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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
FORM 10-Q
____________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 033-90866
____________________________________
WESTINGHOUSE AIR BRAKE TECHNOLOGIES
CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________
Delaware25-1615902
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
30 Isabella Street Pittsburgh, Pennsylvania
15212
(Address of principal executive offices)(Zip code)
412-825-1000
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value per share
WAB
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Emerging growth companySmaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 22, 2022, there were 182,647,656 shares of common stock, par value $.01 per share, of the registrant outstanding.




WESTINGHOUSE AIR BRAKE
TECHNOLOGIES CORPORATION
March 31, 2022
FORM 10-Q
TABLE OF CONTENTS
Page
PART I—FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 4.
Item 6.

2


PART I—FINANCIAL INFORMATION
Item 1.    FINANCIAL STATEMENTS
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
In millions, except par valueMarch 31,
2022
December 31,
2021
Assets
Assets
Cash and cash equivalents$488 $473 
Accounts receivable 998 1,085 
Unbilled accounts receivable384 392 
Inventories 1,828 1,689 
Other current assets 213 193 
Total current assets 3,911 3,832 
Property, plant and equipment, net 1,468 1,497 
Goodwill 8,567 8,587 
Other intangible assets, net 3,632 3,705 
Other noncurrent assets 860 833 
Total noncurrent assets 14,527 14,622 
Total Assets $18,438 $18,454 
Liabilities and Shareholders’ Equity
Liabilities
Accounts payable $1,058 $1,012 
Customer deposits 624 629 
Accrued compensation 287 335 
Accrued warranty 224 228 
Current portion of long-term debt14 2 
Other accrued liabilities 673 704 
Total current liabilities 2,880 2,910 
Long-term debt 4,225 4,056 
Accrued postretirement and pension benefits72 77 
Deferred income taxes 304 288 
Contingent consideration142 141 
Other long-term liabilities 727 743 
Total Liabilities 8,350 8,215 
Commitments and contingencies (Note 14)
Equity
Common stock, $.01 par value; 500.0 shares authorized: 226.9 and 226.9 shares issued and 182.9 and 185.8 outstanding at March 31, 2022 and December 31, 2021, respectively
2 2 
Additional paid-in capital 7,917 7,916 
Treasury stock, at cost, 44.0 and 41.1 shares, at March 31, 2022 and December 31, 2021, respectively
(1,597)(1,306)
Retained earnings 4,176 4,055 
Accumulated other comprehensive loss (449)(466)
Total Westinghouse Air Brake Technologies Corporation shareholders’ equity 10,049 10,201 
Noncontrolling interest39 38 
Total Equity 10,088 10,239 
Total Liabilities and Equity $18,438 $18,454 
The accompanying notes are an integral part of these statements.
3


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three Months Ended
March 31,
In millions, except per share data20222021
Net sales:
Sales of goods$1,505 $1,485 
Sales of services422 345 
Total net sales1,927 1,830 
Cost of sales:
Cost of goods(1,084)(1,108)
Cost of services(248)(188)
Total cost of sales(1,332)(1,296)
Gross profit595 534 
Operating expenses:
Selling, general and administrative expenses(238)(234)
Engineering expenses(45)(38)
Amortization expense(73)(70)
Total operating expenses(356)(342)
Income from operations239 192 
Other income and expenses:
Interest expense, net(43)(48)
Other income, net4 14 
Income before income taxes 200 158 
Income tax expense(50)(43)
Net income150 115 
Less: Net income attributable to noncontrolling interest(1)(3)
Net income attributable to Wabtec shareholders$149 $112 
Earnings Per Common Share
Basic
Net income attributable to Wabtec shareholders$0.80 $0.59 
Diluted
Net income attributable to Wabtec shareholders$0.80 $0.59 
Weighted average shares outstanding
Basic184.5 188.5 
Diluted185.0 188.9 
 
The accompanying notes are an integral part of these statements.
4


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
Three Months Ended
March 31,
In millions20222021
Net income attributable to Wabtec shareholders$149 $112 
Foreign currency translation gain (loss)13 (62)
Unrealized gain (loss) on derivative contracts3 (8)
Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans1 (3)
Other comprehensive income (loss) before tax17 (73)
Income tax benefit related to components of Other comprehensive income (loss) 3 
Other comprehensive income (loss), net of tax17 (70)
Comprehensive income attributable to Wabtec shareholders$166 $42 
 
The accompanying notes are an integral part of these statements.

5


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended
March 31,
In millions20222021
Operating Activities
Net income$150 $115 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization122 120 
Stock-based compensation expense10 8 
Below market intangible amortization(12)(13)
Net loss on disposal of property, plant and equipment21
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable and unbilled accounts receivable93 9 
Inventories(137)(11)
Accounts payable48 47 
Accrued income taxes16 13 
Accrued liabilities and customer deposits(66)26 
Other assets and liabilities(65)(23)
Net cash provided by operating activities161 292 
Investing Activities
Purchase of property, plant and equipment(20)(27)
Proceeds from disposal of property, plant and equipment2 6 
Acquisitions of businesses, net of cash acquired (401)
Net cash used for investing activities(18)(422)
Financing Activities
Proceeds from debt, net of issuance costs2,012 1,435 
Payments of debt(1,817)(1,398)
Repurchase of stock(296)(1)
Cash dividends(28)(23)
Other financing activities(4)(5)
Net cash (used for) provided by financing activities(133)8 
Effect of changes in currency exchange rates5 7 
Increase (decrease) in cash15 (115)
Cash and cash equivalents, beginning of period473 599 
Cash and cash equivalents, end of period$488 $484 
 
The accompanying notes are an integral part of these statements.
 

6


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
In millionsCommon Stock SharesCommon Stock AmountAdditional Paid-in CapitalTreasury Stock SharesTreasury Stock AmountRetained EarningsAccumulated Other Comprehensive LossNon-controlling InterestTotal
Balance, December 31, 2021226.9 $2 $7,916 (41.1)$(1,306)$4,055 $(466)$38 $10,239 
Cash dividends ($0.15 dividend per share)
— — — — — (28)— — (28)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax— — (9)0.2 5 — — — (4)
Stock based compensation— — 10 — — — — — 10 
Net income— — — — — 149 — 1 150 
Other comprehensive income, net of tax— — — — — — 17 — 17 
Stock repurchase— — — (3.1)(296)— — — (296)
Balance, March 31, 2022226.9 $2 $7,917 (44.0)$(1,597)$4,176 $(449)$39 $10,088 

Balance, December 31, 2020226.9 $2 $7,881 (38.0)$(1,010)$3,589 $(339)$30 $10,153 
Cash dividends ($0.12 dividend per share)
— — — — — (23)— — (23)
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax— — (6)  — — — (6)
Stock based compensation— — 9 — — — — — 9 
Net income— — — — — 112 — 3 115 
Other comprehensive loss, net of tax— — — — — — (70)— (70)
Stock repurchase— — —  (1)— — — (1)
Balance, March 31, 2021226.9 $2 $7,884 (38.0)$(1,011)$3,678 $(409)$33 $10,177 

The accompanying notes are an integral part of these statements.
7


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022 (UNAUDITED)

1. BUSINESS
Westinghouse Air Brake Technologies Corporation (“Wabtec” or the "Company") is one of the world’s largest providers of value-added, technology-based locomotives, equipment, systems, and services for the global freight rail and passenger transit industries. Our highly engineered products, which are intended to enhance safety, improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight cars, passenger transit cars and buses around the world. Our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in over 50 countries and our products can be found in more than 100 countries throughout the world. In the first three months of 2022, approximately 60% of the Company’s net sales came from customers outside the United States.

2. ACCOUNTING POLICIES
Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America and the rules and regulations of the Securities and Exchange Commission and include the accounts of Wabtec and its subsidiaries in which Wabtec has a controlling interest. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented. Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation.
Results for these interim periods are not necessarily indicative of results to be expected for the full year particularly in light of the ongoing COVID-19 pandemic, supply chain disruptions, labor availability, broad-based inflation, and the impacts resulting from Russia's invasion of Ukraine. These factors continue to impact our sales channels, supply chain, manufacturing operations, workforce, and other key aspects of our operations. We are unable to reasonably predict the full impact of these factors due to the high degree of uncertainty regarding their duration and severity, their potential impact on global economic activity, and the impact that current and new sanctions may have on our business, global supply chain operations and our customers, suppliers, and end-markets.
For the year ended December 31, 2021, Wabtec had earnings of approximately $40 million attributable to customers in Russia, while earnings from customers in Ukraine and Belarus were not significant. As of March 31, 2022, Wabtec had approximately $16 million of assets related to Russian operations, which were primarily cash and inventory. Assets related to Ukraine and Belarus operations are not significant.
The Company operates on a four-four-five week accounting quarter, and the quarters end on or about March 31, June 30, September 30 and December 31.
The notes included herein should be read in conjunction with the audited consolidated financial statements included in Wabtec’s Annual Report on Form 10-K for the year ended December 31, 2021. The December 31, 2021 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Use of Estimates The preparation of financial statements in conformity with GAAP in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
Revenue Recognition A majority of the Company’s revenues are derived from performance obligations that are satisfied at a point in time when control passes to the customer. The remaining revenues are earned over time. Generally, for performance obligations satisfied at a point in time control passes at the time of shipment in accordance with agreed upon delivery terms.
The Company also has long-term customer agreements involving the design and production of highly engineered products that require revenue to be recognized over time because these products have no alternative use without significant economic loss and the agreements contain an enforceable right to payment including a reasonable profit margin from the customer in the event of contract termination. Additionally, the Company has customer agreements involving the creation or enhancement of an asset that the customer controls which also require revenue to be recognized over time. Generally, the Company uses an input method for determining the amount of revenue, cost and gross margin to recognize over time for these customer agreements. The input methods used for these agreements include costs of material and labor, both of which give an accurate representation of the progress made toward complete satisfaction of a particular performance obligation. Contract
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revenues and cost estimates are reviewed and revised periodically throughout the year and adjustments are reflected in the accounting period as such amounts are determined.
Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment. Contract estimates related to long-term projects are based on various assumptions to project the outcome of future events that could span several years. These assumptions include cost of materials; labor availability and productivity; complexity of the work to be performed; and the performance of suppliers, customers and subcontractors that may be associated with the contract. We have a disciplined process where management reviews the progress of long term-projects periodically throughout the year. As part of this process, management reviews information including key contract matters, progress towards completion, identified risks and opportunities and any other information that could impact the Company’s estimates of revenue and costs. After completing this analysis, any adjustments to net sales, cost of goods sold, and the related impact to operating income are recognized as necessary in the period they become known.
Generally, the Company’s revenue contains a single performance obligation for each distinct good or service; however, a single contract may have multiple performance obligations comprising multiple promises to customers. When there are multiple performance obligations, revenue is allocated based on the relative stand-alone selling price. Pricing is defined in our contracts on a line item basis and includes an estimate of variable consideration when required by the terms of the individual customer contract. Types of variable consideration the Company typically has include volume discounts, prompt payment discounts, liquidating damages and performance bonuses. Sales returns and allowances are also estimated and recognized in the same period the related revenue is recognized, based upon the Company’s experience.
Remaining performance obligations represent the transaction price of firm customer orders subject to standard industry cancellation provisions and substantial scope-of-work adjustments. As of March 31, 2022, the Company's remaining performance obligations were approximately $22.2 billion. The Company expects to recognize revenue of approximately 25% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.
Revolving Receivables Program The Company utilizes a revolving agreement to transfer up to $200 million of certain receivables of certain subsidiaries of the Company (the "Originators") through our bankruptcy-remote subsidiary to a financial institution on a recurring basis in exchange for cash equal to the gross receivables transferred. The bankruptcy remote subsidiary is a separate legal entity with its own creditors, and its assets are not available to pay creditors of the Company or any other affiliates of the Company. As customers pay their balances, we transfer additional receivables into the program, which resulted in our gross receivables sold exceeding collections reinvested for the periods presented. The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary, which holds additional receivables that are pledged as collateral under this agreement.
At March 31, 2022 and 2021 the bankruptcy-remote subsidiary held receivables of $367 million and $260 million, respectively. The transfers are recorded at the fair value of the proceeds received and obligations assumed less derecognized receivables. No obligation was recorded at March 31, 2022 or 2021 as the estimated expected credit losses on receivables sold is insignificant. Our maximum exposure to losses related to these receivables transferred is limited to the amount outstanding. The Company has agreed to guarantee the performance of the Originators respective obligations under the revolving agreement. None of the Company (except for the bankruptcy-remote consolidated subsidiary referenced above) nor the Originators guarantees the collectability of the receivables under the revolving agreements.
The following table sets forth a summary of receivables sold:
In millionsThree Months Ended
March 31, 2022
Three Months Ended
March 31, 2021
Gross receivables sold/cash proceeds received$312 $258 
Collections reinvested under revolving agreement (157)(165)
Net cash proceeds received$155 $93 
Depreciation Expense Depreciation of property, plant and equipment related to the manufacturing of products or services provided is included in Cost of goods or Cost of services. Depreciation of other property, plant and equipment that is not attributable to the manufacturing of products or services provided is included in Selling, general and administrative expenses or Engineering expense depending on how the property, plant and equipment is used.
Goodwill and Intangible Assets Goodwill and other intangible assets with indefinite lives are not amortized. Other intangibles (with definite lives) are amortized on a straight-line basis over their estimated economic lives. Amortizable intangible assets are reviewed for impairment when indicators of impairment are present. The Company tests goodwill and indefinite-lived intangible assets for impairment at the reporting unit level and at least annually. The Company performs its
9


annual impairment test during the fourth quarter after the annual forecasting process is completed, and also tests for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Periodically, management of the Company assesses whether or not an indicator of impairment is present that would necessitate an impairment analysis to be performed.
Accounting Standards Recently Issued In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update provide specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination and address how to determine whether a contract liability is recognized by the acquirer in a business combination. The amendments in this update will be effective for Wabtec on January 1, 2023 and will be applied prospectively to business combinations occurring on or after the effective date.
Accumulated Other Comprehensive Loss Comprehensive income comprises both net income and Other comprehensive income (loss) resulting from the change in equity from transactions and other events and circumstances from non-owner sources.
The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the three months ended March 31, 2022 are as follows:
In millionsForeign currency translationDerivative contractsPension and postretirement benefit plansTotal
Balance at December 31, 2021$(396)$(5)$(65)$(466)
Other comprehensive income before reclassifications13 3  16 
Amounts reclassified from Accumulated other comprehensive loss  1 1 
Other comprehensive income, net13 3 1 17 
Balance at March 31, 2022$(383)$(2)$(64)$(449)
The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the three months ended March 31, 2021 are as follows:
In millionsForeign currency translationDerivative contractsPension and postretirement benefit plansTotal
Balance at December 31, 2020$(260)$3 $(82)$(339)
Other comprehensive loss before reclassifications(62)(6)(3)(71)
Amounts reclassified from Accumulated other comprehensive loss  1 1 
Other comprehensive loss, net(62)(6)(2)(70)
Balance at March 31, 2021$(322)$(3)$(84)$(409)
Amounts reclassified from Accumulated other comprehensive loss are recognized in "Other income, net" with the tax impact recognized in "Income tax expense."

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3. ACQUISITIONS
Nordco
On March 31, 2021, the Company acquired Nordco, a leading North American supplier of new, rebuilt and used maintenance of way equipment. Nordco's products and services portfolio includes mobile railcar movers and ultrasonic rail flaw detection technologies. The purchase price paid for 100% ownership of Nordco was approximately $410 million.
The following table summarizes the fair value of the Nordco assets acquired and liabilities assumed:
In millions
Assets acquired
Cash and cash equivalents $5 
Accounts receivable 23 
Inventory 34 
Other current assets 2 
Property, plant and equipment 17 
Goodwill 215 
Other intangible assets168 
Other noncurrent assets 12 
Total assets acquired 476 
Liabilities assumed
Current liabilities 20 
Noncurrent liabilities 46 
Total liabilities assumed 66 
Net assets acquired $410 
The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. Discounted cash flow models were used to estimate the fair values of acquired intangibles. The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3 in the fair value hierarchy. Intangible assets acquired include customer relationships and acquired technology that are subject to amortization, and trade names that were assigned an indefinite life and are not subject to amortization. Contingent liabilities assumed as part of the transaction were not material.
Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the assembled workforce and the future economic benefits, including synergies, that are expected to be achieved as a result of the acquisition. The purchased goodwill is not expected to be deductible for tax purposes. The results of this business since the date of acquisition are reported within the Freight Segment and the Services product line. The pro forma impact on Wabtec’s sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, was not significant.
The Company also made smaller acquisitions in prior periods not listed above which are individually and collectively immaterial.

4. INVENTORIES
The components of inventory, net of reserves, were:
In millionsMarch 31,
2022
December 31,
2021
Raw materials$816 $757 
Work-in-progress393 316 
Finished goods619 616 
Total inventories$1,828 $1,689 

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5. GOODWILL AND INTANGIBLE ASSETS
The change in the carrying amount of goodwill by segment is as follows:
In millionsFreight SegmentTransit SegmentTotal
Balance at December 31, 2021$7,073 $1,514 $8,587 
Additions/adjustments1 (2)(1)
Foreign currency impact17 (36)(19)
Balance at March 31, 2022$7,091 $1,476 $8,567 
As of March 31, 2022 and December 31, 2021, the Company’s trade names had a net carrying amount of $621 million and $635 million, respectively. The Company believes these intangibles have indefinite lives, with the exception of the right to use the GE Transportation trade name, to which the Company has assigned a useful life of 5 years.
Intangible assets of the Company, other than goodwill and trade names, consist of the following:
In millionsMarch 31,
2022
December 31,
2021
Backlog, net of accumulated amortization of $342 and $309
$1,096 $1,114 
Customer relationships, net of accumulated amortization of $345 and $331
963 979 
Acquired technology, net of accumulated amortization of $360 and $334
952 977 
Total$3,011 $3,070 
The weighted average remaining useful lives of backlog, customer relationships and acquired technology were 10 years, 17 years and 9 years, respectively. The backlog intangible asset primarily consists of in-place long-term service agreements acquired by the Company in conjunction with the acquisition of GE Transportation in 2019. Amortization expense for intangible assets was $73 million and $70 million for the three months ended March 31, 2022 and 2021, respectively.
Amortization expense for the five succeeding years is estimated to be as follows:
In millions
Remainder of 2022$218 
2023$290 
2024$280 
2025$264 
2026$260 

6. CONTRACT ASSETS AND CONTRACT LIABILITIES
Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. The current portion of the contract assets are classified as current assets under the caption “Unbilled accounts receivable” while the noncurrent contract assets are classified as other assets under the caption "Other noncurrent assets" on the consolidated balance sheets. Noncurrent contract assets were $184 million at March 31, 2022 and $153 million at December 31, 2021. Included in noncurrent contract assets are certain costs that are specifically related to a contract but do not directly contribute to the transfer of control of the tangible product being created, such as non-recurring engineering costs. The Company has elected to use the practical expedient and does not consider unbilled amounts anticipated to be paid within one year as significant financing components.
Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract and advanced customer payments that are in excess of revenue recognized. The current portion of contract liabilities are classified as current liabilities under the caption “Customer deposits” while the noncurrent contract liabilities are classified as noncurrent liabilities under the caption "Other long-term liabilities" on the consolidated balance sheets. Noncurrent contract liabilities were $86 million at March 31, 2022 and $88 million at December 31, 2021. These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract or revenue associated with the contract liabilities is expected to be recognized within one year. Contract liabilities also include provisions for estimated losses from uncompleted contracts. Provisions for loss contracts were $106 million and $107 million at March 31, 2022 and December 31, 2021, respectively. These provisions for
12


estimated losses are classified as current liabilities and included within the caption “Other accrued liabilities” on the consolidated balance sheets.
The change in the carrying amount of contract assets and contract liabilities for the three months ended March 31, 2022 and 2021 is as follows:
Contract Assets
In millions20222021
Balance at beginning of year$545 $544 
Recognized in current year165 233 
Reclassified to accounts receivable(140)(242)
Foreign currency impact(2)(5)
Balance at March 31
$568 $530 
Contract Liabilities
In millions20222021
Balance at beginning of year$824 $832 
Acquisitions 2 
Recognized in current year231 234 
Amounts in beginning balance reclassified to revenue(191)(214)
Current year amounts reclassified to revenue(44)(11)
Foreign currency impact(4)(10)
Balance at March 31$816 $833 
7. LEASES
The Company leases certain property, buildings and equipment. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments. Many of the Company's leases include rental escalation clauses, renewal options, and/or termination options that are factored into our determination of lease payments when appropriate. The Company does not separate lease and non-lease components. The right-of-use assets are classified as noncurrent and included within the caption "Other noncurrent assets" on the consolidated balance sheets. The current portion of lease liabilities are classified under the caption "Other accrued liabilities," while the noncurrent portion of lease liabilities are classified under the caption "Other long-term liabilities" on the consolidated balance sheets.
Operating lease expense for the three months ended March 31, 2022 and 2021, was $15 million and $14 million, respectively. New operating leases of $2 million were added during the three months ended March 31, 2022. Wabtec does not have material financing leases, short-term or variable leases or sublease income.
As most of the Company's leases do not provide a readily stated discount rate, the Company must estimate the rate to discount lease payments using its incremental borrowing rate. The Company has established discount rates by geographic region ranging from 1% to 9%.
Scheduled payments of lease liabilities are as follows:
In millionsOperating Leases
Remaining 2022$43 
202352 
202447 
202540 
202633 
Thereafter114 
Total lease payments329 
Less: Present value discount(25)
Present value of lease liabilities$304 
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The following table summarizes the remaining lease term and discount rate assumptions used to develop the present value of operating lease liabilities:
March 31,
2022
December 31, 2021
Weighted-average remaining lease term (years)8.08.2
Weighted-average discount rate2.3 %2.3 %

8. LONG-TERM DEBT
Long-term debt consisted of the following:
Effective Interest RateFace ValueMarch 31, 2022December 31, 2021
In millionsBook Value
Fair Value1
Book Value
Fair Value1
Senior Credit Facility:
Multi-Currency Revolving loan facility2.7 %N/A$183 $183 $ $ 
Senior Notes:
4.375% Senior Notes, due 2023
4.5 %$250 250 253 250 260 
4.15% Senior Notes, due 2024
4.6 %$750 747 763 747 796 
3.20% Senior Notes, due 2025
3.4 %$500 497 490 497 523 
3.45% Senior Notes, due 2026
3.5 %$750 749 732 749 795 
1.25% Senior Notes (EUR), due 2027
1.5 %500 545 525 560 574 
4.70% Senior Notes, due 2028
5.0 %$1,250 1,243 1,316 1,243 1,423 
Other Borrowings25 25 12 12 
Total4,239 4,287 4,058 4,383 
Less - current portion14 14 2 2 
Long-term portion$4,225 $4,273 $4,056 $4,381 
1. See Note 13 for information on the fair value measurement of the Company's long-term debt.
Variances between Face Value and Book Value are the result of unamortized discounts and debt issuance fees.
For those debt securities that have a premium or discount at the time of issuance, the Company amortizes the amount through interest expense based on the maturity date or the first date the holders may require the Company to repurchase the debt securities, if applicable. A premium would result in a decrease in interest expense, and a discount would result in an increase in interest expense in future periods. Additionally, the Company has debt issuance costs related to certain financing transactions which are also amortized through interest expense. As of March 31, 2022 and December 31, 2021, the Company had total combined unamortized discount and debt issuance costs of $21 million and $23 million, respectively.
Senior Credit Facility
On June 8, 2018, the Company entered into a credit agreement ("Senior Credit Facility"), which replaced the Company's then-existing credit agreement. The Senior Credit Facility is with a syndicate of lenders and provides for borrowings consisting of (i) term loans denominated in euros and U.S. dollars ("Term Loans"); and (ii) a multi-currency revolving loan facility, providing for an equivalent in U.S. dollars of up to $1,200 million in multi-currency revolving loans (inclusive of swingline loans of up to $75 million and letters of credit of up to $450 million (the "Revolving Credit Facility")). The Revolving Credit Facility will mature on June 8, 2023.
Under the Senior Credit Facility, we can elect to receive advances bearing interest based on either the Alternate Base Rate ("ABR"), the London Interbank Offered Rate ("LIBOR") or the adjusted risk-free rate (each as defined in the Senior Credit Facility) plus applicable margin that is determined based on our credit ratings or the Company's Leverage (as defined in the Senior Credit Facility). The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type. The obligations under the Senior Credit Facility are guaranteed by Wabtec and certain of Wabtec's U.S. subsidiaries, as guarantors.
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The Company has agreed that, so long as any lender has any commitment under the Senior Credit Facility, any letter of credit is outstanding under the Senior Credit Facility, or any loan or other obligation is outstanding under the Senior Credit Facility, it will maintain the following as of the end of each fiscal quarter or the period of four quarters then ended:
Interest Coverage Ratio 1
3.0x
Leverage Ratio 2
3.25x
1. The interest coverage ratio is defined as EBITDA (earnings before interest, taxes, depreciation, and amortization) to net interest expense (each as defined in the Senior Credit Facility) for the four quarters then ended.
2. The leverage ratio is defined as net debt as of the last day of such fiscal quarter to EBITDA, as defined in the Senior Credit Facility, for the four quarters then ended.
The Senior Credit Facility was amended in the second quarter of 2021 so the Company may increase the maximum leverage ratio to (x) 3.75 to 1.00 at the end of the fiscal quarter in which the Nordco acquisition was consummated and each of the three fiscal quarters immediately following such fiscal quarter and (y) 3.50 to 1.00 at the end of each of the fourth and fifth full fiscal quarters after the consummation of the Nordco acquisition upon the Company's request. The Company has not requested any increase in the leverage ratio at this time.
The Company was in compliance with all covenants in the Senior Credit Facility as of March 31, 2022.
The following table presents availability under the Senior Credit Facility at March 31, 2022:
In millionsSenior Credit Facility
Maximum Availability$1,200 
Outstanding Borrowings(183)
Letters of Credit Under Credit Agreement(3)
Current Availability$1,014 
Senior Notes
The Company or its subsidiaries may issue senior notes from time to time. These notes are comprised of our 4.375% Senior Notes due 2023 (the "2023 Notes"), 4.15% Senior Notes due 2024 (the "2024 Notes"), 3.20% Senior Notes due 2025 (the "2025 Notes"), 3.45% Senior Notes due 2026 (the "2026 Notes"), 1.25% Senior Notes (EUR) due 2027 (the "Euro Notes"), and 4.70% Senior Notes due 2028 (the "2028 Notes"). The 2023 Notes, 2024 Notes, 2025 Notes, 2026 Notes and 2028 Notes are the “US Notes”, and collectively with the Euro Notes, the “Senior Notes.” Interest on the US Notes is payable semi-annually and interest on the Euro Notes is paid annually. Each series of the Senior Notes may be redeemed at any time in whole or from time to time in part in accordance with the provisions of the indenture, under which such series of notes was issued. Each of the Senior Notes may be redeemed at a redemption price of 100% of the principal amount plus a specified make-whole premium and accrued interest. The US Notes and the Company's guarantee of the Euro Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt, and are senior to all existing and future subordinated indebtedness of the Company.
The indentures under which the Senior Notes were issued contain covenants and restrictions which limit, subject to certain exceptions, certain sale and leaseback transactions with respect to principal properties, the incurrence of secured debt without equally and ratably securing the Senior Notes, and certain merger and consolidation transactions. The covenants do not require the Company to maintain any financial ratios or specified levels of net worth or liquidity. The US Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis by each of the Company's subsidiaries that is a guarantor under the Senior Credit Facility. The Euro Notes were issued by Wabtec Transportation Netherlands B.V. and are fully and unconditionally guaranteed by the Company.
The Company is in compliance with the restrictions and covenants in the indentures under which the Senior Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.

9. STOCK-BASED COMPENSATION
As of March 31, 2022, 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 15, 2030, and as of March 31, 2022 the number of shares available for future grants under the 2011 Plan was 6.1 million shares, which includes remaining shares available under the 2000 Plan. The Company also maintains a 1995 Non-Employee Directors’ Fee and Stock Option Plan as amended and restated (“the Directors Plan”).
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Stock-based compensation expense was $11 million and $8 million for the three months ended March 31, 2022 and 2021, respectively. At March 31, 2022, unamortized compensation expense related to stock options, non-vested restricted shares and incentive stock units expected to vest totaled $71 million.
Stock Options Stock options are granted to eligible employees 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. New options granted become exercisable over a three-year vesting period. Options expire 10 years from the date of grant. No stock options were granted during the three months ended March 31, 2022.
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 three months ended March 31, 2022:
OptionsWeighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic value
(in millions)
Outstanding at December 31, 2021531,915 $75.40 6.5$9 
Exercised(47,964)$68.54 
Canceled(6,973)$75.85 
Outstanding at March 31, 2022476,978 $75.47 6.3$10 
Exercisable at March 31, 2022365,205 $74.31 6.1$8 

Restricted Stock, Restricted Units and Incentive Stock As provided for under the 2011 Plan and 2000 Plan, eligible employees are granted restricted stock that generally vests over three years from the date of grant. Under the Directors Plan, restricted stock awards vest one year from the date of grant.
In addition, the Company has issued incentive stock units to eligible employees that vest upon attainment of certain cumulative three-year performance goals. Based on the Company’s performance for each three-year period then ended, the incentive stock units can vest, with underlying shares of common stock being awarded in an amount ranging from 0% to 200% of the amount of initial incentive stock units granted. The incentive stock units included in the table below represent the number of incentive stock units that are expected to vest based on the Company’s estimate for meeting those established performance targets. As of March 31, 2022, the Company estimates that it will achieve 121%, 117% and 100% for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2022, 2023, and 2024, respectively, and has recorded incentive compensation expense accordingly. If 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 resulting in recognition 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 incentive stock units' activity for the three months ended March 31, 2022:
Restricted
Stock
and Units
Incentive
Stock
Units
Weighted
Average Grant
Date Fair
Value
Outstanding at December 31, 2021507,698 607,101 $78.06 
Granted302,085 175,620 $92.80 
Vested(193,736)(43,039)$74.80 
Canceled(11,833)(16,606)$75.82 
Outstanding at March 31, 2022604,214 723,076 $84.00 

10. INCOME TAXES
The overall effective tax rate of 25.1% for the three months ended March 31, 2022 differs from the U.S. Federal statutory rate of 21.0% primarily due to the impact of state and foreign taxes.
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11. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for Net income attributable to Wabtec shareholders is as follows:
Three Months Ended
March 31,
In millions, except per share data20222021
Numerator
Net income attributable to Wabtec shareholders$149 $112 
Denominator
Weighted average shares outstanding - basic184.5 188.5 
Effect of dilutive securities:
Assumed conversion of dilutive stock-based compensation plans0.5 0.4 
Weighted average shares outstanding - diluted185.0 188.9 
Net income attributable to Wabtec shareholders per common share
Basic$0.80 $0.59 
Diluted$0.80 $0.59 
Approximately 0.3 million outstanding shares of stock options for the three months ended March 31, 2021 were not included in the computation of quarterly diluted earnings per share because their exercise price exceeded the average market price of the Company's common stock.

12. WARRANTIES
The following table reconciles the changes in the Company’s product warranty reserve for the three months ended March 31, 2022 and 2021:
In millions20222021
Balance at beginning of year$259 $279 
Acquisitions 2 
Warranty expense27 29 
Warranty claim payments(30)(29)
Foreign currency impact/other(2)(7)
Balance at March 31
$254 $274 

13. FAIR VALUE MEASUREMENT AND DERIVATIVE INSTRUMENTS
ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value and explains the related disclosure requirements. ASC 820 indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit price model.
Valuation Hierarchy. ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and, 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.
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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 March 31, 2022 and December 31, 2021. The Company’s defined benefit pension plan assets consist primarily of equity security funds, debt security funds, insurance contracts, and temporary cash and cash equivalent investments. 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 represents the accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates.  The Senior Notes are considered Level 2 based on the fair value valuation hierarchy. Contingent consideration related to the GE Transportation acquisition is considered Level 3 based on the fair value valuation hierarchy. At March 31, 2022 and December 31, 2021, $110 million was classified as "Other accrued liabilities" on the Company's Consolidated Balance Sheets and $142 million and $141 million, respectively, was included within long-term liabilities classified as "Contingent consideration" on the Company's Consolidated Balance Sheets. The fair value approximates the carrying value at March 31, 2022 and December 31, 2021.
Hedging Activities In the normal course of business, the Company is exposed to market risk related to interest rates, commodity prices and foreign currency exchange rate fluctuations, which may adversely affect our operating results and financial position. At times, we limit these risks through the use of derivatives such as cross-currency swaps, foreign currency forward contracts, interest rate swaps, commodity swaps and options. These hedging 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. In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes.
Foreign Currency Exchange Risk
The Company uses forward contracts to hedge forecasted foreign currency denominated sales of finished goods and future settlement of foreign currency denominated assets and liabilities. Derivatives used to hedge firm commitments relevant to sales and purchases and forecasted transactions to be realized with high probability that meet the criteria for hedge accounting are designated as cash flow hedges. The effective portion of gains and losses is deferred as a component of Accumulated other comprehensive loss and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. For the three months ended March 31, 2022 and 2021, the amounts reclassified into income were not material.
The Company has also established balance sheet risk management and net investment hedging programs to protect its balance sheet against foreign currency exchange rate volatility. We conduct our business worldwide in U.S. dollars and the functional currencies of our foreign subsidiaries, including euro, Indian rupee, British pound sterling, Australian dollars and several other foreign currencies. Changes in these foreign currency exchange rates could have a material adverse impact on our financial results that are reported in U.S. dollars. We are also exposed to foreign currency exchange rate risk related to our foreign subsidiaries, including intercompany loans denominated in non-functional currencies. We hedge these exposures using foreign currency swap contracts and cross-currency swaps to offset the potential income statement effects on intercompany loans denominated in non-functional currencies. These programs reduce but do not eliminate foreign currency exchange rate risk entirely.
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 income, net. The net loss related to these contracts was $1 million and $2 million for the three months ended March 31, 2022 and 2021, respectively. These contracts typically mature within one year.
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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 March 31, 2022, which are included in "Other current assets" and "Other accrued liabilities" on the Consolidated Balance Sheets:
Fair ValueGross Notional Amount
In millionsLevelDesignatedNon-DesignatedDesignatedNon-Designated
Foreign Exchange Contracts
Other current assets2$9 $ $1,142 $ 
Other current liabilities2 (1) 272 
Cross-currency Swaps
Other current liabilities2(2) 14  
Total$7 $(1)$1,156 $272 
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, 2021, which are included in "Other current assets" and "Other accrued liabilities" on the Consolidated Balance Sheets: