	21,796		$	(16,369	)	$	75,566
Net cash used in investing activities	(3,234		)	(2,303		)	(3,093		)	—			(8,630		)
Net cash (used in) provided by financing activities	20,229			(71,084		)	(5,551		)	16,369			(40,037		)
Effect of changes in currency exchange rates	—			—			9,684			—			9,684
(Decrease) increase in cash	5,655			8,092			22,836			—			36,583
Cash, beginning of period	—			13,157			213,034			—			226,191
Cash, end of period	$	5,655		$	21,249		$	235,870		$	—		$	262,774

17. OTHER INCOME (EXPENSE), NET

The components of other income (expense) are as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended March 31,
In thousands	2016		2015			2016			2015			2017		2016
Foreign currency gain (loss)	$	880	$	(3,058	)	$	(488	)	$	(6,993	)
Foreign currency gain												$	1,213	$	162
Other miscellaneous income (expense)	308		121			601			(697		)	1,106		(8		)
Total other income (expense), net	$	1,188	$	(2,937	)	$	113		$	(7,690	)	$	2,319	$	154

~~18. SUBSEQUENT EVENTS~~

On November 3, 2016, the Company issued $750.0 million of Senior Notes due in 2026 (the “2016 Notes”). The 2016 Notes were issued at 99.965% 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 will be used to pay the cash portion of the Faiveley Transport acquisition, refinance Faiveley Transport's outstanding indebtedness, and for general corporate purposes. The principal balance is due in full at maturity.

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 under which the 2016 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 2016 Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.


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, ~~2015,~~2016, filed with the Securities and Exchange Commission on February ~~19, 2016.~~28, 2017.

OVERVIEW

Wabtec is one of the world’s largest providers of value-added, technology-based products and services for the global rail industry. Our products are found on virtually all U.S. locomotives, freight cars and passenger transit vehicles, as well as in more than 100 countries throughout 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 2130 countries. InFor the ~~first nine~~three months ~~of 2016, about 52%~~ended March 31, 2017, approximately 65% of the Company’s revenues came from customers outside the U.S.

Management Review and Future Outlook

Wabtec’s long-term financial goals are to generate cash flow from operations in excess of net income, maintain a strong credit profile while minimizing our overall cost of capital, increase margins through strict attention to cost controls and implementation of the Wabtec ~~Performance System,~~Excellence Program, and increase revenues through a focused growth strategy, including product innovation and new technologies, global and market expansion, ~~new products and technologies,~~ aftermarket products and services and acquisitions. In addition, 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 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, an aging equipment fleet, and growth in global trade 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, ~~in key freight rail~~while Transit markets are driven primarily by government funding and passenger ~~transit markets such as North and South America, Europe and Asia-Pacific. In~~ridership. Changes in these ~~and other markets, the freight rail industry is largely driven by general economic conditions, which~~market drivers can cause fluctuations in rail traffic and the level of investment spending by railroads and governments to expand, upgrade, and modernize their networks. Based on those fluctuations, railroads and governments can increase or decrease purchases of new locomotives and freight cars, and spending on rail-related infrastructure. The passenger transit industry is driven mainly by the spending of government agencies and authorities as they maintain, expand and modernize their transit systems. In doing so, they will increase or decrease spending on new locomotives, transit/subway cars, buses and related infrastructure. Fare box revenues, the fees paid by riders to use public transit, also provide funding for maintaining and operating the systems. Many government entities at all levels are facing budget issues, which could have a negative effect on demand for ~~the Company’s products~~Wabtec's product and services.

~~In North America,~~According to the 2016 edition of a market study by UNIFE, the Association of ~~American Railroads ("AAR") compiles freight rail industry statistics~~the European Rail Industry, the accessible global market for railway products and services is more than $100 billion, and it is expected to grow at about 3.2% annually through 2021. The three largest geographic markets, which represent about 80% of the total accessible market, are Europe, North America and Asia Pacific. Over the next five years, UNIFE projects above-average growth in Asia Pacific and Europe due to overall economic growth and trends such as ~~carloadings, generally referred~~urbanization and increasing mobility, deregulation, investments in new technologies, energy and environmental issues, and increasing government support. The largest product segments of the market are rolling stock, services and infrastructure, which represent almost 90% of the accessible market. Over the next five years, UNIFE projects spending on rolling stock to ~~as “rail traffic,” and~~grow at an above-average rate due to increased investment in passenger transit vehicles. UNIFE estimates that the ~~Railway Supply Institute ("RSI") releases data on freight car orders, deliveries, and backlog. Through the first nine months~~global installed base of ~~2016, rail traffic~~locomotives is about 114,000 units, with about 32% in Asia Pacific, about 25% in North America ~~was down~~and about 7%18% in Russia-CIS (Commonwealth of Independent States). ~~According to~~Wabtec estimates that about 3,400 new locomotives were delivered worldwide in 2016, and it expects deliveries of about 3,200 in 2017. UNIFE estimates the ~~RSI, at the end of the third quarter of 2016, the industry multi-year backlog~~global installed base of freight cars ~~on order was~~is about ~~78,000, slightly lower than at the end of the second quarter of 2016. In 2015, deliveries of~~5.5 million units, with about 37% in North America, about 26% in Russia-CIS and about 20% in Asia Pacific. Wabtec estimates that about 108,000 new freight cars were delivered worldwide in 2016, and locomotives were about 82,000 units and 1,200 units, respectively. In 2016, the Company expects the deliveries of new freight cars and locomotives to be approximately 60,000 units and 900 units, respectively. Future demand depends largely on the strength in the overall economy and in rail traffic volumes.

The American Public Transportation Association ("APTA") provides quarterly transit ridership statistics for the U.S. and Canada. For the first quarter of 2016 ridership was up slightly in the U.S. and down slightly in Canada. In the fourth quarter of 2015, the U.S. Congress passed a new, five-year transportation funding bill, which includes annual spending increases and some funding for Positive Train Control (“PTC”) projects. The Companyit expects deliveries of ~~new subway cars to increase~~about 97,000 in ~~2016, while bus deliveries are expected~~2017. UNIFE estimates the global installed base of passenger transit vehicles to be about ~~the same compared to 2015.~~

~~In 2008, the U.S. federal government enacted a rail safety bill~~569,000 units, with about 43% in Asia Pacific, about 32% in Europe and about 14% in Russia-CIS. UNIFE estimates that ~~mandates the use of PTC technology, which includes on-board locomotive computer and related software, on a majority of the locomotives and track in the U.S. With our Electronic Train Management System~~^®~~, we are the leading supplier of this on-board train control equipment, and we are~~

working with the U.S. Class I railroads, commuter rail authorities and other industry suppliers to implement this technology. In 2015, the U.S. Congress extended the deadline for PTC implementation until December 31, 2018, which has slowed the rate of industry spending on this technology. Wabtec’s Train Control and Signaling revenue, which includes PTC, was about ~~$259 million for the nine months ended September 30, 2016.~~

~~Wabtec continues to expand its presence in freight rail and~~208,000 new passenger transit ~~markets outside the U.S., particularly in Europe, Asia-Pacific~~vehicles were ordered annually from 2013-2015, and ~~South America.~~ that about 184,000 will be ordered annually from 2016-2018.

In Europe, the majority of the rail system serves the passenger transit market, which is ~~larger than~~expected to continue growing as energy and environmental factors encourage continued investment in public mass transit. France, Germany and the United

Kingdom are the largest Western European transit markets, representing almost two-thirds of industry spending in the European Union. UNIFE projects the Western European rail market to grow at about 3.6% 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%. 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. ~~Our presence~~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 railroads operating in North America, with the largest railroads, referred to as “Class 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% of total rail carloadings, 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 ~~U.K.~~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., ~~Germany~~the passenger transit industry is dependent largely on funding from federal, state and ~~Italy~~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.

Growth in the Asia Pacific market has ~~positioned~~been driven mainly by the ~~Company~~continued urbanization of China and India, and by investments in freight rail rolling stock and infrastructure in Australia to ~~take advantage of this market. Asia-Pacific~~serve its mining and natural resources markets. During the next five years, UNIFE expects India to make significant investments in rolling stock and infrastructure to modernize its rail system; for example, the country has awarded 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.

Other key geographic markets include Russia-CIS and Africa-Middle East. With about 1.4 million freight cars and about 20,000 locomotives, Russia-CIS is ~~a growth market and our various joint ventures and direct exports to China have positioned~~among the ~~Company to take advantage of this growth. Important~~largest freight rail markets ~~include Australia, Brazil, Russia~~in the world, and it’s expected to invest in both freight and transit rolling stock. PRASA, the Passenger Rail Agency of South ~~Africa.~~

~~Current conditions~~Africa, is expected to continue to invest in new transit cars and new locomotives. According to UNIFE, emerging markets are expected to grow at above-average rates as global trade creates increases in freight volumes and urbanization leads to increased demand for efficient mass-transportation systems. As this growth occurs, Wabtec expects to have additional opportunities to provide products and services in these ~~international markets vary based on general economic factors and specific freight rail and passenger transit drivers, as mentioned above.~~ markets.

In its ~~most recent quarterly~~study, UNIFE also said it expects increased investment in digital tools for data ~~the Office~~and asset management, and in rail control technologies, both of ~~Rail Regulation~~which would improve efficiency in the ~~U.K. reported an increase~~global rail industry during the next five years. UNIFE said data-driven asset management tools have the potential to reduce equipment maintenance costs and improve asset utilization, while rail control technologies have been focused on increasing track capacity, improving operational efficiency and ensuring safer railway traffic. Wabtec offers products and services to help customers make ongoing investments in passenger ridership of 1.6% and an 8.4% decrease in freight moved, mainly due to reduced shipments of coal. In Germany, the government statistics bureau reported a 2% increase for passenger rail and bus ridership in the first half of 2016. Russian Railways announced a decrease of 0.4% in passenger ridership in the first nine months of 2016 compared to the year-ago period, and it said freight tons loaded were 1.3% higher than the year-ago period.these initiatives.

In ~~2016~~2017 and beyond, general economic and market conditions in ~~our key markets could~~the United States and internationally will have an impact on our sales and operations. To the extent that these factors cause instability of capital ~~and debt~~ 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 changes in market conditions and risks.

~~PROPOSED TRANSACTION WITH~~ACQUISITION OF FAIVELEY TRANSPORT S.A.

On ~~July 27, 2015,~~November 30, 2016, the Company ~~announced plans to acquire all of the issued and outstanding shares~~acquired majority ownership of Faiveley Transport ~~S.A. ("Faiveley Transport")~~ under the terms of ~~the~~a Share Purchase Agreement ~~and the Tender Offer Agreement. On October 24, 2016, the Company entered into amendments to the~~ (“Share Purchase ~~Agreement and the Tender Offer Agreement.~~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 ~~valued-added,~~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). ~~Upon completion of the Acquisition, Faiveley Transport will become a subsidiary of Wabtec. The Acquisition has not yet been consummated and may not close on these terms, if at all:~~

The transaction has been structured ~~in three steps:~~as a step acquisition as follows:

~~Wabtec has made an irrevocable offer to~~On November 30, 2016, the ~~owners of approximately 51%~~Company acquired majority ownership of Faiveley ~~Transport’s shares for a~~Transport, after completing the purchase ~~price~~ 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 with~~shareholders. The Faiveley family’s ownership interest acquired by the ~~remainder in common stock.~~

Company represented approximately 51% of outstanding share capital and approximately 49% of the outstanding voting shares of Faiveley Transport. Upon completion of required labor group consultations, on October 6, 2015, the 51% shareholders entered into a definitive share purchase agreement, which was amended on October 24, 2016, and Faiveley Transport entered into the Tender Offer Agreement with Wabtec.

~~Upon completing~~ the share purchase under the Share Purchase Agreement, Wabtec ~~will commence~~commenced a tender offer for the remaining publicly traded Faiveley Transport shares. The public shareholders ~~will have~~had the option to elect to receive €100 per share in cash or 1.1538 shares of Wabtec common ~~stock.~~stock per share of Faiveley Transport. The common stock portion of the consideration iswas subject to a cap on issuance of Faiveley common shares that will be equivalent to the rates of cash and stock elected by the 51% owners. ~~Wabtec intends to delist~~

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 approximately17.5 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 is the primary beneficiary of Faiveley Transport as it possesses the power to direct the activities of Faiveley Transport that most significantly impact its economic performance and it possesses the obligation and right to absorb losses and benefits from ~~Euronext after~~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 ~~offer if minority interests represent less than 5%.~~

Transport purchase. The combination of Wabtec and Faiveley Transport would create one of the world’s largest public rail equipment companies, with revenues of over $4.3 billion and a presence in all key freight rail and passenger transit geographies worldwide.

~~Closing of the transaction is subject to various conditions, including completion of regulatory requirements. These steps are currently on-going and the timing of completion is unknown.~~

RESULTS OF OPERATIONS

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
In millions	2016			2015			2016			2015			2017			2016
Net sales	$	675,574		$	809,527		$	2,171,206		$	2,475,149		$	916,034		$	772,031
Cost of sales	(463,093		)	(552,458		)	(1,466,156		)	(1,694,961		)	(646,327		)	(516,851		)
Gross profit	212,481			257,069			705,050			780,188			269,707			255,180
Selling, general and administrative expenses	(70,757		)	(82,206		)	(241,118		)	(255,969		)	(122,341		)	(89,751		)
Engineering expenses	(16,289		)	(17,239		)	(52,271		)	(51,852		)	(23,464		)	(17,953		)
Amortization expense	(5,339		)	(5,546		)	(16,100		)	(16,009		)	(9,044		)	(5,295		)
Total operating expenses	(92,385		)	(104,991		)	(309,489		)	(323,830		)	(154,849		)	(112,999		)
Income from operations	120,096			152,078			395,561			456,358			114,858			142,181
Interest expense, net	(6,057		)	(4,351		)	(15,897		)	(12,698		)	(17,712		)	(4,871		)
Other expense, net	1,188			(2,937		)	113			(7,690		)
Other (expense) income, net													2,319			154
Income from operations before income taxes	115,227			144,790			379,777			435,970			99,465			137,464
Income tax expense	(32,799		)	(45,609		)	(112,701		)	(139,121		)	(27,461		)	(43,301		)
Net income													72,004			94,163
Less: Net loss attributable to noncontrolling interest													1,885			—
Net income attributable to Wabtec shareholders	$	82,428		$	99,181		$	267,076		$	296,849		$	73,889		$	94,163

~~THIRD~~FIRST QUARTER ~~2016~~2017 COMPARED TO ~~THIRD~~FIRST QUARTER ~~2015~~2016

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


	Three Months Ended September 30,						Three Months Ended March 31,
In thousands	2016		2015		Percent Change		2017		2016		Percent Change
Freight Segment Sales	$	361,998	$	507,173	(28.6	)%	$	347,946	$	442,669	(21.4	)%
Transit Segment Sales	313,576		302,354		3.7	%	568,088		329,362		72.5	%
Net sales	675,574		809,527		(16.5	)%	916,034		772,031		18.7	%
Income from operations	120,096		152,078		(21.0	)%	114,858		142,181		(19.2	)%
Net income attributable to Wabtec shareholders	$	82,428	$	99,181	(16.9	)%
Net income							$	72,004	$	94,163	(23.5	)%

The following table shows the major components of the change in sales in the ~~third~~first quarter of ~~2016~~2017 from the ~~third~~first quarter of ~~2015:~~

2016:


In thousands	Freight Segment			Transit Segment			Total			Freight Segment			Transit Segment			Total
Third Quarter 2015 Net Sales	$	507,173		$	302,354		$	809,527
First Quarter 2016 Net Sales										$	442,669		$	329,362		$	772,031
Acquisitions	13,153			2,153			15,306			36,888			270,351			307,239
Change in Sales by Product Line:
Other Transit Products	—			(559		)	(559		)
Other	(4,212		)	564			(3,648		)
Specialty Products & Electronics										(75,540		)	(14,538		)	(90,078		)
Remanufacturing, Overhaul & Build	(17,538		)	11,979			(5,559		)	(33,571		)	1,284			(32,287		)
Brake Products	(15,644		)	3,410			(12,234		)	(17,607		)	(1,486		)	(19,093		)
Specialty Products & Electronics	(118,699		)	9,556			(109,143		)
Other										(3,455		)	1,347			(2,108		)
Transit Products										—			5,115			5,115
Foreign exchange	(2,235		)	(15,881		)	(18,116		)	(1,438		)	(23,347		)	(24,785		)
Third Quarter 2016 Net Sales	$	361,998		$	313,576		$	675,574
First Quarter 2017 Net Sales										$	347,946		$	568,088		$	916,034

Net sales for the three months ended ~~September 30, 2016 decreased~~March 31, 2017 increased by ~~$134.0~~$144.0 million or ~~16.5%~~18.7% to ~~$675.6~~$916.0 million from ~~$809.5~~$772.0 million. The ~~decrease~~increase is primarily due to ~~lower~~ sales from acquisitions of $307.2 million partially offset by a $90.1 million decrease for Specialty Products and Electronics ~~of $109.1 million and lower Brake Products sales of $12.2 million~~ due to ~~decreased~~lower demand for ~~freight products as well as~~ train control and signaling products and ~~services. Acquisitions increased sales $15.3~~services, and a $32.3 million decrease for Remanufacturing, Overhaul and ~~unfavorable~~Build primarily due to the absence of a large locomotive rebuild contract that completed in 2016. Unfavorable foreign exchange decreased sales ~~$18.1~~by $24.8 million.

Freight Segment sales decreased by ~~$145.2~~$94.7 million, or ~~28.6%~~21.4%, primarily due to a decrease of ~~$118.7~~$75.5 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 ~~$17.5~~$33.6 million for Remanufacturing, Overhaul & Build sales ~~related~~primarily due to the absence of a ~~multi-year aftermarket freight~~large locomotive ~~project which was substantially~~rebuild contract that completed in ~~2015,~~2016, and a decrease of ~~$15.6~~$17.6 million for Brake Products sales from lower demand for original equipment brakes for freight customers. Acquisitions increased sales by ~~$13.2~~$36.9 million and unfavorable foreign exchange decreased sales by ~~$2.2~~$1.4 million.

Transit Segment sales increased by ~~$11.2~~$238.7 million, or ~~3.7%~~72.5%, primarily due to ~~an increase~~sales from acquisitions of ~~$12.0~~$270.4 million partially offset by a decrease of $14.5 million for ~~Remanufacturing, Overhaul~~Specialty Products and ~~Build products~~Electronics due to ~~higher~~lower demand for ~~aftermarket locomotive builds. Acquisitions increased sales by $2.2 million~~original equipment conduction systems and ~~unfavorable~~current collectors. Unfavorable foreign exchange decreased sales by ~~$15.9~~$23.3 million.

Cost of Sales The following table shows the major components of cost of sales for the periods indicated:


	Three Months Ended September 30, 2016												Three Months Ended March 31, 2017
In thousands	Freight		Percentage of Sales		Transit		Percentage of Sales		Total		Percentage of Sales		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	%	$	138,398		39.8	%	$	247,109	43.5	%	$	385,507	42.1	%
Labor	44,583		12.3	%	38,317		12.2	%	82,900		12.3	%	38,986			11.2	%	76,137		13.4	%	115,123		12.6	%
Overhead	57,990		16.0	%	43,516		13.9	%	101,506		15.0	%	57,287			16.5	%	81,334		14.3	%	138,621		15.1	%
Other/Warranty	2,125		0.6	%	4,453		1.4	%	6,578		1.0	%	(907		)	(0.3	)%	7,983		1.4	%	7,076		0.8	%
Total cost of sales	$	240,496	66.4	%	$	222,597	71.0	%	$	463,093	68.6	%	$	233,764		67.2	%	$	412,563	72.6	%	$	646,327	70.6	%


	Three Months Ended September 30, 2015												Three Months Ended March 31, 2016
In thousands	Freight		Percentage of Sales		Transit		Percentage of Sales		Total		Percentage of Sales		Freight		Percentage of Sales		Transit		Percentage of Sales		Total		Percentage of Sales
Material	$	212,341	41.9	%	$	125,387	41.5	%	$	337,728	41.7	%	$	165,285	37.3	%	$	143,124	43.5	%	$	308,409	39.9	%
Labor	53,111		10.5	%	38,080		12.6	%	91,191		11.3	%	51,584		11.7	%	37,593		11.4	%	89,177		11.6	%
Overhead	71,948		14.2	%	43,227		14.3	%	115,175		14.2	%	63,313		14.3	%	47,976		14.6	%	111,289		14.4	%
Other/Warranty	22		0.0	%	8,342		2.8	%	8,364		1.0	%	3,697		0.8	%	4,279		1.3	%	7,976		1.0	%
Total cost of sales	$	337,422	66.6	%	$	215,036	71.2	%	$	552,458	68.2	%	$	283,879	64.1	%	$	232,972	70.8	%	$	516,851	66.9	%

Cost of Sales ~~decreased~~increased by ~~$89.4~~$129.5 million to ~~$463.1~~$646.3 million in the ~~third~~first quarter of ~~2016~~2017 compared to ~~$552.5~~$516.9 million in the same period of ~~2015.~~2016. In the ~~third~~first quarter of ~~2016,~~2017, cost of sales as a percentage of sales was ~~68.6%~~70.6% compared to ~~68.2%~~66.9% in the same period of ~~2015.~~2016. The increase as a percentage of sales is due to an unfavorable product mix largely attributable to higher transit segment sales which have a lower gross margin compared to ~~the~~ freight ~~segment.~~

segment sales.

Freight Segment cost of sales ~~decreased 0.2%~~increased 3.1% as a percentage of sales to ~~66.4%~~67.2% in ~~2016~~2017 compared to ~~66.6%~~64.1% for the same period in ~~2015.~~2016. The ~~decrease~~increase is primarily related to sales an unfavorable product mix with ~~lower~~higher material content and lower overall ~~material costs due to on-going sourcing efforts, and decreases in various commodity prices.~~margins.

Transit Segment cost of sales ~~decreased 0.2%~~increased 1.8% as a percentage of sales to approximately ~~71.0%~~72.6% in the ~~third~~first quarter of ~~2016~~2017 from ~~71.2%~~70.8% for the same period of ~~2015.~~2016. The ~~decrease~~increase is primarily related to ~~improved margin performance from current and prior years acquisitions and~~ the ~~benefits~~acquisition of ~~ongoing cost reduction efforts.~~Faiveley Transport, which has lower overall margins.

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 ~~$4.9~~$5.8 million in the ~~third~~first quarter of ~~2016~~2017 compared to ~~$7.7~~$10.9 million in the ~~third~~first quarter of ~~2015.~~2016.

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


	Three Months Ended September 30,								Three Months Ended March 31,
In thousands	2016		Percentage of Sales		2015		Percentage of Sales		2017		Percentage of Sales		2016		Percentage of Sales
Selling, general and administrative expenses	$	70,757	10.5	%	$	82,206	10.2	%	$	122,341	13.4	%	$	89,751	11.6	%
Engineering expenses	16,289		2.4	%	17,239		2.1	%	23,464		2.6	%	17,953		2.3	%
Amortization expense	5,339		0.8	%	5,546		0.7	%	9,044		1.0	%	5,295		0.7	%
Total operating expenses	$	92,385	13.7	%	$	104,991	13.0	%	$	154,849	17.0	%	$	112,999	14.6	%

Total operating expenses were ~~13.7%~~17.0% and ~~13.0%~~14.6% of sales for the ~~third~~first quarters of ~~2016~~2017 and ~~2015,~~2016, respectively. Selling, general, and administrative expenses ~~decreased $11.4~~increased $32.6 million, or ~~13.9%~~36.3%, primarily due to ~~lower sales volumes, reduced incentive compensation~~$52.2 million in incremental expense from acquisitions and ~~realized benefits from the cost saving initiatives undertaken~~$5.5 million in ~~2016. These reductions were partially offset by $3.2 million of costs related to the Faiveley~~ transaction and ~~$0.4 million of costs~~restructuring related to restructuring activity. Engineering expense decreased by $1.0 million, or 5.5%, due to higher absorption of costs. Amortization expense decreased $0.2 million due to lower amortization of intangibles associated with acquisitions.

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

Three Months Ended September 30,
In thousands 2016 2015 Percent
Change
Freight Segment $ 40,270
$ 49,375
(18.4 )%
Transit Segment 43,048
48,993
(12.1 )%
Corporate 9,067
6,623
36.9 %
Total operating expenses 92,385
104,991
(12.0 )%

Freight Segment operating expenses decreased $9.1 million, or 18.4%, in 2016 and increased 140 basis points to 11.1% of sales. The decrease is primarily attributable to reduced sales volumes, realized benefits from the cost saving initiatives undertaken in 2016 partially, and reduced incentive compensation offset by $2.4 million of incremental operating expenses from acquisitions.

Transit Segment operating expenses decreased $5.9 million, or 12.1%, in 2016 and decreased 250 basis points to 13.7% of sales. The decrease is primarily attributable to realized benefits from the cost saving initiatives undertaken in 2016 and reduced incentive compensation partially offset by $0.7 million of incremental operating expenses from acquisitions.

Corporate non-allocated operating expenses increased $2.4 million in 2016 primarily due to $3.2 million of costs related to the Faiveley transaction partially offset by realized benefits from the cost saving initiatives mentioned above.

~~Income from operations~~ Income from operations totaled $120.1 million or 17.8% of sales in the third quarter of 2016 compared to $152.1 million or 18.8% of sales in the same period of 2015. Income from operations decreased due to lower sales volumecharges partially offset by lower ~~operating expenses as discussed above.~~

~~Interest expense, net~~ ~~Interest expense, net, increased $1.7 million in 2016 primarily attributable to higher average debt balances used to fund treasury stock purchases and acquisitions.~~

~~Other income/(expense), net~~ Other income/(expense), net, totaled $1.2 million of income in 2016 compared to $2.9 million of expense in 2015 due to foreign currency gains of $0.9 million in the third quarter of 2016 compared to foreign currency losses of $3.1 million in the third quarter of 2015.

~~Income taxes~~ The effective income tax rate was 28.5% and 31.5% for the third quarter of 2016 and 2015, respectively. The decrease in the effective rate is primarily the result of a lower earnings mix in higher tax rate jurisdictions as well as a favorable adjustment for tax benefits related to uncertain tax positions due to the expiration of certain statutes of limitation.

~~Net income~~ ~~Net income for the third quarter of 2016 was $82.4 million or $0.91 per diluted share compared to $99.2 million or $1.02 per diluted share in the prior year quarter. The decrease in net income is~~costs due to lower ~~income from operations for the reasons noted above, partially offset by a lower effective tax rate discussed above and lower shares outstanding.~~

~~FIRST NINE MONTHS OF 2016 COMPARED TO FIRST NINE MONTHS OF 2015~~

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

Nine months ended September 30,
In thousands 2016 2015 Percent
Change
Freight Segment Sales $ 1,201,734
$ 1,553,734
(22.7 )%
Transit Segment Sales 969,472
921,415
5.2 %
Net sales 2,171,206
2,475,149
(12.3 )%
Income from operations 395,561
456,358
(13.3 )%
Net income attributable to Wabtec shareholders $ 267,076
$ 296,849
(10.0 )%

~~The following table shows the major components of the change in~~organic sales ~~in the first nine months of 2016 from the first nine months of 2015:~~

In thousands Freight
Segment Transit
Segment Total
First Nine Months of 2015 Net Sales $ 1,553,734
$ 921,415
$ 2,475,149
Acquisitions 38,172
14,067
52,239
Change in Sales by Product Line:
Remanufacturing, Overhaul & Build (4,987 ) 35,666
30,679
Other Transit Products —
220
220
Other (23,258 ) 1,310
(21,948 )
Brake Products (36,905 ) (4,081 ) (40,986 )
Specialty Products & Electronics (313,681 ) 32,299
(281,382 )
Foreign exchange (11,341 ) (31,424 ) (42,765 )
First Nine Months of 2016 Net Sales $ 1,201,734
$ 969,472
$ 2,171,206

Net sales for the nine months ended September 30, 2016 decreased by $303.9 million or 12.3% to $2,171.2 million from $2,475.1 million. The decrease is primarily due to lower sales for Specialty Products and Electronics of $281.4 million, lower Brake Products sales of $41.0 million due to decreased demand for freight products, and train control and signaling products and services, and lower Other Product sales of $21.9 million from decreased demand for freight spare part kits. This decrease was partially offset by higher sales for Remanufacturing, Overhaul and Build of $30.7 million due to higher demand for aftermarket transit locomotive builds. Acquisitions increased sales $52.2 million and unfavorable foreign exchange decreased sales $42.8 million.

Freight Segment sales decreased by $352.0 million, or 22.7%, primarily due to a decrease of $313.7 million for Specialty Products and Electronics sales from lower demand for freight original equipment rail products and train control and signaling products, a decrease of $36.9 million for Brake Products sales from lower demand for original equipment brakes and aftermarket services, and a decrease of $23.3 million for Other Product sales from decreased demand for freight spare part kits. Acquisitions increased sales by $38.2 million and unfavorable foreign exchange decreased sales by $11.3 million.

Transit Segment sales increased by $48.1 million, or 5.2%, primarily due to an increase for Remanufacturing, Overhaul, and Build sales of $35.7 million from higher demand for aftermarket locomotive builds, and a $32.3 million increase for Specialty Products and Electronics sales from higher demand for original equipment conduction systems and current collectors. Acquisitions increased sales by $14.1 million and unfavorable foreign exchange decreased sales by $31.4 million.

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

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 %

Nine months ended September 30, 2015
In thousands Freight Percentage of
Sales Transit Percentage of
Sales Total Percentage of
Sales
Material $ 652,858
42.0 % $ 385,895
41.9 % $ 1,038,753
42.0 %
Labor 165,553
10.7 % 115,870
12.6 % 281,423
11.4 %
Overhead 214,178
13.8 % 131,932
14.3 % 346,110
14.0 %
Other/Warranty 9,638
0.6 % 19,037
2.1 % 28,675
1.2 %
Total cost of sales $ 1,042,227
67.1 % $ 652,734
70.9 % $ 1,694,961
68.6 %

Cost of Sales decreased by $228.8 million to $1,466.2 million in the first nine months of 2016 compared to $1,695.0 million in the same period of 2015. In the first nine months of 2016, cost of sales as a percentage of sales was 67.5% compared to 68.6% in the same period of 2015. The decrease as a percentage of sales is due to contributions from cost reduction initiatives and improved margin performance from current and prior year acquisitions, partially offset by an unfavorable product mix largely attributable to higher transit segment sales which have a lower gross margin compared to the freight segment.

Freight Segment cost of sales decreased 2.0% as a percentage of sales to 65.1% in the first nine months of 2016 compared to 67.1% for the same period in 2015. The decrease is primarily related to sales with lower material content, lower overall material costs due to ongoing sourcing efforts, and decreases in various commodity prices.

Transit Segment cost of sales decreased 0.5% as a percentage of sales to approximately 70.4% in the first nine months of 2016 from 70.9% for the same period of 2015. The decrease is primarily due to better margin performance from prior year acquisitions and ongoing sourcing savings.

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 $22.8 million in the first nine months of 2016 compared to $21.6 million in the same period of 2015.

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

Nine months ended September 30,
In thousands 2016 Percentage of
Sales 2015 Percentage of
Sales
Selling, general and administrative expenses $ 241,118
11.1 % $ 255,969
10.3 %
Engineering expenses 52,271
2.4 % 51,852
2.1 %
Amortization expense 16,100
0.7 % 16,009
0.6 %
Total operating expenses $ 309,489
14.2 % $ 323,830
13.0 %

Total operating expenses were 14.2% and 13.0% of sales for the first nine months of 2016 and 2015, respectively. Selling, general, and administrative expenses decreased $14.9 million, or 5.8%, primarily due to lower sales volume, reduced costs for incentive compensation, and benefits from the cost saving initiatives undertaken in 2016. These reductions were partially offset by $12.6 million of costs related to the Faiveley acquisition and $2.2 million in costs related to restructuring activity.volumes. Engineering expense increased ~~$0.4~~by $5.5 million, or ~~0.8%~~30.7%, ~~primarily~~ due to ~~$1.1 million of expenses from~~incremental costs associated with acquisitions. Amortization expense increased ~~$0.1~~$3.7 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,						Three Months Ended March 31,
In thousands	2016		2015		Percent Change		2017		2016		Percent Change
Freight Segment	$	135,544	$	154,015	(12.0	)%	$	42,787	$	50,810	(15.8	)%
Transit Segment	144,194		151,733		(5.0	)%	106,377		52,685		101.9	%
Corporate	29,751		18,082		64.5	%	5,685		9,504		(40.2	)%
Total operating expenses	309,489		323,830		(4.4	)%	154,849		112,999		37.0	%

Freight Segment operating expenses decreased ~~$18.5~~$8.0 million, or ~~12.0%~~15.8%, in ~~2016~~2017 and increased ~~140~~80 basis points to ~~11.3%~~12.3% of sales. The decrease is primarily attributable to reduced sales volumes, ~~and~~ realized benefits ~~associated with~~from the cost saving initiatives undertaken in 2016 and 2017, reduced incentive compensation, partially offset by ~~$6.6~~$4.7 million of incremental operating expenses from acquisitions.

Transit Segment operating expenses ~~decreased $7.5~~increased $53.7 million, or ~~5.0%~~101.9%, in ~~2016~~2017 and ~~decreased 160~~increased 270 basis points to ~~14.9%~~18.7% of sales. The ~~decrease~~increase is primarily attributable to $59.2 million of incremental operating expenses from acquisitions.

Corporate non-allocated operating expenses decreased $3.8 million in 2017 primarily due to lower costs associated with cost saving initiatives undertaken in ~~2016 partially offset by $2.5 million of incremental operating expenses from acquisitions.~~

Corporate non-allocated operating expenses increased $11.7 million in the first nine months of 2016 primarily due to $12.6 million of costs related to the Faiveley acquisition partially offset by realized benefits from cost saving initiatives in 2016.

~~Income from operations~~ Income from operations totaled $395.6 million or 18.2% of sales in the first nine months of 2016 compared to $456.4 million or 18.4% of sales in the same period of 2015. Income from operations decreased due to lower sales volume partially offset by lower operating expenses as discussed above.

Interest expense, net Interest expense, net, increased ~~$3.2~~$12.8 million in ~~2016 due primarily~~2017 attributable to higher ~~average~~overall debt balances ~~used~~in 2017 than 2016, primarily related to ~~fund treasury stock purchases and acquisitions.~~the Faiveley Transport acquisition.

Other ~~income/~~income (expense), net Other income/(expense), net, ~~decreased $7.8 million to $0.1~~totaled $2.3 million of income in 2017 compared to $0.2 million of income in 2016 primarily due to ~~lower currency transaction losses of $0.5 million in the first nine months of 2016 compared to~~ foreign currency ~~losses of $7.0 million for the same period of 2015.~~gains.

Income taxes The effective income tax rate was ~~29.7%~~27.6% and ~~31.9%~~31.5% for the first ~~nine months~~quarter of ~~2016~~2017 and ~~2015,~~2016, respectively. The decrease in the effective rate is primarily the result of a lower earnings mix in higher tax rate ~~jurisdictions as well as a favorable adjustment as a result of the expiration of statute for uncertain tax positions.~~jurisdictions.

Net ~~income~~loss attributable to noncontrolling interest Net ~~income~~loss attributable to noncontrolling interest was $1.9 million in 2017 as Faiveley Transport was not wholly owned by the Company until March 2017; therefore, a portion of Faiveley Transport's operating results for the first ~~nine~~two months of ~~2016~~2017 was ~~$267.1 million or $2.92 per diluted share compared~~allocated to ~~$296.8 million or $3.05 per diluted share in~~ the prior year quarter. The decrease in net income is due to lower income from operations for the reasons noted above, partially offset by a lower effective tax rate discussed above and lower shares outstanding.noncontrolling shareholders.

Liquidity and Capital Resources

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


	Nine Months Ended September 30,						Three Months Ended March 31,
In thousands	2016			2015			2017			2016
Cash provided by (used for):
Cash (used for) provided by:
Operating activities	$	246,893		$	255,306		$	(26,096	)	$	75,566
Investing activities	(115,891		)	(341,961		)	(63,076		)	(8,630		)
Financing activities	(112,336		)	(120,833		)	(39,473		)	(40,037		)
Increase/(decrease) in cash	$	24,191		$	(217,608	)
(Decrease)/increase in cash							$	(118,305	)	$	36,583

Operating activities In the first ~~nine~~three months of 2017, cash used for operations was $26.1 million. In the first three months of 2016, ~~and 2015,~~ cash provided by operations was ~~$246.9 million and $255.3 million, respectively.~~$75.6 million. In comparison to the first ~~nine~~three months of ~~2015,~~2016, cash provided by operations in ~~2016~~2017 decreased due to ~~lower operating results of $29.8 million partially offset by favorable~~unfavorable working capital ~~performance.~~performance and lower net income of $22.2 million. The major components of working capital were as follows: a favorable change in accounts payable of $36.9 million due to payment timing and lower inventory levels and a favorable change in inventory of $18.1 million due to successful efforts to control the amount of inventory on hand, partially offset by an unfavorable change in accounts receivable of ~~$37.5~~$72.6 million asdue to the timing of sales and customer payments, an unfavorable change in inventory of $33.5 million due to efforts to ramp up production in anticipation of stronger product demand through 2017, an unfavorable change of $46.5 million in other assets and liabilities due to the payments of acquisition costs during the first three months of 2017, an unfavorable change in accrued taxes of $27.6 million, partially offset by a favorable change in accrued liabilities and customer deposits of $98.1 million primarily due to the timing of cash receipts from customers ~~have begun to stretch payment terms and lower sales.~~for long term projects.

Investing activities In the first ~~nine~~three months of ~~2016~~2017 and ~~2015,~~2016, cash used in investing activities was ~~$115.9~~$63.1 million and ~~$342.0~~$8.6 million, respectively. The major components of the cash outflow in ~~2016~~2017 were ~~$84.4~~$44.0 million in net cash paid for acquisitions and ~~$31.7~~$19.3 million in planned additions to property, plant and equipment for investments in our facilities and manufacturing processes. This compares to ~~$100.1 million in net cash paid for acquisitions, $33.1~~$8.5 million in property, plant, and equipment for investments ~~and $209.1 million for an escrow deposit related to the proposed Faiveley Transport transaction~~ in the first ~~nine~~three months of ~~2015.~~2016. Refer to Note ~~2 of the "Notes to Condensed Consolidated Financial Statements" for further information on this subject. Refer to Note 4~~3 of the “Notes to Condensed Consolidated Financial Statements” for additional information on acquisitions.

Financing activities In the first ~~nine~~three months of ~~2016,~~2017, cash used for financing activities was ~~$112.3~~$39.5 million which included ~~$346.0~~$458.3 million in proceeds from the revolving credit facility, ~~$215.9~~$482.6 million in repayments of debt on the revolving credit facility ~~$23.5~~and $9.6 million of dividend ~~payments, $212.2 million for the repurchase of 3,046,408 shares of stock and $9.0 million related to the payment of income tax withholding on share based compensation.~~payments. In the first ~~nine~~three months of ~~2015,~~2016, cash provided by financing activities was ~~$120.8~~$40.0 million, which included ~~$390.3~~$195.0 million in proceeds from the revolving credit facility, ~~$460.3~~$85.5 million in repayments of debt on the revolving credit facility, ~~$14.6~~$9.0 million related to payment of income tax withholding on share based compensation, and ~~$19.3~~$7.4 million of dividend payments.

Senior Notes Due November 2026

On November 3, 2016, the Company issued $750.0 million of Senior Notes due in ~~2026 (the “2016 Notes”).~~2026. The 2016 Notes were issued at 99.965% 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 will be used to pay the cash portion of the Faiveley

Transport acquisition, refinance Faiveley Transport's outstanding indebtedness, and for general corporate purposes. The principal balance is due in full at maturity.

Faiveley Transport Tender Offer

On March 21, 2017, a mandatory squeeze-out procedure finalized which resulted in the Company acquiring the Faiveley Transport shares not tendered in the offers for approximately17.5 in cash. This resulted in the Company owning 100% of the share capital and voting rights of Faiveley Transport.

Company Stock Repurchase Plan

On February 8, 2016 the Board of Directors amended its stock repurchase authorization to $350 million of the Company’s outstanding shares. This new stock repurchase authorization supersedes the previous authorization of $350 million of which about $33.3 million remained. During the ~~first nine~~three months ~~of 2016,~~ended March 31, 2017, the Company ~~repurchased 3,046,408 shares, leaving $137.8 million under the authorization. During the quarter ended September 30, 2016, the Company repurchased 1,096,408~~did not repurchase any shares.

The Company intends to purchase shares on the open market or in negotiated or block trades. 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.

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 ~~power generation equipment~~ and related products and services;

reliance on major original equipment manufacturer customers;

original equipment manufacturers’ program delays;

demand for services in the freight and passenger rail industry;

demand for our products and services;

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

consolidations in the rail industry;

continued outsourcing by our customers;

industry demand for faster and more efficient braking equipment;

fluctuations in interest rates and foreign currency exchange rates; or

availability of credit.

Operating factors

supply disruptions;

technical difficulties;

changes in operating conditions and costs;

increases in raw material costs;

successful introduction of new products;

performance under material long-term contracts;

labor relations;

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

completion and integration of ~~acquisitions;~~acquisitions, including the acquisition of Faiveley Transport; or

the development and use of new technology.

Competitive factors

the actions of competitors.

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 ~~PTC;~~

~~uncertainty relating to the United Kingdom's continued membership in the European Union;~~Positive Train Control; or

federal and state income tax legislation; and

Transaction or commercial factors

the outcome of negotiations with partners, governments, suppliers, customers or others.

Statements in this 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, ~~2015.~~2016.

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, ~~2015.~~2016. In particular, judgment is used in areas such as accounts receivable and the allowance for doubtful accounts, inventories, goodwill and indefinite-lived intangibles, warranty reserves, pensions and postretirement benefits, income taxes and revenue recognition. There have been no significant changes in accounting policies since December 31, ~~2015.~~2016.


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

In 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 ~~51%~~36% and ~~42%~~36% of total long-term debt at ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~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 variable to fixed-rate borrowings during the term of the swap contract. Refer to Note 76 – Long Term Debt of “Notes to Condensed Consolidated Financial Statements” 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~~three months of 2017 and 2016, approximately ~~48%~~

35% of Wabtec’s net sales were to customers in the United States, ~~11%~~9% in the United Kingdom, 8%7% in Canada, 6%7% in France, 5% in Mexico, 3%4% in China, 3%4% in Germany, 4% in Italy, 3% in Australia, ~~2% in Brazil,~~ and ~~16%~~20% 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 32 of “Notes to Condensed Consolidated Financial Statements” for more information regarding foreign currency exchange risk.


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, 2016.~~March 31, 2017. 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, 2016,~~March 31, 2017, 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, ~~2015.~~2016.

On April 21, 2016, Siemens Industry, Inc. (Siemens) filed a lawsuit against the Company in federal district court in Delaware alleging that the Company has infringed seven (7) patents owned by Siemens, all of which are related to Positive Train Control technology. ~~Wabtec~~On November 2, 2016, Siemens amended its complaint to add six additional patents they also claim are infringed by the Company's Positive Train Control Products. The Company has filed ~~its answer~~answers, and asserted counterclaims, in response to ~~the complaint on June 17, 2016.~~Siemens' complaints. The case is still in ~~a very~~the preliminary ~~stage.~~stages, but the Company has begun filing for Inter-Parties Review proceedings before the U.S. Patent & Trademark Office seeking to invalidate the Siemens patents. Wabtec believes the claims are without merit and ~~intends to~~is vigorously ~~defend~~defending itself.


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, ~~2015.~~2016.


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, 2016:~~March 31, 2017:

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 2016 —
—
—
$ 216,262,175
August 2016 885,613
$ 70.54
885,613
$ 153,790,957
September 2016 210,795
$ 75.74
210,795
$ 137,824,347
Total quarter ended September 30, 2016 1,096,408
$ 71.54
1,096,408
$ 137,824,347

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)

January 2017

—

February 2017

—

March 2017

—

Total quarter ended March 31, 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

Not Applicable


Item 6.	EXHIBITS

The following exhibits are being filed with this report:



4.1	Fifth Supplemental Indenture, dated April 28, 2017, by and among Westinghouse Air Brake Technologies Corporation, the subsidiary guarantors named therein and Wells Fargo Bank, National Association, as Trustee

10.1	Fist Amendment to Second Amended and Restated Refinancing Credit Agreement, dated as of April 19, 2017, by and among 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

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.

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

By:	/s/ PATRICK D. DUGAN
	Patrick D. Dugan,
	~~Senior~~Executive Vice President Finance and Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)

DATE:	~~November 7, 2016~~May 4, 2017

EXHIBIT INDEX



4.1	Fifth Supplemental Indenture, dated April 28, 2017, by and among Westinghouse Air Brake Technologies Corporation, the subsidiary guarantors named therein and Wells Fargo Bank, National Association, as Trustee

10.1	First Amendment to Second Amended and Restated Refinancing Credit Agreement, dated as of April 19, 2017, by and among 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

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.

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