WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP (WAB)

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, 2025, filed with the Securities and Exchange Commission on February 13, 2026.

OVERVIEW

Wabtec is a global provider of value-added, technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries, as well as the mining, marine and industrial markets and applications. Our highly engineered rail and transit products, which are designed 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 worldwide. In the first six months of 2026, approximately half of the Company’s net sales were generated from customers outside the United States.

Business Update

During the first quarter of 2025, Wabtec announced a definitive agreement to acquire Dellner Couplers, a global leader in highly engineered safety-critical train connection systems and services for passenger rail rolling stock. The acquisition subsequently closed on February 10, 2026 for approximately $1.053 billion and is included within our Transit Segment.

Total multi-year backlog increased $3.5 billion during the first six months of 2026 to a record $30.9 billion at June 30, 2026. Significant Freight orders included a multi-year, multi-billion-dollar mining contract for drive systems and aftermarket parts, a $1.0 billion Australian order spanning across new locomotives, components, digital solutions, and multi-year services, a $210 million U.S. locomotive modernization order, a $184 million Positive Train Control (PTC) order, and a $52 million mining drive systems order in the Asia-Pacific region. We also began executing the first EVO modernization build to support the commercial rollout to the installed base. Key Transit orders during the first six months of 2026 included $109 million in brakes, couplers, and platform doors.

Wabtec is focused on driving operational efficiency and improving profitability while reducing manufacturing complexity. As a result, there are restructuring initiatives, including Integration 3.0, Portfolio Optimization and Integration 2.0, aimed at achieving these focus areas. During the first six months of 2026 and 2025, Wabtec incurred $5 million and $15 million, respectively, of restructuring costs primarily for employee-related costs on programs under these initiatives. In addition, Transaction costs incurred during the six months ended June 30, 2026 and 2025 related to recent acquisitions were approximately $14 million and $35 million, respectively.

Future macroeconomic volatility, changes to tariffs and trade policies, impacts from regional conflicts and war, supply chain disruptions, and labor availability, amongst other things, could cause a negative impact on revenue and cost increases resulting in an adverse effect on the Company’s operating results. Additionally, broad-based inflation, metals, energy and other commodity costs, transportation and logistics costs, labor costs, and foreign currency exchange rate fluctuations all continue to impact our results. The Company utilizes various mitigating actions intended to lessen the impact of macroeconomic volatility, including the impact of current tariffs. These actions include implementing price escalations and surcharges, driving operational efficiencies through various cost mitigation efforts and discretionary spend management, strategically sourcing materials, reviewing and modifying distribution logistics, and accelerating integration synergies through our strategic initiatives. The Company has experienced increased tariff costs which unfavorably impacted our operating results and cash from operations for the six months ended June 30, 2026. Although we do not expect a material impact to our results of operations in 2026 because of mitigation efforts, due to the volatility of trade policies, we are unable to reasonably predict the future impact.

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RESULTS OF OPERATIONS

Consolidated Results

SECOND QUARTER 2026 COMPARED TO SECOND QUARTER 2025

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

The following table shows the major components of the change in Net sales in the three months ended June 30, 2026 from the three months ended June 30, 2025:

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Net sales

Net sales for the three months ended June 30, 2026 increased by $473 million, or 17.5%, to $3.18 billion compared to the same period in 2025. Organic sales increased $229 million, or 8.5%, which was attributable to both the Freight and Transit Segments. Freight sales increased primarily due to higher North American and international locomotive deliveries and higher mining sales, partially offset by lower deliveries of locomotive modernizations. Transit sales increased from higher demand for Aftermarket and Original Equipment Manufacturing products and services driven by increased investments in sustainable infrastructure, fleet expansion and renewals and increased passenger ridership levels. Acquisitions increased Net sales by $232 million, or 8.6%, and favorable changes in foreign exchange increased Net sales by $24 million, or 0.9%.

Cost of sales

Cost of sales for the three months ended June 30, 2026 increased by $250 million, or 14.1%, to $2.02 billion compared to the same period in 2025. The increase is primarily due to the increase in Net sales. Cost of sales as a percentage of Net sales was 63.5% and 65.3% for the three months ended June 30, 2026 and 2025, respectively. The improvement in gross margin is attributable to productivity and efficiency, savings from restructuring initiatives, and accretion from recent acquisitions, partially offset by inflation driven by tariffs and unfavorable mix within the Freight Segment. Cost of sales for the three months ended June 30, 2026 included $5 million of costs related to purchase price accounting for the step-up of inventory to fair value related to acquisitions. Cost of sales for the three months ended June 30, 2025 included $3 million of costs related to restructuring initiatives.

Operating expenses

Total operating expenses increased $95 million, or 20.4%, for the three months ended June 30, 2026 compared to the same period in 2025. Selling, general and administrative expenses ("SG&A") increased $53 million for the three months ended June 30, 2026 compared to the same period in 2025. The increase is primarily due to incremental expense from acquisitions and higher employee compensation and benefit costs, partially offset by lower transaction costs and the impacts of restructuring initiatives. Transaction costs associated with acquisitions included in SG&A were $1 million and $25 million for the three months ended June 30, 2026 and 2025, respectively. SG&A for the three months ended June 30, 2025 included $3 million of costs related to restructuring initiatives. Engineering expenses increased $20 million and Amortization expense increased $22 million, both due to incremental expense from acquisitions.

Interest expense, net

Interest expense, net, increased $34 million to $80 million for the three months ended June 30, 2026 compared to the same period in 2025, due to higher average overall debt balances in the current period, primarily related to acquisitions.

Other (expense) income, net

Other (expense) income, net decreased $26 million for the three months ended June 30, 2026 compared to the same period in 2025, primarily due to the nonrecurrence of a $32 million net gain on mark-to-market derivatives in the prior period associated with the acquisitions of Dellner Couplers and Frauscher.

Income taxes

The effective income tax rate was 23.4% and 24.8% for the three months ended June 30, 2026 and 2025, respectively. The year over year decrease in the effective rate was primarily driven by prior period audit settlements.

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Freight Segment

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

The following table shows the major components of the change in Net sales for the Freight Segment in the second quarter of 2026 from the second quarter of 2025:

Net sales

Freight Segment organic sales increased by $158 million, or 8.2%, dr

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

OVERVIEW

Wabtec is a global provider of value-added, technology-based locomotives, equipment, systems and services for the freight rail and passenger transit industries, as well as the mining, marine, and industrial markets and applications. Our highly engineered rail and transit 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 2025, approximately half of the Company’s Net sales came from customers outside the United States.

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

The Company primarily serves the worldwide freight and transit rail industries. Our operating results are largely dependent on the level of activity, financial condition and capital spending plans of railroads and passenger transit agencies around the world, and transportation equipment manufacturers who serve those markets. Many factors influence these industries, including general economic conditions; traffic volumes, as measured by freight carloads and passenger ridership; number of locomotives and railcars in operation; government spending on public transportation; and investment in new technologies. In general, trends such as urbanization and growth in developing markets, sustainability and environmental awareness, investment in technology solutions, an aging equipment fleet, and growth in global trade are expected to drive continued investment in freight rail and passenger transit.

The Company monitors a variety of factors and statistics to gauge market activity. Freight rail markets around the world are driven primarily by overall economic conditions and activity, while Transit markets are driven primarily by government funding and passenger ridership. Changes in these market drivers can cause fluctuations in demand for Wabtec's products and services.

Business Update

During the fourth quarter of 2025, Wabtec signed $2.2 billion in new locomotive orders in North America, which included $1.3 billion for locomotive modernizations and $0.9 billion for new locomotives. Also during the fourth quarter, Digital Intelligence secured $75 million of PTC and KinetiX orders in key international markets. In the third quarter of 2025, Wabtec announced an agreement with National Company Kazakhstan Temir Zholy ("KTZ"), the national railway of Kazakhstan, to deliver Evolution Series locomotives and provide long-term service support. The multi-national order, valued by the Company at approximately $4.2 billion, marks the largest locomotive agreement in Wabtec's history. Wabtec also continued to drive recurring revenue in the global market by winning a new service contract in Kazakhstan worth $299 million earlier in 2025. Additionally in the Freight Segment, the first Simandou locomotives reached Guinea, marking the first exports from the Company's India locomotive facility. We also signed a $140 million new locomotive order with a North American Class I railroad, signed new locomotive, mining and service orders in the Asia-Pacific region totaling $127 million, and signed a $125 million ultra class mining order.

During 2025, the Transit Segment signed $140 million in new Transit brake orders, two multi-year transit platform door contracts valued at $85 million and a $47 million order to provide brakes and couplers for servicing a North American customer, among many other orders.

In March of 2025, Moody's upgraded the Senior Notes ratings to Baa2 from Baa3 and changed the outlook to stable from positive, and S&P Global Ratings reaffirmed Wabtec's credit rating at BBB with a stable outlook.

In February 2025, Wabtec announced Integration 3.0, a three-year strategic initiative to target incremental run rate synergies currently estimated to be between $115 million to $140 million by 2028. The scope of the review includes consolidating our footprint via value chain improvement and facility rationalization, reducing headcount, expanding operating capacity in low-cost countries, and streamlining administrative and commercial activities. Management will also consider additional capital investments to further simplify and streamline the business. The Company anticipates that it will incur charges of approximately $125 million to $155 million related to this initiative, of which approximately $80 million to $100 million are expected to be one-time restructuring charges. Estimates for this program could change based on the specific programs approved or changes to the scope of the review. In addition to Integration 3.0, there are other ongoing restructuring initiatives, including Portfolio Optimization and Integration 2.0, focused on driving operational efficiency and improving

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profitability while reducing manufacturing complexity. For the years ended December 31, 2025 and 2024, Wabtec incurred $75 million and $65 million, respectively, of restructuring costs primarily for employee-related costs and asset write downs on programs under these initiatives.

Future macroeconomic volatility, changes to tariffs and trade policies, supply chain disruptions, and labor availability, amongst other things, could cause a negative impact on revenue and cost increases resulting in an adverse effect on the Company’s operating results. Additionally, broad-based inflation, metals, energy and other commodity costs, transportation and logistics costs, labor costs, and foreign currency exchange rate fluctuations all continue to impact our results. The Company utilizes various mitigating actions intended to lessen the impact of macroeconomic volatility, including the impact of current tariffs. These actions include implementing price escalations and surcharges, driving operational efficiencies through various cost mitigation efforts and discretionary spend management, strategically sourcing materials, reviewing and modifying distribution logistics, and accelerating integration synergies through our restructuring programs. The Company has experienced increased tariff costs which unfavorably impacted our cash from operations for the year ended December 31, 2025. Although we did not experience a material impact to our results of operations in 2025 because of mitigation efforts, due to the volatility of trade policies, we are unable to reasonably predict the future impact.

During the first quarter of 2025, Management determined that certain businesses within the Services product line would be better aligned with Management oversight in the Components product line. As such, Sales by product line for 2024 and 2023 have been recast to conform to the current period presentation. These changes were within the Freight Segment and had no impact on Total Freight Segment Sales, Gross profit, or Income from operations.

ACQUISITIONS

On July 1, 2025, the Company acquired Inspection Technologies for approximately $1.788 billion. Inspection Technologies was formerly part of the Scientific Solutions Division of Olympus Corporation, a global leader in nondestructive testing, remote visual inspection and analytical instruments solutions for mission critical assets. On December 1, 2025, the Company acquired Frauscher, a global market leader in train detection, wayside object control solutions and axle counting systems, for approximately $792 million. Also during 2025, the Freight Segment completed two additional acquisitions which were individually and collectively immaterial.

Also during the first quarter of 2025, Wabtec announced a definitive agreement to acquire Dellner Couplers, a global leader in highly engineered safety-critical train connection systems and services for passenger rail rolling stock, for approximately €890 million. The acquisition subsequently closed on February 10, 2026.

Transaction costs incurred for the year ended December 31, 2025 related to completed and announced acquisitions were approximately $49 million.

During 2024, the Company made four strategic acquisitions for a combined purchase price of approximately $168 million, net of cash acquired. Two of the acquisitions are reported in the Transit Segment, one is reported in the Digital Intelligence product line of the Freight Segment and one is reported in the Components product line of the Freight Segment. Each of the acquisitions in 2024 are individually and collectively immaterial.

During the fourth quarter of 2023, the Company purchased the remaining ownership shares of Locomotiv Kurastyru Zuayty ("LKZ"), a locomotive manufacturing and assembly company located in Kazakhstan for $111 million, at which time it became a wholly owned subsidiary of the Company. Prior to this purchase, Wabtec owned 50% of LKZ as a joint venture partner and accounted for its interest as an equity method investment. During the second quarter of 2023, the Company acquired L&M Radiator, Inc., a leading manufacturer of heavy-duty equipment radiators and heat exchangers for the mining sector, for a purchase price of approximately $245 million. For additional information related to these acquisitions refer to Note 3 of "Notes to Consolidated Financial Statements" included in Part II, Item 8 of this report.

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RESULTS OF OPERATIONS

Consolidated Results

2025 COMPARED TO 2024

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

The following table shows the major components of the change in Net sales in 2025 from 2024:

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