WAB 10-K & 10-Q changes, risk factors and insider trading

In recent years, the global transportation landscape has been characterized by rapid changes in technology, leading to innovative developments in transportation and logistics that could change the way the railway industry does business. There may be additional innovations impacting the railway industry that we cannot yet foresee. The advancement of artificial intelligence technologies may significantly accelerate the pace and broaden the scope of technological innovation impacting the industry. Any failure by us to quickly adapt to and adopt new innovations in products and processes desired by our customers may result in a significant loss of demand for our product and service offerings. In addition, advances in technology may require us to increase investments in order to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments.

Our ability to make, move, and sell our products is critical to our success. Damage or disruption to our supply chain, including third-party manufacturing or transportation and distribution capabilities, could impair our ability to manufacture or sell our products. Failure to take adequate steps to mitigate the likelihood or potential impact of disruptions, or to effectively manage such events if they occur, particularly when a product is sourced from a single supplier or location, could adversely affect our business or financial results. For example, the COVID-19 pandemic caused supply chain disruptions, particularly with respect to channels in China, India, the U.S. and Europe, and labor availability constraints that resulted in component, raw material and chip shortages. Additionally, in an environment of heightened global geopolitical uncertainty, market factors, such as broad-based inflation, escalation of commodities costs, transportation and logistics costs, tariffs, labor costs, and volatility in foreign currency exchange rate fluctuationsrates may exacerbate the impacts of suchsupply chain disruptions.

Although we believe that our recent acquisitions will improve our market position and realize positive operating results, including operating synergies, operating expense reductions and overhead cost savings, we cannot be assured that these improvements will be obtained or guarantee the timing of such improvements. The management and acquisition of businesses involves substantial risks, any of which may result in a material adverse effect on our business and results of operations, including:

For the fiscal year ended December 31, 2024,2025, approximately 53%half of our consolidated net sales were to customers outside of the United States. We intend to continue to expand our international operations, including in emerging markets, in the future. Our global headquarters for the Transit group is located in France, and we conduct other international operations through a variety of wholly and majority-owned subsidiaries and joint ventures, including in Australia, Austria, Brazil, Canada, China, Czech Republic, France, Germany, India, Italy, Kazakhstan/Commonwealth of Independent States ("CIS"), the Republic of North Macedonia, Mexico, the Netherlands, Poland, Spain, South Africa, Guinea, Turkey, Japan, and the United Kingdom. As a result, we are subject to various risks, any one of which could have a material adverse effect on those operations and on our business as a whole, including:

•the complexities of operating within multiple tax jurisdictions and potentially material impacts associated with changes in applicable tax laws;

We have substantial operations located in emerging markets, such as Brazil, India, and Kazakhstan. Operations in such emerging markets are inherently risky due to a number of regulatory, economic, social and political uncertainties.uncertainties, which may be exacerbated in environments of heightened geopolitical uncertainty and volatility. These risks include economies that may be dependent on only a few products and are therefore subject to significant fluctuations, weak legal systems which may affect our ability to enforce contractual rights, possible exchange controls, unstable governments, nationalization or privatization actions or other government actions affecting the flow of goods and currency.

Significant changes in economic and regulatory policy in emerging countriescountries, as well as social or political uncertaintiesuncertainties, could significantly harm business and economic conditions in these markets generally and could disproportionately impact the rail industry, which could adversely affect our business and prospects in these markets.

We are subject to a variety of increasingly stringent environmental laws and regulations governing air emissions, discharges into water, chemical substances in products, the use, handling, storage, and disposal of hazardous substances or waste materials, as well as the remediation of contamination associated with releases of hazardous substances. We have incurred, and will continue to incur, both operating and capital costs to comply with environmental laws and regulations, including costs associated with the clean-up and investigation of some of our current and former properties and offsite disposal locations. We believe our operations currently comply in all material respects with all of the various environmental laws and regulations applicable to our business; however, there can be no assurance that environmental requirements will not change in the future or that we will not incur significant costs to comply with such requirements. Failure to comply with environmental laws and regulations could have significant consequences on our business and results of operations, including the imposition of substantial fines and sanctions for violations, injunctive relief (including requirements that we limit or cease operations at affected facilities), and reputational risk.

ForThe instance,security and functionality of our information technology systems, and the process of data by these systems, are critical to our business operations. If these systems are damaged, intruded upon, attacked, shutdown, or cease to function properly, and we suffer any resulting interruption in our ability to manage and operate our business, or if our products are affected, our results of operations and financial condition could be materially adversely affected. We have experienced cyber-security incidents that have impacted the Company's network. We have also been indirectly affected by vulnerabilities in third-party systems used for certain Wabtec products. In each instance, the Company has promptly activated incident response protocols and completed a thorough investigation. Such incidents have not had a material impact on our business, operations or financial results. However, a successful exploitation of our ownown, our vendors’ or our vendors’customers' information technology infrastructure could result in service interruptions, safety hazards, misappropriation of confidential information, process failures, security breaches or other operational difficulties. Such an event could result in decreased revenues and increased capital, insurance or operating costs, including the increased costs of security to protect the Company’s infrastructure, among other results. Insurance maintained by the Company to protect against loss of business and other related consequences resulting from cyber incidents may not be sufficient to cover all damages. A disruption or compromise of the Company’s technology systems, even for short periods of time, could have a material adverse effect.

At December 31, 2024,2025, we had total debt of $4.0$5.5 billion, primarily related to Senior Notes,Notes and thecredit 2022 and 2024 Credit Agreements ("Credit Agreements").agreements. Being indebted could have important consequences to us. For example, our indebtedness could:

The indentures for our outstanding Senior Notes and the agreements governing certain of our 2022credit andfacilities 2024 Credit Agreements containcontains various covenants that limit our management’s discretion in the operation of our businesses.

Our Creditcredit Agreementsagreement subjectsubjects us to customary (i) affirmative covenants, including requirements with respect to certain reporting obligations on us and our subsidiaries, and (ii) negative covenants, including limitations on: indebtedness; liens; restricted payments; fundamental changes (including certain changes in control); business activities; transactions with affiliates; restrictive agreements; changes in fiscal year; and use of proceeds. In addition, we are required to maintain (i) an Interest Coverage Ratio of at least 3.00 to 1.00, calculated using an earningearnings metric as defined in the agreement compared to Interest Expense for the four quarters then ended and (ii) a Leverage Ratio, calculated by net debt (total debt, net of up to $300$500 million of unrestricted cash) as of the last day of such fiscal quarter to the defined earnings metric for the four quarters then ended, of 3.5 or less. All terms are as defined in the Creditcredit Agreements.agreements.

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.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 2024,2025, approximately 53%half of the Company’s Net sales came from customers outside the U.S.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.

In February 2025, Wabtec announced Integration 3.0, a three-year strategic initiative to target incremental run rate synergies currently estimated to be between $100$115 million to $125$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. Concurrently, Wabtec announced an additional Portfolio Optimization initiative for 2025 targeting approximately $100 million of low margin revenues. The 2025 Portfolio Optimization actions are expected to result in approximately $40 million of net exit charges, primarily for non-cash asset write downs. Estimates for thesethis programsprogram 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 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 disruptionsdisruptions, and labor availabilityavailability, amongst other things, could cause componenta negative impact on revenue and rawcost material shortagesincreases resulting in an adverse effect on the timing of the Company’s revenueoperating and cash flows.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.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 2024, Company2025, Management determined that certain partsbusinesses ofwithin the businessServices product line would be better aligned with Management oversight in differentthe Components product lines.line. TheseAs changessuch, wereSales immaterial to the individualby product linesline for 2024 and segments affected, and historical amounts2023 have been reclassifiedrecast 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.

During the fourth quarter of 2023, the Company purchased the remaining ownership shares of LKZ,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.

Net sales for the year ended December 31, 20242025 increased by $710$780 million, or 7.3%,7.5%, to $10.39$11.17 billion compared to the same period in 2023.2024. Organic sales increased $662$464 million which was attributable to both the Freight and Transit Segments. Freight Equipment sales increased fromprimarily due to higher North American and international locomotive sales and increased mining sales. Freight Services sales increased from higher deliveries of locomotive modernizations and engine overhauls and higher parts sales. Transit sales increased primarily as a result offrom 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. Sales from acquisitions contributed $81$355 million, primarily from Inspection Technologies in the Freight Segment, and unfavorablefavorable changes in foreign exchange decreasedincreased Net sales by $33 million.

Cost of sales for the year ended December 31, 20242025 increased by $288$340 million, or 4.3%,4.8%, to $7.02$7.36 billion compared to the same period in 2023.2024. The increase is primarily due to the increase in Net sales. Cost of sales as a percentage of Net sales was 67.6%65.9% and 69.6%67.6% for the years ended December 31, 20242025 and 2023,2024, respectively. The improvement in gross margin is attributable to contractstrong escalationproductivity clauses,and favorablecost mixmanagement, betweensavings from restructuring initiatives, and the Freightexit of low margin business offerings through Portfolio Optimization. Cost of sales for the year ended December 31, 2025 included $53 million of costs related to purchase price accounting for the step-up of Inspection Technologies and TransitFrauscher segments,inventories improvedto productivity,fair Integrationvalue 2.0on savings,the andrespective favorabledates fixedof cost absorption.acquisition. Cost of sales for the years ended December 31, 20242025 and 20232024 included $37$12 million and $38$37 million, respectively, of restructuring costs, primarily for headcount actions and footprint rationalizationcosts related to Integrationrestructuring 2.0 and Portfolio Optimization.initiatives.

Total operatingOperating expenses increased $79$256 million, or 4.7%,14.6%, for the year ended December 31, 20242025 compared to the same period in 2023, primarily due to the increase in Net sales. Operating expenses as a percentage of Net sales was 16.9% and 17.3% for the years ended December 31, 2024 and 2023, respectively.2024. Selling, general and administrative expenses ("SG&A") increased $109$242 million for the year ended December 31, 20242025 compared to the same period in 2023.2024. The increase is primarily from costs incurred to support the higher sales volume, transaction costs associated with completed and announced acquisitions, incremental expense from acquisitions, and higher employee compensation and benefit costs and higher professional fees related to acquisitions,costs, partially offset by the impacts of Integrationrestructuring 2.0.initiatives. RestructuringTransaction costs associated with completed and announced acquisitions included in SG&A were $18$49 million for the yearsyear ended December 31, 2025. SG&A for the year ended December 31, 2025 included $60 million of costs related to restructuring initiatives, including a $38 million loss on disposition of a business associated with Portfolio Optimization. SG&A for the year ended December 31, 2024 andincluded 2023,$18 primarilymillion forof headcount actions and footprint rationalization programscosts related to Integrationrestructuring 2.0 in both years and Portfolio Optimization in 2024.initiatives. Engineering expenses decreasedincreased $12$17 million primarily due to theincremental timingexpense offrom acquisitions and increased investments in new technology, and Amortization expense decreased $18 million, primarily related to changes in accelerated amortization for business dispositions associated with Portfolio Optimization and lower amortization for the GE Transportation trade name.technology.

Interest expense, net, decreasedincreased $17$24 million to $201$225 million for the year ended December 31, 20242025 over the same period in 20232024, primarily due to lower weightedhigher average overall debt balances throughoutin the current year,period, partiallyprimarily offsetrelated byto higherthe effectiveInspection interestTechnologies rates.acquisition.

The effective income tax rate was 24.3%25.7% and 24.5%24.3% for the years ended December 31, 20242025 and 2023,2024, respectively. The year over year decreaseincrease in the effective tax rate was primarily duedriven toby changes in valuation allowances and audit closures, partially offset by a change in the jurisdictional mix of earnings and the non-recurrencenon-deductible loss generated from the divestiture of a business as part of the non-taxablePortfolio gainOptimization generated on the acquisition of LKZ in 2023.initiative. See Note 11 of "Notes to Consolidated Financial Statements" included in Part II, Item 8 of this report for additional information.

Freight Segment Cost of sales increased $203$256 million from higher sales volume, and Cost of sales as a percentage of Net sales decreased 2.31.5 percentage points. The improvement in gross margin is attributable to contract escalation clauses, favorable mix within the Freight Segment product lines, improvedstrong productivity and Integrationcost 2.0management, savings.savings from restructuring initiatives and the exit of low margin business offerings through Portfolio Optimization. Cost of sales for the year ended December 31, 20232025 wasincluded also$53 impactedmillion by manufacturing inefficiencies related to labor negotiations at our Erie facility andof costs related to nextpurchase generationprice productaccounting developmentfor inthe Digitalstep-up Intelligence.of Inspection Technologies and Frauscher inventories to fair value on the respective dates of acquisition. Cost of sales for the years ended December 31, 20242025 and 20232024 included $18$6 million and $13$18 million, respectively, of restructuring costs, primarilycosts related to Integrationrestructuring 2.0 and Portfolio Optimization.initiatives.

Transit Segment organic sales increased $163$157 million driven by strong Aftermarket and Original Equipment Manufacturing sales.sales Increasedprimarily as a result of increased demand for products and services due to fleet expansion and renewals, increased passenger ridership levels resulted in increased demand for services and products. Additionally, increased investments in railwaysustainable infrastructure,infrastructure. fleetSales expansionfrom acquisitions contributed $27 million, and renewalsfavorable andchanges sustainablein transportforeign initiativesexchange alsorates contributedincreased tosales organicby growth.$64 million.

Transit Segment Cost of sales increased by $85$84 million primarily from higher sales volume, and Cost of sales as a percentage of Net sales decreased by 1.22.1 percentage points. The increase in gross margin is primarily attributable to favorable mix within the Transit SegmentSegment, increased productivity and the benefits from structuredIntegration cost actions taken through prior years' restructuring2.0 and integration3.0 projects,and primarilyPortfolio Integration 2.0.Optimization. Transit Cost of sales for the years ended December 31, 20242025 and 20232024 included $19$6 million and $25$19 millionmillion, respectively, of restructuring costs, respectively, primarily for footprint rationalization and headcount actions in Europecosts related to Integrationrestructuring 2.0.initiatives.

Liquidity is provided by operating cash flows, borrowings under theour 2022credit Credit Agreement and the 2024 Credit Agreement, each with a consortium of commercial banks,facilities, and proceeds from the Company's Senior Notes. Additionally, the Company utilizes the revolvingRevolving receivablesReceivables programProgram and supply chain financing program described below, as well as other short-term financing agreements with certain banks, for added flexibility as part of our liquidity management strategy. The following is a summary of selected cash flow information and other relevant data:

•$(5965) million from changes in Inventoryinventory due to increased raw material costs, tariffs and in support of higher sales;

•$38$(62) million from changes in employee related benefit payments; and,

•approximately $150$(36) million from changes in incomeaccounts taxpayable accounts,due including a tax refund into the currenttiming year.of payments.

Financing activities In 2025, cash provided by financing activities was $1,031 million, which included $1,484 million from net changes in debt, $(223) million of stock repurchases, $(173) million of dividend payments, $(40) million of payments for income tax withholding on share-based compensation, and $(6) million of distributions to noncontrolling interest. In 2024, cash used for financing activities was $(1,371) million, which included $(64) million from net changes in debt, $(1,097) million of stock repurchases, $(140) million of dividend payments, $(42) million of contingent consideration payments related to the GE Transportation acquisition, $(25) million of payments for income tax withholding on share-based compensation, and $(6) million of distributions to noncontrolling interest. In 2023, cash used for financing activities was $(633) million which included $42 million from net changes in debt, $(409) million of stock repurchases, $(123) million of dividend payments, $(112) million of contingent consideration payments related to the GE Transportation acquisition, $(17) million of distributions to noncontrolling interest, and $(16) million of payments for income tax withholding on share-based compensation .

During the first quarter of 2024, the Company entered into the 2024 Credit Agreement for a term loan of $225 million. Also during the firstsecond quarter of 2024,2025, the Company issued $500 million of Senior Notes due in 20342030 (the "20342030 Notes") and $750 million of Senior Notes due in 2035 (the "2035 Notes"). Proceeds from the 20342030 Notes, combined with the proceeds from the term loan under the 2024 Credit AgreementNotes and cash on hand,hand were utilized to repay the outstanding amount of 20243.20% Senior Notes due 2025 at maturity. Proceeds from the 2035 Notes were utilized as part of funding for the Inspection Technologies acquisition.

As of December 31, 2024,2025, the Company held approximately $715$789 million of cash, cash equivalents, and restricted cash, of which approximately $417$198 million was held within the United States and approximately $298$591 million was held outside of the United States, primarily in India, Europe, ChinaSouth Africa, India and Brazil.China. While repatriation of some cash held outside the United States may be restricted by local laws, most of the Company’s foreign cash could be repatriated to the United States net of any tax impacts. As of December 31, 2024,2025, approximately $9$25 million of the Company's $715$789 million cash balance was classified as restricted cash.

During the third quarter of 2024, the Company entered into an uncommitted bilateral money market line credit agreement which provides an aggregate borrowing capacity of $150 million,million for general business purposes and working capital needs within a quarter.

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 intendeddesigned 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.worldwide. In the first threesix months of 2026, approximately half of the Company’s Netnet sales camewere generated from customers outside the United States.

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.billion and is included within our Transit Segment.

Additionally,Total multi-year backlog increased $3.5 billion during the first quartersix months of 2026,2026 Wabtecto secureda record $30.9 billion at June 30, 2026. Significant Freight orders included a multi-year, multi-billion dollarmulti-billion-dollar mining contract for drive systems and aftermarket parts, wona $1.0 billion Australian order spanning across new locomotives, components, digital solutions, and multi-year services, a multi-year$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 U.S.Asia-Pacific for $210 million, and signed a $54 million Transit brake and couplers order, which contributed to the overall increase in backlog of $3.4 billion from December 31, 2025 to $30.8 billion at March 31, 2026.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 threesix months of 2026 and 2025, Wabtec incurred $5 million and $9$15 million, respectively, of restructuring costs primarily for employee-related costs on programs under these initiatives. In addition, Transaction costs incurred during the threesix months ended MarchJune 31,30, 2026 and 2025 related to recent acquisitions were approximately $13$14 million and $10$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 threesix months ended MarchJune 31,30, 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.

FIRSTSECOND QUARTER 2026 COMPARED TO FIRSTSECOND QUARTER 2025

The following table shows the major components of the change in Net sales in the three months ended MarchJune 31,30, 2026 from the three months ended MarchJune 31,30, 2025:

Net sales for the three months ended MarchJune 31,30, 2026 increased by $340$473 million, or 13.0%,17.5%, to $2.95$3.18 billion compared to the same period in 2025. Organic sales increased $60$229 millionmillion, 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 and engine overhauls and the exit of a low margin Digital project.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. SalesAcquisitions fromincreased acquisitionsNet contributedsales $225by $232 million, or 8.6%, and favorable changes in foreign exchange increased Net sales by $68$24 million.million, or 0.9%.

Cost of sales for the three months ended MarchJune 31,30, 2026 increased by $179$250 million, or 10.5%,14.1%, to $1.89$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 64.0%63.5% and 65.5%65.3% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The improvement in gross margin is attributable to productivity and cost management,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 MarchJune 31,30, 2026 included $23$5 million of costs related to purchase price accounting for the step-up of inventory related to acquisitions to fair value onrelated theto date of acquisition.acquisitions. Cost of sales for the three months ended MarchJune 31, 2026 and30, 2025 both included $3 million of costs related to restructuring initiatives.

Total operating expenses increased $118$95 million, or 27.7%,20.4%, for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025. Selling, general and administrative expenses ("SG&A") increased $94$53 million for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025. The increase is primarily due to incremental expense from acquisitions,acquisitions and higher employee compensation and benefit costs, andpartially offset by lower transaction costs associated with acquisitions, partially offset byand the impacts of restructuring initiatives. Transaction costs associated with acquisitions included in SG&A were $13$1 million and $10$25 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. SG&A for the three months ended MarchJune 31, 2026 and30, 2025 included $2$3 million and $5 million, respectively, of costs related to restructuring initiatives. Engineering expenses increased $10$20 million and Amortization expense increased $14$22 millionmillion, both due to incremental expense from acquisitions.

Interest expense, net, increased $25$34 million to $71$80 million for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025, due to higher average overall debt balances in the current period, primarily related to acquisitions.

Other income (expense), income, net

Other income (expense), income, net increaseddecreased $25$26 million for the three months ended MarchJune 31,30, 2026 compared to the same period in 2025, primarily due to foreignthe exchangenonrecurrence gainsof a $32 million net gain on mark-to-market derivatives in the currentprior period.period associated with the acquisitions of Dellner Couplers and Frauscher.

The effective income tax rate was 22.7%23.4% and 23.2%24.8% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The year over year decrease in the effective rate was primarily driven by higherprior discreteperiod equityaudit compensation tax deductions.settlements.

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

Freight Segment organic sales increased by $20$158 millionmillion, or 8.2%, driven primarily by Equipment sales from higher North American and international locomotive deliveries and higher mining sales. This wassales, partially offset by decreased Services sales from lower deliveries of locomotive modernizationsmodernizations. andAcquisitions engine overhauls, decreased Digital Intelligenceincreased sales driven by the exit of a low margin project, and decreased Components sales from lower North America rail car build, partially offset by strong industrial demand. Sales from acquisitions contributed $184$163 million, or 8.5%, primarily from Inspection Technologies and Frauscher, and favorable changes in foreign exchange increased sales by $20$14 million.million, or 0.7%.

Freight Segment Cost of sales increased $111$167 million, primarily due to higher sales volume, and Cost of sales as a percentage of Net sales decreased 1.31.8 percentage points. The improvement in gross margin is attributable to productivity and cost managementefficiency and accretion from recent acquisitions, partially offset by inflation driven by tariffs and unfavorable mix within the Freight Segment and the exit of a low margin Digital project.Segment. Cost of sales for the three months ended MarchJune 31, 2026 included $20 million of costs related to purchase price accounting for the step-up of inventory related to acquisitions to fair value on the date of acquisition. Cost of sales for the three months ended March 31, 2026 and30, 2025 both included $2 million of costs related to restructuring initiatives.

Freight Segment Operating expenses increased by $73$68 million, and Operating expenses as a percentage of Net sales increased 2.00.9 percentage points. The increase in Freight Segment Operating expenses is primarily driven by incremental expense from acquisitions.acquisitions and higher employee compensation and benefit costs.

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

Transit Segment organic sales increased by $40$71 millionmillion, or 9.0%, driven by strong Aftermarket and Original Equipment Manufacturing sales primarily as a result of increased demand for products and services due to fleet expansion and renewals, increased passenger ridership levels,levels and increased investments in sustainable infrastructure. Sales from the Dellner Couplers acquisition contributedincreased $41sales by $69 million, or 8.8% , and favorable changes in foreign exchange rates increased sales by $48$10 million.million, or 1.3%.

Transit Segment Cost of sales increased by $68$83 million, primarily due to higher sales volume,volume and acquisitions, and Cost of sales as a percentage of Net sales decreased by 2.42.1 percentage points. The increase in gross margin was attributable to increased productivityproductivity, favorable mix within the Transit Segment, and the benefitssavings from structured cost actions taken through restructuring initiatives. 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.

Transit Segment Operating expenses increased by $27$29 million and as a percentage of Net sales increased by 0.60.4 percentage points. HigherThe SG&Aincrease expensesin toTransit support higher sales volume and incrementalSegment Operating expenses is primarily driven by incremental expense from acquisitions wereand higher employee compensation and benefit costs, partially offset by benefitssavings from structured cost actions taken through restructuring initiatives. Transit SG&A expenses for the three months ended MarchJune 31, 2026 and30, 2025 included $2$4 million and $4 million, respectively, of costs related to restructuring initiatives.

Operating activities In the first threesix months of 2026, cash provided by operating activities was $199$640 million compared to $191$400 million in the first threesix months of 2025. The increase was primarily driven by higher net income,income partiallyand offset by increaseddecreased working capital requirements.

TheseCash sources of cash were partially offsetprovided by operating activities also benefited from changes in working capital. The increase inHigher Receivables decreased cash from operations by $305$229 million, compared to a decrease in cash from operations of $226$243 million in the prior year period, driven by higher sales and the timing of collections from customers. TheHigher Inventories decreased cash from operations by $35 million, compared to a decrease in cash from operations of $180 million in the prior year period, driven by the impact of increased raw material costs and tariffs in the prior year period. Lower Customer deposits decreased cash from operations by $64$70 million, compared to a $31$14 million increase in cash from operations in the prior year, from changes in the timing of customer deposits. Other operating activities decreased cash from operations by $12$105 million, compared to ana $83$41 million decrease in cash from operations in the prior year, primarily from changes in other accrued expenses due to the timing of payments.

Investing activities In the first threesix months of 2026 and 2025, cash used for investing activities was $(1,105)$1,160 million and $(44)$98 million, respectively. During the first threesix months of 2026, Wabtec used $(1,062)$1,062 million for acquisitions, primarily for Dellner Couplers,Couplers and used $(46)$108 million for additions to property, plant and equipment for investments in our facilities and manufacturing processes. During the first threesix months of 2025, Wabtec used $(44)$83 million for additions to property, plant, and equipment.equipment and $21 million for acquisitions.

Financing activities In the first threesix months of 2026, cash provided by financing activities was $656$408 million, which included $1,012$1,049 million of inflows from net changes in debt, $(242)partially offset by $457 million inof stock repurchases, $(53)$106 million of dividend payments, and $(53)$54 million of payments for income tax withholding on share-based compensation. In the first threesix months of 2025, cash usedprovided forby financing activities was $(172)$454 million, which included $4$735 million of inflows from net changes in debt, $(98)partially offset by $148 million inof stock repurchases, $(43)$87 million of dividend payments, and $(34)$39 million of payments for income tax withholding on share-based compensation.