WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 2002

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 1-13782

WESTINGHOUSE AIR BRAKE
TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 25-1615902
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

1001 AIR BRAKE AVENUE (412) 825-1000
WILMERDING, PENNSYLVANIA 1514 (Registrant's telephone number)
(Address of principal executive offices,
including zip code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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 and (2) has been subject to such filing requirements for
at least the past 90 days. Yes [X] No __.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No __.

The registrant estimates that as of June 30, 2002, the aggregate market value of
the voting shares held by non-affiliates of the registrant was approximately
$460 million based on the closing price on the New York Stock Exchange for such
stock.

As of March 27, 2003, 43,460,313 shares of Common Stock of the registrant were
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the registrant's Annual Meeting of
Stockholders to be held on May 21, 2003 are incorporated by reference into Part
III of this Form 10-K.

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TABLE OF CONTENTS

1

PART I

ITEM 1. BUSINESS

GENERAL

Westinghouse Air Brake Technologies Corporation does business as Wabtec
Corporation. All references to "we", "our", "us", the "Company" and "Wabtec"
refer to Westinghouse Air Brake Technologies Corporation, a Delaware
corporation, and its subsidiaries.

Wabtec is one of North America's largest providers of value-added,
technology-based equipment and services for the rail industry. The Company's
products can be found on virtually all U.S. locomotives, freight cars and
passenger transit vehicles. The Company is based in Wilmerding, Pa., and has
4,409 full time employees at facilities throughout North America and around the
world.

The Company believes that it maintains a market share of 50% or more in North
America for its primary braking-related equipment, and leading market shares in
North America for most of its other principal products. Wabtec also sells
products in Europe, Africa, Australia, South America and Asia. The Company's
products, which are intended to enhance safety, improve productivity and reduce
maintenance costs for customers, include: brakes for locomotives, freight cars
and passenger transit vehicles; electronic controls and monitors; heat
exchangers and cooling systems; switcher and commuter locomotives; couplers;
door systems; and draft gears. The Company aggressively pursues technological
advances for both new product development and product enhancements.

Management and insiders of the Company own approximately 15% of Wabtec's
outstanding shares, with the remaining shares held by investment companies and
individuals. Executive management incentives focus on earnings, cash flow and
working capital targets in order to align management interests with those of
outside shareholders.

The Company was formed from the November 1999 merger of Westinghouse Air Brake
Company ("WABCO") and MotivePower Industries, Inc. ("MotivePower"). WABCO has
its origin in a business founded by George Westinghouse in 1869.

In 2001, Wabtec sold certain assets to GE Transportation Systems (GETS) for $238
million in cash. The assets sold primarily included locomotive aftermarket
products and services for which Wabtec was not the original equipment
manufacturer. All of these assets had been part of MotivePower. The results for
these businesses, along with other businesses that the Company has decided to
exit, are classified as discontinued operations throughout this report.

INDUSTRY OVERVIEW

The Company provides products and services primarily for the global freight rail
and passenger transit industries, with about 54 percent of its sales to the
aftermarket. About 85 percent of the Company's sales are in North America. The
Company's primary customers are freight and passenger railroads, and
manufacturers of transportation vehicles such as locomotives, freight cars,
subway cars and buses. As such, the Company's operating results are strongly
influenced by the level of activity, financial condition and capital spending
plans of the global railroad industry. Rail traffic, in terms of both freight
and passengers, is a key factor underlying the demand for the Company's
products, particularly in the aftermarket. Government investment in public rail
transportation also plays a significant role. Additionally, railroads
continuously seek to increase the efficiency and productivity of their rail
operations to improve profitability, which results in the purchase of new,
more-efficient equipment.

To a large degree, market conditions in the U.S. freight railroad industry are
dependent on the U.S. economy. With the U.S. economy experiencing a recession in
2001 and slow growth in 2002, railroads have faced difficult market conditions.
In 2002, revenue ton-miles (a main indicator of rail activity; defined as weight
times distance traveled by Class I railroads), increased only about 1 percent
and car loadings decreased about 1 percent compared to 2001. This level of
activity resulted in railroads deferring maintenance on certain locomotives and
freight cars in their fleets, which, in turn, reduced aftermarket sales for the
Company. The Company expects that railroads may return to a more typical pattern
of maintenance spending as the U.S. economy strengthens and the level of
activity in the industry begins to show consistent increases.

The Company is also affected by the level of activity in the original equipment
markets for new locomotives and freight cars. Currently, the active locomotive
fleet in the North American market numbers approximately 33,000 units, including
heavy-haul freight locomotives, commuter locomotives and

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lower-horsepower, short-haul and terminal locomotives. The average number of new
locomotives delivered in each of the past 10 years was about 1,000 annually. The
introduction of new technologies has enabled the railroads to purchase more
efficient and powerful locomotives to increase productivity. Many of the
Company's products help to provide this greater productivity. In 2002,
deliveries of new, heavy-haul locomotives were 940, down from 1,085 in 2001; in
2003, the Company expects the industry to deliver about 700 new locomotives.

Currently, the active freight car fleet in North America numbers approximately
1.3 million. The average number of new freight cars delivered in each of the
past 10 years was about 50,000 annually. In both 1998 and 1999, however, the
industry delivered about 75,000 cars, as railroads and leasing companies
increased purchases to help alleviate traffic congestion in the U.S. rail system
following several railroad mergers and to meet increased demand. As the U.S.
economy began to slow down and the congestion abated, railroads and leasing
companies reduced new car purchases. As a result, in 2002, new freight car
deliveries were substantially below the 10-year average for the second
consecutive year (17,736, compared to 34,247 in 2001). The Company expects the
industry to deliver about 22,000 new freight cars in 2003, again well below
average and below what the Company believes is normal replacement demand of
about 40,000 units. The Company believes that the delivery rate for the next
several years may increase, as railroads and leasing companies recognize the
benefit of new technology and specialty cars designed to increase efficiency and
productivity.

The Company believes that its products and services offer railroads the ability
to reduce costs and increase productivity to meet their efficiency goals.
However, the Company operates in a highly competitive environment, and there can
be no assurance that increased rail traffic, higher fleet utilization, or other
economically favorable industry conditions will benefit the Company.

Demand for passenger transit original equipment and aftermarket products is
driven by the replacement, building and/or expansion programs of transit
authorities. These programs are funded in part by U.S. federal and state
government programs, the most important of which has been TEA-21, which is
expected to provide up to $42 billion nationally, subject to appropriations, for
transit-related infrastructure through 2003. During 2003, the U.S. federal
government is expected to pass new legislation outlining transportation
infrastructure funding for the next several years. The level of funding will
have an impact on the capital spending plans of transit authorities. In recent
years, TEA-21 funding has resulted in strong demand for new passenger transit
vehicles, particularly in New York City, which owns about 40 percent of the
transit vehicles in North America. The average delivery rate for new transit
vehicles in the past 10 years was about 500 units annually. In 2002, the
industry delivered 1,230 new rail transit vehicles, compared to 1,072 in 2001.
In 2003, the Company expects deliveries to be about 700 units, reflecting the
completion of a major order by the Metropolitan Transportation Authority of New
York City. In late 2002, New York City placed another major order for new subway
cars, with deliveries commencing in 2005. As a result, the Company expects the
transit vehicle delivery rate to be in the range of 500-800 units for the next
several years. While aftermarket spending is expected to be lower in 2003, as
budget cutbacks and a decrease in ridership levels have a negative short-term
impact, it could increase in future years due to normal wear.

BUSINESS SEGMENTS AND PRODUCTS

Approximately 46% of net sales in 2002 were directly to Original Equipment
Manufacturers (OEMs) of locomotives, railway freight cars and passenger transit
vehicles. We believe that our substantial installed base of products to the OEMs
is a significant competitive advantage for providing products and services to
the aftermarket because end-users often look to purchase safety and
performance-related replacement parts from the original supplier. As such, the
majority of the Company's sales were derived from the sale of aftermarket
replacement parts, repair services and overhaul work purchased by operators of
rail vehicles such as railroads, transit authorities, utilities and leasing
companies (collectively, "end users" or the "aftermarket").

We provide products and services through two principal business segments, the
Freight Group and the Transit Group.

FREIGHT GROUP -- Includes components and services for new and existing freight
cars and locomotives. Revenues are derived from OEM and aftermarket sales,
including repairs and services. Freight Group revenues, as a percentage of total
net sales, were 64%, 63%, and 66% in 2002, 2001 and 2000, respectively.

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Specific product lines within the Freight Group are:

- - FREIGHT CAR PRODUCTS AND SERVICES -- We manufacture, sell and service air
brake equipment, draft gears, hand brakes, slack adjusters, and composite
brake shoes, blocks and pads for the OEM freight car market and for the
aftermarket in the form of parts and repair services. Net sales per typical
freight car can vary considerably based upon the type and purpose of the
freight platform, with articulated or intermodal cars generally having the
highest Wabtec product content. The Company's traditional freight products
include the ABDX Freight Brake Valve, the Mark Series draft gears, hand brakes
and slack adjusters, and SAC-1(TM)Articulated Coupler.

- - LOCOMOTIVE PRODUCTS AND SERVICES -- We manufacture, sell and service air brake
equipment, gearing, compressors, air dryers, slack adjusters, brake cylinders,
and monitoring and control equipment for the locomotive OEM and aftermarket.

We also manufacture switcher and commuter locomotives and provide maintenance
support for these locomotives. The Locomotive product line also includes
manufacturing and distribution of replacement, new and remanufactured components
and parts for regional railroads. As a supplier of proprietary components for
locomotives manufactured by the Electro-Motive Division of General Motors
Corporation ("EMD") and the GE Transportation Systems unit of General Electric
Company, Wabtec also provides these components in the aftermarket directly to
railroad customers.

Demand for aftermarket components is influenced by rail traffic activity and the
maintenance requirements of the railroads.

- - HEAT EXCHANGERS -- We manufacture, sell and service heat exchangers and
cooling equipment for the locomotive OEM and aftermarket and the industrial
(non-rail) OEM and aftermarket.

- - ELECTRONICS -- We manufacture, sell and service high-quality electronics for
the railroads in the form of on-board systems and braking for locomotives and
freight cars. We are an industry leader in insulating or "hardening"
electronic components to protect them from severe conditions, including
extreme temperatures and high/shock vibration environments. Our new product
development effort has focused on electronic technology for brakes and
controls, and over the past several years, we introduced a number of
significant new products including the EPIC(R) Electronic Brake,
Electronically Controlled Pneumatic (ECP) freight brake, Positive Train
Control equipment that encompasses onboard digital data and global positioning
communication protocols, PowerLink(TM), Train Trax(TM), Trainlink(TM), Train
Sentry III(R), Fuellink(TM) and Armadillo(TM).

TRANSIT GROUP -- Includes products and services for passenger transit vehicles
(typically subway cars and buses). Revenues are derived primarily from OEM and
aftermarket component parts sales. Revenues from the Transit Group, as a
percentage of total net sales, were 36%, 37% and 34% in 2002, 2001 and 2000,
respectively.

We manufacture, sell and service electronic brake equipment, pneumatic control
equipment, air compressors, tread brakes and disc brakes, couplers, collection
equipment, monitoring systems, wheels, climate control and door equipment and
other components for passenger transit vehicles.

Substantially all of our principal passenger transit products are engineered to
customer specifications. Consequently, there is less standardization among these
products than with the Freight Group products. The Transit Group also focuses on
new product development and has introduced a number of new products during the
past several years, including Decelostat(TM), SW 800(TM), Twin Cushion(TM),
Waughmat(TM), and Class(TM).

For additional information on our business segments, see Note 21 of "Notes to
Consolidated Financial Statements" included in Part IV, Item 15 of this report.

STRATEGY

The Company's goal is to assist their primary customers, the railroads, gain
market share by providing products designed to increase productivity, safety and
reliability. In addition, the Company is committed to building shareholder value
by executing the following four-point plan:

Focus on increasing sales to manufacturers of original equipment -- The Company
currently serves as a Tier I supplier to OEMs in certain markets, but it desires
to increase business with these customers. To achieve this goal, the Company
plans to focus on integrating its electrical, pneumatic and mechanical
technologies across business units and combining them as a complete package.
Increasingly, customers will be able to purchase complete assemblies from
4

Wabtec, rather than purchasing individual components from multiple suppliers.
This can improve reliability and reduce product integration issues. The Company
expects this capability to strengthen its position against competitors that do
not have the breadth and depth of Wabtec's product line.

Expand Globally -- We believe that international markets represent a significant
opportunity for future growth. Our net sales outside of the United States
comprised approximately 24%, 26% and 24% of total sales in 2002, 2001, and 2000,
respectively (see Note 21 of "Notes to Consolidated Financial Statements"
included in Part IV, Item 15 of this report). We intend to increase our existing
international sales through acquisitions, direct sales of products through our
subsidiaries and licensees, and joint ventures with railway suppliers having a
strong presence in their local markets. We are specifically targeting markets
that operate significant fleets of U.S.-style locomotives and freight cars.

Accelerate New Product Development -- We will continue to emphasize research and
development to create new and improved products to increase our market share and
profitability. We are focusing on technological advances, especially in the
areas of electronics, braking products and other on-board equipment, as a means
of new product growth. In addition, we seek to provide customers with
incremental technological advances that offer immediate benefits for relatively
low investments.

Implement Lean Principles to Improve Efficiency and Quality -- We intend to
build on what we consider to be a leading position as a low-cost producer in the
industry while maintaining world-class product quality, technology and customer
responsiveness. Through the Wabtec Quality and Performance System ("QPS"), we
are dedicated to "lean manufacturing" principles and continuous improvement
across all phases of our business. Our QPS includes employee-directed
initiatives through Kaizen, a Japanese-developed team concept used to
continuously improve quality, lead time and productivity, and to reduce costs.
These efforts enable us to streamline processes, improve product quality and
customer satisfaction, reduce product cycle times and respond more rapidly to
market developments.

BACKLOG

The Company maintains a backlog of customer orders, although a majority of its
revenues are derived from aftermarket sales, which typically carry lead times of
less than 30 days. As such, the backlog is a more important indicator of
original equipment sales than aftermarket activity.

The Company's contracts are subject to standard industry cancellation
provisions, including cancellations on short notice or upon completion of
designated stages. Substantial scope-of-work adjustments are common. For these
and other reasons, completion of the Company's backlog may be delayed or
cancelled and backlog should not be relied upon as an indicator of the Company's
future performance. The railroad industry, in general, has historically been
subject to fluctuations due to overall economic conditions and the level of
alternative modes of transportation.

The backlog of customer orders as of December 31, 2002, and December 31, 2001,
and the expected year of completion is as follows.

ENGINEERING AND DEVELOPMENT

Consistent with its strategy of using technology to develop new products, the
Company is actively engaged in a variety of engineering and development
activities. For the fiscal years ended December 31, 2002, 2001, and 2000, the
Company incurred costs of approximately $33.6 million, $33.2 million and $32.3
million, respectively, on product development and improvement activities
(exclusive of manufacturing support). Such expenditures represented
approximately 4.8%, 4.2% and 4% of net sales for the same

5

periods, respectively. The increase in the percentage of sales spent on
engineering and development illustrates the Company's commitment to new product
development. From time to time, the Company conducts specific research projects
in conjunction with universities, customers and other railroad product
suppliers.

The Company's engineering and development program is largely focused upon train
control and new braking technologies, with an emphasis on the application of
electronics to traditional pneumatic equipment. Electronic actuation of braking
has long been a part of the Company's transit product line but
interchangeability, connectivity and durability have presented problems to the
industry in establishing electronics in freight railway applications. Efforts
are proceeding in the enhancement of the major components for existing
hard-wired braking equipment and development of new electronic technologies.

The Company uses an electronic Product Development System (e-PDS) to develop and
monitor all new product programs. The system requires the product development
team to follow a consistent methodology throughout the development process, from
concept to launch, to ensure the product will meet customer expectations and
internal profitability targets.

INTELLECTUAL PROPERTY

The Company has numerous U.S. patents, patent applications pending and
trademarks as well as foreign patents and trademarks throughout the world. The
Company also relies on a combination of trade secrets and other intellectual
property laws, nondisclosure agreements and other protective measures to
establish and protect its proprietary rights in its intellectual property.

Certain trademarks, among them the name WABCO(R), were acquired or licensed by
the Company from American Standard Inc. in 1990 at the time of the Company's
acquisition of the North American operations of the Railway Products Group of
American Standard (the "1990 Acquisition").

The Company is a party, as licensor and licensee, to a variety of license
agreements. The Company does not believe that any single license agreement is of
material importance to its business as a whole.

The Company and SAB WABCO Holdings B.V. ("SAB WABCO") entered into a license
agreement (the "SAB License") on December 31, 1993, pursuant to which SAB WABCO
granted the Company a license to the intellectual property and know-how related
to the manufacturing and marketing of certain disc brakes, tread brakes and low
noise and resilient wheel products. SAB WABCO is a former affiliate of the
Company, both having been owned by the same parent in the early 1990s. In 2002,
SAB WABCO was purchased by Vestar Capital Partners, which also owns stock in
Wabtec. The SAB license expires December 31, 2003, but may be renewed for
additional one-year terms. The Company believes that the patents which are
covered by this license will expire prior to or concurrently with the license
expiration.

The Company has issued licenses to the two sole suppliers of railway air brakes
and related products in Japan, NABCO and Mitsubishi Electric Company. The
Company believes that each of these licensees has a Japanese market share of
approximately 50%. Both licenses were renewed for additional five-year terms in
2000. NABCO has been a licensee for over 78 years. The licensees pay an annual
license fee to the Company and also assist the Company by acting as liaisons
with key Japanese passenger transit vehicle builders for projects in North
America. The Company believes that its relationships with these licensees have
been beneficial to the Company's core transit business and customer
relationships in North America.

CUSTOMERS

A few customers within each business segment represent a significant portion of
the Company's net sales. One customer in the Transit Group represented 11% of
consolidated sales in 2002 and 2001. The loss of a few key customers within the
Company's Freight and Transit Groups could have an adverse effect on the
Company's financial condition, results of operations and liquidity.

COMPETITION

The Company operates in a competitive marketplace. Price competition is strong
and the existence of cost-conscious purchasers of a limited number has
historically limited Wabtec's ability to increase prices. In addition to price,
competition is based on product performance and technological leadership,
quality, reliability of delivery and customer service and support. The Company's
principal competitors vary to some extent across its principal product lines,
but most competitors are smaller, privately held companies. Within North
America, New York Air Brake
6

Company, a subsidiary of the German air brake producer Knorr-Bremse AG
(collectively, "NYAB/ Knorr"), is the Company's principal overall OEM
competitor. The Company's competition for locomotive, freight and passenger
transit service and repair business is primarily from the railroads' and
passenger transit authorities' in-house operations, the in-house operations of
EMD and GETS, and NYAB/ Knorr.

EMPLOYEES

At December 31, 2002, the Company had 4,409 full time employees, approximately
36% of whom are unionized. A majority of the employees subject to collective
bargaining agreements are within North America and these agreements are
generally effective through 2003, 2004 and 2005.

The Company considers its relations with its employees and union representation
to be good, but cannot assure that future contract negotiations will be
favorable to the Company.

REGULATION

In the course of its operations, the Company is subject to various regulations
of agencies and other entities. In the United States, these include principally
the Federal Railroad Administration ("FRA") and the Association of American
Railroads ("AAR").

The FRA administers and enforces federal laws and regulations relating to
railroad safety. These regulations govern equipment and safety standards for
freight cars and other rail equipment used in interstate commerce.

The AAR promulgates a wide variety of rules and regulations governing safety and
design of equipment, relationships among railroads with respect to railcars in
interchange and other matters. The AAR also certifies railcar builders and
component manufacturers that provide equipment for use on railroads in the
United States. New products generally must undergo AAR testing and approval
processes.

As a result of these regulations and regulations in other countries in which the
Company derives its revenues, we must maintain certain certifications as a
component manufacturer and for products we sell.

EFFECTS OF SEASONALITY

The Company's business is not typically seasonal, although the third quarter
results may be impacted by vacation and plant shutdowns at several of its major
customers during this period.

ENVIRONMENTAL MATTERS

Information with respect to environmental matters is included in Note 20 of
"Notes to Consolidated Financial Statements" included in Part IV, Item 15 of
this report.

We believe that all statements other than statements of historical fact included
in this report, including certain statements here under "Business" may
constitute forward looking statements. For a complete discussion of the risks
associated with these forward-looking statements, see pg. 19 of this report.

AVAILABLE INFORMATION

The Company maintains an Internet site at http:/www.wabtec.com. The Company's
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to such reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as well as the annual
report to stockholders and other information, are available free of charge on
this site. The Company's Internet site and the information contained therein or
connected thereto are not incorporated by reference into this Form 10-K.

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ITEM 2. PROPERTIES

The following table provides certain summary information with respect to the
principal facilities owned or leased by the Company. The Company believes that
its facilities and equipment are generally in good condition and that, together
with scheduled capital improvements, they are adequate for its present and
immediately projected needs. The Company's corporate headquarters are located at
the Wilmerding, PA site.

(1) Approximately 250,000 square feet are currently used in connection with the
Company's corporate and manufacturing operations. The remainder is leased to
third parties.

Leases on the above facilities are long-term and generally include options to
renew.

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ITEM 3. LEGAL PROCEEDINGS

Information with respect to legal proceedings is included in Note 20 of "Notes
to Consolidated Financial Statements" included in Part IV, Item 15 of this
report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information with respect to executive
officers of the Company.

WILLIAM E. KASSLING has been a director and Chairman of the Company since 1990,
and served as Chief Executive Officer until February 2001. Mr. Kassling was also
President of WABCO from 1990 through February 1998. From 1984 until 1990 he
headed the Railway Products Group of American Standard Inc. Between 1980 and
1984 he headed American Standard's Building Specialties Group and between 1978
and 1980 he headed Business Planning for American Standard. Mr. Kassling is a
director of Aearo Corporation, Scientific Atlanta, Inc. and Parker Hannifan.

GREGORY T. H. DAVIES joined the Company in March 1998 as President and Chief
Operating Officer, in February 1999 became a director and in February 2001
became Chief Executive Officer. Prior to March 1998, Mr. Davies had been with
Danaher Corporation since 1988, where he was Vice President and Group Executive
responsible for its Jacobs Vehicle Systems, Delta Consolidated Industries and
A.L. Hyde Corporation operating units. Prior to that, he held executive
positions at Cummins Engine Company and Ford Motor Company.

ROBERT J. BROOKS has been a director, Executive Vice President and Chief
Financial Officer, Secretary of the Company since 1990. From 1986 until 1990 he
served as worldwide Vice President, Finance for the Railway Products Group of
American Standard. Mr. Brooks is a director of Crucible Materials Corp.

JOHN M. MEISTER has been Vice President and General Manager of the Company's
Passenger Transit Unit since 1990. In 1997, he was appointed to the newly
created position of Executive Vice President, Transit Group. From 1985 until
1990 he was General Manager of the Passenger Transit business unit for the
Railway Products Group of American Standard.

ALVARO GARCIA-TUNON has been Senior Vice President, Finance of the Company since
November 1999. Mr. Garcia-Tunon was Vice President and Treasurer of the Company
from August 1995 until November 1999. From 1990 until August 1995, Mr. Garcia-
Tunon was Vice President of Business Development of Pulse Electronics, Inc.

ANTHONY J. CARPANI has been Vice President, Group Executive, Friction since June
2000. Previously, Mr. Carpani was Managing Director of Wabtec's Australian based
subsidiary, Futuris Brakes, International (now known as F.I.P. Ltd.) from 1992
until June 2000.

PAUL E. GOLDEN has been President of the Company's Freight Car Group since
February of 2001. Prior to that, he was President of the Company's Cardwell
Westinghouse business unit from November 1999 until February of 2001.
Previously, Mr. Golden served as Vice President and General Manager of the
Cardwell Westinghouse business unit and as Director of WABCO Performance Systems
from June 1998 until November 1999. Prior to 1998, Mr. Golden held management
and operations positions with Danaher Corporation and Federal Mogul Corporation.

10

TIMOTHY J. LOGAN has been Vice President, International since August 1996. From
1987 until August 1996, Mr. Logan was Vice President, International Operations
for Ajax Magnethermic Corporation and from 1983 until 1987 he was President of
Ajax Magnethermic Canada, Ltd.

GEORGE A. SOCHER has been Vice President, Internal Audit and Taxation of the
Company since November 1999. Previously, from July 1995 until November 1999, Mr.
Socher was Vice President and Corporate Controller of the Company.

SCOTT E. WAHLSTROM has been Vice President, Human Resources since November 1999.
Previously, Mr. Wahlstrom was Vice President, Human Resources & Administration
of MotivePower Industries from August 1996 until November 1999. From September
of 1994 until August of 1996, Mr. Wahlstrom served as Director of Human
Resources for MotivePower Industries.

TIMOTHY R. WESLEY has been Vice President, Investor Relations and Corporate
Communications since November 1999. Previously, Mr. Wesley was Vice President,
Investor and Public Relations of MotivePower Industries, Inc. from August 1996
until November 1999. From February 1995 until August 1996, he served as
Director, Investor and Public Relations of MotivePower Industries, Inc. From
1993 until February 1995, Mr. Wesley served as Director, Investor and Public
Relations of Michael Baker Corporation.

The executive officers are affirmed annually by the Board of Directors of the
Company.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Common Stock of the Company is listed on the New York Stock Exchange. As of
March 27, 2003, there were 43,460,313 shares of Common Stock outstanding held by
1,053 holders of record. The high and low sales price of the shares and
dividends declared per share were as follows:

The Company's credit agreement restricts the ability to make dividend payments,
with certain exceptions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and see Note 9 of "Notes to Consolidated
Financial Statements" included in Part IV, Item 15 of this report.

At the close of business on March 27, 2003, the Company's Common Stock traded at
$11.50 per share.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected consolidated financial
information of the Company and has been derived from audited financial
statements. This financial information should be read in conjunction with, and
is qualified by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and the Notes thereto included elsewhere in this Form 10-K.

(1) In 2000, includes charges for merger and restructuring plan of $2 million
and legal settlement of $2 million. In 1999, includes charges for merger and
restructuring plan of $5.2 million.

(2) In 2001, includes charges for asset writedowns of $9.3 million consisting
primarily of an asset impairment related to the locomotive lease fleet of
$5.2 million, a writeoff of $1.8 million of an investment in Argentina and a
$1.5 million writedown of a facility to its estimated realizable value, and
severance costs of $1.7 million. Goodwill and other indefinite live
intangibles amortization was $0, $7 million, $6.9 million, $6.5 million and
$4.2 million in 2002, 2001, 2000, 1999 and 1998, respectively.

(3) In 2001, includes gain on asset sales of $685,000. In 2000, includes gain on
asset sale of $4.4 million. In 1998, includes gain on asset sale of $8.4
million.

(4) Includes the items noted above, as well as the following: In 2002, a $61.7
million, net of tax, cumulative effect of accounting change for goodwill and
a charge of $1.2 million, net of tax, for an extraordinary item related to
an early extinguishment of debt. In 2001, a $2 million tax benefit for
research and development tax credits. In 2000, a write-off of $5.1 million
for a deferred tax asset relating to the termination of the Employee Stock
Ownership Plan (ESOP). In 1999, a charge of $1.3 million, net of tax, for an
extraordinary item related to an early extinguishment of debt. Excluding all
of these items, earnings per diluted share from continuing operations were
$0.40 in 2002, $0.49 in 2001 and $0.82 in 2000.
12

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

In November 2001, Wabtec sold certain assets to GE Transportation Systems for
$238 million in cash. The assets sold primarily included locomotive aftermarket
products and services for which Wabtec was not the original equipment
manufacturer. The results for these businesses, along with several other small
non-core businesses that the Company has decided to exit, are classified as
discontinued operations throughout this report.

Net sales of ongoing operations decreased by 11.2% from $783.7 million in 2001
to $696.2 million in 2002. The major causes for the change were decreases in
component sales due to the continuation of the weak freight market, a downturn
in the locomotive overhaul market and the completion of a major transit contract
in the third quarter of 2002.

Without non-recurring and non-operating items noted below, earnings from
continuing operations were $17.5 million, or $0.40 per diluted share, for 2002
and $21.1 million, or $0.49 per diluted share, for 2001. The results for 2002
include a $61.7 million, net of tax, write off of goodwill in accordance with
SFAS No. 142, a $1.2 million, net of tax, loss on early extinguishment of debt
and $126,000 of loss from discontinued operations. The 2001 results include
$47.8 million of income from discontinued operations (including a $41.5 million
gain, net of tax, on the sale of assets to GE Transportation Systems noted above
and writedown of certain businesses classified as discontinued operations), a
$9.3 million charge for asset writedowns, a $3.7 million restructuring-related
charge, a $685,000 gain on the disposition of excess facilities, a $2 million
research and development tax credit and a $1.7 million charge for severance
costs related to a 10 percent salary workforce reduction.

MERGER AND RESTRUCTURING PLAN

In 2001, the Company completed a merger and restructuring plan with charges
totaling $71 million pre-tax, with approximately $2 million of the charge
expensed in 2001, $20 million in 2000 and $49 million in 1999. The plan involved
the elimination of duplicate facilities and excess capacity, operational
realignment and related workforce reductions, and the evaluation of certain
assets as to their perceived ongoing benefit to the Company.

As of December 31, 2002, $647,000 of the merger and restructuring charge still
remained as accrued on the balance sheet as part of other accrued liabilities.
The accrual on the balance sheet is discussed in greater detail in Note 24 of
"Notes to Consolidated Financial Statements" included in Part IV, Item 15 of
this report.

The Company began and completed a new restructuring plan for the Transit rail
business in 2001. The restructuring plan involved operational realignment and
related workforce reductions. The charges in 2001 for the restructuring plan
move totaled $2 million pre-tax. 2002 operations still included much of the cost
of integration in normal operations

The $2 million charge in 2001 included costs associated with relocating several
production operations from Chicago to Montreal, including severance costs for
approximately 103 employees.

13

RESULTS OF OPERATIONS

The following table sets forth Wabtec's Consolidated Statements of Operations
for the years indicated. 2002 operations included no adjustments. To enhance
comparability with results of prior periods, the 2001 adjusted column represents
the reported income statement excluding restructuring-related charges, asset
writedowns, severance costs related to a 10 percent salary workforce reduction,
research and development tax credits and the gain on the sale of excess
facilities. The 2000 adjusted column represents the reported income statement
excluding restructuring-related charges, a legal settlement charge, the
write-off of a deferred tax asset and gain on the sale of a product line.

14

2002 COMPARED TO 2001

The following table sets forth the Company's net sales by business segment:

Net sales for 2002 decreased $87.5 million or 11.2% to $696.2 million as
compared to the prior period. Both the Freight Group and Transit Group had lower
sales. The Freight Group's decreased sales reflected lower sales of components
for new freight cars and locomotives. In 2002, industry deliveries of new
freight cars decreased to 17,736 units as compared to 34,247 in the same period
in 2001. In 2002, industry deliveries of new locomotives decreased to 940 as
compared to 1,085 in the same period in 2001. The Transit Group's decreased
sales were primarily due to the completion of a supply contract for New York
City subway cars in the third quarter of 2002.

Gross profit decreased to $179.5 million (or 25.8% of sales) in 2002 compared to
$209.9 million (or 26.8% of sales) in the same period of 2001. Gross profit is
dependent on a number of factors including pricing, sales volume and product
mix. The decrease in gross profit and margin is largely attributed to the effect
of a decrease in sales volumes (approximately $35 million in gross profit). The
resulting favorable balance is principally a result of cost reductions.

Operating expenses improved by $2.3 million in 2002 as compared to 2001 after
excluding goodwill amortization (due to the required adoption of Financial
Accounting Standard 142) of $7 million, $9.3 million for asset writedowns, $3.7
million for merger and restructuring charges and $1.7 million for severance
costs in 2001. The decrease in operating expenses was due to a decrease in
selling, general and administrative expenses.

Income from operations totaled $47.5 million in 2002 compared with $54.1 million
in 2001. Operating income would have been $75.8 million in 2001 excluding the
above adjustments shown in the prior paragraph. Lower operating income resulted
from decreased sales volumes in 2002 (see Note 21 of "Notes to Consolidated
Financial Statements" included in Part IV, Item 15 of this report).

Interest expense decreased 51.6% in 2002 as compared to 2001, primarily due to a
decrease in debt and interest rates. Debt, net of cash and equivalents, was
$175.9 million at December 31, 2002 versus $187.9 million at the end of 2001.

The Company recorded foreign exchange losses of $1.2 million and $1.7 million,
respectively, in 2002 and 2001 due to the continued strength of the dollar. Also
in 2002, the Company wrote down a facility held for sale, resulting in a $2
million charge. These items were reported as other income (expense).

The effective income tax rate for 2002 was 32% as compared to 24.2% in 2001. The
Company expects the ongoing rate to be approximately 35-36%. The 2002 rate
includes the effect of research and development and foreign tax credits
($772,000). The 2001 rate includes the effect of substantial research and
development tax credits ($2 million). Excluding these tax credits, the rate
would have been 35% in both 2002 and 2001.

2001 COMPARED TO 2000

The following table sets forth the Company's net sales by business segment:

Net sales decreased $27.5 million or 3.4% to $783.7 million in 2001 from $811.2
million in 2000. This overall decrease was primarily attributable to decreased
North American OEM freight car and locomotive component sales volumes and lower
locomotive overhauls, all within the Freight Group. Sales volumes within the
Freight Group reflected a softening OEM market for freight cars, with 34,247
freight cars delivered in 2001 compared to 55,821 in 2000. Partially offsetting
these decreases were increases in Transit Group sales, due to increased
shipments under the New York City MTA contract.

Gross profit decreased to $209.9 million (or 26.8% of sales) in 2001 compared to
$235.7 million (or 29.1% of sales) in the same period of 2000. Gross margin is
dependent on a number of factors including pricing, sales volume and product
mix. The decrease in gross profit and margin is largely attributed to the effect
of

15

a decrease in sales volumes (approximately $11 million in gross profit). The
balance is principally a result of changes to the sales mix primarily from a
drop in the Freight Group of 8% offset by an increase in the Transit Group of 5%
and overall pricing pressures in many product lines.

Total operating expenses as a percentage of net sales were 19.9% in 2001 and
19.5% in the same period a year ago. After excluding $9.3 million for asset
writedowns, $3.7 million for merger and restructuring charges and $1.7 million
for severance costs in 2001 and $18.2 million for 2000 merger and restructuring
charges, operating expenses would have been 18% and 17.2% of net sales,
respectively. Without the above adjustments, operating expenses would have
increased $1.5 million in 2001 as compared to 2000.

Income from operations totaled $54.1 million in 2001 compared with $77.8 million
in 2000. After excluding the merger and restructuring-related charges in both
periods and the asset writedowns and severance costs in 2001 and a $2 million
legal settlement in 2000, operating income would have been $68.7 million and
$100 million in 2001 and 2000, respectively. Lower adjusted operating income
resulted from decreased sales volumes in the Freight Group and changes in
product mix (see Note 21 of "Notes to Consolidated Financial Statements"
included in Part IV, Item 15 of this report).

Interest expense decreased 23.2% to $33.5 million in 2001 from $43.6 million in
2000. Debt, net of cash and equivalents, was $187.9 million at December 31, 2001
versus $534.1 million at the end of 2000. The decrease in interest expense is
primarily due to the lower debt amount as a result of working capital management
and the sale proceeds from GETS received in November 2001 (with taxes on the
gain deferred to 2002).

In 2001, the Company recorded foreign exchange losses of $1.7 million. In
February 2000, the Company disposed of its transit electrification product line
for $5.5 million in cash and recognized a gain of $4.4 million. These items were
reported as other income (expense).

The effective income tax rate for 2001 was 24.2% as compared to 49.4% in 2000.
The 2001 rate includes the effect of substantial research and development tax
credits ($2 million). Excluding this tax credit, the rate would have been 35%.
The 2000 rate includes the effect of the one-time, non-cash write-off of the
deferred tax asset ($5.1 million) relating to the termination of the 1995
established ESOP. Excluding this effect, the rate would be 36%.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is provided primarily by operating cash flow and borrowings under the
Company's credit facilities with a consortium of commercial banks ("credit
agreement"). The following is a summary of selected cash flow information and
other relevant data.

Operating cash flow in 2002 was $15.7 million as compared to $119.1 million in
the same period a year ago. Working capital decreased $6 million in 2002, as
inventory decreased by $16 million while payables and accruals decreased by $10
million. In 2001, working capital decreased significantly primarily due to a
decrease in accounts receivable and inventory. During 2002 and 2001, cash
outlays for merger and restructuring activities were approximately $2.5 million
and $6.8 million, respectively, and are reported as a reduction to cash provided
by operating activities. Also, in 2002, $30 million was paid in taxes related to
the gain on the sale of locomotive aftermarket assets to GETS in 2001. The
operating cash flow in 2002 excluding the $30 million tax payment from 2001 was
approximately $46 million.

Cash used by investing activities was $10.8 million versus cash provided by
investing activities of $227.4 million a year ago. Adjusting the 2001 amount by
the sale of businesses to GE for $238 million, cash used by investing activities
would have been approximately $10.6 million. In 2002, 2001 and 2000, the Company
used $1.7 million, $3.7 million and $650,000, respectively, for certain business
acquisitions. See Note 5 of "Notes to Consolidated Financial Statements"
included in Part IV, Item 15 of this report, for further information. Capital
expendi-

16

tures for continuing operations were $14.1 million, $20.7 million and $23.2
million in 2002, 2001 and 2000, respectively. The majority of capital
expenditures for these periods relates to upgrades to existing equipment and
replacement of existing equipment.

Cash used for financing activities was $44.1 million in 2002 versus $297.2
million in 2001. During 2002, the Company reduced long-term debt by $45.9
million. During 2001, the Company reduced long-term debt by $298.3 million. The
Company repaid $175 million of senior notes in the third quarter of 2002 to take
advantage of lower interest rates on the Company's revolving credit agreement.
Historically, the Company has financed the purchase of significant businesses
utilizing cash flow generated from operations and amounts available under its
credit facilities.

EBITDA is defined as earnings before deducting interest expense, income taxes
and depreciation and amortization. Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles, management believes that it is useful to an investor in evaluating
Wabtec because it is widely used as a measure to evaluate a company's operating
performance and ability to service debt. Financial covenants in our credit
facility include ratios based on EBITDA. EBITDA does not purport to represent
cash generated by operating activities and should not be considered in isolation
or as substitute for measures of performance in accordance with generally
accepted accounting principles. In addition, because EBITDA is not calculated
identically by all companies, the presentation here may not be comparable to
other similarly titled measures of other companies. Management's discretionary
use of funds depicted by EBITDA may be limited by working capital, debt service
and capital expenditure requirements, and by restrictions related to legal
requirements, commitments and uncertainties.

The following table sets forth the Company's outstanding indebtedness at
December 31, 2002 and 2001. The revolving credit note and other term loan
interest rates are variable and dependent on market conditions.

Credit Agreement

In November 1999, Wabtec refinanced the then existing unsecured MotivePower
credit agreement with a consortium of commercial banks. This unsecured credit
agreement currently provides a $275 million five-year revolving credit facility
expiring in November 2004 and a 364-day $95 million convertible revolving credit
facility maturing in November 2004, with an annual renewal in November 2003. In
November 2001, the Company and the banks negotiated a reduction in the 364-day
facility from $213 million to $100 million, as a result of the $208 million, net
of tax, cash proceeds from the sale of locomotive businesses to GE. In November
2002, the Company negotiated a further reduction in the 364-day facility from
$100 million to $95 million. At December 31, 2002, the Company had available
bank borrowing capacity, net of letters of credit, of approximately $159
million.

Under the credit agreement, the Company may elect a base rate, an interest rate
based on the London Interbank Offered Rates of Interest ("LIBOR"), a cost of
funds rate and a bid rate. The base rate is the greater of LaSalle Bank National
Association's prime rate or the federal funds effective rate plus 0.5% per
annum. The LIBOR rate is based on LIBOR plus a margin that ranges from 87.5 to
200 basis points depending on the Company's consolidated total indebtedness to
cash flow ratios. The current margin is 150 basis points. The cost of funds rate
is a fluctuating interest rate based on LaSalle Bank National Association's then
cost of funds. Under the bid rate option, any participating bank may propose the
interest rate at which it will lend funds, which rate may either be a fixed rate
or a floating rate based on LIBOR.

17

The credit agreement limits the Company's ability to declare or pay cash
dividends and prohibits the Company from declaring or making other
distributions, subject to certain exceptions. The credit agreement contains
various other covenants and restrictions including the following limitations:
incurrence of additional indebtedness; mergers, consolidations and sales of
assets and acquisitions; additional liens; sale and leasebacks; permissible
investments, loans and advances; certain debt payments; capital expenditures;
and imposes a minimum interest expense coverage ratio and a maximum debt to cash
flow ratio.

The credit agreement contains customary events of default, including payment
defaults, failure of representations or warranties to be true in any material
respect, covenant defaults, defaults with respect to other indebtedness of the
Company, bankruptcy, certain judgments against the Company, ERISA defaults and
"change of control" of the Company.

Credit agreement borrowings bear variable interest rates indexed to the indexes
described above. The maximum credit agreement borrowings, average credit
agreement borrowings and weighted-average contractual interest rate on credit
agreement borrowings was $217.7 million, $133.7 million and 3.31%, respectively
for 2002. To reduce the impact of interest rate changes on a portion of this
variable-rate debt, the Company entered into interest rate swaps which
effectively convert a portion of the debt from variable to fixed-rate borrowings
during the term of the swap contracts. On December 31, 2002, the notional value
of interest rate swaps outstanding totaled $60 million and effectively changed
the Company's interest rate from a variable rate to a fixed rate of 8.7%. The
interest rate swap agreements mature in June 2003. The Company is exposed to
credit risk in the event of nonperformance by the counterparties. However, since
only the cash interest payments are exchanged, exposure is significantly less
than the notional amount. The counterparties are large financial institutions
and the Company does not anticipate nonperformance.

9 3/8% Senior Notes

In June 1995, the Company issued $100 million of 9.375% Senior Notes due in 2005
(the "1995 Notes"). In January 1999, the Company issued an additional $75
million of 9.375% Senior Notes due in 2005 (the "1999 Notes"; the 1995 Notes and
the 1999 Notes are collectively, the "Notes"). The 1999 Notes were issued at a
premium resulting in an effective rate of 8.5%. The terms of the 1995 Notes and
the 1999 Notes were substantially the same, and the 1995 Notes and the 1999
Notes were issued pursuant to indentures that were substantially the same. The
Notes were redeemed at par (face) on July 8, 2002 through the use of cash on
hand and additional borrowings under the credit agreement. This redemption
resulted in an extraordinary non-cash loss of $1.2 million, net of tax, relating
to a write-off of deferred debt issuance costs. See Note 25 of "Notes to
Consolidated Financial Statements" included in Part IV, Item 15 of this report.

Industrial Revenue Bond

In July 1998, a subsidiary of the Company entered into a 10 -year $7.5 million
debt obligation that bears an interest rate of 5.5% and is payable in monthly
principal and interest installments. The proceeds of the bond provided financing
for the purchase of a building used in the Company's operations.

Principal repayments of outstanding loan balances are due at various intervals
until maturity. See Note 9 of "Notes to Consolidated Financial Statements"
included in Part IV, Item 15 of this report.

The Company believes, based on current levels of operations and forecasted
earnings, cash flow and liquidity will be sufficient to fund its working capital
and capital equipment needs as well as meeting the debt service requirements. If
the Company's sources of funds were to fail to satisfy the Company's cash
requirements, the Company may need to refinance its existing debt or obtain
additional financing. There is no assurance that such new financing alternatives
would be available, and, in any case, such new financing, if available, would be
expected to be more costly and burdensome than the debt agreements currently in
place. The Company currently expects to refinance and replace its existing bank
facility at least twelve months prior to its November 2004 expiration.

EFFECTS OF INFLATION

General price inflation has not had a material impact on the Company's results
of operations. Some of the Company's labor contracts contain negotiated salary
and benefit increases and others contain cost of living adjustment clauses,
which would cause the Company's cost to automatically increase if inflation were
to become significant.

18

CONVERSION TO THE EURO CURRENCY

On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
common currency (the "Euro"). The Company conducts business in member countries.
The transition period for the introduction of the Euro is from January 1, 1999
through June 30, 2002. The transition to the Euro has not had a material impact
on its operations or financial results.

FORWARD LOOKING STATEMENTS

We believe that all statements other than statements of historical facts
included in this report, including certain statements under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may constitute forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Although we believe that our assumptions made in connection with
the forward-looking statements are reasonable, we cannot assure you that our
assumptions and expectations are correct.

These forward-looking statements are subject to various risks, uncertainties and
assumptions about us, including, among other things:

Economic and Industry Conditions

--\ materially adverse changes in economic or industry conditions generally
or in the markets served by us, including North America, South America,
Europe, Australia and Asia;

--\ demand for services in the freight and passenger rail industry;

--\ consolidations in the rail industry;

--\ demand for our products and services;

--\ continued outsourcing by our customers;

--\ demand for freight cars, locomotives, passenger transit cars and buses;

--\ industry demand for faster and more efficient braking equipment;

--\ fluctuations in interest rates;

Operating Factors

--\ supply disruptions;

--\ technical difficulties;

--\ changes in operating conditions and costs;

--\ successful introduction of new products;

--\ labor relations;

--\ completion and integration of additional acquisitions;

--\ the development and use of new technology ;

Competitive Factors

--\ the actions of competitors;

Political/Governmental Factors

--\ political stability in relevant areas of the world;

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

--\ governmental funding for some of our customers;

--\ political developments and laws and regulations, such as forced
divestiture of assets, restrictions on production, imports or exports,
price controls, tax increases and retroactive tax claims, expropriation
of property, cancellation of contract rights, and environmental
regulations; and

Transaction or Commercial Factors

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

The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

CRITICAL ACCOUNTING POLICIES

The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make judgments, estimates
and assumptions regarding uncertainties that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses. Areas of uncertainty that require
judgments, estimates and assumptions include the accounting for derivatives,
environmental matters, the testing of goodwill and other intangibles for
impairment, proceeds on assets to be sold, pensions and other postretirement
benefits, and tax matters. Management uses historical experience and all
available information to make these

19

judgments and estimates, and actual results will inevitably differ from those
estimates and assumptions that are used to prepare the Company's financial
statements at any given time. Despite these inherent limitations, management
believes that Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) and the financial statements and related footnotes
provide a meaningful and fair perspective of the Company. A discussion of the
judgments and uncertainties associated with accounting for derivatives and
environmental matters can be found in the "Notes to Consolidated Financial
Statements" included in Part IV, Item 15 of this report.

A summary of the Company's significant accounting policies is included in Note 2
in the "Notes to Consolidated Financial Statements" included in Part IV, Item 15
of this report. Management believes that the application of these policies on a
consistent basis enables the Company to provide the users of the financial
statements with useful and reliable information about the Company's operating
results and financial condition.

In 2002, Wabtec adopted the new standard of accounting for goodwill and
intangible assets with indefinite lives. The cumulative effect adjustment
recognized on January 1, 2002, upon adoption of the new standard, was a charge
of $61.7 million (after tax). Also in 2002, amortization ceased for goodwill and
intangible assets with indefinite lives. Total amortization expense recognized
was $5.3 million in 2002, $13 million in 2001 and $12.6 million in 2000.
Additionally, goodwill and indefinite-lived intangibles are required to be
tested for impairment at least annually. The evaluation of impairment involves
comparing the current fair value of the business to the recorded value
(including goodwill). The Company uses a combination of a guideline public
company market approach and a discounted cash flow model ("DCF model") to
determine the current fair value of the business. A number of significant
assumptions and estimates are involved in the application of the DCF model to
forecasted operating cash flows, including markets and market share, sales
volume and pricing, costs to produce and working capital changes. Management
considers historical experience and all available information at the time the
fair values of its business are estimated. However, actual fair values that
could be realized in an actual transaction may differ from those used to
evaluate the impairment of goodwill.

Other areas of significant judgments and estimates include the liabilities and
expenses for pensions and other postretirement benefits. These amounts are
determined using actuarial methodologies and incorporate significant
assumptions, including the rate used to discount the future estimated liability,
the long-term rate of return on plan assets and several assumptions relating to
the employee workforce (salary increases, medical costs, retirement age and
mortality). The rate used to discount future estimated liabilities is determined
considering the rates available at year-end on debt instruments that could be
used to settle the obligations of the plan. The long-term rate of return is
estimated by considering historical returns and expected returns on current and
projected asset allocations and is generally applied to a five-year average
market value of assets.

The recent declines in equity markets and interest rates have had a negative
impact on Wabtec's pension plan liability and fair value of plan assets. As a
result, the accumulated benefit obligation exceeded the fair value of plan
assets at the end of 2002, which resulted in a $7.1 million, net of tax, charge
to other comprehensive loss in the fourth quarter.

As a global company, Wabtec records an estimated liability or benefit for income
and other taxes based on what it determines will likely be paid in various tax
jurisdictions in which it operates. Management uses its best judgment in the
determination of these amounts. However, the liabilities ultimately realized and
paid are dependent on various matters including the resolution of the tax audits
in the various affected tax jurisdictions and may differ from the amounts
recorded. An adjustment to the estimated liability would be recorded through
income in the period in which it becomes probable that the amount of the actual
liability differs from the recorded amount. Management does not believe that
such a charge would be material.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

In the ordinary course of business, Wabtec is exposed to risks that increases in
interest rates may adversely affect funding costs associated with its
variable-rate debt. After considering the effects of interest rate swaps,
further described below, the Company's variable rate debt represents 66% of
total long-term debt at December 31, 2002 and 1% in 2001. Management

20

has entered into pay-fixed, receive-variable interest rate swap contracts that
partially mitigate the impact of variable-rate debt interest rate increases. At
December 31, 2002, an instantaneous 100 basis point increase in interest rates
would reduce the Company's annual earnings by $882,000, assuming no additional
intervention strategies by management.

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
133, and as amended by SFAS 138, "Accounting for Derivative Instruments and
Hedging Activities" effective January 1, 2001. In the application, the Company
has concluded that its swap contracts qualify for "special cash flow hedge
accounting" which permit recording the fair value of the swap and corresponding
adjustment to other comprehensive income on the balance sheet (see Note 22 of
"Notes to Consolidated Financial Statements" included in Part IV, Item 15 of
this report). This fluctuation is not expected to have a material effect on the
Company's financial condition, results of operations and liquidity.

FOREIGN CURRENCY EXCHANGE RISK

The Company occasionally enters into several types of financial instruments for
the purpose of managing its exposure to foreign currency exchange rate
fluctuations in countries in which the Company has significant operations. As of
December 31, 2002, the Company had no such instruments outstanding.

Wabtec is also subject to certain risks associated with changes in foreign
currency exchange rates to the extent its operations are conducted in currencies
other than the U.S. dollar. For the year ended December 31, 2002, approximately
76% of Wabtec's net sales are in the United States, 7% in Canada, 2% in Mexico,
and 15% in other international locations, primarily Europe. (See Note 21 of
"Notes to Consolidated Financial Statements" included in Part IV, Item 15 of
this report). At December 31, 2002, the Company does not believe changes in
foreign currency exchange rates represent a material risk to results of
operations, financial position, or liquidity.

Wabtec's market risk exposure is not substantially different from its exposure
at December 31, 2001.

RECENT ACCOUNTING PRONOUNCEMENTS

See notes 2 and 8 of "Notes to Consolidated Financial Statements" included in
Part IV, Item 15 of this report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements and supplementary data are set forth in Item 15, of Part IV
hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

As reported in a Current Report on Form 8-K dated May 30, 2002, Wabtec dismissed
Arthur Andersen LLP as Wabtec's independent public accountants on May 30, 2002
and, after a review of several possible candidates, appointed Ernst & Young LLP
to serve as Wabtec's independent public accountants for the fiscal year ended
December 31, 2002, in accordance with the recommendation of Wabtec's Board of
Directors and its Audit Committee. The Company dismissed Arthur Andersen LLP as
its auditor because it believed that the firm could no longer provide the
necessary services on a global basis. There were no disagreements with Arthur
Andersen reported.

PART III

ITEMS 10 THROUGH 13.

In accordance with the provisions of General Instruction G to Form 10-K, the
information required by Item 10 (Directors and Executive Officers of the
Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters) and
Item 13 (Certain Relationships and Related Transactions) is incorporated herein
by reference from the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on May 21, 2003. The definitive Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after December 31, 2002. Information relating to the executive
officers of the Company is set forth in Part I.

ITEM 14. CONTROLS AND PROCEDURES

(A) EVALUATION OF DISCLOSURE CONTROLS

Wabtec's principal executive officer and its principal financial officer,
based on an evaluation as of a date within 90 days of the filing date of
this report, have concluded that Wabtec's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c)

21

and 15d-14(c)) are adequate and effective to ensure that material
information relating to the Company and its consolidated subsidiaries
would be made known to them by others within those entities.

(B) CHANGES IN INTERNAL CONTROLS

There were no significant changes in Wabtec's internal controls or in
other factors that could significantly affect these controls and
procedures subsequent to the date of the evaluation.

22

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The financial statements, financial statement schedules and exhibits listed
below are filed as part of this annual report:

- --------------------------------------------------------------------------------

27

REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION:

We have audited the accompanying consolidated balance sheet of Westinghouse Air
Brake Technologies Corporation and subsidiaries as of December 31, 2002, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. Our audit also included the financial statement
schedule for the year ended December 31, 2002 listed in the index in Item 15(a)2
of this Registration Statement. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Westinghouse Air Brake Technologies Corporation and subsidiaries
as of December 31, 2001, and for the two fiscal years then ended were audited by
other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those financial statements in their report dated February
18, 2002.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westinghouse Air Brake
Technologies Corporation and subsidiaries as of December 31, 2002, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.
Also in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

As more fully discussed in Note 8 to the consolidated financial statements,
effective January 1, 2002, Westinghouse Air Brake Technologies Corporation
adopted the provisions of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS No. 142).

As discussed above, the consolidated financial statements of Westinghouse Air
Brake Technologies Corporation as of December 31, 2001, and for the two fiscal
years then ended were audited by other auditors who have ceased operations. As
described in Note 8, these financial statements have been revised to include the
transitional disclosures required by SFAS No. 142, which was adopted by the
Company as of January 1, 2002. Our audit procedures with respect to the
disclosures in Note 8 with respect to 2001 and 2000 included (a) agreeing the
previously reported net income to the previously issued financial statements and
the adjustments to reported net income representing amortization expense
(including any related tax effects) recognized in those periods related to
goodwill as a result of initially applying Statement No. 142 to the Company's
underlying records obtained from management, and (b) testing the mathematical
accuracy of the reconciliation of adjusted net income to reported net income,
and the related earnings per share amounts. In our opinion, the disclosures for
2001 and 2000 in Note 8 are appropriate. However, we were not engaged to audit,
review, or apply any procedures to the 2001 and 2000 financial statements of the
Company other than with respect to such disclosures and, accordingly, we do not
express an opinion or any other form of assurance on the 2001 and 2000 financial
statements taken as a whole.

/s/ ERNST & YOUNG LLP

February 14, 2003

28

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION:

We have audited the accompanying consolidated balance sheets of Westinghouse Air
Brake Technologies Corporation (a Delaware corporation) and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westinghouse Air Brake
Technologies Corporation and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
February 18, 2002

This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with the Company's Annual Report on Form 10-K for the year ended
December 31, 2001. This audit report has not been reissued by Arthur Andersen
LLP in connection with this Annual Report Form 10-K. See Exhibit 23.2 for
further discussion.

29

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.
30

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these statements.
31

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these statements.
32

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

ACCUMULATED
ADDITIONAL UNEARNED OTHER
COMPREHENSIVE COMMON PAID-IN TREASURY ESOP RETAINED DEFERRED COMPREHENSIVE
In thousands INCOME STOCK CAPITAL STOCK SHARES EARNINGS COMPENSATION INCOME (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 1999 $654 $318,357 $(201,711) $(125,491) $194,772 $ 6,595 $(11,298)
Cash dividends............... (1,695)
Purchase of treasury stock... (12,215)
Proceeds from treasury stock
issued from the exercise of
stock options and other
benefit plans, net of
tax........................ (3,697) 9,545 31
Allocation of ESOP shares,
net of tax effect.......... (434) 1,749
Compensatory stock options
granted through a Rabbi
Trust...................... 5,726 (5,726)
ESOP Termination............. (40,732) (83,010) 123,742
Net income................... $ 25,393 25,393
Translation adjustment....... (4,184) (4,184)
---------------------------------------------------------------------------------------------------
$ 21,209
========
BALANCE, DECEMBER 31, 2000... $654 $273,494 $(281,665) -- $218,470 $ 900 $(15,482)
Cash dividends............... (1,681)
Purchase of treasury stock... (585)
Proceeds from treasury stock
issued from the exercise of
stock options and other
benefit plans, net of
tax........................ (820) 4,398 1
Compensatory stock options
granted through a Rabbi
Trust...................... 363 (363)
Net income................... $ 61,780 61,780
Translation adjustment....... (5,170) (5,170)
Cumulative effect of change
in accounting for
derivative financial
instruments, net of $665
tax........................ (1,234) (1,234)
Unrealized losses on
derivatives designated and
qualified as cash flow
hedges, net of $705 tax.... (1,310) (1,310)
Additional minimum pension
liability, net of $4,144
tax........................ (6,479) (6,479)
--------------------------------------------------------------------------------------------------
$ 47,587
========
BALANCE, DECEMBER 31, 2001... $654 $272,674 $(277,489) -- $278,569 $ 538 $(29,675)
Cash dividends............... (1,808)
Proceeds from treasury stock
issued from the exercise of
stock options and other
benefit plans, net of
tax........................ 108 3,587
Compensatory stock options
granted through a Rabbi
Trust...................... 268 (268)
Net loss..................... $(45,479) (45,479)
Translation adjustment....... 3,165 3,165
Unrealized gains on
derivatives designated and
qualified as cash flow
hedges, net of $755 tax.... 1,538 1,538
Additional minimum pension
liability, net of $4,551
tax........................ (7,120) (7,120)
--------
$(47,896)
========
-----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002...
$654 $272,782 $(273,634) -- $231,282 $ 270 $(32,092)

-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.
33

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS

Westinghouse Air Brake Technologies Corporation (the "Company") is one of North
America's largest manufacturers of value-added equipment for locomotives,
railway freight cars and passenger transit vehicles. The Company was formed in
November 1999 from the merger of Westinghouse Air Brake Company and MotivePower
Industries, Inc. Our products are intended to enhance safety, improve
productivity and reduce maintenance costs for our customers. Product offerings
include brakes for locomotives, freight cars and passenger transit vehicles,
electronic controls and monitors, heat exchangers and cooling systems, switcher
and commuter locomotives, couplers, door systems and draft gears. The Company
aggressively pursues technological advances with respect to both new product
development and product enhancements. The Company has its headquarters in
Wilmerding, Pennsylvania and has 4,409 full time employees at facilities
throughout the world.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. Such statements
have been prepared in accordance with generally accepted accounting principles.
Sales between subsidiaries are billed at prices consistent with sales to third
parties and are eliminated in consolidation.

USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles in the United States requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual amounts
could differ from the estimates. On an ongoing basis, management reviews its
estimates based on currently available information. Changes in facts and
circumstances may result in revised estimates.

INVENTORIES Inventories are stated at the lower of cost or market. Cost is
determined under the first-in, first-out (FIFO) method. Inventory costs include
material, labor and overhead (see Note 6).

PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment additions are stated
at cost. Expenditures for renewals and improvements are capitalized.
Expenditures for ordinary maintenance and repairs are expensed as incurred. The
Company provides for book depreciation principally on the straight-line method.
Accelerated depreciation methods are utilized for income tax purposes (see Note
7).

INTANGIBLE ASSETS The Company adopted SFAS No. 142 effective January 1, 2002,
and, as a result, goodwill and other intangible assets with indefinite lives are
no longer amortized. Other intangibles (with definite lives) are amortized on a
straight-line basis over their estimated economic lives. Goodwill effective
January 1, 2002 is reviewed annually for impairment while amortizable
intangibles are reviewed for impairment when indicators of impairment are
present (see Note 8).

REVENUE RECOGNITION Revenue is recognized in accordance with Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." Wabtec
recognizes revenue upon the passage of title, ownership and risk of loss to the
customer.

The Company recognizes revenues on long-term contracts based on the percentage
of completion method of accounting. Contract revenues and cost estimates are
reviewed and revised quarterly, at a minimum, and adjustments are reflected in
the accounting period as known. Provisions are made for estimated losses on
uncompleted contracts as known, if necessary.

SHIPPING AND HANDLING FEES AND COSTS All fees billed to the customer for
shipping and handling are classified as a component of net revenues. All costs
associated with shipping and handling are classified as a component of cost of
sales.

STOCK-BASED COMPENSATION The Company accounts for stock-based compensation,
including stock options and employee stock purchases, under APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (see Note 14 for related pro forma
disclosures).

RESEARCH AND DEVELOPMENT Research and development costs are charged to expense
as incurred. For the years ended December 31, 2002, 2001 and 2000, the Company
incurred costs of approximately $33.6 million, $33.2 million and $32.3 million,
respectively.

34

WARRANTY COSTS Warranty costs are accrued based on management's estimates of
repair or upgrade costs per unit and historical experience. In recent years, the
Company has introduced a number of new products. The Company does not have the
same level of historical warranty experience for these new products as it does
for its continuing products. Therefore, warranty reserves have been established
for these new products based upon management's estimates. Actual future results
may vary from such estimates. Warranty expense was $17.6 million, $14.1 million
and $11.2 million for 2002, 2001 and 2000, respectively. Warranty reserves were
$17.4 and $15.4 million at December 31, 2002 and 2001, respectively (see Note
17).

FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES The Company periodically enters
into interest rate swap agreements to reduce the impact of interest rate changes
on its variable rate borrowings. Interest rate swaps are agreements with a
counterparty to exchange periodic interest payments (such as pay fixed, receive
variable) calculated on a notional principal amount. The interest rate
differential to be paid or received is recognized as interest expense (see Note
9).

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
133, and as amended by SFAS 138, "Accounting for Derivative Instruments and
Hedging Activities" effective January 1, 2001, resulting in the recording of
current assets of $266,000, long term assets of $399,000, current liabilities of
$760,000, long term liabilities of $1.1 million, and a decrease in other
comprehensive loss of $1.2 million. In the application, the Company has
concluded its interest rate swap contracts qualify for "special cash flow hedge
accounting" which permit recording the fair value of the swap and corresponding
adjustment to other comprehensive income (loss) on the balance sheet.

INCOME TAXES Income taxes are accounted for under the liability method. Deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The provision for income taxes includes federal, state and
foreign income taxes (see Note 12).

FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign subsidiaries,
except for the Company's Mexican operations whose functional currency is the
U.S. Dollar, are translated at the rate of exchange in effect on the balance
sheet date while income and expenses are translated at the average rates of
exchange prevailing during the year. Foreign currency gains and losses resulting
from transactions, and the translation of financial statements are recorded in
the Company's consolidated financial statements based upon the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." The effects of currency exchange rate changes on intercompany
transactions and balances of a long-term investment nature are accumulated and
carried as a component of shareholders' equity. The effects of currency exchange
rate changes on intercompany transactions that are non U.S. dollar denominated
amounts are charged or credited to earnings. Foreign exchange loss was $1.2
million, $1.7 million and $1 million for 2002, 2001 and 2000, respectively.

EARNINGS PER SHARE Basic earnings per common share are computed by dividing net
income applicable to common shareholders by the weighted-average number of
shares of common stock outstanding during the year. Diluted earnings per common
share are computed by dividing net income applicable to common shareholders by
the weighted average number of shares of common stock outstanding adjusted for
the assumed conversion of all dilutive securities (such as employee stock
options) (see Note 13).

OTHER COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) is defined as net
income and all other nonowner changes in shareholders' equity. The Company's
accumulated other comprehensive income (loss) consists of foreign currency
translation adjustments, unrealized gains and losses on derivatives designated
and qualified as cash flow hedges and pension related adjustments (see Note 15).

SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK The Company's trade
receivables are primarily from rail and transit industry original equipment
manufacturers, Class I railroads, railroad carriers and commercial companies
that utilize rail cars in their operations, such as utility and chemical
companies. One customer, in the transit group, accounted for 11% of the
Company's consolidated net sales in 2002 and 2001. No one customer accounted for
more than 10% of the Company's consolidated net sales in 2000. The allowance for
doubtful accounts was $4.6 million and $2.3 million as of December 31, 2002 and
2001, respectively.
35

EMPLOYEES As of December 31, 2002, approximately 36% of the Company's workforce
was covered by collective bargaining agreements. These agreements are generally
effective through 2003, 2004 and 2005.

DEFERRED COMPENSATION AGREEMENTS In May 1998, a consensus on Emerging Issues
Task Force Issue No. 97-14, "Accounting for Deferred Compensation Arrangements
Where Amounts Earned Are Held in a Rabbi Trust and Invested" ("EITF 97-14"), was
issued. The adoption of EITF 97-14 required the Company to record as treasury
stock the historical value of the Company's stock maintained in its deferred
compensation plans.

RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." Under its provisions, all tangible long-lived assets,
whether to be held and used or to be disposed of by sale or other means, will be
tested for recoverability whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001. The Company adopted SFAS 144 in
the third quarter of 2001, prior to the time it was required.

In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections", was issued. The
Statement updates, clarifies and simplifies existing accounting pronouncements.
While the technical corrections to existing pronouncements are not substantive
in nature, in some instances, they may change accounting practice. The
provisions of this standard related to SFAS No. 13 are effective for
transactions occurring after May 15, 2002. All other provisions of this standard
must be applied for financial statements issued on or after May 15, 2002. The
Company has not completed the process of evaluating the impact that will result
from adopting it.

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity,"
under which a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized at fair value
when the liability is incurred. The provisions of this statement are effective
for exit or disposal activities that are initiated after December 31, 2002. The
Company has not completed the process of evaluating the impact that will result
from adopting it.

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No.
148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternate methods of transition to SFAS No. 123's fair value method of
accounting for stock-based compensation. While the Statement does not amend SFAS
No. 123 to require companies to account for employee stock options using the
fair value method, the disclosure provisions of the Statement are applicable to
all companies with stock-based compensation. The provisions of this standard are
effective for fiscal years ending after December 15, 2002. The adoption of this
pronouncement did not have a material impact on the Company as no change was
made to the method of accounting for stock based compensation.

3. DISCONTINUED OPERATIONS

On November 1, 2001, the Company completed the sale of certain assets to GE
Transportation Systems (GETS) for $238 million in cash. The assets sold
primarily included locomotive aftermarket products and services for which Wabtec
was not the original equipment manufacturer. Under the terms of the sales
agreement, the Company has agreed to indemnify GETS for, among other things,
certain potential third party, off site environmental cleanup or remediation
costs. The Company has purchased an insurance policy to mitigate its exposure
for the environmental indemnities. The Company reported a $48.7 million after
tax gain on the sale in 2001.

In the fourth quarter of 2001, the Company decided to exit other businesses and
has put these businesses up for sale. The net amount of these businesses has
been written down to their estimated realizable value based on a multiple of
earnings and has been classified as Assets Held for Sale on the balance sheet.
The Company reported a $7.2 million after tax loss on the writedown of these
entities. As of December 31, 2002, one of the businesses continues to be
classified as held for sale. Market conditions have deteriorated in the past
year, and, as a result, the asset has not sold. The Company actively solicited
but did not receive any reasonable offers to purchase the asset and, in
response, has reduced the price. The asset
36

continues to be actively marketed at a price that is reasonable given the change
in market conditions. The asset is recorded as held for sale for $2.4 million.

In accordance with SFAS 144, the operating results of these businesses have been
classified as discontinued operations for all years presented and are summarized
as of December 31, as follows:

4. SUPPLEMENTAL CASH FLOW DISCLOSURES

5. MERGERS AND ACQUISITIONS

During 2002, 2001 and 2000, the Company completed the following acquisitions:

i) In February 2002, the Company purchased the minority interest of a business
in India that the Company did not already own for $1.7 million.

ii) In October 2001, the Company purchased certain assets of Milufab, a
supplier of door panels for subway trains for $3.7 million.

iii) In June 2001, the Company purchased certain assets of Core Systems, a
company that provides repair billings in the rail industry for $743,000.

iv) In July 2000, the Company purchased certain assets of Iron Fireman, a
manufacturer of transportation boiler equipment for $650,000.

These acquisitions were accounted for under the purchase method. Accordingly,
the results of operations of the applicable acquisition are included in the
Company's financial statements prospectively from the acquisition date. The
excess of the purchase price over the fair value of identifiable net assets was
approximately $2.9 million and was allocated to goodwill. Effective January 1,
2002, goodwill was no longer amortized upon adoption of SFAS No. 142 (see Note
2).

37

6. INVENTORY

The components of inventory, net of reserves, were:

7. PROPERTY, PLANT & EQUIPMENT

The major classes of depreciable assets are as follows:

The estimated useful lives of property, plant and equipment are as follows.

8. INTANGIBLES

The Company has adopted SFAS No. 142, "Goodwill and Other Intangible Assets"
effective January 1, 2002. Under its provisions, all goodwill and other
intangible assets with indefinite lives are no longer amortized under a
straight-line basis over the assets estimated useful life. Instead, they will be
subject to periodic assessments for impairment by applying a fair-value-based
test. The Company completed the Phase I and Phase II assessments and wrote down
the carrying value of goodwill by $90 million ($83.2 million for the freight
group and $6.8 million for the transit group), resulting in a non-cash after-tax
charge of $61.7 million. The fair value of these reporting units was determined
using a combination of discounted cash flow analysis and market multiples based
upon historical and projected financial information. Goodwill still remaining on
the balance sheet is $109.5 million at December 31, 2002.

As of December 31, 2002 and 2001, the Company's trademarks had a gross carrying
amount of $23,121 and accumulated amortization of $3,558 and the Company
believes this intangible has an indefinite life.

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

In connection with the adoption of SFAS No. 142, the Company reassessed the
useful lives and the classification of its identifiable assets and determined
that they continue to be appropriate. The weighted average useful lives of
patents was 13 years and covenants not to compete was 5 years.

Amortization expense for intangible assets was $5.3 million for the year ended
December 31, 2002. Estimated amortization expense for the five succeeding years
is as follows:

The changes in the carrying amount of goodwill by segment for the year ended
December 31, 2002 are as follows:

38

Actual results of continuing operations for the year ended December 31, 2002 and
pro forma results of continuing operations for 2001 and 2000 had we applied the
non-amortization provisions of SFAS No. 142 in these periods are as follows:

9. LONG-TERM DEBT

Long-term debt consisted of the following:

CREDIT AGREEMENT

In November 1999, Wabtec refinanced the then existing unsecured MotivePower
credit agreement with a consortium of commercial banks. This unsecured credit
agreement currently provides a $275 million five-year revolving credit facility
expiring in November 2004 and a 364-day $95 million convertible revolving credit
facility maturing in November 2004, with an annual renewal in November 2003. In
November 2001, the Company and the banks negotiated a reduction in the 364-day
facility from $213 million to $100 million, as a result of the $208 million, net
of tax, cash proceeds from the sale of locomotive businesses to GE. In November
2002, the Company negotiated a further reduction in the 364-day facility from
$100 million to $95 million. At December 31, 2002, the Company had available
bank borrowing capacity, net of letters of credit, of approximately $159
million.

Under the credit agreement, the Company may elect a base rate, an interest rate
based on the London Interbank Offered Rates of Interest ("LIBOR"), a cost of
funds rate and a bid rate. The base rate is the greater of LaSalle Bank National
Association's prime rate or the federal funds effective rate plus 0.5% per
annum. The LIBOR rate is based on LIBOR plus a margin that ranges from 87.5 to
200 basis points depending on the Company's consolidated total indebtedness to
cash flow ratios. The current margin is 150 basis points. The cost of funds rate
is a fluctuating interest rate based on LaSalle Bank National Association's then
cost of funds. Under the bid rate option, any participating bank may propose the
interest rate at which it will lend funds, which rate may either be a fixed rate
or a floating rate based on LIBOR.

39

The credit agreement limits the Company's ability to declare or pay cash
dividends and prohibits the Company from declaring or making other
distributions, subject to certain exceptions. The credit agreement contains
various other covenants and restrictions including the following limitations:
incurrence of additional indebtedness; mergers, consolidations and sales of
assets and acquisitions; additional liens; sale and leasebacks; permissible
investments, loans and advances; certain debt payments; capital expenditures;
and imposes a minimum interest expense coverage ratio and a maximum debt to cash
flow ratio.

The credit agreement contains customary events of default, including payment
defaults, failure of representations or warranties to be true in any material
respect, covenant defaults, defaults with respect to other indebtedness of the
Company, bankruptcy, certain judgments against the Company, ERISA defaults and
"change of control" of the Company.

Credit agreement borrowings bear variable interest rates indexed to the indexes
described above. The maximum credit agreement borrowings, average credit
agreement borrowings and weighted-average contractual interest rate on credit
agreement borrowings was $217.7 million, $133.7 million and 3.31%, respectively
for 2002. To reduce the impact of interest rate changes on a portion of this
variable-rate debt, the Company entered into interest rate swaps which
effectively convert a portion of the debt from variable to fixed-rate borrowings
during the term of the swap contracts. On December 31, 2002, the notional value
of interest rate swaps outstanding totaled $60 million and effectively changed
the Company's interest rate from a variable rate to a fixed rate of 8.7%. The
interest rate swap agreements mature in June 2003. The Company is exposed to
credit risk in the event of nonperformance by the counterparties. However, since
only the cash interest payments are exchanged, exposure is significantly less
than the notional amount. The counterparties are large financial institutions
and the Company does not anticipate nonperformance.

9 3/8% Senior Notes

In June 1995, the Company issued $100 million of 9.375% Senior Notes due in 2005
(the "1995 Notes"). In January 1999, the Company issued an additional $75
million of 9.375% Senior Notes due in 2005 (the "1999 Notes"; the 1995 Notes and
the 1999 Notes are collectively, the "Notes"). The 1999 Notes were issued at a
premium resulting in an effective rate of 8.5%. The terms of the 1995 Notes and
the 1999 Notes were substantially the same, and the 1995 Notes and the 1999
Notes were issued pursuant to indentures that were substantially the same. The
Notes were redeemed at par (face) on July 8, 2002 through the use of cash on
hand and additional borrowings under the credit agreement. This redemption
resulted in an extraordinary non-cash loss of $1.2 million, net of tax, relating
to a write-off of deferred debt issuance costs (see Note 25).

Industrial Revenue Bond

In July 1998, a subsidiary of the Company entered into a 10 year $7.5 million
debt obligation that bears an interest rate of 5.5% and is payable in monthly
principal and interest installments. The proceeds of the bond provided financing
for the purchase of a building used in the Company's operations.

Scheduled principal repayments of outstanding loan balances required as of
December 31, 2002 are as follows:

40

10. EMPLOYEE BENEFIT PLANS

The assumed health care cost trend rate grades from an initial rate of 9% to an
ultimate rate of 4.75% in five years.

A 1% increase in the assumed health care cost trend rate will increase the
amount of expense recognized for the postretirement plans by approximately
$303,000 for 2003, and increase the accumulated postretirement benefit
obligation by approximately $3.5 million. A 1% decrease in the assumed health
care cost trend rate will decrease the amount of expense recognized for the
postretirement plans by approximately $239,000 for 2003, and decrease the
accumulated postretirement benefit obligation by approximately $2.8 million.

The composition of plan assets consists primarily of equities, corporate bonds,
governmental notes and temporary investments.
In 2002 and 2001, as a result of an early retirement package offered to certain
union employees, the Company incurred charges of approximately $1.2 million and
$1.6 million, respectively, reflected above as a special termination benefit.

Included in the above table, the aggregate benefit obligation and fair value of
plan assets for the pension plans with plan assets in excess of benefit
obligations were $2 million and $2.1 million, respectively, as of December 31,
2002 and $8.3 million and $9.7 million, respectively, as of December 31, 2001
(the total of which was pension plan benefit obligation in excess of plan
assets).

DEFINED CONTRIBUTION PLANS

Costs recognized under multi-employer and other defined contribution plans are
summarized as follows:

The Company sponsors defined benefit pension plans that cover certain U.S. and
Canadian employees and provide benefits of stated amounts for each year of
service of the employee. In connection with the establishment of the Employee
Stock Ownership Plan and Trust (see Note 11) in January 1995, the pension plan
for U.S. salaried employees was modified to eliminate any credit (or accrual)
for current service costs for any future periods, effective March 31, 1995.

The Company's funding methods, which are primarily based on the ERISA
requirements, differ from those used to recognize pension expense, which is
primarily based on the projected unit credit method applied in the accompanying
financial statements.

In addition to providing pension benefits, the Company has provided certain
unfunded postretirement health care and life insurance benefits for substan-

42

tially all U.S. employees. In conjunction with the establishment of the ESOP in
January 1995 (see Note 11), the postretirement health care and life insurance
benefits for salaried employees were modified to discontinue benefits for
employees who had not attained the age of 50 by March 31, 1995. The Company is
not obligated to pay health care and life insurance benefits to individuals who
had retired prior to 1990.

The Company also participates in a variety of defined contribution, 401(k) and
multiemployer pension, health and welfare plans. Additionally, the Company has
stock option-based benefit and other plans further described in Note 14.

11. EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST (ESOP)

Effective January 31, 1995, the Company established the Westinghouse Air Brake
Company Employee Stock Ownership Plan and Trust (ESOP) to enable participating
employees to obtain ownership interests in the Company. Employees eligible to
participate in the ESOP primarily include the salaried U.S. employees and, as
described in Note 10, the ESOP contributions were intended to supplement or
replace other salaried employee benefit plans.

In connection with the establishment of the ESOP, the Company made a $140
million loan to the ESOP, which was used to purchase 9,336,000 shares of the
Company's outstanding common stock. The ESOP loan initially had a term of 50
years with interest at 8.5% and was collateralized by the shares purchased by
the ESOP. Company contributions to the ESOP were used to repay the ESOP loan's
annual debt service requirements of approximately $12 million. The Company was
obligated to contribute amounts sufficient to repay the ESOP loan. The ESOP used
such Company contributions to repay the ESOP loan. Approximately 187,000 shares
were to be allocated annually to participants over a 50-year period. These
transactions occurred simultaneously and, for accounting purposes, offset each
other. Allocated ESOP shares through August 1, 2000 were approximately 1.1
million shares.
The Company terminated all contributions to the ESOP effective August 1, 2000
and, in 2002, allocated shares were distributed to the participants' 401(k)
accounts and the unallocated shares were returned to the Company in exchange for
forgiveness of the ESOP loan.

Also in 2000, the Company incurred a $5.1 million non-cash charge for the
write-off of the related deferred tax asset, due to its ESOP tax benefits. These
benefits, which would have been realized had the ESOP continued, will not be
utilized in future periods. This charge is reported within the caption "Income
tax expense" in the consolidated statement of operations.

12. INCOME TAXES

The components of the income from continuing operations before provision for
income taxes for the Company's domestic and foreign operations for the years
ended December 31 are provided below:

The consolidated provision (credit) for income taxes included in the Statement
of Income for the years ended December 31 consisted of the following:

43

Consolidated income tax provision (credit) is included in the Statement of
Income as follows:

A reconciliation of the United States federal statutory income tax rate to the
effective income tax rate on continuing operations for the years ended December
31 is provided below:

Research and development credit for the year 2002 relates to current credits
claimed. Research and development credit for the year 2001 related to both
credits claimed in the current period and refund claims filed with amended
returns for the prior periods.

Components of deferred tax assets and (liabilities) were as follows:

A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company has
established a valuation allowance for certain net operating loss carryforwards
and for losses anticipated to produce no tax benefit. Although realization of
the net deferred tax asset is not assured, management believes that it is more
likely than not that the net deferred tax asset will be realized.

The Company's net operating loss carryforward for the year ended December 31,
2002 is $778,000, and will expire in 2010.

44

13. EARNINGS PER SHARE

The computation of earnings per share from continuing operations is as follows:

Options to purchase approximately 2.1 million, 2.8 million and 4.2 million
shares of Common Stock were outstanding in 2002, 2001 and 2000, respectively,
but were not included in the computation of diluted earnings per share because
the options' exercise price exceeded the average market price of the common
shares.

14. STOCK-BASED COMPENSATION PLANS

STOCK OPTIONS Under the 2000 Stock Incentive Plan (the 2000 Plan), the Company
may grant options to employees for an initial amount of 1.1 million shares of
Common Stock. This amount is subject to annual modification based on a formula.
Under the formula, 1.5% of total common shares outstanding at the end of the
preceding fiscal year are added to shares available for grant under the 2000
Plan. Based on the adjustment, the Company had approximately 1.5 million shares
available for 2002 grants and has available approximately 1.3 shares through the
end of fiscal 2003. The shares available for grants on any given date may not
exceed 15% of Wabtec's total common shares outstanding. Generally, the options
become exercisable over a three-year vesting period and expire ten years from
the date of grant.

As part of a long-term incentive program, in 1998, the Company granted options
to purchase up to 500,020, to certain executives under a plan that preceded the
2000 Plan. The option price is $20 per share. The options vest 100% after eight
years and are subject to accelerated vesting after three years if the Company
achieves certain earnings targets as established by the compensation committee
of the board of directors. No further grants may be made under this plan.

The Company also has a non-employee director's stock option plan under which
500,000 shares of Common Stock are reserved for issuance. Through year-end 2002,
the Company granted nonqualified stock options to non-employee directors to
purchase a total of 80,000 shares.

EMPLOYEE STOCK PURCHASE PLAN In 1998, the Company adopted an employee discounted
stock purchase plan (DSPP). The DSPP had 500,000 shares available for issuance.
Participants can purchase the Company's common stock at 85% of the lesser of
fair market value on the first or last day of each offering period. Stock
outstanding under this plan at December 31, 2002 was 172,646 shares.

The Company applies APB 25 and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized under these plans. Had compensation expense for these plans been
determined based on the fair value at the grant dates for awards, the Company's
net income and earnings per share would be as set forth in the following table.
For purposes of pro forma disclosures, the estimated fair value is

45

amortized to expense over the options' vesting period.

Since compensation expense associated with option grants would be recognized
over the vesting period, the initial impact of applying SFAS No. 123 on pro
forma net income is not representative of the potential impact on pro forma net
income in future years. In each subsequent year, pro forma compensation expense
would include the effect of recognizing a portion of compensation expense from
multiple awards.

For purposes of presenting pro forma results, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions:

The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options, which are significantly different than employee
stock options. Although this valuation model is an acceptable method for use in
presenting pro forma information, because of the differences in traded options
and employee stock options, the Black-Scholes model does not necessarily provide
a single measure of the fair value of employee stock options.

A summary of the Company's stock option activity and related information for the
years indicated follows:

The following table summarizes information about stock options outstanding at
December 31, 2002:

46

RESTRICTED STOCK AWARD

In February of 2001, the Company awarded to two officers 4,920 shares of
restricted Common Stock in lieu of a cash bonus for 2000.

15. OTHER COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive loss were:

16. OPERATING LEASES

The Company leases office and manufacturing facilities under operating leases
with terms ranging from one to fifteen years, excluding renewal options.

The Company has sold remanufactured locomotives to various financial
institutions and leased them back under operating leases with terms from five to
20 years.

Total net rental expense charged to operations in 2002, 2001, and 2000 was $6.2
million, $5.7 million and $6.3 million, respectively. Certain of the Company's
equipment rental obligations under operating leases pertain to locomotives,
which are subleased to customers under both short-term and long-term agreements.
The amounts above are shown net of sublease rentals of $2.8 million, $2.8
million and $4 million for the years 2002, 2001 and 2000, respectively.

Future minimum rental payments under operating leases with remaining
noncancelable terms in excess of one year are as follows:

17. WARRANTIES

The following table reconciles the changes in the Company's product warranty
reserve as of and for the year ended December 31, 2002.

18. STOCKHOLDERS' AGREEMENTS

As of December 31, 2002, the approximate ownership interests in the Company's
Common Stock are: management (10%), the investors consisting of Vestar Equity
Partners, L.P., Charlesbank Equity Fund II, Limited Partnership, and American
Industrial Partners Capital Fund II, L.P. (13%), and all others including public
shareholders (77%).

A Stockholders Agreement exists between the Company and Vestar, Charlesbank, and
American Industrial Partners referred to above that provides for, among other
things, the composition of the Board of Directors as long as certain minimum
stock ownership percentages are maintained, and rights to request the
registration of the shares.

19. PREFERRED STOCK

The Company's authorized capital stock includes 1,000,000 shares of preferred
stock. The Board of Directors has the authority to issue the preferred stock and
to fix the designations, powers, preferences and rights of the shares of each
such class or series, including dividend rates, conversion rights, voting

47

rights, terms of redemption and liquidation preferences, without any further
vote or action by the Company's shareholders. The rights and preferences of the
preferred stock would be superior to those of the common stock. At December 31,
2002 and 2001 there was no preferred stock issued or outstanding.

20. COMMITMENTS AND CONTINGENCIES

The Company is subject to a variety of environmental laws and regulations
governing discharges to air and water, the handling, storage and disposal of
hazardous or solid waste materials and the remediation of contamination
associated with releases of hazardous substances. The Company believes its
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.

Under the terms of the purchase agreement and related documents for the 1990
Acquisition, American Standard, Inc. ("ASI"), has indemnified the Company for
certain items including, among others, environmental claims. The indemnification
provisions of the agreement expired at various dates through 2000, except for
those claims, which were timely asserted, which continue until resolved. If ASI
was unable to honor or meet these indemnifications, the Company would be
responsible for such items. In the opinion of management, ASI currently has the
ability to meet its indemnification obligations.

The Company has been named, along with other parties, as a Potentially
Responsible Party (PRP) under the North Carolina Inactive Sites Response Act
because of an alleged release or threat of release of hazardous substances at
the "Old James Landfill" site in North Carolina. The Company believes
unreimbursed costs, if any, associated with the cleanup activities at this site
will not be material, and as a result of the indemnification provisions referred
to above and an insurance policy from Rocky Mountain International Insurance
Ltd., which has acknowledged coverage and is currently paying on the claim, the
Company has not established a reserve for such costs.

The Company's and its affiliates' operations do not use and their products do
not contain any asbestos. Asbestos actions have been filed against the Company
and certain of its affiliates. Consistent with the experience of others, the
number of claims have increased in recent years. However, it is important to
note that these asbestos claims involve products sold prior to the 1990
formation of the Company. The Company and its affiliates have not incurred any
significant costs related to these asbestos claims. The claims are covered by
insurance or are subject to indemnity from the companies who manufactured or
sold the products in question. Management believes that these claims will not be
material; and accordingly, the financial statements do not reflect any costs or
reserves for such claims.

BOISE, IDAHO

The Company is subject to a RCRA Part B Closure Permit ("the Permit") issued by
the Environmental Protection Agency (EPA) and the Idaho Department of Health and
Welfare, Division of Environmental Quality relating to the monitoring and
treatment of groundwater contamination on, and adjacent to, the MotivePower
Industries (Boise, Idaho) facility. In compliance with the Permit, the Company
has completed the first phase of an accelerated plan for the treatment of
contaminated groundwater, and continues onsite and offsite monitoring for
hazardous constituents. The Company has accrued $793,000 at December 31, 2002,
the estimated remaining costs for remediation. The Company was in compliance
with the Permit at December 31, 2002.

MOUNTAINTOP, PENNSYLVANIA

Foster Wheeler Energy Corporation ("FWEC") the seller of the Mountaintop
property to the predecessor of one of the Company's subsidiaries in 1989, agreed
to indemnify the Company's predecessor and its successors and assigns against
certain identified environmental liabilities for which FWEC executed a Consent
Order Agreement with the Pennsylvania Department of Environmental Protection
(PADEP) and EPA. Management believes that this indemnification arrangement is
enforceable for the benefit of the Company and that FWEC has the financial
resources to honor its obligations under this indemnification arrangement.

MATTOON, ILLINOIS

Prior to the Company's acquisition of Young Radiator, Young agreed to clean up
alleged contamination on a prior production site in Mattoon, Ill. The Company is
in the process of remediating the site with the state of Illinois and now
estimates the costs to reme-
48

diate the site to be approximately $543,000, which has been accrued at December
31, 2002.

RACINE, WISCONSIN

Young ceased manufacturing operations at its Racine facility in the early
1990's. Investigations prior to the acquisition of Young revealed some levels of
contamination on the Racine property and the Company has begun remediation
efforts. The Company has initiated a comprehensive site evaluation with the
state of Wisconsin and believes this governing body is generally in agreement
with the findings. The Company has accrued approximately $476,000 at December
31, 2002 as its estimate of remaining restoration costs.

GETS-GS

On November 3, 2000, the Company settled a suit brought against it in 1999 by
GE-Harris Railway Electronics, L.L.C. and GE-Harris Railway Electronics
Services, L.L.C. (collectively "GE-Harris"). On September 20, 2002, a motion in
that lawsuit was filed by the successor to GE Harris, GE Transportation Services
Global Signaling, L.L.C. ("GETS-GS"). The motion by GETS-GS contends that the
Company is acting beyond authority granted in the parties' November 2000
settlement and license agreement and in contempt of the consent order that
concluded the suit at that time. In support of its motion, GETS-GS points
principally to sales and offers to sell certain railway brake equipment,
including distributed power equipment, to Australian customers. GETS-GS is
seeking substantial money damages and has claimed a significant business loss.
This matter is in discovery and a hearing on GETS-GS' motion is scheduled for
May 13, 2003. The Company has other contingent obligations relating to certain
sales leaseback transactions for which reserves have been established. From time
to time the Company is involved in litigation relating to claims arising out of
its operations in the ordinary course of business. As of the date hereof, the
Company is involved in no litigation that the Company believes will have a
material adverse effect on its financial condition, results of operations or
liquidity.

21. SEGMENT INFORMATION

Wabtec has two reportable segments -- the Freight Group and the Transit Group.
The key factors used to identify these reportable segments are the organization
and alignment of the Company's internal operations, the nature of the products
and services and customer type. The business segments are:

FREIGHT GROUP manufactures products and provides services geared to the
production and operation of freight cars and locomotives, including braking
control equipment, engines, on-board electronic components and train coupler
equipment. Revenues are derived from OEM sales and locomotive overhauls,
aftermarket sales and from freight car repairs and services. All of the assets
sold to GETS were part of the Freight Group.

TRANSIT GROUP consists of products for passenger transit vehicles (typically
subways, rail and buses) that include braking, coupling and monitoring systems,
climate control and door equipment that are engineered to meet individual
customer specifications. Revenues are derived from OEM and aftermarket sales as
well as from repairs and services.

The Company evaluates its business segments' operating results based on income
from operations before merger and restructuring charges. Corporate activities
include general corporate expenses, elimination of intersegment transactions,
interest income and expense and other unallocated charges. Since certain
administrative and other operating expenses and other items have not been
allocated to business segments, the results in the below tables are not
necessarily a measure computed in accordance with generally accepted accounting
principles and may not be comparable to other companies.

49

Segment financial information for 2002 is as follows:

Segment financial information for 2001 is as follows:

Segment financial information for 2000 is as follows:

50

In 2001 and 2000, $530,000 and $15.2 million of the above merger and
restructuring costs related to the Freight Group. In 2001 and 2000, $2 million
and $235,000 of the above merger and restructuring costs related to the Transit
Group.

The following geographic area data include net sales based on product shipment
destination and long-lived assets, which consist of plant, property and
equipment, net of depreciation, resident in their respective countries.

Export sales from the Company's United States operations were $61.9 million,
$90.3 million and $98.9 million for the years ending December 31, 2002, 2001 and
2000, respectively. The following data reflects income (loss) from operations,
including merger and restructuring related charges by major geographic area,
attributed to the Company's operations within each of the following countries or
regions.

22. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments approximate
their related carrying values, except for the following:

Fair values of the fixed rate obligations were estimated using discounted cash
flow analyses. The fair value of the Company's interest rate swaps (see Note 9)
were based on dealer quotes and represent the estimated amount the Company would
pay to the counterparty to terminate the swap agreements.

51

23. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Earnings per share for the year are different than the sum of the quarterly
earnings per share due to rounding.

The Company recorded a cumulative effect of accounting change for goodwill, net
of tax, of $61.7 million, or $1.41 in the first quarter of 2002. The Company
also recorded a $1.2 million, or $0.03 per diluted share, extraordinary loss on
the early extinguishment of debt in the third quarter of 2002. In the fourth
quarter of 2002, the Company recorded a $772,000, or $0.02, per diluted share
tax benefit due to research and development credits and the utilization of
foreign tax credits. Also in the fourth quarter of 2002, the Company's vacation
policy was changed so that employees that leave the Company are entitled to a
pro rata portion of their vacation for that year instead of their entire
vacation for the year. This change resulted in income of $789,000, net of tax,
or $0.02 per diluted share.

The Company recorded restructuring-related costs of approximately $854,000 or
$0.01 in the first quarter of 2001, $1.1 million or $0.02, $1.6 million or
$0.02, and $192,000 or $0.00, net of tax, per diluted share, in the second,
third and fourth quarters of 2001, respectively. The Company also recorded a $2
million, or $0.05, per diluted share research and development tax credit in the
third quarter of 2001. In the fourth quarter of 2001, the Company recorded a
$9.3 million, or $0.14, net of tax, per diluted share charge for asset
writedowns, consisting primarily of an asset impairment related to the
locomotive lease fleet of $5.2 million, a writeoff of $1.8 million of an
investment in Argentina and a $1.5 million writedown of a facility to its
estimated realizable value, a $1.7 million, or $0.03, net of tax, per diluted
share charge for severance related to a ten percent salary headcount reduction,
and a $685,000, or $0.01, net of tax, per diluted share gain on the sale of
unused facilities.

24. MERGER AND RESTRUCTURING CHARGE

In 2001, the Company completed a merger and restructuring plan with charges
totaling $71 million pre-tax, with approximately $2 million of the charge
expensed in 2001, $20 million in 2000 and $49 million in 1999. The plan involved
the elimination of duplicate facilities and excess capacity, operational
realignment and related workforce reductions, and the evaluation of certain
assets as to their perceived ongoing benefit to the Company.

52

As of December 31, 2002, $647,000 of the merger and restructuring charge was
still remaining as accrued on the balance sheet as part of other accrued
liabilities. The table below identifies the significant components of the charge
and reflects the accrual balance at that date.

The lease impairment charges and asset writedowns are associated with the
Company's closing of several plants, the consolidation of the corporate
headquarters, and the Company's evaluation of certain assets where projected
cash flows from such assets over their remaining lives are estimated to be less
than their carrying values.

The Company began and completed a new restructuring plan for the Transit rail
business in 2001. The restructuring plan involved operational realignment and
related workforce reductions. The charges in 2001 for the restructuring plan
move totaled $2 million pre-tax. 2002 operations still included much of the cost
of integration in normal operations.

The $2 million charge in 2001 included costs associated with relocating several
production operations from Chicago to Montreal, including severance costs for
approximately 103 employees.

25. EXTRAORDINARY ITEM

In July 2002, the Company redeemed $175 million of Senior Notes at par (face)
through the use of cash on hand and additional borrowings under its credit
agreement.

This redemption resulted in an extraordinary non-cash loss of $1.2 million, net
of tax, relating to a write-off of deferred debt issuance costs.

53

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES
CORPORATION

By /s/ GREGORY T. H. DAVIES
------------------------------------
Gregory T. H. Davies, Chief
Executive Officer
Date: March 28, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company in the
capacities indicated and on the dates indicated.

54

CERTIFICATION

I, Gregory T. H. Davies, certify that:

1. I have reviewed this annual report on Form 10-K of Westinghouse Air
Brake Technologies Corporation.

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

/s/ GREGORY T. H. DAVIES
--------------------------------------
Name: Gregory T. H. Davies
Title: President & Chief Executive
Officer

55

CERTIFICATION

I, Robert J. Brooks, certify that:

1. I have reviewed this annual report on Form 10-K of Westinghouse Air
Brake Technologies Corporation.

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

/s/ ROBERT J. BROOKS
--------------------------------------
Name: Robert J. Brooks
Title: Chief Financial Officer

56

CERTIFICATION

Pursuant to 18 U.S.C. sec. 1350, the undersigned officers of Westinghouse Air
Brake Technologies Corporation (the "Company"), hereby certify, to the best of
their knowledge, that the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/ GREGORY T. H. DAVIES
--------------------------------------
Gregory T. H. Davies
President & Chief Executive Officer

Date: March 28, 2003

/s/ ROBERT J. BROOKS
--------------------------------------
Robert J. Brooks
Chief Financial Officer

Date: March 28, 2003

57

SCHEDULE II

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31

(1) Reserves of acquired/(sold) companies

(2) Actual disbursements and/or charges

58

EXHIBITS

- --------------------------------------------------------------------------------