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~~June 30, ~~2017~~2019



¨☐	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~~
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~~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)

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



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

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

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



Large accelerated filer	x☒	Accelerated filer	¨☐	Non-accelerated filer	¨	~~(Do not check if smaller reporting company)~~☐
Emerging growth company	¨ ☐	Smaller reporting company	¨		☐

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

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

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



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

As of July 29, 2019, there were 188,155,130 shares of common stock, par value $.01 per share, of the registrant outstanding.

WESTINGHOUSE AIR BRAKE

TECHNOLOGIES CORPORATION

~~September~~June 30, ~~2017~~2019

FORM 10-Q

TABLE OF CONTENTS



		Page
	PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements - (Unaudited)	3

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018	3

	Condensed Consolidated Statement of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	4

	Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	5

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018	6

	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Shareholders' Equity for the three and six months ended June 30, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3536

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4652

Item 4.	Controls and Procedures	4852

	PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	4953

Item 1A.	Risk Factors	4954

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4954

Item 4.	Mine Safety Disclosures	4954

Item 6.	Exhibits	4955

	Signatures	5156

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, 2017			December 31, 2016			June 30, 2019			December 31, 2018
Assets
Current Assets
Cash and cash equivalents	$	228,080		$	398,484		$	461,371		$	580,908
Restricted cash							—			1,761,446
Accounts receivable	792,726			667,596			1,247,450			801,193
Unbilled accounts receivable	351,613			274,912			459,959			345,585
Inventories	764,781			658,510			1,881,791			844,886
Deposit in escrow	—			744,748
Other current assets	139,925			123,381			178,569			115,649
Total current assets	2,277,125			2,867,631			4,229,140			4,449,667
Property, plant and equipment	988,223			912,230			2,170,618			1,036,550
Accumulated depreciation	(437,856		)	(393,854		)	(524,521		)	(472,813		)
Property, plant and equipment, net	550,367			518,376			1,646,097			563,737
Other Assets
Goodwill	2,384,758			2,078,765			8,150,671			2,396,544
Other intangibles, net	1,140,387			1,053,860			4,364,356			1,129,880
Other noncurrent assets	97,013			62,386			552,329			109,406
Total other assets	3,622,158			3,195,011			13,067,356			3,635,830
Total Assets	$	6,449,650		$	6,581,018		$	18,942,593		$	8,649,234

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	512,905		$	530,211		$	1,232,597		$	589,449
Customer deposits	373,815			256,591			648,503			373,538
Accrued compensation	151,952			145,324			287,873			173,183
Accrued warranty	134,964			123,190			223,764			135,636
Current portion of long-term debt	49,748			129,809			104,413			64,099
Other accrued liabilities	242,056			261,514			714,165			310,785
Total current liabilities	1,465,440			1,446,639			3,211,315			1,646,690
Long-term debt	1,824,156			1,762,967			4,528,768			3,792,774
Accrued postretirement and pension benefits	108,182			110,597			95,625			95,446
Deferred income taxes	282,557			245,680			169,861			198,269
Accrued warranty	13,800			15,802			32,252			18,066
Other long-term liabilities	19,146			22,508			1,069,615			28,914
Total Liabilities	3,713,281			3,604,193			9,107,436			5,780,159
Commitments and contingent liabilities (Note 14)
Commitments and contingencies (Note 16)
Equity
Preferred stock, 1,000,000 shares authorized, no shares issued	—			—
Common stock, $0.01 par value; 200,000,000 shares authorized:
132,349,534 shares issued and 95,999,582 and 95,425,432 outstanding
at September 30, 2017 and December 31, 2016, respectively	1,323			1,323
Convertible preferred stock, $0.01 par value; 1,000,000 shares authorized, 1,220 and no shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively							—			—
Common stock, $0.01 par value; 500,000,000 shares authorized:
223,431,716 and 132,349,534 shares issued and 188,183,106 and 96,614,946 outstanding
at June 30, 2019 and December 31, 2018, respectively							1,981			1,323
Additional paid-in capital	900,536			869,951			7,807,109			914,568
Treasury stock, at cost, 36,349,952 and 36,924,102 shares,
at September 30, 2017 and December 31, 2016, respectively	(828,103		)	(838,950		)
Treasury stock, at cost, 35,248,610 and 35,734,588 shares,
at June 30, 2019 and December 31, 2018, respectively							(805,618		)	(816,145		)
Retained earnings	2,735,876			2,553,258			3,087,468			3,021,968
Accumulated other comprehensive loss	(91,930		)	(379,605		)	(289,180		)	(256,583		)
Total Westinghouse Air Brake Technologies Corporation shareholders' equity	2,717,702			2,205,977			9,801,760			2,865,131
Noncontrolling interest	18,667			770,848			33,397			3,944
Total Equity	2,736,369			2,976,825			9,835,157			2,869,075
Total Liabilities and Equity	$	6,449,650		$	6,581,018		$	18,942,593		$	8,649,234

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	Unaudited						Unaudited						Unaudited						Unaudited
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
In thousands, except per share data	2017			2016			2017			2016			2019			2018			2019			2018

Net sales	$	957,931		$	675,574		$	2,806,218		$	2,171,206
Cost of sales	(704,728		)	(463,093		)	(2,009,345		)	(1,466,156		)
Net sales:
Sales of goods													$	1,892,508		$	1,065,893		$	3,327,017		$	2,076,570
Sales of services													343,776			45,787			502,884			91,287
Total net sales													2,236,284			1,111,680			3,829,901			2,167,857
Cost of sales:
Cost of goods													(1,377,758		)	(749,097		)	(2,451,329		)	(1,458,375		)
Cost of services													(243,850		)	(38,616		)	(374,879		)	(74,634		)
Total cost of sales													(1,621,608		)	(787,713		)	(2,826,208		)	(1,533,009		)
Gross profit	253,203			212,481			796,873			705,050			614,676			323,967			1,003,693			634,848
Operating expenses:
Selling, general and administrative expenses	(117,838		)	(70,757		)	(367,753		)	(241,118		)	(290,959		)	(171,157		)	(550,682		)	(318,358		)
Engineering expenses	(24,709		)	(16,289		)	(71,511		)	(52,271		)	(57,120		)	(19,388		)	(91,665		)	(41,437		)
Amortization expense	(8,645		)	(5,339		)	(27,039		)	(16,100		)	(65,960		)	(9,899		)	(93,402		)	(20,251		)
Total operating expenses	(151,192		)	(92,385		)	(466,303		)	(309,489		)	(414,039		)	(200,444		)	(735,749		)	(380,046		)
Income from operations	102,011			120,096			330,570			395,561			200,637			123,523			267,944			254,802
Other income and expenses
Other income and expenses:
Interest expense, net	(17,893		)	(6,057		)	(51,025		)	(15,897		)	(58,560		)	(31,920		)	(103,129		)	(52,204		)
Other income (expense), net	(2,933		)	1,188			(2,166		)	113			2,177			2,171			(6,051		)	4,757
Income from operations before income taxes	81,185			115,227			277,379			379,777			144,254			93,774			158,764			207,355
Income tax expense	(12,746		)	(32,799		)	(64,776		)	(112,701		)	(41,400		)	(10,503		)	(59,923		)	(36,627		)
Net income	68,439			82,428			212,603			267,076			102,854			83,271			98,841			170,728
Less: Net (Gain) Loss attributable to noncontrolling interest	(1,040		)	—			710			—
Less: Net loss attributable to noncontrolling interest													1,381			1,145			922			2,054
Net income attributable to Wabtec shareholders	$	67,399		$	82,428		$	213,313		$	267,076		104,235			84,416			99,763			172,782

Earnings Per Common Share
Basic
Net income attributable to Wabtec shareholders	$	0.70		$	0.92		$	2.23		$	2.94		$	0.58		$	0.88		$	0.66		$	1.80
Diluted
Net income attributable to Wabtec shareholders	$	0.70		$	0.91		$	2.22		$	2.92		$	0.54		$	0.87		$	0.61		$	1.79

Weighted average shares outstanding
Basic	95,709			89,589			95,163			90,546			177,348			95,992			149,553			95,867
Diluted	96,316			90,293			95,808			91,316			191,453			96,575			162,155			96,471

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Unaudited						Unaudited						Unaudited						Unaudited
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
In thousands	2017			2016			2017			2016			2019			2018			2019			2018

Net income attributable to Wabtec shareholders	$	67,399		$	82,428		$	213,313		$	267,076		$	104,235		$	84,416		$	99,763		$	172,782
Foreign currency translation gain (loss)	82,905			2,734			277,984			(7,385		)	18,832			(192,778		)	(27,721		)	(114,811		)
Unrealized gain (loss) on derivative contracts	15,021			1,169			18,400			(1,740		)
Unrealized loss on derivative contracts													(22		)	(7,567		)	(4,115		)	(5,501		)
Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans	27			982			(3,017		)	(652		)	1,328			10,665			(2,294		)	10,235
Other comprehensive income (loss) before tax	97,953			4,885			293,367			(9,777		)	20,138			(189,680		)	(34,130		)	(110,077		)
Income tax (expense) benefit related to components of
Income tax (benefit) expense related to components of
other comprehensive income	(5,333		)	(594		)	(5,692		)	441			(318		)	(537		)	1,533			(1,132		)
Other comprehensive income (loss), net of tax	92,620			4,291			287,675			(9,336		)	19,820			(190,217		)	(32,597		)	(111,209		)
Comprehensive income attributable to Wabtec shareholders	$	160,019		$	86,719		$	500,988		$	257,740
Comprehensive income (loss) attributable to Wabtec shareholders													$	124,055		$	(105,801	)	$	67,166		$	61,573

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,						Six Months Ended June 30,
In thousands, except per share data	2017			2016			2019			2018

Operating Activities
Net income	$	212,603		$	267,076		$	98,841		$	170,728
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	76,970			49,375			165,064			53,227
Stock-based compensation expense	14,539			14,788			23,932			13,983
Below market intangible amortization							(9,400		)	—
Loss on disposal of property, plant and equipment	1,633			151			461			1,353
Excess income tax benefits from exercise of stock options	—			(446		)
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable and unbilled accounts receivable	(60,246		)	(38,362		)	(35,705		)	(59,979		)
Inventories	(53,365		)	2,301			147,424			(116,131		)
Accounts payable	(121,389		)	(43,777		)	(71,935		)	59,411
Accrued income taxes	(35,942		)	5,952			21,399			(202		)
Accrued liabilities and customer deposits	81,270			(8,353		)	24,188			27,545
Other assets and liabilities	(89,562		)	(1,812		)	79,655			(82,031		)
Net cash provided by operating activities	26,511			246,893			443,924			67,904
Investing Activities
Purchase of property, plant and equipment	(60,263		)	(31,676		)	(61,867		)	(39,723		)
Proceeds from disposal of property, plant and equipment	1,066			140			3,055			8,900
Acquisitions of businesses, net of cash acquired	(114,175		)	(84,355		)	(2,981,552		)	(38,277		)
Release of deposit in escrow	23,548			—
Net cash used for investing activities	(149,824		)	(115,891		)	(3,040,364		)	(69,100		)
Financing Activities
Proceeds from debt	883,473			346,000			2,325,934			591,890
Payments of debt	(918,919		)	(215,850		)	(1,552,121		)	(546,394		)
Purchase of treasury stock	—			(212,176		)
Proceeds from exercise of stock options and other benefit plans	2,888			1,773			775			6,867
Payment of income tax withholding on share-based compensation	(6,798		)	(9,006		)	(4,117		)	(6,503		)
Excess income tax benefits from exercise of equity options	—			446
Cash dividends ($0.32 and $0.26 per share for the nine months
ended September 30, 2017 and 2016, respectively)	(30,693		)	(23,523		)
Net cash used for financing activities	(70,049		)	(112,336		)
Payment of contingent consideration on acquisitions							(10,100		)	—
Cash dividends							(34,263		)	(23,096		)
Net cash provided by financing activities							726,108			22,764
Effect of changes in currency exchange rates	22,958			5,525			(10,651		)	(9,395		)
(Decrease) Increase in cash	(170,404		)	24,191
Cash, beginning of period	398,484			226,191
Cash, end of period	$	228,080		$	250,382
(Decrease) increase in cash							(1,880,983		)	12,173
Cash, cash equivalents and restricted cash beginning of period							2,342,354			233,401
Cash and cash equivalents end of period							$	461,371		$	245,574

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)



	Common Stock	Common Stock		Additional Paid-in			Treasury Stock		Treasury Stock			Retained			Accumulated Other			Non-controlling
In thousands, except share and per share data	Shares	Amount		Capital			Shares		Amount			Earnings			Comprehensive Loss			Interest			Total
Balance, December 31, 2017	132,349,534	1,323		906,616			(36,315,182	)	(827,379		)	2,773,300			(44,992		)	19,664			2,828,532
Cash dividends ($0.12 dividend per share)	—	—		—			—		—			(11,531		)	—			—			(11,531		)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(4,511		)	193,013		3,222			—			—			—			(1,289		)
Stock based compensation	—	—		5,696			—		—			—			—			—			5,696
Net income (loss)	—	—		—			—		—			88,366			—			(909		)	87,457
Other comprehensive income, net of tax	—	—		—			—		—			—			79,008			—			79,008
Other owner changes	—	—		—			—		—			—			—			356			356
Balance, March 31, 2018	132,349,534	$	1,323	$	907,801		(36,122,169	)	$	(824,157	)	$	2,850,135		$	34,016		$	19,111		$	2,988,229

Cash dividends ($0.12 dividend per share)	—	—		—			—		—			(11,565		)	—			—			(11,565		)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(5,738		)	159,014		2,979			—			—			—			(2,759		)
Stock based compensation	—	—		8,287			—		—			—			—			—			8,287
Net income (loss)	—	—		—			—		—			84,416			—			(1,145		)	83,271
Other comprehensive loss, net of tax	—	—		—			—		—			—			(190,217		)	—			(190,217		)
Other owner changes	—	—		—			—		—			—			—			(618		)	(618		)
Balance, June 30, 2018	132,349,534	$	1,323	$	910,350		(35,963,155	)	$	(821,178	)	$	2,922,986		$	(156,201	)	$	17,348		$	2,874,628

Balance, December 31, 2018	132,349,534	1,323		914,568			(35,734,588	)	(816,145		)	3,021,968			(256,583		)	3,944			2,869,075
Cash dividends ($0.12 dividend per share)	—	—		—			—		—			(11,687		)	—			—			(11,687		)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(14,446		)	420,472		8,931			—			—			—			(5,515		)
Stock based compensation	—	—		8,526			—		—			—			—			—			8,526
Net income (loss)	—	—		—			—		—			(4,472		)	—			459			(4,013		)
Other comprehensive loss, net of tax	—	—		—			—		—			—			(52,417		)	—			(52,417		)
Acquisitions	65,782,182	658		6,887,622			—		—			—			—			86,765			6,975,045
Other owner changes	—	—		—			—		—			—			—			1,432			1,432
Balance, March 31, 2019	198,131,716	$	1,981	$	7,796,270		(35,314,116	)	$	(807,214	)	$	3,005,809		$	(309,000	)	$	92,600		$	9,780,446

Cash dividends ($0.12 dividend per share)	—	—		—			—		—			(22,576		)	—			—			(22,576		)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax	—	—		(4,567		)	65,506		1,596			—			—			—			(2,971		)
Stock based compensation	—	—		15,406			—		—			—			—			—			15,406
Net income (loss)	—	—		—			—		—			104,235			—			(1,381		)	102,854
Other comprehensive income, net of tax	—	—		—			—		—			—			19,820			—			19,820
Acquisitions	—	—		—			—		—			—			—			(56,179		)	(56,179		)
Other owner changes	25,300,000	—		—			—		—			—			—			(1,643		)	(1,643		)
Balance, June 30, 2019	223,431,716	$	1,981	$	7,807,109		(35,248,610	)	$	(805,618	)	$	3,087,468		$	(289,180	)	$	33,397		$	9,835,157

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~~JUNE 30, ~~2017~~2019 (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~~equipment, systems and services for the global ~~rail industry. Our products are found on virtually all U.S. locomotives,~~ freight ~~cars~~rail and passenger transit ~~vehicles, as well as in more than 100 countries throughout the world.~~industries. Our highly engineered products enhance safety, improve productivity and reduce maintenance costs for customers and ~~many~~can be found on most locomotives, freight cars, passenger transit cars and buses around the world. Many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in ~~31 countries.~~over 50 countries and our products can be found in more than 100 countries throughout the world. In the first ~~nine~~six months of ~~2017,~~2019, approximately ~~65%~~59% of the Company’s revenues came from customers outside the United States.

2. ACCOUNTING POLICIES

Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America and the rules and regulations of the Securities and Exchange Commission and include the accounts of Wabtec and its subsidiaries in which Wabtec has a controlling interest. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented. Results for these interim periods are not necessarily indicative of results to be expected for the full year.

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

The notes included herein should be read in conjunction with the audited consolidated financial statements included in Wabtec’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. The December 31, ~~2016~~2018 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

Revenue Recognition ~~Revenue~~ On January 1, 2018, the Company adopted ASC 606 “Revenue from Contracts with Customers”. This new guidance provides a five-step analysis of transactions to determine when and how revenue is recognized, and requires 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.

Approximately 75% of the Company’s revenues are derived from performance obligations that are satisfied at a point in time when control passes to the customer. The remaining revenues are earned over time. Generally, for performance obligations satisfied at a point in time control passes at the time of shipment in accordance with ~~Accounting Standards Codification (“ASC”) 605 “Revenue Recognition.” Revenue is~~agreed upon delivery terms.

The Company also has long-term customer agreements involving the design and production of highly engineered products that require revenue to be recognized ~~when~~over time because these products have ~~been shipped to the respective customers, title has passed~~no alternative use without significant economic loss and the ~~price for~~agreements contain an enforceable right to payment including a reasonable profit margin from the ~~product has been determined.~~

~~In general,~~customer in the event of contract termination. Additionally, the Company ~~recognizes~~has customer agreements involving the creation or enhancement of an asset that the customer controls which also require revenue ~~from long-term contracts based on~~to be recognized over time. Generally, the ~~percentage~~Company uses an input method for determining the amount of ~~completion method~~revenue, cost and gross margin to recognize over time for these customer agreements. The input methods used for these agreements include costs of ~~accounting. The units-of-delivery method or other input-based or output-based measures, as appropriate, are used to measure~~material and labor, both of which give an accurate representation of the progress made toward ~~completion~~complete satisfaction of ~~individual contracts.~~a particular performance obligation. Contract revenues and cost estimates are reviewed and revised ~~quarterly at a minimum~~periodically through the year and adjustments are reflected in the accounting period as such amounts are determined. ~~Provisions~~

Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. The current portion of the contract assets are classified as current assets under the caption “Unbilled Accounts Receivable” while the noncurrent contract assets are classified as other assets under the caption "Other Noncurrent Assets" on the consolidated balance sheet. Noncurrent contract assets were $122.5 million at June 30, 2019 and were not material at December 31, 2018, respectively. Included in noncurrent contract assets are certain costs that are specifically related to a contract, however, do not directly contribute to the transfer of control of the tangible product being created, such as non-recurring engineering costs. The Company has elected to use the practical expedient and does not consider unbilled amounts anticipated to be paid within one year as significant financing components.

Contract liabilities include customer deposits that are made ~~currently~~prior to the incurrence of costs related to a newly agreed upon contract and advanced customer payments that are in excess of revenue recognized. The current portion of contract

liabilities are classified as current liabilities under the caption “Customer Deposits” while the noncurrent contract liabilities are classified as noncurrent liabilities under the caption "Other Long-Term Liabilities" on the consolidated balance sheet. Noncurrent contract liabilities were $36.9 million at June 30, 2019 and were not material at December 31, 2018. These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract or revenue associated with the contract liabilities is expected to be recognized within one year. Contract liabilities also include provisions for estimated losses onfrom uncompleted contracts. ~~Unbilled accounts receivables were $351.6 million and $274.9 million, customer deposits were $373.8 million and $256.6 million, and provisions~~Provisions for loss contracts were ~~$93.8~~$103.6 million and ~~$60.5~~$71.2 million at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. These provisions for estimated losses are classified as current liabilities and included within the caption “Other Accrued Liabilities” on the consolidated balance sheet.

~~Pre-Production Costs~~ ~~Certain pre-production costs relating~~Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment. Contract estimates related to long-term ~~production~~projects are based on various assumptions to project the outcome of future events that could span several years. These assumptions include cost of materials; labor availability and ~~supply contracts~~productivity; complexity of the work to be performed; and the performance of suppliers, customers and subcontractors that may be associated with the contract. We have ~~been deferred~~a disciplined process where management reviews the progress of long term-projects periodically throughout the year. As part of this process, management reviews information including key contract matters, progress towards completion, identified risks and ~~will be~~opportunities and any other information that could impact the Company’s estimates of revenue and costs. After completing this analysis, any adjustments to net sales, cost of goods sold, and the related impact to operating income are recognized as necessary in the period they become known.

Generally, the Company’s revenue contains a single performance obligation for each distinct good; however, a single contract may have multiple performance obligations comprising multiple promises to customers. Performance obligations are determined based on customer's intended use of products and services. Less complex products principally result in each completed product being a separate performance obligation recognized at a point in time. More complex products or services principally result in a single performance obligation as a customer is either procuring a bundled offering that is managed or utilized on a combined basis or there are multiple complex goods or services in the contract, which are substantially the same and recognized over time. When there are multiple performance obligations, revenue is allocated based on the ~~life~~relative stand-alone selling price. Pricing is defined in our contracts on a line item basis and includes an estimate of variable consideration when required by the terms of the ~~contracts. Deferred pre-production costs~~individual customer contract. Types of variable consideration the Company typically has include volume discounts, prompt payment discounts, liquidating damages, and performance bonuses. Sales returns and allowances are also estimated and recognized in the same period the related revenue is recognized, based upon the Company’s experience.

Remaining performance obligations represent the transaction price of firm customer orders subject to standard industry cancellation provisions and substantial scope-of-work adjustments. As of June 30, 2019, the Company's remaining performance obligations were ~~$28.8 million and $29.4 million at September 30, 2017 and December 31, 2016, respectively.~~$21.3 billion. The Company expects to recognize revenue of approximately 26% of remaining performance obligation over the next 12 months, with the remainder recognized thereafter.

Reclassifications Certain prior year amounts have been reclassified, where necessary, to conform to the current year ~~presentation. Refer~~presentation, including the reclassification of "Net Sales" to ~~Recently Adopted Accounting Pronouncements below.~~"Sales of Goods" and "Sales of Services".

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~~mitigate the impact of changes in foreign ~~currencies~~currency exchange rates and interest ~~rates.~~rates on earnings and cash flow. For further information regarding financial derivatives and hedging activities, refer to Footnotes 1214 and ~~13.~~15.

Foreign Currency Translation Certain of our international operations have determined that the local currency is the functional currency whereas others have determined the U.S. dollar is their functional currency. Assets and liabilities of foreign subsidiaries ~~except for~~where the ~~Company’s Mexican operations whose~~ functional currency is the ~~U.S. Dollar,~~local currency 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.

Noncontrolling Interests In accordance with ASC 810 "Consolidation", the Company has classified noncontrolling interests as equity on the condensed consolidated balance sheets as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016.~~2018. Net ~~income~~loss attributable to noncontrolling interests was $1.4 million and $1.1 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017 was a $1.0 million gain~~2019 and ~~a $0.7 million~~2018, respectively. Net loss ~~respectively, and was not material for the three and nine months ended September 30, 2016. Other comprehensive income~~ attributable to noncontrolling interests was $0.9 million and $2.1 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016 was not material.~~2018, respectively.

Recently Issued Accounting Pronouncements In ~~March~~January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The amendments in this update require the service cost component of net benefit costs to be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outside income from operations. This update also allows the service cost component to be eligible for capitalization when applicable. 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 was 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 does not expect the adoption of this 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'~~unit's goodwill is impaired and the amount of an impairment charge recognized in the event a reporting units' carrying value exceeds its fair value. All of the Company's reporting units had fair values that were substantially greater than the carrying value as of the Company's last quantitative goodwill impairment test, which was performed as of October 1, ~~2016.~~2018.

Recently Adopted Accounting PronouncementsIn ~~November 2016, the~~February 2018, FASB issued ASU No. ~~2016-18 "Statement~~2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of ~~Cash Flows (Topic 230): Restricted Cash"~~Certain Tax Effects from Accumulated Other Comprehensive Income". The amendments in this update ~~require~~address certain stranded income tax effects in accumulated other comprehensive income ("AOCI") resulting from the Tax Cuts and Jobs Act (the "Tax Act"). Current guidance requires the effect of a ~~statement~~change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of ~~cash flows~~enactment, even if the related income tax effects were originally charged or credited directly to ~~explain~~AOCI. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded effects resulting from the Tax Act. The amount of the reclassification would include the effect of the change ~~during~~in 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 shownU.S. federal corporate income tax rate on the ~~statement~~gross deferred tax amounts and related valuation allowances, if any, at the date of ~~cash flows.~~the enactment of the Tax Act related to items in AOCI. The ~~ASU is~~updated guidance became effective for ~~public companies in the fiscal years~~reporting periods beginning after December 15, ~~2017, and interim periods within those fiscal years. Early adoption is permitted.~~2018. The Company ~~is currently evaluating~~adopted this accounting standard at the ~~potential~~beginning of the period and elected to not retrospectively apply the new standard. The impact of adopting ~~this guidance on its~~the new standard was not material to the consolidated ~~financial statements.~~statement of income or the consolidated balance sheet.

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~~This guidance became effective for ~~public companies in~~ the ~~fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.~~Company on January 1, 2019. The Company ~~is currently evaluating~~elected the ~~potential impact~~practical expedient which does not require the capitalization of ~~adopting this guidance on its consolidated financial statements.~~

~~In May 2014,~~leases with terms of 12 months or less. And the ~~FASB issued ASU No. 2014-09, “Revenue from Contract with Customers.”~~Company did not elect the practical expedient which allows hindsight to be used to determine the term of a lease. The ~~ASU will supersede most~~Company adopted the standard using the transition alternative, which allowed for the application of the ~~existing revenue recognition requirements~~guidance at beginning of the period in ~~U.S. GAAP and will require entities to recognize revenue at an amount that reflects~~which it is adopted, rather than requiring 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~~adjustment of prior comparative periods. For further information regarding the ~~qualitative and quantitative information~~Company's adoption of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Board voted to propose that the standard would take effect for reporting periods beginning after December 15, 2017 and that early adoption would be allowed as of the original effective date. The impact of adopting the new standard, on net sales and operating income for the three and nine months ended September 30, 2017 and 2016 is not expected to be material. The Company also does not expect a material impact to the consolidated balance sheet. The impact to results is not anticipated to be material because the analysis of the Company's current contracts under the new revenue recognition standard supports how the Company is currently recognizing revenue over time and at a point in time; however, the Company's conclusions may evolve as management completes its contract reviews and evaluation. The Company plans to adopt this accounting standard update using the modified retrospective method, with the cumulative effect of initially applying this update recognized in the first reporting period of 2018. The Company is in the process of drafting an updated accounting policy, evaluating new disclosure requirements and identifying and implementing appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new guidance. The Company believes it is following an appropriate timeline to appropriately adopt this new standard on January 1, 2018.see Footnote 7.

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

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

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

The changes in accumulated other comprehensive income (loss) by component, net of tax, for the six months ended June 30, 2019 are as follows:



In thousands	Foreign currency translation			Derivative contracts			Pension and post retirement benefit plans			Total
Balance at December 31, 2018	$	(202,204	)	$	(53	)	$	(54,326	)	$	(256,583	)
Other comprehensive income (loss) before reclassifications	(27,721		)	(3,128		)	(2,849		)	(33,698		)
Amounts reclassified from accumulated other
comprehensive income	—			—			1,101			1,101
Net current period other comprehensive income (loss)	(27,721		)	(3,128		)	(1,748		)	(32,597		)
Balance at June 30, 2019	$	(229,925	)	$	(3,181	)	$	(56,074	)	$	(289,180	)

Reclassifications out of accumulated other comprehensive income (loss) for the three months ended June 30, 2019 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	$	(366	)	Other income (expense), net
Amortization of net loss	1,092			Other income (expense), net
	726			Other income (expense), net
	(176		)	Income tax expense
	$	550		Net income

Reclassifications out of accumulated other comprehensive income (loss) for the six months ended June 30, 2019 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	$	(732	)	Other income (expense), net
Amortization of net loss	2,184			Other income (expense), net
	1,452			Other income (expense), net
	(351		)	Income tax expense
	$	1,101		Net income

The changes in accumulated other comprehensive loss by component, net of tax, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are as follows:



	Foreign currency translation			Derivative contracts			Pension and post retirement benefit plans			Total
Balance at December 31, 2017	$	5,063		$	4,015		$	(54,070	)	$	(44,992	)
Other comprehensive income (loss) before reclassifications	(114,811		)	(4,760		)	6,744			(112,827		)
Amounts reclassified from accumulated other
comprehensive income	—			579			1,039			1,618
Net current period other comprehensive income (loss)	(114,811		)	(4,181		)	7,783			(111,209		)
Balance at June 30, 2018	$	(109,748	)	$	(166	)	$	(46,287	)	$	(156,201	)

In thousands
Foreign
currency
translation

Derivative
contracts

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

Reclassifications out of accumulated other comprehensive loss for the three months ended ~~September~~June 30, ~~2017~~2018 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	$	(422	)	Cost of sales	$	(375	)	Other income (expense), net
Amortization of net loss	1,240			Cost of sales	1,093			Other income (expense), net
	818			Income from Operations	718			Other income (expense), net
	(226		)	Income tax expense	(198		)	Income tax expense
	$	592		Net income	$	520		Net income

Derivative contracts
Realized loss on derivative contracts	$	497		Interest expense, net	$	176		Interest expense, net
	(131		)	Income tax expense	(42		)	Income tax expense
	$	366		Net income	$	134		Net income

Reclassifications out of accumulated other comprehensive loss for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are as follows:



In thousands	Amount reclassified from accumulated other comprehensive income			Affected line item in the Condensed Consolidated Statements of Operations
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost	$	(751	)	Other income (expense), net
Amortization of net loss	2,186			Other income (expense), net
	1,435			Other income (expense), net
	(396		)	Income tax expense
	$	1,039		Net income


Derivative contracts	$	855		Interest expense, net
Realized loss on derivative contracts	(276		)	Income tax expense
	$	579		Net income

In thousands
Amount reclassified from
accumulated other
comprehensive income

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

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

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

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

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

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

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

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

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

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

3. ACQUISITIONS

~~Faiveley Transport~~General Electric Transportation

~~On November 30, 2016,~~Wabtec, General Electric Company ("GE"), GE Transportation, a Wabtec Company formerly known as Transportation System Holdings Inc. ("SpinCo"), which was a newly formed wholly owned subsidiary of GE, and Wabtec US Rail Holdings, Inc. ("Merger Sub"), which was a newly formed wholly owned subsidiary of the Company, ~~acquired majority ownership of Faiveley Transport S.A. (“Faiveley Transport”~~entered into the Original Merger Agreement on May 20, 2018, and GE, SpinCo, Wabtec and Wabtec US Rail, Inc. ("Direct Sale Purchaser") ~~under~~entered into the ~~terms of a Share Purchase~~Original Separation Agreement ~~(“Share Purchase Agreement”). Faiveley Transport is a leading global provider of value-added, integrated systems and services~~on May 20, 2018, which together provided for the ~~railway industry with annual sales~~combination of ~~about $1.2~~Wabtec and GE Transportation. The Original Merger Agreement and Original Separation Agreement were subsequently amended on January 25, 2019 and the Merger was completed on February 25, 2019.

As part of the Merger, certain assets of GE Transportation ("GET"), including the equity interests of certain pre-Transaction subsidiaries of GE that compose part of GE Transportation, were sold to Direct Sale Purchaser for a cash payment of $2.875 billion, and ~~more than 5,700 employees~~Direct Sale Purchaser assumed certain liabilities of GE Transportation in ~~24 countries. Faiveley Transport supplies railway manufacturers, operators~~connection with this purchase (the "Direct Sale"). Thereafter, GE transferred the SpinCo business to SpinCo and ~~maintenance providers with a range of value-added, technology-based systems~~its subsidiaries (to the extent not already held

by SpinCo and ~~services in Energy & Comfort (air conditioning, power collectors and converters, and passenger information), Access & Mobility (passenger access systems and platform doors)~~its subsidiaries), and ~~Brakes~~SpinCo issued to GE shares of SpinCo Class A preferred stock, SpinCo Class B preferred stock, SpinCo Class C preferred stock and ~~Safety (braking systems~~additional shares of SpinCo common stock in the SpinCo Transfer. Following this issuance of additional SpinCo common stock to GE, and ~~couplers). The transaction was structured as a step acquisition as follows:~~

~~On November 30, 2016,~~immediately prior to the ~~Company acquired majority ownership~~Distribution (as defined below), GE owned 8,700,000,000 shares of ~~Faiveley Transport, after completing the purchase~~SpinCo common stock, 15,000 shares of ~~the Faiveley family’s ownership interest under the terms~~SpinCo Class A preferred stock, 10,000 shares of ~~the Share Purchase Agreement, which directed the Company to pay €100 per~~SpinCo Class B preferred stock and one share of Faiveley Transport, payable between 25% and 45% in cash at the election of those shareholders and the remainder payable in Wabtec stock. The Faiveley family’s ownership interest acquired by the Company represented approximately 51% of outstanding share capital and approximately

~~49%~~SpinCo Class C preferred stock, which constituted all of the outstanding ~~voting~~stock of SpinCo.

Following the Direct Sale, GE distributed the distribution shares of ~~Faiveley Transport. Upon completion~~SpinCo in a spin-off transaction to its stockholder (the "Distribution"). Immediately after the Distribution, Merger Sub merged with and into SpinCo (the "Merger"), whereby the separate corporate existence of Merger Sub ceased and SpinCo continued as the surviving company and a wholly owned subsidiary of Wabtec (except with respect to shares of SpinCo Class A preferred stock held by GE). In the Merger, subject to adjustment in accordance with the Merger Agreement, each share ~~purchase under~~of SpinCo common stock converted into 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~~right to receive ~~€100 per share in cash or 1.1538~~a number of shares of Wabtec common stock ~~per~~based on the common stock exchange ratio set forth in the Merger Agreement and the share of ~~Faiveley Transport. The~~SpinCo Class C preferred stock was converted into the right to receive (a) 10,000 shares of Wabtec convertible preferred stock and (b) a number of shares of Wabtec common stock ~~portion~~equal to 9.9% of the fully-diluted pro forma Wabtec shares. Immediately prior to the Merger, Wabtec paid $10.0 million in cash to GE in exchange for all of the shares of SpinCo Class B preferred stock.

Upon consummation of the Merger, Wabtec issued 46,763,975 shares of common stock to the holders of GE common stock, 19,018,207 shares of common stock to GE and 10,000 shares of preferred stock to GE and made a cash payment to GE of $2.885 billion. As a result and calculated based on Wabtec’s outstanding common stock on a fully-diluted, as-converted and as-exercised basis, as of December 31, 2018, approximately 49.2% of the outstanding shares of Wabtec common stock was held collectively by GE and holders of GE common stock (with 9.9% to be held by GE directly in shares of Wabtec common stock and 15% underlying the shares of Wabtec convertible preferred stock to be held by GE) and approximately 50.8% of the outstanding shares of Wabtec common stock would be held by pre-Merger Wabtec stockholders, in each case calculated on a fully-diluted, as-converted and as-exercised basis. Following the Merger, GE also retained 15,000 shares of SpinCo Class A non-voting preferred stock, and Wabtec held 10,000 shares of SpinCo Class B non-voting preferred stock. The shares of Wabtec common stock and Wabtec convertible preferred stock held by GE are subject to GE’s obligations under the shareholders agreement, including, among other things, and in each case subject to certain exceptions, (i) restrictions on the ability to sell, transfer or otherwise divest such shares for a period of 30 days and (ii) an obligation to sell, transfer or otherwise divest (A) by no later than 120 days following the closing date of the Merger, GE’s (and its affiliates’) ownership of Wabtec common stock and/or Wabtec convertible preferred stock so that GE (together with its affiliates) beneficially owns not less than 14.9% and not more than 19.9% of the number of shares of Wabtec common stock that were outstanding immediately after the closing of the Merger, (B) by no later than one year following the closing date of the Merger, GE’s (and its affiliates’) ownership of Wabtec common stock and/or Wabtec convertible preferred stock so that GE (together with its affiliates) beneficially owns not more than 18.5% of the number of shares of Wabtec common stock that were outstanding immediately after the closing of the Merger, in each case of clauses (A) and (B) treating the Wabtec convertible preferred stock as the Wabtec common stock into which it is convertible both for purposes of determining the number of shares of Wabtec common stock owned and for purposes of determining the number of shares of Wabtec common stock outstanding and (C) by no later than the third anniversary of the closing date of the Merger, all of the subject shares that GE (together with its affiliates) beneficially owns, and (iii) an obligation to vote all of such shares of Wabtec common stock in the proportion required under the Shareholders Agreement.

After the Merger, SpinCo, which is Wabtec’s wholly owned subsidiary (except with respect to shares of SpinCo Class A preferred stock held by GE), holds the SpinCo business and Direct Sale Purchaser, which also is Wabtec’s wholly owned subsidiary, holds the assets purchased and the liabilities assumed in connection with the Direct Sale. Together, SpinCo and Direct Sale Purchaser own and operate the post-transaction GE Transportation. All shares of the Company’s common stock, including those issued in the Merger, are listed on the NYSE under the Company’s current trading symbol “WAB.” On the date of the Distribution, GE or its subsidiaries and SpinCo or the SpinCo Transferred Subsidiaries entered into additional agreements relating to, among other things, intellectual property, employee matters, tax matters, research and development and transition services.

On May 6, 2019, GE completed the sale of approximately 8,780 shares of Wabtec's Series A Preferred stock which converted upon the sale to 25,300,000 shares of Wabtec's common stock. After the sale Wabtec had approximately 1,220 shares of Series A Preferred Stock outstanding convertible to approximately 3,515,500 shares of common stock and GE's aggregate beneficial ownership percentage of the Company was reduced from approximately 24.9% to approximately 11.7% on a fully-diluted, as-converted and as-exercised basis. In conjunction with this secondary offering the Company waived the requirement under the shareholders agreement for GE to maintain ownership of at least 14.9% of Wabtec's stock for 120 days following the closing date of the Merger. The Company did not receive any proceeds from the sale of these shares.

contingent consideration because the timing of cash payments to GE is directly related to the future timing of tax benefits received by the Company as a result of the merger. The estimated total value of the consideration ~~was subject~~ to ~~a cap on issuance of~~be paid by Wabtec ~~common shares that was equivalent to the rates of cash and stock elected by the 51% owners.~~

~~On February 3, 2017, the initial cash tender offer was closed, which resulted~~ in the ~~Company acquiring~~Transactions is approximately ~~27% of additional outstanding share capital and voting rights of Faiveley Transport for approximately $411.8 million in~~$10.3 billion, including the 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~~the Direct Sales Assets, equity transferred for SpinCo, contingent consideration, assumed debt and net 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~~estimated consideration is based on the ~~consolidated balance sheet at December 31, 2016 was cash designated for use as~~Company’s closing share price of $73.36 on February 22, 2019 and the preliminary fair value of the contingent consideration. The value of the preliminary purchase price consideration ~~for~~could change when the ~~tender offers.~~Company has completed the detailed valuation of the contingent consideration and other necessary calculations.

The fair values of the assets acquired and liabilities assumed ~~are preliminarily~~were 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~~June 30, 2019 consolidated balance sheet includes the assets and liabilities of ~~Faiveley Transport,~~GET, which have been initially measured at fair value. The ~~fair value~~noncontrolling interest includes equity interests in GET's Brazil operations held by third parties on the date of acquisition. At the time of acquisition, quotable market prices 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 ofexisted; therefore, the noncontrolling interest in the ~~three months ended March 31, 2017 resulted in~~GET Brazil operations were measured using a ~~$8.9 million increase to additional paid-in capital on~~Level 1 input. In April 2019, the ~~consolidated balance sheet which represents the difference in consideration paid to acquire~~Company acquired the noncontrolling interest ~~and~~in GET's Brazil operations for $56.2 million which approximated the ~~carrying~~fair value ofassigned to the noncontrolling interest aton the date of acquisition.

The remaining noncontrolling interest value was determined based on inputs that are not observable in the market and are considered Level 3.

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



In thousands
Assets acquired
Cash and cash equivalents	$	174,334
Accounts receivable	525,966
Inventories	1,185,574
Other current assets	64,115
Property, plant, and equipment	1,086,245
Goodwill	5,758,264
Trade names	50,000
Customer relationships	550,000
Intellectual property	1,210,000
Backlog	1,530,000
Other noncurrent assets	211,081
Total assets acquired	12,345,579
Liabilities assumed
Current liabilities	1,514,189
Contingent consideration	440,000
Other noncurrent liabilities	522,465
Total liabilities assumed	2,476,654
Net assets acquired	9,868,925
Noncontrolling interest	$	86,765

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

These estimates are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments will be finalized within one year from the date of acquisition. During the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2019, the estimated fair values for acquired backlog and customer relationships ~~and current liabilities were adjusted by $21.8~~increased $50.0 million and ~~$51.8~~$20.0 million, ~~respectively,~~respectively. Additionally, the estimated fair value for other noncurrent assets decreased by $23.7 million primarily due to estimate revisions for long-term contract assets. These changes to initial estimates were based on information that existed at the date of acquisition. Additionally, the estimated fair values for accounts receivable and current liabilities were adjusted by $2.8 million and $36.2 million, respectively, to correct errors in the preliminary estimated fair values of the Faiveley Transport assets acquired and liabilities assumed. Other noncurrent assets were adjusted by $29.0 millionto record the deferred tax impact of these adjustments. As a result of these adjustments and other immaterial adjustments related to changes to initial estimates based on information that existed at the date of acquisition, goodwill increased by $69.1 million. Accounts receivable and current liabilities were adjusted by $64.3 million to correct an error in the preliminary estimated fair values of Faiveley Transport assets and liabilities assumed related to a factoring arrangement with recourse.

Substantially all of the accounts receivable acquired are expected to be collectible. ~~Included in current liabilities is $25.9 million of accrued compensation for acquired share-based stock plans that~~Trade names, customer relationships, patents and backlog intangible assets are ~~obligated~~all subject to ~~be settled in cash.~~amortization. Contingent liabilities assumed as part of the transaction were not material. ~~These~~The 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 isare an exception to the fair value basis of accounting. Included in other noncurrent liabilities are customer contracts whose terms are unfavorable compared to market terms at the date of acquisition.

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~~that are expected to ~~achieve~~be achieved as a result of the acquisition. ~~Purchased~~Substantially all of the purchased goodwill is ~~not~~ expected to be deductible for tax purposes. The goodwill has been preliminarily allocated to the ~~Transit~~Freight segment.

~~For~~Included in the ~~three and nine months ended September 30, 2017, the Company’s~~Company's consolidated statement of income ~~included $294.4 million and $851.8~~for the six months ended June 30, 2019 is $1,617.1 million of revenues ~~respectively,~~and $88.2 million of operating income from ~~Faiveley Transport.~~GET. Acquisition related costs were approximately $55.3 million for the six months ended June 30, 2019 and are included in selling, general and administrative expenses on the consolidated statements of income.

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 April 5, 2017, the Company acquired Thermal Transfer Corporation ("TTC"), a leading provider of heat transfer solutions for industrial applications, for a purchase price of approximately $32.5 million, net of cash acquired, resulting in preliminary goodwill of $16.3 million, all of which will be deductible for tax purposes.

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 $65.3 million, net of cash acquired, resulting in preliminary goodwill of $31.9 million, all 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 $43.8 million, net of cash acquired, resulting in preliminary goodwill of $24.4 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 $4.0 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 $14.8 million, net of cash acquired, resulting in goodwill of $2.4 million, all of which will be deductible for tax purposes.

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

On ~~October 2, 2017, subsequent to the close of our accounting quarter,~~March 22, 2018, the Company acquired ~~AM General Contractor~~Annax GmbH ("~~AM"~~Annax"), a ~~manufacturer~~leading supplier of ~~safety~~public address and passenger information systems ~~mainly~~ for transit ~~rail cars with annual sales of about $25.0 million.~~

~~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,~~vehicles, for a purchase price of approximately ~~$62.8~~$45.2 million, net of cash acquired and including contingent consideration, resulting in final goodwill of ~~$17.5~~$38.5 million, none of which will be deductible for tax purposes.

~~The acquisitions listed above include escrow deposits~~ A payment of ~~$38.4~~$10.1 million ~~which act as security for indemnity and other claims~~was made in ~~accordance~~the three months ended June 30, 2019 related to contingent consideration associated with the purchase ~~and related escrow agreements.~~of Annax.

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


	TTC			ATP			Workhorse			Precision Turbo			Gerken			Unitrac			Annax
In thousands	April 5, 2017			March 14, 2017			December 14, 2016			November 17, 2016			August 1, 2016			May 5, 2016			March 22, 2018
Current assets	$	3,746		$	11,666		$	9,137		$	4,145		$	32,706		$	11,476		$	32,827
Property, plant & equipment	5,909			5,354			—			1,346			7,667			1,768			674
Goodwill	16,309			31,934			24,373			4,019			17,470			2,442			38,511
Other intangible assets	12,300			22,100			19,400			5,200			30,560			1,230			11,715
Other assets	—			—			—			—			1,706			—
Total assets acquired	38,264			71,054			52,910			14,710			90,109			16,916			83,727
Total liabilities assumed	(5,753		)	(5,800		)	(9,083		)	(884		)	(27,262		)	(2,145		)	(55,064		)
Net assets acquired	$	32,511		$	65,254		$	43,827		$	13,826		$	62,847		$	14,771		$	28,663

~~Of the $671.8~~The allocation of $11.7 million of total acquired other intangible assets ~~$367.6~~includes $3.8 million ~~was~~ assigned to trade names ~~$296.7~~and $7.5 million ~~was~~ assigned to customer ~~relationships, and $5.0 million was assigned to intellectual property.~~relationships. The trade names were determined to have indefinite useful lives, while the ~~intellectual property and~~ customer relationships’ average useful lives are 20 ~~years, and the non-compete agreements' useful life is five~~ years.

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

The following unaudited pro forma consolidated financial information presents income statement results as if the acquisitions listed above had occurred on January 1, ~~2016:~~2018:



In thousands	Three Months Ended June 30, 2019		Three Months Ended June 30, 2018		Six Months Ended June 30, 2019		Six Months Ended June 30, 2018
Net sales	$	2,236,284	$	2,023,848	$	4,316,055	$	3,905,572
Gross profit	703,676		634,868		1,247,156		1,019,549
Net income attributable to Wabtec shareholders	171,875		151,475		255,152		99,206
Diluted earnings per share
As Reported	$	0.54	$	0.87	$	0.61	$	1.79
Pro forma	$	0.90	$	0.79	$	1.34	$	0.52

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

4. INVENTORIES

The components of inventory, net of reserves, were:



In thousands	June 30, 2019		December 31, 2018
Raw materials	$	786,281	$	465,873
Work-in-progress	434,731		154,485
Finished goods	660,779		224,528
Total inventories	$	1,881,791	$	844,886

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

5. INTANGIBLES

The change in the carrying amount of goodwill by segment for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 is as follows:



In thousands	Freight Segment			Transit Segment			Total
Balance at December 31, 2018	$	713,391		$	1,683,153		$	2,396,544
Additions	5,754,115			15,420			5,769,535
Foreign currency impact	(11,687		)	(3,721		)	(15,408		)
Balance at June 30, 2019	$	6,455,819		$	1,694,852		$	8,150,671

In thousands
Freight
Segment

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

As of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, the Company’s trade names had a net carrying amount of ~~$583.7~~$626.6 million and ~~$510.5~~$582.8 million, ~~respectively, and the~~respectively. The Company believes these intangibles have indefinite ~~lives.~~lives, with the exception of the GE Transportation trade name, to which the company has assigned a useful life of 5 years.

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



In thousands	June 30, 2019		December 31, 2018
Backlog, intellectual property, patents, and other intangibles, net of accumulated
amortization of $76,059 and $42,446	$	2,689,022	$	15,328
Customer relationships, net of accumulated amortization
of $183,933 and $158,533	1,048,774		531,761
Total	$	3,737,796	$	547,089

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

The weighted average remaining useful life of ~~patents,~~backlog, intellectual property, customer relationships and other intangibles were 18 years, 10 years, 1718 years and 1513 years, respectively. Amortization expense for intangible assets was ~~$8.6~~$66.0 million and ~~$27.0~~$93.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, and ~~$5.3~~$9.9 million and ~~$16.1~~$20.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, respectively.

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



Remainder of 2019	$	130,967
2020	259,206
2021	259,117
2022	258,805
2023	258,174

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

6. CONTRACT ASSETS AND CONTRACT LIABILITIES

Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract, advanced customer payments that are in excess of revenue recognized, and provisions for estimated losses from uncompleted contracts.

The change in the carrying amount of contract assets and contract liabilities for the six months ended June 30, 2019 is as follows:



In thousands	Contract Assets
Balance at beginning of year	$	345,585
Acquisitions	213,605
Recognized in current year	324,940
Reclassified to accounts receivable	(300,714		)
Foreign currency impact	(925		)
Balance at June 30, 2019	$	582,491

In thousands	Contract Liabilities
Balance at beginning of year	$	444,805
Acquisitions	282,054
Recognized in current year	572,644
Amounts in beginning balance reclassified to revenue	(251,980		)
Current year amounts reclassified to revenue	(257,640		)
Foreign currency impact	(867		)
Balance at June 30, 2019	$	789,016

7. LEASES

During the first quarter of 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)," which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2019. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below.

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

As most of the Company's leases do not provide a readily stated discount rate, the Company must estimate our incremental borrowing rate to discount lease payments. The Company has established discount rates by geographic region ranging from 1.2% to 12.3%.

The components of lease expense are as follows:



	Three Months Ended June 30,			Six Months Ended June 30,
(in thousands)	2019			2019
Operating lease expense	$	13,387		$	26,784
Finance lease expense
Amortization of leased assets	272			543
Interest on lease liabilities	4			8
Short-term and variable lease expense	172			277
Sublease income	(138		)	(276		)
Total	$	13,697		$	27,336

Scheduled payments of lease liabilities are as follows:



(in thousands)	Operating Leases			Finance Leases			Total
Remaining 2019	$	25,598		$	188		$	25,786
2020	45,910			383			46,293
2021	37,570			185			37,755
2022	30,788			121			30,909
2023	26,252			121			26,373
Thereafter	107,810			349			108,159
Total lease payments	273,928			1,347			275,275
Less: Present value discount	(29,311		)	(2		)	(29,313		)
Present value lease liabilities	$	244,617		$	1,345		$	245,962

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



	June 30,
	2019
Weighted-average remaining lease term (years)
Operating leases	8.3
Finance leases	5.5
Weighted-average discount rate
Operating leases	3.0	%
Finance leases	1.2	%

8. LONG-TERM DEBT

Long-term debt consisted of the following:



In thousands	June 30, 2019		December 31, 2018
Floating Senior Notes, due 2021, net of unamortized debt issuance costs of $2,604 and $3,204	$	497,396	$	496,796
4.15% Senior Notes, due 2024, net of unamortized debt issuance costs of $6,362 and $7,043	743,638		742,957
4.70% Senior Notes, due 2028, net of unamortized debt issuance costs of $9,809 and $10,343	1,240,191		1,239,657
3.45% Senior Notes, due 2026, net of unamortized debt issuance costs of $1,604 and $1,718	748,396		748,282
4.375% Senior Notes, due 2023, net of unamortized discount and debt issuance costs of $1,048 and $1,177	248,952		248,823
Revolving Credit Facility, net of unamortized debt issuance costs of $2,592 and $3,138	1,113,269		338,112
Other Borrowings	41,339		42,246
Total	4,633,181		3,856,873
Less: current portion	104,413		64,099
Long-term portion	$	4,528,768	$	3,792,774

In thousands September 30,
2017 December 31,
2016
3.45% Senior Notes, due 2026, net of unamortized debt
issuance costs of $2,410 and $2,526 $ 747,590
$ 747,474
4.375% Senior Notes, due 2023, net of unamortized
discount and debt issuance costs of $1,498 and $1,690 248,502
248,310
Revolving Credit Facility, net of unamortized
debt issuance costs of $2,801 and $3,850 855,321
796,150
Schuldschein Loan 11,812
98,671
Other Borrowings 9,150
1,153
Capital Leases 1,529
1,018
Total 1,873,904
1,892,776
Less - current portion 49,748
129,809
Long-term portion $ 1,824,156
$ 1,762,967
On September 14, 2018, the Company issued $2.5 billion of senior notes with three different maturities.

•

Floating Rate Senior Notes due 2021 - The Company issued $500.0 million of Floating Rate Senior Notes due 2021 (the "Floating Rate Notes"). The Floating Rate Notes, which are non-callable for one year, were issued at 100% of face value. Interest on the Floating Rate Notes accrues at a floating rate per annum equal to three-month Libor plus 105 basis points. The interest rate for the Floating Rate Notes for the initial interest period was the three-month Libor plus 105 basis points determined on September 12, 2018 and is payable quarterly on December 15, March 15, June 15, and September 15 of each year. The Company incurred $3.5 million of deferred financing costs related to the issuance of the Floating Rate Notes.

•

4.15% Senior Notes due 2024 - The Company issued $750.0 million of 4.15%Senior Notes due 2024 (the "2024 Notes"). The 2024 Notes were issued at 99.805% of face value. Interest on the 2024 Notes accrues at a rate of 4.15% per annum and is payable semi-annually on March 15 and September 15 of each year. The Company incurred $7.4 million of deferred financing costs related to the issuance of the 2024 Notes.

•

4.70% Senior Notes Due 2028 - The Company issued $1,250.0 million of 4.70% Senior Notes due 2028 (the "2028 Notes" and together with the Floating Rate Notes and 2024 Notes, the "Senior Notes"). The 2028 Notes were issued at 99.889% of face value. Interest on the 2028 Notes accrues at a rate of 4.70% per annum and is payable semi-annually on March 15 and September 15 of each year. The Company incurred $10.6 million of deferred financing costs related to the issuance of the 2028 Notes.

~~Wabtec's acquisition~~The net proceeds from the issuance and sale of the ~~controlling stake~~Senior Notes were used to finance the cash portion of ~~Faiveley Transport triggered~~ the ~~early repayment~~GE Transportation acquisition. The principal balances are due in full at maturity. The Senior Notes are senior unsecured obligations of ~~a syndicated loan~~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 Senior Notes were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness, payment of dividends and certain distributions, sales of assets, change in control, mergers and consolidations and the ~~mandatory offer~~incurrence of liens.

On February 12, 2019, the rating assigned by Moody's was decreased to ~~investors~~Ba1. Accordingly, pursuant to ~~repay~~ the ~~U.S.~~respective terms of the Senior Notes issued on September 14, 2018, the interest rate increased by 0.25%. The interest rate increase took effect during the interest period following February 12, 2019.

The Company is in compliance with the restrictions and ~~Schuldschein private placements. Both~~covenants in the ~~syndicated loan~~indenture under which the Senior Notes were issued and ~~U.S. private placements were repaid~~expects that these restrictions and covenants will not be any type of limiting factor in ~~full in December 2016.~~executing our operating activities.

3.45% Senior Notes Due November 2026

On November 3, 2016, the Company issued $750.0 million of 3.45% 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 $2.7 million of deferred financing costs related to the issuance of the 2016 Notes.

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~~its operating activities.

4.375% Senior Notes Due August 2023

In August 2013, the Company issued $250.0 million of 4.375% 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.

2018 Refinancing Credit Agreement

On June 8, 2018, the Company entered into a credit agreement (the “2018 Refinancing Credit Agreement”), which replaced the Company’s then-existing 2016 Refinancing Credit Agreement. As part of the 2018 Refinancing Credit Agreement, the Company entered into (i) a $1.2 billion revolving credit facility (the “Revolving Credit Facility”), which replaced the Company’s revolving credit facility under the 2016 Refinancing Credit Agreement, and includes a letter of credit sub-facility of up to $450.0 million and a swing line sub-facility of $75.0 million, (ii) a $350.0 million term loan (the “Refinancing Term Loan”), which refinanced the term loan under the 2016 Refinancing Credit Agreement, and (iii) a new $400.0 million delayed draw term loan (the “Delayed Draw Term Loan”). The 2018 Refinancing Credit Agreement also provided for a bridge loan facility (the “Bridge Loan Facility”) in an amount not to exceed $2.5 billion, which would only become effective at the Company’s request. Commitments in respect of the Bridge Loan Facility were terminated upon the issuance and sale of the Senior Notes on September 14, 2018. In addition, the 2018 Refinancing Credit Agreement contains an uncommitted accordion feature allowing the Company to request, in an aggregate amount not to exceed $600.0 million, increases to the borrowing commitments under the Revolving Credit Facility or a new incremental term loan commitment. At June 30, 2019, the Company had approximately $780.3 million of available bank borrowing capacity subject to certain financial covenant restrictions, net of $27.6 million of letters of credit.

The Revolving Credit Facility matures on June 8, 2023 and is unsecured. The Refinancing Term Loan matures on June 8, 2021 and is unsecured. The Delayed Draw Term Loan matures on the third anniversary of the date on which it is borrowed and is unsecured. The applicable interest rate for borrowings under the 2018 Refinancing Credit Agreement includes interest rate spreads based on the lower of the pricing corresponding to (i) the Company’s ratio of total debt (less unrestricted cash up to $300.0 million) to EBITDA (“Leverage Ratio”) or (ii) the Company’s public rating, in each case that range between 1.000% and 1.875% for LIBOR/CDOR-based borrowings and 0.0% and 0.875% for Alternate Base Rate based borrowings. The obligations of the Company under the 2018 Refinancing Credit Agreement have been guaranteed by certain of the Company’s subsidiaries.

The Delayed Draw Term Loan was initially drawn on February 25, 2019. The Company incurred a 17.5 basis point commitment fee from June 8, 2018 until the initial draw.

The 2018 Refinancing Credit Agreement contains customary representations and warranties by the Company and its subsidiaries, including customary use of materiality, material adverse effect, and knowledge qualifiers. The Company and its subsidiaries are also subject to (i) customary affirmative covenants that impose certain reporting obligations on the Company and its subsidiaries and (ii) customary negative covenants, including limitations on: indebtedness; liens; restricted payments; fundamental changes; business activities; transactions with affiliates; restrictive agreements; changes in fiscal year; and use of proceeds. In addition, the Company is required to maintain (i) an Interest Coverage ratio at least 3.00 to 1.00 over each period of four consecutive fiscal quarters ending on the last day of a fiscal quarter and (ii) a Leverage Ratio, calculated as of the last day of a fiscal quarter for a period of four consecutive fiscal quarters, of 3.25 to 1.00 or less; provided that, in the event the Company completes the Direct Sale and the Merger or any other material acquisition in which the cash consideration paid exceeds $500.0 million, the maximum Leverage Ratio permitted will be 3.75 to 1.00 at the end of the fiscal quarter in which such acquisition is consummated and each of the three fiscal quarters immediately following such fiscal quarter and 3.50 to 1.00 at the end of each of the fourth and fifth full fiscal quarters after the consummation of such acquisition. The Company is in compliance with the restrictions and covenants of the 2018 Refinancing Credit Agreement and does not expect that these measurements will limit the Company in executing its operating activities.

At June 30, 2019, the weighted average interest rate on the Company’s variable rate debt was 3.28%. On June 5, 2014, the Company entered into a forward starting interest rate swap agreement with a notional value of $150.0 million. The effective date of the interest rate swap agreement was November 7, 2016, and the termination date was December 19, 2018.

2016 Refinancing Credit Agreement

On June 22, 2016, the Company amended ~~and restated~~ its existing revolving credit facility with a consortium of commercial banks. ~~The “2016~~This 2016 Refinancing Credit ~~Agreement” provides~~Agreement provided the Company with a $1.2 billion, ~~five years~~5 year revolving credit facility and a ~~$400.0~~$400 million delayed draw term loan (the “Term Loan”). The Company incurred approximately ~~$3.3~~$3 million of deferred financing ~~costs~~cost related to the 2016 Refinancing Credit Agreement. The ~~facility expires on June 22, 2021. The~~ 2016 Refinancing Credit Agreement borrowings ~~bear~~bore variable interest rates indexed as described below. At September 30, 2017, the Company had available bank borrowing capacity, net of $35.4 million of letters of credit, of approximately $686.7 million, subject to certain financial covenant restrictions.

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

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

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

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

~~2013 Refinancing Credit Agreement~~

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

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

Effective Rate plus ~~0.5%~~0.50% per annum, the PNC, N.A. prime rate or the Daily LIBOR Rate plus 100 basis points, plus a margin that ranged from 0 to 75 basis points. The Alternate Rate was based on the quoted rates specific to the applicable currency, plus a margin that ranged from 75 to 175 basis points. Both the Base Rate and Alternate Rate margins were dependent on the Company’s consolidated total indebtedness to EBITDA ratios. The initial Base Rate margin was 0 basis points and the Alternate Rate margin is 175 basis points.

~~Schuldschein Loan, Due 2024~~

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

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

7.9. 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 June 30,						Three Months Ended June 30,
In thousands, except percentages	2017			2016			2017			2016
In thousands													2019			2018			2019			2018
Net periodic benefit cost
Service cost	$	86		$	84		$	614		$	258		$	71		$	87		$	611		$	691
Interest cost	356			369			1,677			1,257			372			333			1,711			1,834
Expected return on plan assets	(433		)	(519		)	(2,910		)	(2,437		)	(433		)	(445		)	(2,927		)	(3,466		)
Net amortization/deferrals	248			229			685			397			207			243			641			554
Net periodic benefit cost	$	257		$	163		$	66		$	(525	)
Net periodic benefit cost (credit)													$	217		$	218		$	36		$	(387	)


	U.S.						International						U.S.						International
	Nine Months Ended September 30,						Nine Months Ended September 30,						Six Months Ended June 30,						Six Months Ended June 30,
In thousands, except percentages	2017			2016			2017			2016
In thousands													2019			2018			2019			2018
Net periodic benefit cost
Service cost	$	258		$	252		$	1,842		$	986		$	142		$	174		$	1,222		$	1,382
Interest cost	1,068			1,107			5,031			4,193			744			666			3,422			3,668
Expected return on plan assets	(1,299		)	(1,557		)	(8,730		)	(7,723		)	(866		)	(890		)	(5,854		)	(6,932		)
Net amortization/deferrals	744			687			2,055			1,452			414			486			1,282			1,108
Curtailment loss recognized	—			—			—			240
Net periodic benefit (credit) cost	$	771		$	489		$	198		$	(852	)
Net periodic benefit cost (credit)													$	434		$	436		$	72		$	(774	)



Assumptions
Discount Rate	4.3	%	3.6	%	2.5	%	2.4	%
Expected long-term rate of return	5.4	%	5.2	%	5.0	%	5.1	%
Rate of compensation increase	3.0	%	3.0	%	2.6	%	2.6	%

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

The Company’s funding methods are based on governmental requirements and differ from those methods used to recognize pension expense. The Company expects to contribute ~~$7.1 million and $0.5~~$6.4 million to the international ~~and~~plans during 2019. The Company does not expect to make contributions to the U.S. plans ~~respectively,~~ during ~~2017.~~2019.

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 June 30,						Three Months Ended June 30,
In thousands, except percentages	2017			2016			2017			2016
In thousands													2019			2018			2019			2018
Net periodic benefit cost
Service cost	$	1		$	1		$	7		$	7		$	1		$	1		$	2		$	8
Interest cost	88			97			24			25			89			81			20			26
Net amortization/deferrals	(73		)	(105		)	(7		)	(9		)	(101		)	(76		)	(22		)	(4		)
Net periodic benefit (credit) cost	$	16		$	(7	)	$	24		$	23
Net periodic benefit cost													$	(11	)	$	6		$	—		$	30


	U.S.						International						U.S.						International
	Nine Months Ended September 30,						Nine Months Ended September 30,						Six Months Ended June 30,						Six Months Ended June 30,
In thousands, except percentages	2017			2016			2017			2016
In thousands													2019			2018			2019			2018
Net periodic benefit cost
Service cost	$	3		$	3		$	21		$	21		$	2		$	2		$	4		$	16
Interest cost	264			291			72			75			178			162			40			52
Net amortization/deferrals	(219		)	(315		)	(21		)	(27		)	(202		)	(152		)	(44		)	(8		)
Net periodic (credit) benefit cost	$	48		$	(21	)	$	72		$	69
Net periodic benefit cost													$	(22	)	$	12		$	—		$	60



Assumptions
Discount Rate	4.17	%	3.43	%	3.49	%	3.21	%

Assumptions
Discount Rate 3.76 % 3.95 % 3.46 % 3.90 %

8.10. STOCK-BASED COMPENSATION

As of ~~September~~June 30, ~~2017,~~2019, the Company maintains employee stock-based compensation plans for stock options, restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan, as amended and restated (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The 2011 Plan has a term through May 10, 2027 and provides a maximum of 3,800,000 shares for grants or awards, plus any shares which remain available under the 2000 Plan. The ~~2011 Plan was approved by stockholders of Wabtec on May 11, 2011, and an~~ amendment and restatement of the 2011 Plan was approved by ~~the Stockholders~~stockholders of Wabtec on May 10, 2017. The Company also maintains a 1995 Non-Employee Directors’ Fee and Stock Option Plan as amended and restated (“the Directors Plan”).

Stock-based compensation expense was ~~$14.5~~$15.8 million and ~~$14.8~~$8.3 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively. Included in stock-based compensation expense for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2019 is ~~$1.2~~$1.0 million of expense related to stock options, ~~$5.3~~$8.1 million related to restricted stock, ~~$3.2~~$2.9 million related to restricted stock units, ~~$3.7~~$3.5 million related to incentive stock units and ~~$1.1~~$0.3 million related to units issued for Directors’ fees.

Stock-based compensation expense was $24.3 million and $14.0 million for the six months ended June 30, 2019 and 2018, respectively. Included in stock-based compensation expense for the six months ended June 30, 2019 is $1.3 million of expense related to stock options, $10.8 million related to restricted stock, $3.7 million related to restricted stock units, $7.9 million related to incentive stock units and $0.6 million related to units issued for Directors’ fees. At ~~September~~June 30, ~~2017,~~2019, unamortized compensation expense related to stock options, non-vested restricted shares ~~units~~ and incentive stock units expected to vest totaled ~~$29.7 million and will be recognized over a weighted average period of 1.4 years.~~$61.7 million.

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

The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2019:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic value (in thousands)
Outstanding at December 31, 2018	466,677		$	61.04	5.7	$	5,003
Granted	132,155		70.46			172
Exercised	(468	)	64.54			(19		)
Canceled	(3,148	)	73.34			—
Outstanding at June 30, 2019	595,216		63.08		6.2	5,168
Exercisable at June 30, 2019	388,634		54.89		5.2	6,558

Options
Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual Life

Aggregate
Intrinsic value
(in thousands)
Outstanding at December 31, 2016 1,098,823
$ 35.39
4.3 $ 52,332
Granted 65,522
87.09
0
Exercised (133,927 ) 21.84
7,220
Canceled (4,266 ) 72.91
13
Outstanding at September 30, 2017 1,026,152
40.30
4.1 36,377
Exercisable at September 30, 2017 838,004
32.15
3.4 36,537

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:



	Six Months Ended June 30,
	2019		2018
Dividend yield	0.66	%	0.31	%
Risk-free interest rate	2.61	%	2.78	%
Stock price volatility	25.8	%	23.9	%
Expected life (years)	5.0		5.0

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

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

Restricted Stock, Restricted Units and Incentive Stock Beginning in 2006, the Company adopted a restricted stock program. As provided for under the 2011 Plan and 2000 Plan, eligible employees are granted restricted stock that generally vests over 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 performance goals. Based on the Company’s performance for each three-year period then ended, the incentive stock units can vest, with underlying shares of common stock being awarded in an amount ranging from 0% to 200% of the amount of initial incentive stock units granted. The incentive stock units included in the table below represent the number of incentive stock units that are expected to vest based on the Company’s estimate for meeting those established performance targets. As of ~~September~~June 30, ~~2017,~~2019, the Company estimates that it will achieve ~~73%~~107%, ~~68%~~105% and ~~80%~~103% for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, ~~2017, 2018,~~2019, 2020, and ~~2019,~~2021, respectively, and has recorded incentive compensation expense accordingly. If ~~our~~the estimate of the number of these incentive stock units expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease and will be recognized in the current period for the elapsed portion of the vesting period and would change future expense for the remaining vesting period.

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

The following table summarizes the restricted stock activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan, and incentive stock units activity for the 2011 Plan and the 2000 Plan with related information for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2019:



	Restricted Stock and Units		Incentive Stock Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2018	445,089		415,243		$	75.51
Granted	568,052		258,100		70.48
Vested	(207,656	)	(119,835	)	71.59
Adjustment for incentive stock awards expected to vest	—		43,257		78.82
Canceled	(11,041	)	(38,116	)	74.38
Outstanding at June 30, 2019	794,444		558,649		73.53

Restricted
Stock
and Units

Incentive
Stock
Units

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

9.11. INCOME TAXES

The overall effective ~~income~~ tax rate was ~~15.7%~~28.7% and ~~23.4%~~38.3% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, respectively and ~~28.5%~~11.2% and ~~29.7%~~17.7% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, respectively. ~~For the three and nine months ended September 30, 2017, the decrease~~The increase in the effective rate is primarily ~~due to $9.5 million of favorable deferred tax net benefits recorded in the three months ended September 30, 2017 and~~ the result of non-deductible transaction related expenses incurred as a ~~lower earnings mix in higher tax rate jurisdictions. The net favorable deferred tax benefits related to~~result of the ~~adjustment~~acquisition of ~~deferred tax~~GE Transportation as well as increased estimated liabilities ~~which had originally been established in prior periods in several foreign jurisdictions. These adjustments were not material to~~resulting from provisions of the ~~current year-to-date financial statements or prior years annual financial statements.~~Tax Cuts and Jobs Act.

As of ~~September~~June 30, ~~2017 and December 31, 2016,~~2019, the liability for income taxes associated with uncertain tax positions was ~~$5.7~~$12.1 million, of which ~~$3.2~~$11.0 million, if recognized, would favorably affect the Company’s effective income tax rate. As of December 31, 2018, the liability for income taxes associated with unrecognized tax benefits was $9.5 million, of which $8.4 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~~June 30, ~~2017,~~2019, the total ~~accrued~~ interest and penalties ~~were $0.6 million and $0.3 million, respectively.~~accrued was approximately $1.1 million. As of December 31, ~~2016,~~2018, the total ~~accrued~~ interest and penalties ~~were $0.8 million and $0.3 million, respectively.~~accrued was approximately was $0.9 million.

At this time, the Company believes it is reasonably possible that unrecognized tax benefits of approximately ~~$3.6~~$6.2 million may change within the next 12 months due to the expiration of statutory review periods and current examinations. ~~With limited exceptions, the Company is no longer subject to examination by various U.S. and foreign taxing authorities for years before 2013.~~

~~10.~~

12. 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 June 30,
In thousands, except per share data	2017			2016			2019			2018
Numerator
Numerator for basic and diluted earnings per common share - net income attributable
to Wabtec shareholders	$	67,399		$	82,428		$	104,235		$	84,416
Less: dividends declared - common shares and non-vested restricted stock	(11,518		)	(8,958		)	(22,576		)	(11,565		)
Undistributed earnings	55,881			73,470			81,659			72,851
Percentage allocated to common shareholders (1)	99.7		%	99.7		%	99.7		%	99.7		%
	55,713			73,250			81,414			72,632
Add: dividends declared - common shares	11,485			8,933			22,508			11,531
Numerator for basic and diluted earnings per common share	$	67,198		$	82,183
Less: dividends declared - preferred shares							(422		)	—
Numerator for basic earnings per common share							$	103,500		$	84,163
Add: dividends declared - preferred shares							422			—
Numerator for diluted earnings per common share							103,922			84,163
Denominator
Denominator for basic earnings per common share - weighted average shares	95,709			89,589			177,348			95,992
Effect of dilutive securities:
Assumed conversion of preferred shares							13,743			—
Assumed conversion of dilutive stock-based compensation plans	607			704			362			583
Denominator for diluted earnings per common share -
adjusted weighted average shares and assumed conversion	96,316			90,293			191,453			96,575
Net income attributable to Wabtec shareholders per common share
Basic	$	0.70		$	0.92		$	0.58		$	0.88
Diluted	$	0.70		$	0.91		$	0.54		$	0.87


(1) Basic weighted-average common shares outstanding	95,709		89,589		177,348		95,992
Basic weighted-average common shares outstanding and non-vested restricted stock expected to vest	95,983		89,838		177,922		96,276
Percentage allocated to common shareholders	99.7	%	99.7	%	99.7	%	99.7	%


	Nine Months Ended September 30,						Six Months Ended June 30,
In thousands, except per share data	2017			2016			2019			2018
Numerator
Numerator for basic and diluted earnings per common share - net income attributable
to Wabtec shareholders	$	213,313		$	267,076		$	99,763		$	172,782
Less: dividends declared - common shares and non-vested restricted stock	(30,693		)	(23,523		)	(34,264		)	(23,096		)
Undistributed earnings	182,620			243,553			65,499			149,686
Percentage allocated to common shareholders (1)	99.4		%	99.7		%	99.7		%	99.7		%
	181,524			242,822			65,303			149,237
Add: dividends declared - common shares	30,508			23,452			34,154			23,027
Numerator for basic and diluted earnings per common share	$	212,032		$	266,274
Less: dividends declared - preferred shares							(422		)	—
Numerator for basic earnings per common share							$	99,035		$	172,264
Add: dividends declared - preferred shares							422			—
Numerator for diluted earnings per common share							99,457			172,264
Denominator
Denominator for basic earnings per common share - weighted average shares	95,163			90,546			149,553			95,867
Effect of dilutive securities:
Assumed conversion of preferred shares							12,213			—
Assumed conversion of dilutive stock-based compensation plans	645			770			389			604
Denominator for diluted earnings per common share -
adjusted weighted average shares and assumed conversion	95,808			91,316			162,155			96,471
Net income attributable to Wabtec shareholders per common share
Basic	$	2.23		$	2.94		$	0.66		$	1.80
Diluted	$	2.22		$	2.92		$	0.61		$	1.79



(1) Basic weighted-average common shares outstanding	149,553		95,867
Basic weighted-average common shares outstanding and non-vested restricted stock expected to vest	150,013		96,153
Percentage allocated to common shareholders	99.7	%	99.7	%

(1) Basic weighted-average common shares outstanding 95,163
90,546
Basic weighted-average common shares outstanding and
non-vested restricted stock expected to vest
95,740
90,819
Percentage allocated to common shareholders 99.4 % 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.

~~11.~~

13. WARRANTIES

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



In thousands	2019			2018
Balance at beginning of year	$	153,702		$	153,063
Acquisitions	97,559			1,089
Warranty expense	65,797			27,475
Warranty claim payments	(60,643		)	(26,405		)
Foreign currency impact/other	(399		)	(1,380		)
Balance at June 30	$	256,016		$	153,842

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

~~12.~~14. 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. The contracts are scheduled to mature within two years. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~September~~June 30, ~~2016,~~2018, the 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~~loss related to these contracts was ~~$0.2~~$0.5 million for the ~~three~~six months ended ~~September~~June 30, ~~2017.~~2019. These contracts are scheduled to mature within one year.

The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of ~~September~~June 30, ~~2017.~~2019.


In millions	Designated		Non-Designated		Total		Designated		Non-Designated			Total
Gross notional amount	$	728.7	$	406.4	$	1,135.1	$	2,574.0	$	608.0		$	3,182.0

Fair Value:
Other current assets	4.4		0.2		4.6		$	3.2	$	—		$	3.2
Other current liabilities	—		—		—		—		(3.2		)	(3.2		)
Total	$	4.4	$	0.2	$	4.6	$	3.2	$	(3.2	)	$	—

The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of December 31, ~~2016.~~2018.



In millions	Designated			Non-Designated		Total
Gross notional amount	$	863.0		$	834.0	$	1,697.0

Fair Value:
Other current assets	$	—		$	1.3	$	1.3
Other current liabilities	(2.3		)	—		(2.3		)
Total	$	(2.3	)	$	1.3	$	(1.0	)

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~~has historically used 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~~were 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~~were recognized in current period earnings. Refer to footnote 1315 for further information on interest rate swaps.

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

~~13.~~15. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 820 “Fair Value Measurements and Disclosures” ("ASC 820") 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, 2017, which are included in other current liabilities on the Condensed Consolidated Balance sheet:

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

Significant Other
Observable Inputs
(Level 2)

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

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

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

Significant Other
Observable Inputs
(Level 2)

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

To reduce the impact of interest rate changes on a portion of its variable-rate debt, the Company historically 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~~mitigates these risks through entering into foreign currency forward contracts. The foreign currency forward contracts are valued using broker quotations, or market transactions in either the listed or over-the counter markets. As such, these derivative instruments are classified within Level 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~~June 30, ~~2017~~2019 and December 31, ~~2016.~~2018. 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 Notes, 2016 Notes, and ~~2016~~the Senior 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:



	June 30, 2019				December 31, 2018
In thousands	Carrying Value		Fair Value		Carrying Value		Fair Value
4.375% Senior Notes	$	248,952	$	259,010	$	248,823	$	254,218
3.45% Senior Notes	$	748,396	$	737,123	$	748,282	$	675,075
Floating Rate Notes 2021	$	497,396	$	496,830	$	496,796	$	497,425
4.15% Senior Notes	$	743,638	$	792,390	$	742,957	$	729,350
4.7% Senior Notes	$	1,240,191	$	1,349,025	$	1,239,657	$	1,179,625

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

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

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.

~~14.~~16. COMMITMENTS AND CONTINGENCIES

Claims have been filed against the Company and certain of its affiliates in various jurisdictions across the United States by persons alleging bodily injury as a result of exposure to asbestos-containing products. Further information and detail on these claims is described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, in Note 1921 therein, filed on February ~~28, 2017.~~27, 2019. During the first ~~nine~~six months of ~~2017,~~2019, there were no material changes to the information described in the Form ~~10-K.~~10-K related to claims arising from asbestos exposure.

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, ~~2016,~~2018, in Note 1921 therein, filed on February ~~28, 2017.~~27, 2019. Except as described below, there have been no material changes to the information described in the Form 10-K ~~including with respect~~related to claims arising from Company's ordinary operations.

On April 21, 2016, Siemens Industry, Inc. filed a lawsuit against the Company in federal district court in Delaware alleging that the Company has infringed seven patents owned by Siemens related to the ~~litigation with~~Company's Positive Train Control (PTC) technology. On November 2, 2016, Siemens ~~described therein.~~amended its complaint to add six additional patents they also claim are infringed by the Company's PTC Products or End of Train (EOT) Products (Siemen Patent Case). The Company has filed Answers, and asserted counterclaims, in response to Siemens’ complaints. Additionally, after filings by the Company, the US Patent & Trademark Office’s Patent Trail and Appeal Board (PTAB) has granted Inter-Parties Review (IPR) proceedings on eight (8) of the patents asserted by Siemens to contest their validity. Following pre-trial rulings that greatly reduced Siemens’ alleged damages, a jury trial was held in federal district court in Delaware in January 2019 on eight patents, two of which were still subject to an IPR decision on validity from the PTAB. At the conclusion of the trial, the jury awarded Siemens damages of $5.6 million related to PTC patents and $1.1 million related to EOT patents. Since the jury’s verdict was issued, one of the PTC patents found to be infringed was held to be invalid by the PTAB. All PTAB proceedings have been now been completed, pending appeals; five (5) of the (8) Siemens patents reviewed by the PTAB were found to be invalid. On February 26, 2019, the Court entered a Judgment on the verdict, subject to post-trial motions. On May 28, 2019, the Court held a hearing on both parties' post-trial motions, any of which, if granted, could potentially affect the final Judgment. After the Court's ruling on the post-trial motions, a final Judgment will be entered and either party may file appeals to the Federal Circuit.

On March 20, 2019, Siemens filed a new action in federal district court in Delaware alleging violations of federal antitrust and state trade practices laws since before 2008, related to Wabtec’s PTC sales, including on-board, back-office, wayside and aftermarket support systems (Siemens originally raised these antitrust claims as counterclaims in a separate Delaware patent case filed by Wabtec alleging that Siemens has violated three (3) of Wabtec’s patents; the antitrust claims were ultimately severed from that case in January, 2019, resulting in Siemens re-filing them as another separate proceeding in Delaware.) Wabtec believes Siemens’ antitrust claims are without merit and will vigorously defend itself against these claims.

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

~~15.~~

17. 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, and provides related heat exchange and cooling systems. Customers include large, publicly traded railroads, leasing companies, manufacturers of original equipment such as locomotives and freight cars, and utilities.

Transit Segment primarily manufactures and services components for new and existing passenger transit vehicles, typically regional trains, high speed trains, subway cars, light-rail vehicles and buses, builds new commuter locomotives, refurbishes subway cars, provides heating, ventilation, and air conditioning equipment, and doors for buses and subways. 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~~June 30, ~~2017~~2019 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	$	340,185	$	617,746	$	—		$	957,931		$	1,493,949	$	742,335	$	—		$	2,236,284
Intersegment sales/(elimination)	8,376		4,494		(12,870		)	—			13,709		7,383		(21,092		)	—
Total sales	$	348,561	$	622,240	$	(12,870	)	$	957,931		$	1,507,658	$	749,718	$	(21,092	)	$	2,236,284
Income (loss) from operations	$	61,596	$	47,531	$	(7,116	)	$	102,011		$	151,978	$	71,211	$	(22,552	)	$	200,637
Interest expense and other, net	—		—		(20,826		)	(20,826		)	—		—		(56,383		)	(56,383		)
Income (loss) from operations before income taxes	$	61,596	$	47,531	$	(27,942	)	$	81,185		$	151,978	$	71,211	$	(78,935	)	$	144,254

Segment financial information for the three months ended ~~September~~June 30, ~~2016~~2018 is as follows:



In thousands	Freight Segment		Transit Segment		Corporate Activities and Elimination			Total
Sales to external customers	$	412,258	$	699,422	$	—		$	1,111,680
Intersegment sales/(elimination)	18,699		2,984		(21,683		)	—
Total sales	$	430,957	$	702,406	$	(21,683	)	$	1,111,680
Income (loss) from operations	$	84,347	$	57,975	$	(18,799	)	$	123,523
Interest expense and other, net	—		—		(29,749		)	(29,749		)
Income (loss) from operations before income taxes	$	84,347	$	57,975	$	(48,548	)	$	93,774

In thousands
Freight
Segment

Transit
Segment

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

Segment financial information for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 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	$	1,032,959	$	1,773,259	$	—		$	2,806,218		$	2,370,383	$	1,459,518	$	—		$	3,829,901
Intersegment sales/(elimination)	27,602		16,253		(43,855		)	—			30,413		13,505		(43,918		)	—
Total sales	$	1,060,561	$	1,789,512	$	(43,855	)	$	2,806,218		$	2,400,796	$	1,473,023	$	(43,918	)	$	3,829,901
Income (loss) from operations	$	196,328	$	155,901	$	(21,659	)	$	330,570		$	227,188	$	130,144	$	(89,388	)	$	267,944
Interest expense and other, net	—		—		(53,191		)	(53,191		)	—		—		(109,180		)	(109,180		)
Income (loss) from operations before income taxes	$	196,328	$	155,901	$	(74,850	)	$	277,379		$	227,188	$	130,144	$	(198,568	)	$	158,764

Segment financial information for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018 is as follows:



In thousands	Freight Segment		Transit Segment		Corporate Activities and Elimination			Total
Sales to external customers	$	791,812	$	1,376,045	$	—		$	2,167,857
Intersegment sales/(elimination)	30,701		6,873		(37,574		)	—
Total sales	$	822,513	$	1,382,918	$	(37,574	)	$	2,167,857
Income (loss) from operations	$	153,969	$	126,059	$	(25,226	)	$	254,802
Interest expense and other, net	—		—		(47,447		)	(47,447		)
Income (loss) from operations before income taxes	$	153,969	$	126,059	$	(72,673	)	$	207,355

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

Sales by product line are as follows:

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


	Nine Months Ended September 30,				Three Months Ended June 30,
In thousands	2017		2016		2019		2018
Remanufacturing, Overhaul & Build					$	1,171,147	$	127,202
Specialty Products & Electronics	$	975,006	$	1,051,806	443,333		434,399
Transit Products	789,096		143,434		310,839		282,130
Brake Products	550,181		428,785		254,260		217,574
Remanufacturing, Overhaul & Build	387,634		444,278
Other	104,301		102,903		56,705		50,375
Total sales	$	2,806,218	$	2,171,206	$	2,236,284	$	1,111,680



	Six Months Ended June 30,
In thousands	2019		2018
Remanufacturing, Overhaul & Build	$	1,753,324	$	262,900
Specialty Products & Electronics	861,447		820,947
Transit Products	605,656		556,409
Brake Products	496,482		433,192
Other	112,992		94,409
Total sales	$	3,829,901	$	2,167,857

~~16.~~

18. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION

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

Balance Sheet for ~~September~~June 30, ~~2017:~~2019:


In thousands	Parent		Guarantors			Non-Guarantors			Elimination			Consolidated		Parent		Guarantors			Non-Guarantors			Elimination			Consolidated
Cash and cash equivalents	$	3,049	$	6,082		$	218,949		$	—		$	228,080	$	7,011	$	9,820		$	444,540		$	—		$	461,371
Receivables, net	75,123		232,060			837,156			—			1,144,339		134,298		252,077			1,321,034			—			1,707,409
Inventories	132,044		140,745			491,992			—			764,781		141,400		662,717			1,077,674			—			1,881,791
Current assets - other	39,216		4,283			96,426			—			139,925		15,094		30,484			132,991			—			178,569
Total current assets	249,432		383,170			1,644,523			—			2,277,125		297,803		955,098			2,976,239			—			4,229,140
Property, plant and equipment, net	51,196		134,397			364,774			—			550,367		57,966		36,879			1,551,252			—			1,646,097
Goodwill	25,276		549,198			1,810,284			—			2,384,758		504,818		283,241			7,362,612			—			8,150,671
Investment in subsidiaries	6,304,037		2,508,725			—			(8,812,762		)	—		16,878,245		6,134,117			—			(23,012,362		)	—
Other intangibles, net	30,905		251,485			857,997			—			1,140,387		28,594		77,301			4,258,461			—			4,364,356
Other long term assets	29,724		6,273			61,016			—			97,013
Other long-term assets														27,223		166,012			359,094			—			552,329
Total assets	$	6,690,570	$	3,833,248		$	4,738,594		$	(8,812,762	)	$	6,449,650	$	17,794,649	$	7,652,648		$	16,507,658		$	(23,012,362	)	$	18,942,593
Current liabilities	$	162,470	199,511			$	1,103,459		—			$	1,465,440	$	472,747	$	1,036,279		$	1,702,289		$	—		$	3,211,315
Inter-company	2,031,256		(1,942,433		)	(88,823		)	—			—		2,858,761		(1,606,278		)	(1,252,483		)	—			—
Long-term debt	1,740,541		25			83,590			—			1,824,156		4,274,718		—			254,050			—			4,528,768
Long-term liabilities - other	38,601		87,935			297,149			—			423,685		386,662		135,254			845,437			—			1,367,353
Total liabilities	3,972,868		(1,654,962		)	1,395,375			—			3,713,281		7,992,888		(434,745		)	1,549,293			—			9,107,436
Shareholders' equity	2,717,702		5,489,597			3,323,165			(8,812,762		)	2,717,702		9,786,761		8,087,393			14,939,968			(23,012,362		)	9,801,760
Non-controlling interest	—		(1,387		)	20,054			—			18,667		15,000		—			18,397			—			33,397
Total shareholders' equity	$	2,717,702	$	5,488,210		$	3,343,219		$	(8,812,762	)	$	2,736,369	$	9,801,761	$	8,087,393		$	14,958,365		$	(23,012,362	)	$	9,835,157
Total Liabilities and Shareholders' Equity	$	6,690,570	$	3,833,248		$	4,738,594		$	(8,812,762	)	$	6,449,650	$	17,794,649	$	7,652,648		$	16,507,658		$	(23,012,362	)	$	18,942,593

Balance Sheet for December 31, ~~2016:~~2018:



In thousands	Parent		Guarantors			Non-Guarantors			Elimination			Consolidated
Cash and cash equivalents	$	1,782,682	$	(119	)	$	559,791		$	—		$	2,342,354
Receivables, net	106,815		61,513			978,450			—			1,146,778
Inventories	149,622		69,116			626,148			—			844,886
Current assets - other	11,884		690			103,075			—			115,649
Total current assets	2,051,003		131,200			2,267,464			—			4,449,667
Property, plant and equipment, net	51,551		24,755			487,431			—			563,737
Goodwill	25,275		283,241			2,088,028			—			2,396,544
Investment in subsidiaries	6,707,979		4,022,107			—			(10,730,086		)	—
Other intangibles, net	29,254		78,547			1,022,079			—			1,129,880
Other long-term assets	8,775		149			100,482			—			109,406
Total assets	$	8,873,837	$	4,539,999		$	5,965,484		$	(10,730,086	)	$	8,649,234
Current liabilities	$	264,630	$	91,004		$	1,291,056		$	—		$	1,646,690
Inter-company	1,947,504		(1,436,222		)	(511,282		)	—			—
Long-term debt	3,779,627		—			13,147			—			3,792,774
Long-term liabilities - other	16,945		48,714			275,036			—			340,695
Total liabilities	6,008,706		(1,296,504		)	1,067,957			—			5,780,159
Shareholders' equity	2,865,131		5,836,503			4,893,583			(10,730,086		)	2,865,131
Non-controlling interest	—		—			3,944			—			3,944
Total shareholders' equity	$	2,865,131	$	5,836,503		$	4,897,527		$	(10,730,086	)	$	2,869,075
Total Liabilities and Shareholders' Equity	$	8,873,837	$	4,539,999		$	5,965,484		$	(10,730,086	)	$	8,649,234

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

Income Statement for the Three Months Ended ~~September~~June 30, ~~2017~~2019:


In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated			Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net Sales	$	134,906		$	270,116		$	587,289		$	(34,380	)	$	957,931		$	185,695		$	1,104,741		$	1,432,790		$	(486,942	)	$	2,236,284
Cost of sales	(111,775		)	(176,291		)	(444,704		)	28,042			(704,728		)	(144,237		)	(820,294		)	(1,037,244		)	380,167			(1,621,608		)
Gross profit (loss)	23,131			93,825			142,585			(6,338		)	253,203
Gross profit																41,458			284,447			395,546			(106,775		)	614,676
Total operating expenses	(22,714		)	(29,991		)	(98,487		)	—			(151,192		)	(67,447		)	(81,933		)	(264,659		)	—			(414,039		)
Income (loss) from operations	417			63,834			44,098			(6,338		)	102,011
Income from operations																(25,989		)	202,514			130,887			(106,775		)	200,637
Interest (expense) income, net	(19,222		)	1,143			186			—			(17,893		)	(59,365		)	3,116			(2,311		)	—			(58,560		)
Other income (expense), net	274			(356		)	(2,851		)	—			(2,933		)	1,237			(4,217		)	5,157			—			2,177
Equity earnings (loss)	80,874			19,806			—			(100,680		)	—			185,813			83,926			—			(269,739		)	—
Pretax income (loss)	62,343			84,427			41,433			(107,018		)	81,185			101,696			285,339			133,733			(376,514		)	144,254
Income tax expense	5,056			(5		)	(17,797		)	—			(12,746		)
Net income (loss)	67,399			84,422			23,636			(107,018		)	68,439
Less: Net income attributable to noncontrolling interest	—			155			(1,195		)	—			(1,040		)
Income tax benefit (expense)																2,538			(42,556		)	(1,382		)	—			(41,400		)
Net income																104,234			242,783			132,351			(376,514		)	102,854
Less: Net loss attributable to noncontrolling interest																—			—			1,381			—			1,381
Net income (loss) attributable to Wabtec shareholders	$	67,399		$	84,577		$	22,441		$	(107,018	)	$	67,399		$	104,234		$	242,783		$	133,732		$	(376,514	)	$	104,235

Comprehensive income (loss) attributable to Wabtec shareholders	$	66,813		$	84,577		$	115,647		$	(107,018	)	$	160,019		$	104,234		$	242,783		$	153,552		$	(376,514	)	$	124,055

Income Statement for the Three Months Ended ~~September~~June 30, ~~2016:~~2018:


In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated			Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net Sales	$	155,731		$	259,174		$	295,336		$	(34,667	)	$	675,574		$	168,426		$	137,966		$	873,375		$	(68,087	)	$	1,111,680
Cost of sales	(109,414		)	(186,546		)	(211,392		)	44,259			(463,093		)	(122,919		)	(88,688		)	(614,861		)	38,755			(787,713		)
Gross profit (loss)	46,317			72,628			83,944			9,592			212,481
Gross profit																45,507			49,278			258,514			(29,332		)	323,967
Total operating expenses	(21,979		)	(29,019		)	(41,387		)	—			(92,385		)	(49,780		)	(12,267		)	(138,397		)	—			(200,444		)
(Loss) income from operations	24,338			43,609			42,557			9,592			120,096
Income from operations																(4,273		)	37,011			120,117			(29,332		)	123,523
Interest (expense) income, net	(7,854		)	1,728			69			—			(6,057		)	(31,734		)	3,137			(3,323		)	—			(31,920		)
Other income (expense), net	6,600			(86		)	(5,326		)	—			1,188			483			—			1,688			—			2,171
Equity earnings (loss)	86,731			27,099			—			(113,830		)	—			128,744			118,771			—			(247,515		)	—
Pretax income (loss)	109,815			72,350			37,300			(104,238		)	115,227			93,220			158,919			118,482			(276,847		)	93,774
Income tax expense	(27,387		)	1,567			(6,979		)	—			(32,799		)	(7,213		)	—			(3,290		)	—			(10,503		)
Net income (loss)	82,428			73,917			30,321			(104,238		)	82,428
Less: Net income attributable to noncontrolling interest	—			—			—			—			—
Net income attributable to Wabtec shareholders	$	82,428		$	73,917		$	30,321		$	(104,238	)	$	82,428
Net income																86,007			158,919			115,192			(276,847		)	83,271
Less: Net loss attributable to noncontrolling interest																—			—			1,145			—			1,145
Net income (loss) attributable to Wabtec shareholders																$	86,007		$	158,919		$	116,337		$	(276,847	)	$	84,416

Comprehensive income (loss) attributable to Wabtec shareholders	$	82,987		$	73,916		$	34,054		$	(104,238	)	$	86,719		$	86,231		$	158,919		$	(74,104	)	$	(276,847	)	$	(105,801	)

Income Statement for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017:~~2019:


In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated			Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net Sales	$	417,156		$	778,893		$	1,708,646		$	(98,477	)	$	2,806,218		$	378,761		$	1,233,544		$	2,760,039		$	(542,443	)	$	3,829,901
Cost of sales	(311,037		)	(503,686		)	(1,270,668		)	76,046			(2,009,345		)	(301,887		)	(902,309		)	(2,035,263		)	413,251			(2,826,208		)
Gross profit (loss)	106,119			275,207			437,978			(22,431		)	796,873
Gross profit																76,874			331,235			724,776			(129,192		)	1,003,693
Total operating expenses	(79,960		)	(89,935		)	(296,408		)	—			(466,303		)	(164,987		)	(97,254		)	(473,508		)	—			(735,749		)
Income (loss) from operations	26,159			185,272			141,570			(22,431		)	330,570
Income from operations																(88,113		)	233,981			251,268			(129,192		)	267,944
Interest (expense) income, net	(52,565		)	5,554			(4,014		)	—			(51,025		)	(101,011		)	6,594			(8,712		)	—			(103,129		)
Other income (expense), net	3,127			(2,233		)	(3,060		)	—			(2,166		)	21,570			(6,702		)	(20,919		)	—			(6,051		)
Equity earnings (loss)	246,103			69,954			—			(316,057		)	—			277,295			163,685			—			(440,980		)	—
Pretax income (loss)	222,824			258,547			134,496			(338,488		)	277,379			109,741			397,558			221,637			(570,172		)	158,764
Income tax expense	(9,511		)	(22		)	(55,243		)	—			(64,776		)	(9,979		)	(42,556		)	(7,388		)	—			(59,923		)
Net income (loss)	213,313			258,525			79,253			(338,488		)	212,603
Less: Net income attributable to noncontrolling interest	—			311			399			—			710
Net income																99,762			355,002			214,249			(570,172		)	98,841
Less: Net loss attributable to noncontrolling interest																—			—			922			—			922
Net income (loss) attributable to Wabtec shareholders	$	213,313		$	258,836		$	79,652		$	(338,488	)	$	213,313		$	99,762		$	355,002		$	215,171		$	(570,172	)	$	99,763

Comprehensive income (loss) attributable to Wabtec shareholders	$	214,482		$	258,838		$	366,156		$	(338,488	)	$	500,988		$	99,762		$	355,002		$	182,574		$	(570,172	)	$	67,166

Income Statement for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016:~~2018:


In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated			Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net Sales	$	494,350		$	865,850		$	924,559		$	(113,553	)	$	2,171,206		$	329,727		$	256,083		$	1,700,594		$	(118,547	)	$	2,167,857
Cost of sales	(356,575		)	(561,361		)	(641,550		)	93,330			(1,466,156		)	(241,577		)	(161,678		)	(1,200,588		)	70,834			(1,533,009		)
Gross profit (loss)	137,775			304,489			283,009			(20,223		)	705,050			88,150			94,405			500,006			(47,713		)	634,848
Total operating expenses	(88,916		)	(91,967		)	(128,606		)	—			(309,489		)	(85,407		)	(25,941		)	(268,698		)	—			(380,046		)
(Loss) income from operations	48,859			212,522			154,403			(20,223		)	395,561
Income (loss) from operations																2,743			68,464			231,308			(47,713		)	254,802
Interest (expense) income, net	(21,608		)	5,049			662			—			(15,897		)	(52,128		)	6,079			(6,155		)	—			(52,204		)
Other income (expense), net	17,640			(3,956		)	(13,571		)	—			113			9,212			(679		)	(3,776		)	—			4,757
Equity earnings (loss)	308,681			111,917			—			(420,598		)	—			235,442			210,877			—			(446,319		)	—
Pretax income (loss)	353,572			325,532			141,494			(440,821		)	379,777			195,269			284,741			221,377			(494,032		)	207,355
Income tax expense	(86,495		)	(380		)	(25,826		)	—			(112,701		)	(20,895		)	—			(15,732		)	—			(36,627		)
Net income (loss)	267,077			325,152			115,668			(440,821		)	267,076			174,374			284,741			205,645			(494,032		)	170,728
Less: Net income attributable to noncontrolling interest	—			—			—			—			—
Net income attributable to Wabtec shareholders	$	267,077		$	325,152		$	115,668		$	(440,821	)	$	267,076
Less: Net loss attributable to noncontrolling interest																—			—			2,054			—			2,054
Net income (loss) attributable to Wabtec shareholders																$	174,374		$	284,741		$	207,699		$	(494,032	)	$	172,782

Comprehensive income (loss) attributable to Wabtec shareholders	$	266,355		$	325,152		$	107,054		$	(440,821	)	$	257,740		$	174,881		$	284,741		$	95,983		$	(494,032	)	$	61,573

Condensed Statement of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017:~~2019:

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



In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net cash (used for) provided by operating activities	$	(99,188	)	$	215,772		$	456,532		$	(129,192	)	$	443,924
Net cash provided by (used for) investing activities	6,854,818			(476,597		)	(9,418,585		)	—			(3,040,364		)
Net cash (used for) provided by financing activities	(8,531,301		)	270,764			8,857,453			129,192			726,108
Effect of changes in currency exchange rates	—			—			(10,651		)	—			(10,651		)
(Decrease) increase in cash	(1,775,671		)	9,939			(115,251		)	—			(1,880,983		)
Cash, cash equivalents, and restricted cash beginning of period	1,782,682			(119		)	559,791			—			2,342,354
Cash and cash equivalents, end of period	$	7,011		$	9,820		$	444,540		$	—		$	461,371

Condensed Statement of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016:~~2018:



In thousands	Parent			Guarantors			Non-Guarantors			Elimination			Consolidated
Net cash (used for) provided by operating activities	$	(116,378	)	$	72,206		$	159,789		$	(47,713	)	$	67,904
Net cash (used for) provided by investing activities	(9,669		)	(249		)	(59,182		)	—			(69,100		)
Net cash provided by (used for) financing activities	125,855			(72,009		)	(78,795		)	47,713			22,764
Effect of changes in currency exchange rates	—			—			(9,395		)	—			(9,395		)
(Decrease) increase in cash	(192		)	(52		)	12,417			—			12,173
Cash and cash equivalents, beginning of period	933			625			231,843			—			233,401
Cash and cash equivalents, end of period	$	741		$	573		$	244,260		$	—		$	245,574

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

~~17.~~19. OTHER INCOME (EXPENSE), NET

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



	Three Months Ended June 30,						Six Months Ended June 30,
In thousands	2019			2018			2019			2018
Foreign currency (loss) gain	$	(1,120	)	$	(2,277	)	$	(13,802	)	$	(3,309	)
Equity income	1,021			1,594			1,950			2,223
Expected return on pension assets/amortization	1,789			3,027			5,165			6,050
Other miscellaneous expense (income)	487			(173		)	636			(207		)
Total other (expense) income, net	$	2,177		$	2,171		$	(6,051	)	$	4,757

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


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

The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and Westinghouse Air Brake Technologies Corporation’s Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, filed with the Securities and Exchange Commission on February ~~28, 2017.~~27, 2019.

OVERVIEW

Wabtec is one of the world’s largest providers of value-added, technology-based ~~products~~equipment, systems and services for the global ~~rail industry. Our products are found on virtually all U.S. locomotives,~~ freight ~~cars~~rail and passenger transit ~~vehicles, as well as in more than 100 countries throughout the world.~~industries. Our highly engineered products enhance safety, improve productivity and reduce maintenance costs for customers and ~~many~~can be found on most locomotives, freight cars, passenger transit cars and buses around the world. Many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in ~~31 countries. For~~50 countries and our products can be found in more than 100 countries throughout the ~~nine~~world. In the six months ended ~~September~~June 30, ~~2017,~~2019, approximately ~~65%~~59% of the Company’s revenues came from customers outside the ~~U.S.~~United States.

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 Excellence Program, and increase revenues through a focused growth strategy, including product innovation and new technologies, global and market expansion, aftermarket products and services, and acquisitions. In addition, ~~management~~Management evaluates the Company’s current operational performance through measures such as quality and on-time delivery.

The Company primarily serves the ~~worldwide~~global freight rail and passenger transit ~~rail~~ industries. As such, our operating results are largely dependent on the level of activity, financial condition and capital spending plans of freight 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 and growth in developing markets, a focus on sustainability and environmental awareness, increasing investment in technology solutions, 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, while Transit markets are driven primarily by government funding~~ and passenger ~~ridership. Changes in these market drivers can cause fluctuations in demand for Wabtec's products and services.~~transit.

According to the ~~2016~~2018 bi-annual edition of a market study by UNIFE, the Association of the European Rail Industry, the accessible global market for railway products and services iswas more than $100 billion and ~~it is~~was expected to grow at ~~about 3.2% annually~~a compounded annual growth rate of 2.6% through ~~2021.~~2023. The three largest geographic markets, which ~~represent~~represented about 80% of the total accessible market, ~~are~~were Europe, North America and Asia Pacific. ~~Over the next five years,~~ UNIFE ~~projects~~projected above-average growth rates in North America, Latin America and Africa/Middle East, with Asia Pacific and Europe ~~due to overall economic growth and~~growing at about the industry average. UNIFE said trends such as urbanization and increasing mobility, deregulation, investments in new technologies, energy and environmental issues, and increasing government ~~support.~~support continue to drive investment. The largest product segments of the market ~~are~~were rolling stock, services and infrastructure, which represent almost 90% of the accessible market. ~~Over the next five years,~~ UNIFE ~~projects~~projected spending on ~~rolling stock~~turnkey management projects and infrastructure to grow at an above-average ~~rate due to increased investment in passenger transit vehicles.~~rates. UNIFE ~~estimates~~estimated that the global installed base of locomotives iswas about 114,000 units, with about ~~32%~~33% in Asia Pacific, about ~~25%~~26% in North America and about 18% in Russia-CIS (Commonwealth of Independent States). Wabtec estimates that about ~~3,400~~2,500 new locomotives were delivered worldwide in ~~2016,~~2018, and ~~it expects~~we expect deliveries of about ~~3,200~~2,900 in ~~2017.~~2019. UNIFE ~~estimates~~estimated the global installed base of freight cars iswas about ~~5.5~~5.1 million, ~~units,~~ with about ~~37%~~33% in North America, about 26% in ~~Russia-CIS~~Asia Pacific and about ~~20%~~24% in ~~Asia Pacific.~~Russia-CIS. Wabtec estimates that about ~~108,000~~175,000 new freight cars were delivered worldwide in ~~2016,~~2018, and ~~it expects~~we expect deliveries of about ~~97,000~~174,000 in ~~2017.~~2019. UNIFE ~~estimates~~estimated the global installed base of passenger transit vehicles to be about ~~569,000~~600,000 units, with about ~~43%~~45% in Asia Pacific, about ~~32%~~33% in Europe and about ~~14%~~12% in Russia-CIS. ~~UNIFE~~Wabtec estimates that about ~~208,000~~30,000 new passenger transit vehicles were ordered ~~annually from 2013-2015,~~worldwide in 2018, and ~~that~~we expect orders of about ~~184,000 will be ordered annually from 2016-2018.~~the same number in 2019.

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

Kingdom ~~are~~were the largest Western European transit markets, representing almost two-thirds of industry spending in the European Union. UNIFE ~~projects~~projected the accessible Western European rail market to grow at about ~~3.6%~~2.3% 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. 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%~~50% 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 industry can provide some of these benefits. Demand for our freight related products and services in North America is driven by a number of factors, including rail traffic, and production of new locomotives and new freight cars. In the U.S., the passenger transit industry is dependent largely on funding from federal, state and local governments, and from fare box revenues. Demand for North American passenger transit products is driven by a number of factors, including government funding, deliveries of new subway cars and buses, and ridership. The U.S. federal government provides money to local transit authorities, primarily to fund the purchase of new equipment and infrastructure for their transit systems.

Growth in the Asia Pacific market has been driven mainly by the continued urbanization of China and India, and by investments in freight rail rolling stock and infrastructure in Australia to serve its mining and natural resources markets. ~~During the next five years, UNIFE expects~~ India ~~to make~~is making significant investments in rolling stock and infrastructure to modernize its rail system; for example, the country has awarded 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.~~GE Transportation, now part of Wabtec.

Other key geographic markets include Russia-CIS and Africa-Middle East. With about ~~1.4~~1.2 million freight cars and about 20,000 locomotives, Russia-CIS is among the largest freight rail markets in the world, and it’s expected to invest in both freight and transit rolling stock. PRASA, the Passenger Rail Agency of South Africa, is expected to continue to invest in new transit cars and new locomotives. According to UNIFE, emerging markets ~~are~~were expected to grow at above-average rates as global trade ~~creates increases in~~led to increased freight volumes and urbanization ~~leads~~led to increased demand for efficient mass-transportation systems. As this growth occurs, Wabtec expects to have additional opportunities to provide products and services in these markets.

In its study, UNIFE also said it ~~expects~~expected increased investment in digital tools for data and asset management, and in rail control technologies, both of which would improve efficiency in the global rail ~~industry during the next five years.~~industry. 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 these initiatives.

In ~~2017~~2019 and beyond, general global economic and market conditions ~~in the United States and internationally~~ will have an impact on our sales and operations. To the extent that these factors cause instability of capital markets, shortages of raw materials or component parts, longer sales cycles, deferral or delay of customer orders or an inability to market our products effectively, our business and results of operations could be materially adversely affected. In addition, we face risks associated with our four-point growth strategy including the level of investment that customers are willing to make in new technologies developed by the industry and the Company and risks inherent in global expansion. When necessary, we will modify our financial and operating strategies to reflect changes in market conditions and risks.

~~ACQUISITION~~MERGER OF ~~FAIVELEY TRANSPORT S.A.~~WABTEC WITH GE TRANSPORTATION

~~On November 30, 2016,~~Wabtec, General Electric Company ("GE"), GE Transportation, a Wabtec Company formerly known as Transportation System Holdings Inc. ("SpinCo"), which was a newly formed wholly owned subsidiary of GE, and Wabtec US Rail Holdings, Inc. ("Merger Sub"), which was a newly formed wholly owned subsidiary of the Company, ~~acquired majority ownership~~entered into the Original Merger Agreement on May 20, 2018, and GE, SpinCo, Wabtec and Wabtec US Rail, Inc. ("Direct Sale Purchaser") entered into the Original Separation Agreement on May 20, 2018, which together provided for the combination of ~~Faiveley Transport under~~Wabtec and GE Transportation. The Original Merger Agreement and Original Separation Agreement were subsequently amended on January 25, 2019 and the ~~terms~~merger was completed on February 25, 2019.

As part of the ~~Share Purchase Agreement. Faiveley Transport is~~Merger, certain assets of GE Transportation ("GET"), including the equity interests of certain pre-Transaction subsidiaries of GE that compose part of GE Transportation, were sold to Direct Sale Purchaser for a ~~leading global provider~~cash payment of ~~value-added, integrated systems and services for the railway industry with annual sales of about $1.2~~$2.875 billion, and ~~more than 5,700 employees~~Direct Sale Purchaser assumed certain liabilities of GE Transportation in ~~24 countries. Faiveley Transport supplies railway manufacturers, operators~~connection with this purchase (the "Direct Sale"). Thereafter, GE transferred the SpinCo business to SpinCo and ~~maintenance providers with a range of value-added, technology-based systems~~its subsidiaries (to the extent not already held by SpinCo and ~~services in Energy & Comfort (air conditioning, power collectors and converters, and passenger information), Access &~~

~~Mobility (passenger access systems and platform doors)~~its subsidiaries), and ~~Brakes~~SpinCo issued to GE shares of SpinCo Class A preferred stock, SpinCo Class B preferred stock, SpinCo Class C preferred stock and ~~Safety (braking systems~~additional shares of SpinCo common stock in the SpinCo Transfer. Following this issuance of additional SpinCo common stock to GE, and ~~couplers). The transaction was structured as a step acquisition as follows:~~

Upon consummation of the Merger, Wabtec issued 46,763,975 shares of common stock to the holders of GE common stock, 19,018,207 shares of common stock to GE and 10,000 shares of preferred stock to GE and made a cash payment to GE of $2.885 billion. As a result and calculated based on Wabtec’s outstanding common stock on a fully-diluted, as-converted and as-exercised basis, as of December 31, 2018, approximately 49.2% of the outstanding shares of Wabtec common stock was held collectively by GE and holders of GE common stock (with 9.9% to be held by GE directly in shares of Wabtec common stock and 15% underlying the shares of Wabtec convertible preferred stock to be held by GE) and approximately 50.8% of the outstanding shares of Wabtec common stock would be held by pre-Merger Wabtec stockholders, in each case calculated on a fully-diluted, as-converted and as-exercised basis. Following the Merger, GE also retained 15,000 shares of SpinCo Class A non-voting preferred stock, and Wabtec held 10,000 shares of SpinCo Class B non-voting preferred stock. The shares of Wabtec common stock and Wabtec convertible preferred stock held by GE are subject to GE’s obligations under the Shareholders Agreement, including, among other things, and in each case subject to certain exceptions, (i) restrictions on the ability to sell, transfer or otherwise divest such shares for a period of 30 days and (ii) an obligation to sell, transfer or otherwise divest (A) by no later than 120 days following the closing date of the Merger, GE’s (and its affiliates’) ownership of Wabtec common stock and/or Wabtec convertible preferred stock so that GE (together with its affiliates) beneficially owns not less than 14.9% and not more than 19.9% of the number of shares of Wabtec common stock that were outstanding immediately after the closing of the Merger, (B) by no later than one year following the closing date of the Merger, GE’s (and its affiliates’) ownership of Wabtec common stock and/or Wabtec convertible preferred stock so that GE (together with its affiliates) beneficially owns not more than 18.5% of the number of shares of Wabtec common stock that were outstanding immediately after the closing of the Merger, in each case of clauses (A) and (B) treating the Wabtec convertible preferred stock as the Wabtec common stock into which it is convertible both for purposes of determining the number of shares of Wabtec common stock owned and for purposes of determining the number of shares of Wabtec common stock outstanding and (C) by no later than the third anniversary of the closing date of the Merger, all of the subject shares that GE (together with its affiliates) beneficially owns, and (iii) an obligation to vote all of such shares of Wabtec common stock in the proportion required under the Shareholders Agreement.

Total future consideration to be paid by Wabtec to GE includes a fixed payment of $470.0 million, which is directly related to the timing of tax benefits expected to be realized by Wabtec as a result of the merger. This payment is considered contingent consideration because the timing of cash payments to GE is directly related to the future timing of tax benefits received by the Company as a result of the merger. The estimated total value of the consideration ~~was subject~~ to ~~a cap on issuance of~~be paid by Wabtec ~~common shares that was equivalent to the rates of cash and stock elected by the 51% owners.~~

As of November 30, 2016, the date the Company acquired 51% of the share capital and 49% of the voting interest in Faiveley Transport, Faiveley Transport was consolidated under the variable interest entity model as the Company concluded that it was the primary beneficiary of Faiveley Transport as it then possessed the power to direct the activities of Faiveley Transport that most significantly impact its economic performance and it then possessed the obligation and right to absorb losses and benefits from Faiveley Transport. The aggregate value of consideration paid for ~~100% ownership~~the Direct Sales Assets, equity transferred for SpinCo, contingent consideration, assumed debt and net 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~~estimated consideration is based on the ~~consolidated balance sheet at December 31, 2016 was cash designated for use as~~Company’s closing share price of $73.36 on February 22, 2019 and the preliminary fair value of the contingent consideration. The value of the preliminary purchase price consideration ~~for~~could change when the ~~tender offers.~~Company has completed the detailed valuation of the contingent consideration and other necessary calculations.

RESULTS OF OPERATIONS

Consolidated Results

SECOND QUARTER 2019 COMPARED TO SECOND QUARTER 2018

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

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

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

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


	Three Months Ended September 30,						Three Months Ended June 30,
In thousands	2017		2016		Percent Change		2019			2018			Percent Change
Freight Segment Sales	$	340,185	$	361,998	(6.0	)%
Transit Segment Sales	617,746		313,576		97.0	%
Net sales	957,931		675,574		41.8	%
Net sales:
Sales of goods							$	1,892,508		$	1,065,893		77.6	%
Sales of services							343,776			45,787			650.8	%
Total net sales							2,236,284			1,111,680			101.2	%
Cost of sales:
Cost of goods							(1,377,758		)	(749,097		)	83.9	%
Cost of services							(243,850		)	(38,616		)	531.5	%
Total cost of sales							(1,621,608		)	(787,713		)	105.9	%
Gross profit							614,676			323,967			89.7	%
Operating expenses:
Selling, general and administrative expenses							(290,959		)	(171,157		)	70.0	%
Engineering expenses							(57,120		)	(19,388		)	194.6	%
Amortization expense							(65,960		)	(9,899		)	566.3	%
Total operating expenses							(414,039		)	(200,444		)	106.6	%
Income from operations	102,011		120,096		(15.1	)%	200,637			123,523			62.4	%
Other income and expenses:
Interest expense, net							(58,560		)	(31,920		)	83.5	%
Other income (expense), net							2,177			2,171			0.3	%
Income from operations before income taxes							144,254			93,774			53.8	%
Income tax expense							(41,400		)	(10,503		)	294.2	%
Net income							102,854			83,271			23.5	%
Less: Net loss attributable to noncontrolling interest							1,381			1,145			20.6	%
Net income attributable to Wabtec shareholders	67,399		82,428		(18.2	)%	104,235			84,416			23.5	%

The following table shows the major components of the change in sales in the ~~third~~second quarter of ~~2017~~2019 from the ~~third~~second quarter of ~~2016:~~2018:


In thousands	Freight Segment			Transit Segment			Total			Freight Segment			Transit Segment			Total
Third Quarter 2016 Net Sales	$	361,998		$	313,576		$	675,574
Second Quarter 2018 Net Sales										$	412,258		$	699,422		$	1,111,680
Acquisitions	40,633			289,941			330,574			1,122,134			2,842			1,124,976
Change in Sales by Product Line:
Specialty Products & Electronics	(40,429		)	5,819			(34,610		)
Transit Products										—			57,885			57,885
Brake Products	(12,579		)	(1,353		)	(13,932		)	4,153			30,470			34,623
Remanufacturing, Overhaul & Build	(12,666		)	3,351			(9,315		)	(3,872		)	9,699			5,827
Transit Products	—			2,400			2,400
Specialty Products & Electronics										(35,891		)	(16,685		)	(52,576		)
Other	996			(615		)	381			1,581			(92		)	1,489
Foreign exchange	2,232			4,627			6,859			(6,414		)	(41,206		)	(47,620		)
Third Quarter 2017 Net Sales	$	340,185		$	617,746		$	957,931
Second Quarter 2019 Net Sales										$	1,493,949		$	742,335		$	2,236,284

Net sales

Net sales for the three months ended ~~September~~June 30, ~~2017~~2019 increased by ~~$282.4 million,~~$1.12 billion, or ~~41.8%~~101%, to ~~$957.9 million.~~$2.24 billion. The increase is primarily due to sales from acquisitions of ~~$330.6~~$1.12 billion, mainly, the acquisition of GE Transportation. GE Transportation contributed $1.12 billion of net sales in the quarter primarily from equipment products and services. Additionally, Transit Segment sales increased $43 million ~~with the majority related~~primarily due to ~~the Faiveley Transport acquisition. This increase was~~increased original equipment project deliveries for HVAC and door systems, and Brake Products. These increases were partially offset by a ~~$34.6 million~~ decrease ~~for~~in Specialty Products and Electronics ~~due to lower demand for freight original equipment rail products, and a $13.9~~of $53 million ~~decrease for Brake Products primarily due to lower demand for original equipment brakes for freight customers. Favorable foreign exchange increased sales by $6.9 million.~~

Freight Segment sales decreased by $21.8 million, or 6.0%, primarily due to a decrease of $40.4 million for Specialty Products and Electronics sales from lower demand for freight original equipment rail products, a decrease of $12.7 million for Remanufacturing, Overhaul & Build sales primarily due to the ~~absence~~completion of a large ~~locomotive rebuild contract that completed~~signaling project in ~~2016,~~2018 and ~~a decrease of $12.6 million for Brake Products sales from~~ lower ~~demand for original equipment brakes for freight customers. Acquisitions increased~~PTC hardware sales. Unfavorable changes in foreign exchange rates reduced sales by ~~$40.6 million and favorable foreign exchange increased sales by $2.2~~$48 million.

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

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

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

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

Cost of sales increased by ~~$241.6~~$834 million to ~~$704.7~~$1.62 billion in 2019 compared to $788 million in 2018. The increase is primarily due to $844 million of incremental cost of sales from acquisitions, mainly from the ~~third~~acquisition of GE Transportation. In the second quarter of ~~2017 compared to $463.1 million in the same period of 2016. In the third quarter of 2017,~~2019, cost of sales as a percentage of sales was ~~73.6%~~72.5% compared to ~~68.6%~~70.9% in the same period of ~~2016. The increase~~2018. Cost of sales in 2019 includes $89 million of non-recurring costs related to purchase price accounting for the step-up of GE Transportation inventory on the date of acquisition. Excluding these non-recurring costs, cost of sales as a percentage of sales iswas 68.5% in 2019, a decrease from the prior year due to higher margin Freight Segment sales increased and a favorable product ~~mix largely~~shift in the Transit Segment to brake and HVAC systems from lower margin overhaul projects.

Operating expenses

Total operating expenses as a percentage of sales increased to 18.5% of sales in the second quarter of 2019 compared to 18.0% during the second quarter of 2018. Selling, general, and administrative expenses increased $120 million or 70.0%, primarily due to $94 million in incremental expense from acquisitions, mainly GE Transportation, and $31 million in transaction and restructuring costs related to the acquisition of GE Transportation. Engineering expense increased $38 million and amortization expense increased $56 million due to incremental expense from the GE Transportation acquisition.

Interest expense, net

Interest expense, net, increased $27 million in the second quarter of 2019 over the same period in 2018 attributable to higher ~~transit segment sales~~overall debt balances in 2019, related to the GE Transportation acquisition.

Income taxes

The effective income tax rate was 28.7% and 11.2% for the second quarter of 2019 and 2018, respectively. The increase in the effective rate for the three months ended June 30, 2019 is primarily the result of a $13 million benefit recorded in the second quarter of 2018 to revise estimates of the impact of U.S. tax legislation on the Transition Tax on unrepatriated earnings and the deductibility of certain executive compensation. In addition, the rate increased due to ~~acquisitions, along with an unfavorable product mix within~~non-deductible transaction related expenses incurred as a result of the ~~freight segment~~acquisition of GE Transportation as well as increased estimated liabilities resulting from provisions of the Tax Cuts and ~~higher project adjustments~~Jobs Act.

Freight Segment

The following table shows our Consolidated Statements of ~~$20.4~~Operations for our Freight Segment for the periods indicated.



	Three Months Ended June 30,
In thousands	2019			2018			Percent Change
Net sales:
Sales of goods	$	1,161,919		$	377,794		207.6	%
Sales of services	332,030			34,464			863.4	%
Total net sales	1,493,949			412,258			262.4	%
Cost of sales:
Cost of goods	(850,689		)	(245,397		)	246.7	%
Cost of services	(235,017		)	(29,887		)	686.4	%
Total cost of sales	(1,085,706		)	(275,284		)	294.4	%

Gross profit	408,243			136,974			198.0	%

Operating expenses	(256,264		)	(52,626		)	387.0	%

Income from operations ($)	151,979			84,348			80.2	%
Income from operations (%)	10.2		%	20.5		%

Net sales

Freight Segment sales increased by $1.08 billion, or 262%, to $1.49 billion, due to the acquisition of GE Transportation which contributed $1.12 billion of net sales in the quarter primarily from equipment products and services. This increase was partially offset by a decrease in Specialty Products and Electronics sales of $36 million ~~on certain existing contracts.~~due to lower PTC hardware sales. Unfavorable foreign currency exchange rates decreased sales by $6 million.

Cost of sales

Freight Segment cost of sales increased ~~2.9%~~by $810 million to $1.09 billion in 2019. The increase is primarily due to $844 million of incremental cost of sales and services from the GE Transportation acquisition. In 2019, total cost of sales as a percentage of total net sales was 72.7% compared to 66.8% in 2018. Total cost of sales in the second quarter of 2019 includes $89 million of non-recurring costs related to purchase price accounting for the step-up of GE Transportation inventory on the date of acquisition. Excluding this non-recurring charge, total cost of sales as a percentage of sales was 66.7% in 2019 consistent with 2018.

Operating expenses

Freight Segment operating expenses increased $204 million, or 387%, in 2019 and increased 440 basis points to ~~69.3%~~17.2% of sales. Selling, general, and administrative expenses increased $113 million due to $94 million in ~~2017 compared~~incremental expense from the GE Transportation acquisition and $11 million of transaction and restructuring costs related to ~~66.4%~~the acquisition of GE Transportation. Engineering expense increased $35 million and amortization expense increased $56 million, both due to the GE Transportation acquisition.

Transit Segment

The following table shows our Consolidated Statements of Operations for our Transit Segment for the ~~same period in 2016.~~periods indicated.



	Three Months Ended June 30,
In thousands	2019			2018			Percent Change

Net sales	$	742,335		$	699,422		6.1	%
Cost of sales	(535,903		)	(512,428		)	4.6	%
Gross profit	206,432			186,994			10.4	%

Operating expenses	(135,221		)	(129,019		)	4.8	%

Income from operations ($)	71,211			57,975			22.8	%
Income from operations (%)	9.6		%	8.3		%

Net sales

Transit Segment sales increased by $43 million, or 6.1%, primarily due to increased original equipment project deliveries for HVAC and door systems of $58 million, and higher Brake Products sales of $30 million. The increase ~~is primarily related~~in Brake Product sales was due to ~~lower demand~~increased deliveries on contracts for ~~freight~~ original equipment ~~rail products~~brake and coupler systems and higher sales of aftermarket spares. These increases were partially offset by unfavorable foreign currency exchange rate changes of $41 million and a $17 million decrease in Specialty Products and Electronics due to the completion of a large signaling project ~~contract adjustments~~in the prior year.

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

Transit Segment cost of sales increased ~~5.0%~~by $23 million to $536 million in the second quarter of 2019. In the second quarter 2019, cost of sales as a percentage of sales was 72.2% compared to ~~approximately 76.0%~~73.3% in ~~the third quarter of 2017 from 71.0% for the same period of 2016. The increase~~2018. This decrease is ~~primarily related~~attributable to a favorable product mix ~~largely attributable~~towards more brake and HVAC systems and less overhaul contracts, which typically carry a lower margin due to ~~the acquisition of Faiveley Transport, which has lower overall margins~~their higher material and ~~higher project adjustments of $14.9 million on certain existing contracts primarily related to material costs.~~

~~Included in cost of sales is warranty expense. The provision for warranty expense is generally established for specific losses, along with historical estimates of customer claims~~labor costs as a percentage of sales. Additionally, project performance on the brake and HVAC systems improved period over period. Unfavorable foreign currency exchange rate changes decreased cost of sales ~~which can cause variability in warranty expense between quarters. Warranty expense was $17.1~~by $31 million.

Operating expenses

Transit Segment operating expenses increased $6 million to $135 million, or 4.8%, in the ~~third~~second quarter of ~~2017~~2019 and decreased 20 basis points to 18.2% compared to ~~$6.8 million~~the same period in ~~the third quarter of 2016. The increase in warranty expense is primarily related to the increase in sales and the higher project costs on certain existing contacts discussed above.~~

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

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

~~Total operating expenses were 15.8% and 13.7% of sales for the third quarters of 2017 and 2016, respectively.~~2018. Selling, general, and administrative expenses increased ~~$47.1 million, or 66.5%, primarily due to $56.7~~$3 million in ~~incremental expense from acquisitions and $4.7~~the second quarter of 2019, consisting of a $8 million ~~in Faiveley Transport transaction and integration related charges~~organic increase to support the higher sales volumes, partially offset by ~~lower costs~~a $5 million decrease due to ~~cost saving initiatives~~favorable foreign currency exchange rate changes. Engineering and ~~lower organic sales volumes. Engineering~~amortization expense ~~increased by $8.4 million, or 51.7%, due to $5.1 million of incremental costs associated with acquisitions but~~ remained ~~relatively constant as a percentage of sales at 2.6%. Amortization expense increased $3.3 million due to amortization of intangibles associated with acquisitions.~~consistent year over year.

FIRST SIX MONTHS OF 2019 COMPARED TO FIRST SIX MONTHS OF 2018

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

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

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

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

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

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

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

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

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

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


	Nine Months Ended September 30,							Six Months Ended June 30,
In thousands	2017		2016			Percent Change		2019			2018			Percent Change
Freight Segment Sales	$	1,032,959	$	1,201,734		(14.0	)%
Transit Segment Sales	1,773,259		969,472			82.9	%
Net sales	2,806,218		2,171,206			29.2	%
Net sales:
Sales of goods								$	3,327,017		$	2,076,570		60.2	%
Sales of services								502,884			91,287			450.9	%
Total net sales								3,829,901			2,167,857			76.7	%
Cost of sales:
Cost of goods								(2,451,329		)	(1,458,375		)	68.1	%
Cost of services								(374,879		)	(74,634		)	402.3	%
Total cost of sales								(2,826,208		)	(1,533,009		)	84.4	%
Gross profit								1,003,693			634,848			58.1	%
Operating expenses:
Selling, general and administrative expenses								(550,682		)	(318,358		)	73.0	%
Engineering expenses								(91,665		)	(41,437		)	121.2	%
Amortization expense								(93,402		)	(20,251		)	361.2	%
Total operating expenses								(735,749		)	(380,046		)	93.6	%
Income from operations	330,570		395,561			(16.4	)%	267,944			254,802			5.2	%
Other income and expenses:
Interest expense, net								(103,129		)	(52,204		)	97.5	%
Other income (expense), net								(6,051		)	4,757			(227.2	)%
Income from operations before income taxes								158,764			207,355			(23.4	)%
Income tax expense								(59,923		)	(36,627		)	63.6	%
Net income								98,841			170,728			(42.1	)%
Less: Net loss attributable to noncontrolling interest								922			2,054			(55.1	)%
Net income attributable to Wabtec shareholders	213,313		267,076		267,076	(20.1	)%	99,763			172,782			(42.3	)%

The following table shows the major components of the change in sales ~~for~~in the ~~nine~~first six months ~~ended September 30, 2017~~of 2019 from the ~~nine~~first six months ~~ended September 30, 2016:~~of 2018:


In thousands	Freight Segment			Transit Segment			Total			Freight Segment			Transit Segment			Total
First Nine Months of 2016 Net Sales	$	1,201,734		$	969,472		$	2,171,206
First Six Months of 2018 Net Sales										$	791,812		$	1,376,045		2,167,857
Acquisitions	121,246			843,251			964,497			1,617,110			17,590			1,634,700
Change in Sales by Product Line:
Transit Products										—			115,062			115,062
Brake Products										4,445			58,685			63,130
Remanufacturing, Overhaul & Build										(4,043		)	8,064			4,021
Specialty Products & Electronics	(162,744		)	(12,403		)	(175,147		)	(26,650		)	(25,895		)	(52,545		)
Remanufacturing, Overhaul, and Build	(74,243		)	(1,930		)	(76,173		)
Brake Products	(43,270		)	(5,887		)	(49,157		)
Transit Products	—			(801		)	(801		)
Other	(6,725		)	606			(6,119		)	1,526			1,971			3,497
Foreign exchange	(3,040		)	(19,048		)	(22,088		)	(13,817		)	(92,004		)	(105,821		)
First Nine Months of 2017 Net Sales	$	1,032,958		$	1,773,260		$	2,806,218
First Six Months of 2019 Net Sales										$	2,370,383		$	1,459,518		$	3,829,901

Net sales

Net sales for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 increased by ~~$635.0 million,~~$1.66 billion, or ~~29.2%~~76.7%, to ~~$2,806.2 million from $2,171.2 million.~~$3.83 billion. The increase is primarily due to sales from acquisitions of ~~$964.5 million with~~$1.63 billion, mainly, the ~~majority related to~~acquisition of GE Transportation. GE Transportation contributed $1.62 billion of net sales in the ~~Faiveley Transport acquisition. This increase was partially offset by a $175.1 million decrease for Specialty Products and Electronics due to lower demand for freight original~~year primarily from equipment ~~rail~~ products and train control and signaling products and services, and a $76.2 million decrease for Remanufacturing, Overhaul and Build primarily due to the absence of a large locomotive rebuild contract that completed in 2016. Unfavorable foreign exchange decreased sales by $22.1 million.

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

services. Additionally, Transit Segment sales increased ~~by $803.8~~$83 million ~~or 82.9%,~~ primarily due to ~~an increase in sales from acquisitions of $843.3 million with the majority related to the Faiveley Transport acquisition. This increase was~~increased original equipment project deliveries for HVAC and door systems, and Brake Products. These increases were partially offset by a decrease ~~of $12.4 million for~~in Specialty Products and Electronics of $53 million due to the completion of a large project signaling project in 2018 and lower ~~demand for original equipment conduction systems and current collectors.~~PTC hardware sales. Unfavorable changes in foreign currency exchange ~~decreased~~rates reduced sales by ~~$19.0~~$106 million.

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

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

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

Cost of sales increased by ~~$543.2 million~~$1.29 billion to ~~$2,009.3 million~~$2.83 billion in ~~the nine months ended September 30, 2017~~2019 compared to ~~$1,466.2 million~~$1.53 billion in ~~the same period~~2018. The increase is primarily due to $1.28 billion of ~~2016. For the nine months ended September 30, 2017,~~incremental costs from acquisitions, mainly from GE Transportation. In 2019, cost of sales as a percentage of sales was ~~71.6%~~73.8% compared to ~~67.5%~~70.7% in 2018. Cost of sales in 2019 includes $169 million of non-recurring costs related to purchase price accounting for the ~~same period~~step-up of ~~2016. The increase~~GE Transportation inventory on the date of acquisition. Excluding this non-recurring charge, cost of sales as a percentage of sales was 69.4% in 2019, a 1.3% improvement over 2018. This improvement is attributable to a favorable product mix towards more Freight Segment products, which typically carry higher margins than the Transit Segment.

Operating expenses

Total operating expenses as a percentage of sales increased to 19.2% of sales in 2019 compared to 17.5% in 2018. Selling, general, and administrative expenses increased $232 million or 73.0%, primarily due to ~~product mix largely~~$136 million of incremental expense from acquisitions, mainly GE Transportation, and $90 million in transaction and restructuring costs related to the acquisition of GE Transportation. Engineering expense increased $50 million and amortization expense increased $73 million due to incremental expense from the GE Transportation acquisition.

Interest expense, net

Interest expense, net, increased $51 million in 2019 attributable to higher ~~transit segment sales~~overall debt balances in 2019, related to the GE Transportation acquisition.

Other expense, net

Other expense/(income), net, totaled $6 million of expense in 2019 compared to $5 million of income in 2018 primarily due to ~~acquisitions, along with an unfavorable product mix within~~losses on the ~~freight segment~~remeasurement of certain foreign currency denominated original locomotive equipment contracts.

Income taxes

The effective income tax rate was 37.7% and ~~higher project adjustments~~17.7% for 2019 and 2018, respectively. The increase in the effective rate for the six months ended June 30, 2019 is primarily the result of ~~$20.4~~a $13 million benefit recorded in the ~~three months ended September 30, 2017~~second quarter of 2018 to revise estimates of the impact of U.S. tax legislation on the Transition Tax on unrepatriated earnings and the deductibility of certain ~~existing contracts~~executive compensation. In addition, the rate increased due to non-deductible transaction related expenses incurred as a result of the acquisition of GE Transportation as well as increased estimated liabilities resulting from provisions of the Tax Cuts and ~~$6.0~~Jobs Act.

Freight Segment

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



	Six Months Ended June 30,
In thousands	2019			2018			Percent Change
Net sales:
Sales of goods	$	1,891,080		$	723,657		161.3	%
Sales of services	479,303			68,155			603.3	%
Total net sales	2,370,383			791,812			199.4	%
Cost of sales:
Cost of goods	(1,398,677		)	(475,635		)	194.1	%
Cost of services	(357,077		)	(56,629		)	530.6	%
Total cost of sales	(1,755,754		)	(532,264		)	229.9	%

Gross profit	614,629			259,548			136.8	%

Operating expenses	(387,441		)	(105,577		)	267.0	%

Income from operations ($)	227,188			153,971			47.6	%
Income from operations (%)	9.6		%	19.4		%

Net sales

Freight Segment sales increased by $1.58 billion, or 199%, to $2.37 billion, due to the acquisition of GE Transportation which contributed $1.62 billion during the period, primarily from equipment products and services. This increase was partially offset by lower sales from Specialty Products and Electronics of $27 million due to the lower PTC hardware sales. Unfavorable foreign currency exchange rate changes decreased sales by $14 million.

Cost of ~~restructuring and integration costs.~~sales

Freight Segment cost of sales increased ~~3.1%~~by $1.22 billion to $1.76 billion in 2019. The increase is primarily due to $1.26 billion of incremental cost of sales and services from the GE Transportation acquisition. In 2019, total cost of sales as a percentage of total net sales was 74.1% compared to 67.2% in 2018. Total cost of sales in 2019 includes $169 million of non-recurring costs related to purchase price accounting for the step-up of GE Transportation inventory on the date of acquisition. Excluding these non-recurring costs, total cost of sales as a percentage of sales was 66.9% in 2019, 0.3% lower than 2018 as lower sales for Specialty Products and Electronics, which typically carry higher margins, were offset by cost improvements in other areas.

Operating expenses

Freight Segment operating expenses increased $282 million, or 267.0%, in 2019 and increased 300 basis points to ~~68.2%~~16.3% of sales. Selling, general, and administrative expenses increased $162 million due to $134 million in incremental expense from the GE Transportation acquisition and $16 million for transaction and restructuring costs. Engineering expense increased $46 million and amortization expense increased $74 million, both due to the GE Transportation acquisition.

Transit Segment

The following table shows our Consolidated Statements of Operations for our Transit Segment for the ~~nine months ended September 30, 2017 compared~~periods indicated.



	Six Months Ended June 30,
In thousands	2019			2018			Percent Change

Net sales	$	1,459,518		$	1,376,045		6.1	%
Cost of sales	(1,070,454		)	(1,000,745		)	7.0	%
Gross profit	389,064			375,300			3.7	%

Operating expenses	(258,920		)	(249,242		)	3.9	%

Income from operations ($)	130,144			126,058			3.2	%
Income from operations (%)	8.9		%	9.2		%

Net sales

Transit Segment sales increased by $83 million, or 6.1%, primarily due to ~~65.1%~~increased demand for ~~the same period in 2016.~~door and HVAC systems of $115 million, increased Brake Product sales of $59 million, and acquisitions of $18 million. The increase ~~is primarily related~~in Brake Product sales was due to ~~lower demand~~increased deliveries on contracts for ~~freight~~ original equipment ~~rail products~~brake and ~~train control~~coupler systems and aftermarket spares. These increases were partially offset by unfavorable foreign currency rate changes of $92 million, and a $26 million decrease in Specialty Products and Electronics due to the completion of a large signaling ~~products and services which typically offer a higher margin, higher project adjustments~~projects in the prior year.

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

Transit Segment cost of sales increased ~~3.1%~~by $70 million to $1.07 billion in 2019. In 2019, cost of sales as a percentage of sales was 73.3% compared to ~~73.5% for the nine months ended September 30, 2017 from 70.4% for the same period of 2016. The~~72.7% in 2018. This increase is primarily ~~related~~due to an unfavorable product mix ~~largely attributable to the acquisition of Faiveley Transport,~~from a decrease in high margin Specialty Products and Electronics sales towards more original equipment products which ~~has~~typically carry lower ~~overall~~ margins and ~~higher~~certain discrete project adjustments ~~of $14.9 million on certain existing contracts~~ primarily related to ~~material costs and $4.3 million of restructuring and integration costs.~~

~~Included in~~warranty cost. Favorable foreign currency exchange rates decreased 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~~by $68 million and incremental costs from acquisitions increased cost of sales which can cause variability in warranty expense between quarters. Warranty expense was $33.1 million in the nine months ended September 30, 2017 compared to $22.8 million in the nine months ended September 30, 2016. The increase in warranty expense is primarily related to the increase in sales.by $15 million.

Operating expenses ~~The following table shows our~~

Transit Segment operating expenses ~~for the periods indicated:~~

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

~~Total operating expenses were 16.6%~~increased $10 million to $259 million, or 3.9% in 2019 and ~~14.2%~~decreased 40 basis points to 17.7% of ~~sales for the nine months of 2017 and 2016, respectively.~~sales. Selling, general, and administrative expenses increased ~~$126.6 million, or 52.5%, primarily due to $145.4~~$6 million in ~~incremental expense from acquisitions and $18.0~~2019, consisting of a $15 million ~~of Faiveley Transport transaction and integration related charges~~organic increase to support the higher sales volumes, partially offset by ~~lower costs~~a $11 million decrease due to cost saving initiatives and lower organic sales volumes. Engineering expense increased by $19.2 million, or 36.7%, primarily due to $16.6 million in expenses from acquisitions and remained relatively consistent as a percentage of sales. Amortization expense increased $10.9 million due to amortization of intangibles associated with acquisitions.

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

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

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

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

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

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

~~Other income (expense), net~~ ~~Other income/(expense), net, totaled $2.2 million of expense in the nine months ended September 30, 2017 compared to $0.1 million of income for the comparable period in 2016 primarily due to~~favorable foreign currency ~~losses.~~exchange rates. Engineering and amortization expense remained consistent year over year.

~~Income taxes~~ The effective income tax rate was 23.4% and 29.7% for the nine months ended September 30, 2017 and 2016, respectively. The decrease in the effective rate is primarily due to $9.5 million of favorable deferred tax net benefits recorded in the three months ended September 30, 2017 and the result of a lower earnings mix in higher tax rate jurisdictions. The net favorable deferred tax benefits related to the adjustment of deferred tax liabilities which had originally been established in prior periods in several foreign jurisdictions.

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,						Six Months Ended June 30,
In thousands	2017			2016			2019			2018
Cash (used for) provided by:
Cash provided by (used for):
Operating activities	$	26,511		$	246,893		$	443,924		$	67,904
Investing activities	(149,824		)	(115,891		)	(3,040,364		)	(69,100		)
Financing activities	(70,049		)	(112,336		)	726,108			22,764
(Decrease)/increase in cash	$	(170,404	)	$	24,191
(Decrease)/increase in cash and restricted cash							$	(1,880,983	)	$	12,173

Operating activities In the first ~~nine~~six months of ~~2017,~~2019, cash provided by operations was ~~$26.5 million. In~~$444 million compared to $68 million in the first ~~nine~~six months of ~~2016, cash provided by operations was $246.9 million. In comparison to the first nine months of 2016, cash provided by operations for the comparable period in 2017 decreased~~2018. The increase is due to ~~unfavorable~~favorable working capital performance ~~and lower net income of $54.5 million. The major components of working capital were~~ as follows: ~~an unfavorable~~a favorable change in inventory of $264 million, of which $169 million is attributable to purchase accounting costs related to the acquisition of GE Transportation and the remaining $95 million due to better control over inventory levels, a favorable change of ~~$87.8~~$162 million in other assets and liabilities primarily due to ~~an unfavorable change in accrued liabilities due to~~the timing of payments related to ~~contract liabilities,~~acquisition costs and accrued expenses, a favorable change in accounts receivable of $24 million, and ~~acquisition costs during~~a favorable change of $40 million from the ~~first nine months~~increase in net income, net of ~~2017,~~the change in non-cash items of $111 million. The increase in the change in non-cash items is primarily attributable to increased depreciation, amortization, and stock-based compensation as a result of the GE Transportation acquisition. These favorable changes were partially offset by an unfavorable change in accounts payable of ~~$77.6~~$131 million due to the timing of payments to suppliers, an unfavorable change in inventory of $55.7 million due to efforts to ramp up production in anticipation of stronger product demand in the fourth quarter of 2017, an unfavorable change in accrued income taxes of $41.9 million, partially offset by a favorable change in accrued liabilities and customer deposits of $89.6 million primarily due to the timing of cash receipts from customers for long term projects.suppliers.

Investing activities In the first ~~nine~~six months of ~~2017~~2019 and ~~2016,~~2018, cash used for investing activities was ~~$149.8 million~~$3.04 billion and ~~$115.9~~$69 million, respectively. The major components of the cash outflow in ~~2017~~2019 were ~~$114.2 million~~$2.98 billion in net cash paid for acquisitions, primarily GE Transportation, and ~~$60.3~~$62 million in ~~planned~~ additions to property, plant and equipment for investments in our facilities and manufacturing processes. ~~These outflows were partially offset by $23.5 million in cash released from escrow related to the Faiveley acquisition.~~ This compares to ~~$84.4~~$38 million in net cash paid for acquisitions and ~~$31.7~~$40 million in property, plant, and equipment for investments in the first ~~nine~~six months of ~~2016.~~2018. Refer to Note 3 of the “Notes to Condensed Consolidated Financial Statements” for additional information on acquisitions.

Financing activities In the first ~~nine~~six months of ~~2017,~~2019, cash ~~used for~~provided by financing activities was ~~$70.0~~$726 million which included ~~$883.5~~$2.33 billion in proceeds from the revolving credit facility, $1.55 billion in repayments of debt and $34 million of dividend payments. In the first six months of 2018, cash provided by financing activities was $22.8 million, which included $592 million in proceeds from the revolving credit facility, $918.9 million in repayments of debt and $30.7 million of dividend payments. In the first nine months of 2016, cash used for financing activities was $112.3 million, which included $346.0 million in proceeds from the revolving credit facility, $215.9$546 million in repayments of debt on the revolving credit facility, ~~$212.2 million for purchases of treasury stock, $23.5~~$23 million of dividend payments, and ~~$9.0~~$7 million related to payment of income tax withholding on share-based compensation.

On September 14, 2018, the Company issued $2.5 billion of senior notes with three different maturities.

•

The net proceeds from the issuance and sale of the Senior Notes were used to finance the cash portion of the GE Transportation acquisition. The principal balances are due in full at maturity. The Senior 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 Senior Notes were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness, payment of dividends and certain distributions, sales of assets, change in control, mergers and consolidations and the incurrence of liens.

On February 12, 2019, the rating assigned by Moody's was decreased to Ba1. Accordingly, pursuant to the respective terms of the Senior Notes issued on September 14, 2018, the interest rate increased by 0.25%. The interest rate increase took effect during the interest period following February 12, 2019.

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

3.45% Senior Notes Due November 2026

On November 3, 2016, the Company issued $750.0 million of 3.45% Senior Notes due in ~~2026.~~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 $2.7 million of deferred financing costs related to the issuance of the 2016 Notes.

4.375% Senior Notes Due August 2023

~~Faiveley Transport Tender Offer~~In August 2013, the Company issued $250.0 million of 4.375% 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.

2018 Refinancing Credit Agreement

feature allowing the Company to request, in an aggregate amount not to exceed $600.0 million, increases to the borrowing commitments under the Revolving Credit Facility or a new incremental term loan commitment. At June 30, 2019, the Company had approximately $780.3 million of available bank borrowing capacity subject to certain financial covenant restrictions, net of $27.6 million of letters of credit.

The Delayed Draw Term Loan was initially drawn on February ~~3, 2017,~~25, 2019. The Company incurred a 17.5 basis point commitment fee from June 8, 2018 until the initial ~~cash tender offer was closed, which resulted~~draw.

The 2018 Refinancing Credit Agreement contains customary representations and warranties by the Company and its subsidiaries, including customary use of materiality, material adverse effect, and knowledge qualifiers. The Company and its subsidiaries are also subject to (i) customary affirmative covenants that impose certain reporting obligations on the Company and its subsidiaries and (ii) customary negative covenants, including limitations on: indebtedness; liens; restricted payments; fundamental changes; business activities; transactions with affiliates; restrictive agreements; changes in fiscal year; and use of proceeds. In addition, the Company is required to maintain (i) an Interest Coverage ratio at least 3.00 to 1.00 over each period of four consecutive fiscal quarters ending on the last day of a fiscal quarter and (ii) a Leverage Ratio, calculated as of the last day of a fiscal quarter for a period of four consecutive fiscal quarters, of 3.25 to 1.00 or less; provided that, 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,event the Company ~~owned approximately 78%~~completes the Direct Sale and the Merger or any other material acquisition in which the cash consideration paid exceeds $500.0 million, the maximum Leverage Ratio permitted will be 3.75 to 1.00 at the end of ~~outstanding share capital~~the fiscal quarter in which such acquisition is consummated and ~~76%~~each of ~~voting rights.~~the three fiscal quarters immediately following such fiscal quarter and 3.50 to 1.00 at the end of each of the fourth and fifth full fiscal quarters after the consummation of such acquisition. The Company is in compliance with the restrictions and covenants of the 2018 Refinancing Credit Agreement and does not expect that these measurements will limit the Company in executing its operating activities.

2016 Refinancing Credit Agreement

On ~~March 6, 2017, the final cash tender offer was closed, which resulted in~~June 22, 2016, the Company ~~acquiring approximately 21%~~amended its existing revolving credit facility with a consortium 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,commercial banks. This 2016 Refinancing Credit Agreement provided the Company ~~owned~~with a $1.2 billion, 5 year revolving credit facility and a $400 million delayed draw term loan (the “Term Loan”). The Company incurred approximately ~~99%~~$3 million of deferred financing cost related to the 2016 Refinancing Credit Agreement. The 2016 Refinancing Credit Agreement borrowings bore variable interest rates indexed as described below.

Under the 2016 Refinancing Credit Agreement, the Company could 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 adjusted on a daily basis and was the greater of the ~~share capital~~Federal Funds Effective Rate plus 0.50% 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 ~~98% of~~Alternate Rate margins were dependent on the ~~voting rights of Faiveley Transport.~~

~~On March 21, 2017, a mandatory squeeze-out procedure~~Company’s consolidated total indebtedness to EBITDA ratios. The initial Base Rate margin was ~~finalized, which resulted in~~0 basis points and 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.Alternate Rate margin is 175 basis points.

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~~$33 million remained. During the first ~~nine~~three months of ~~2017,~~2019, the Company did not repurchase any ~~shares.~~shares, leaving $138 million remaining under the authorization. The Company intends to purchase shares on the open market or in negotiated block trades from time to time depending on market conditions. No time limit was set for the completion of the programs which conforms to the requirements under the 2016 Refinancing Credit Agreement, as well as the ~~senior notes~~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 and related products and services;

reliance on major original equipment manufacturer customers;

original equipment manufacturers’ program delays;

demand for services in the freight and passenger rail industry;

demand for our products and services;

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

consolidations in the rail industry;

continued outsourcing by our customers;

industry demand for faster and more efficient braking equipment;

fluctuations in interest rates and foreign currency exchange rates; or

availability of ~~credit.~~

credit;

Operating factors

supply disruptions;

technical difficulties;

changes in operating conditions and costs;

increases in raw material costs;

successful introduction of new products;

performance under material long-term contracts;

labor relations;

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

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

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

Competitive factors

the actions of ~~competitors.~~competitors; or

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

Political/governmental factors

political stability in relevant areas of the world;

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

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

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

federal and state income tax legislation; and

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

Statements in this Quarterly Report on Form 10-Q apply only as of the date on which such statements are made, and we undertake no obligation to update any statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Reference is also made to the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

Critical Accounting Policies

A summary of critical accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. 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. The Company's lease accounting policy has been updated due to the adoption of ASU No. 2016-02. There have been no other significant changes in accounting policies since December 31, ~~2016.~~

2018.


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~~interest expense associated with its variable-rate debt and refinancing or issuance of incremental fixed rate debt. The Company’s variable rate debt represents ~~38%~~35% and ~~36%~~22% of total long-term debt at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, 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 68 – 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~~six months of ~~2017,~~2019, approximately ~~35%~~41% of Wabtec’s net sales were to customers in the United States, 9%10% in Canada, 6% in India, 5% in the United Kingdom, 7%5% in ~~Canada, 6%~~Mexico, 4% in France, 6%4% in Germany, 4% in ~~China, 4%~~Australia 3% in ~~Mexico,~~China, 3% in Italy, ~~3% in Australia,~~ and ~~23%~~15% in other international locations. To ~~reduce~~mitigate the impact of changes in foreign currency exchange rates on earnings and cash flows, the Company has periodically entered into foreign currency forward contracts. Refer to “Financial Derivatives and Hedging Activities” in Note 2 of “Notes to Condensed Consolidated Financial Statements” for more information regarding foreign currency exchange risk.


Item 4.	CONTROLS AND PROCEDURES

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~~June 30, ~~2017.~~2019. 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~~The business combination of Wabtec and GE Transportation, which was nocompleted on February 25, 2019, resulted in a material change in ~~Wabtec’s “internal control~~the combined company's internal controls over financial ~~reporting” (as defined~~reporting. The Company is in ~~Rule 13a-15(f) under~~ the ~~Exchange Act) that occurred during the quarter ended September 30, 2017, that has materially affected, or is reasonably likely to materially affect, Wabtec’s~~process of designing and integrating policies, processes, operations, technology, and other components of internal ~~control~~controls over financial ~~reporting.~~reporting of the combined company. Management will monitor the implementation of new controls and test the operating effectiveness when instances are available in future periods.

PART II—OTHER INFORMATION


Item 1.	LEGAL PROCEEDINGS

~~Except as described below, there~~Claims have been ~~no material changes regarding~~filed against the ~~Company’s commitments~~Company and ~~contingencies~~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 ~~Note 19 of~~ the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016, including with respect~~2018, in Note 21 therein, filed on February 27, 2019. During the first six months of 2019, there were no material changes to the information described in the Form 10-K related to claims arising from asbestos exposure.

From time to time, the Company is involved in litigation ~~with~~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, 2018, in Note 21 therein, filed on February 27, 2019. Except as described below, there have been no material changes to the information described in the Form 10-K related to claims arising from Company's ordinary operations.

On April 21, 2016, Siemens ~~described therein.~~Industry, Inc. filed a lawsuit against the Company in federal district court in Delaware alleging that the Company has infringed seven patents owned by Siemens related to the Company's Positive Train Control (PTC) technology. On November 2, 2016, Siemens amended its complaint to add six additional patents they also claim are infringed by the Company's PTC Products or End of Train (EOT) Products (Siemen Patent Case). The Company has filed Answers, and asserted counterclaims, in response to Siemens’ complaints. Additionally, after filings by the Company, the US Patent & Trademark Office’s Patent Trail and Appeal Board (PTAB) has granted Inter-Parties Review (IPR) proceedings on eight (8) of the patents asserted by Siemens to contest their validity. Following pre-trial rulings that greatly reduced Siemens’ alleged damages, a jury trial was held in federal district court in Delaware in January 2019 on eight patents, two of which were still subject to an IPR decision on validity from the PTAB. At the conclusion of the trial, the jury awarded Siemens damages of $5.6 million related to PTC patents and $1.1 million related to EOT patents. Since the jury’s verdict was issued, one of the PTC patents found to be infringed was held to be invalid by the PTAB. All PTAB proceedings have been now been completed, pending appeals; five (5) of the (8) Siemens patents reviewed by the PTAB were found to be invalid. On February 26, 2019, the Court entered a Judgment on the verdict, subject to post-trial motions. On May 28, 2019, the Court held a hearing on both parties' post-trial motions, any of which, if granted, could potentially affect the final Judgment. After the Court's ruling on the post-trial motions, a final Judgment will be entered and either party may file appeals to the Federal Circuit.


Item 1A.	RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.


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~~June 30, ~~2017:~~2019:

~~Month~~

~~Total Number of Shares Purchased~~

~~Average Price Paid per Share~~

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

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

~~July 2017~~

—

~~August 2017~~

—

~~September 2017~~

—

~~Total quarter ended September 30, 2017~~

—



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)
April 2019	—	—		—	$	137,824
May 2019	—	$	—	—	$	137,824
June 2019	—	$	—	—	$	137,824
Total quarter ended June 30, 2019	—	$	—	—	$	137,824


(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:



~~10.1~~4.1	~~Second Amendment to Second Amended and Restated Refinancing Credit Agreement, dated as of October 11, 2017,~~Tenth Supplemental Indenture, date June 6, 2019, by and among the Company, ~~Wabtec Cooperatief UA, as borrowers,~~ the ~~subsidiary~~ guarantors ~~named therein, and the lenders~~ party thereto and ~~PNC~~Wells Fargo Bank, National Association, as ~~Administrative Agent~~Trustee

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,
	Executive Vice President ~~Finance~~ and Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)

DATE:	~~November~~August 1, ~~2017~~2019

5156



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



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



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



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



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



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



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



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