The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and Westinghouse Air Brake Technologies Corporation's Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on February 27, 2009.

OVERVIEW

Wabtec is one of the world's largest providers of value-added, technology-based products and services for the global rail industry. Our products are found on virtually all U.S. locomotives, freight cars and passenger transit vehicles, as well as in more than 100 countries throughout the world. Our products enhance safety, improve productivity and reduce maintenance costs for customers, and many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in 16 countries. In the first three months of 2009, about 36% of the Company's revenues came from customers outside the U.S.

Management Review and Future Outlook

Wabtec's long-term financial goals are to generate free cash flow in excess of net income, maintain a strong credit profile while minimizing our overall cost of capital, increase margins through strict attention to cost controls, and increase revenues through a focused growth strategy, including global and market expansion, new products and technologies, aftermarket products and services, and acquisitions. In addition, Management evaluates the Company's short-term operational performance through measures such as quality and on-time delivery.

The Company monitors a variety of factors and statistics to gauge market activity. The freight rail industry is largely driven by general economic conditions, which can cause fluctuations in rail traffic. Based on those fluctuations, railroads can increase or decrease purchases of new locomotive and freight cars.

In 2009, the Company expects conditions to remain generally favorable in its passenger transit rail markets and expects conditions in its freight rail markets to decline significantly, due to overall economic conditions. Through mid-April 2009, revenue ton-miles, in the freight industry, decreased 16%. Demand for new locomotives and freight cars is expected to be significantly lower than in 2008. Less than 20% of the Company's revenues are directly related to deliveries of new freight cars. At March 31, 2009, the industry backlog of freight cars ordered was 26,171, compared to 31,921 at the end of the prior quarter. In the passenger transit rail market, the Company believes that increases in ridership and federal funding will continue to have a positive effect on the demand for new equipment and aftermarket parts. In addition, the Company has a strong backlog of transit-related projects.

In 2009 and beyond, we will continue to face many challenges, including economic uncertainty in the markets in which we operate, fluctuations in the costs for raw materials, higher costs for medical and insurance premiums, and foreign currency fluctuations. In addition, we face general economic risks, as well as the risk that our customers could curtail spending on new and existing equipment. Risks associated with our four-point growth strategy include the level of investment that customers are willing to make in new technologies developed by the industry and the Company, and risks inherent in global expansion. When necessary, we will modify our financial and operating strategies to reflect changes in market conditions and risks.

Since 2006, Wabtec has downsized its Canadian operations by moving certain products to lower-cost facilities and outsourcing. In the Freight segment, no charges were taken for the three months ended March 31, 2009 and 2008. Total expenses for restructuring and other expenses recorded since 2006 have been $16.5 million,

comprised of the $5.6 million for employee severance costs for approximately 400 salaried and hourly employees; $5.5 million of pension and postretirement benefit curtailment for those employees; $4.8 million related to asset impairments for structures, machinery, and equipment; and $0.6 million for goodwill impairment. The goodwill impairment was recorded as amortization expense and most of the other charges were recorded in cost of sales. Severance costs are contractual liabilities and payment is dependent on the waiver by or expiration of certain seniority rights of those employees. As of March 31, 2009, $3.7 million of this amount had been paid.

RESULTS OF OPERATIONS

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



                                                             Three Months Ended
                                                                  March 31,
   In millions                                                2009          2008
   Net sales                                               $    378.0     $  383.3
   Cost of sales                                               (271.5 )     (278.1 )

   Gross profit                                                 106.5        105.2
   Selling, general and administrative expenses                 (38.8 )      (40.4 )
   Engineering expenses                                         (10.6 )      (10.0 )
   Amortization expense                                          (1.4 )       (0.9 )

   Total operating expenses                                     (50.8 )      (51.3 )
   Income from operations                                        55.7         53.9
   Interest (expense) income, net                                (4.9 )       (1.5 )
   Other expense, net                                             0.4         (0.4 )

   Income from continuing operations before income taxes         51.2         52.0
   Income tax expense                                           (18.5 )      (19.5 )

   Income from continuing operations                             32.7         32.5
   Discontinued operations                                         -            -

   Net income                                              $     32.7     $   32.5

FIRST QUARTER 2009 COMPARED TO FIRST QUARTER 2008

The following table summarizes the results of operations for the period:



                                         Three months ended March 31,
                                                                 Percent
             In thousands                2009          2008      Change
             Freight Group            $   179,947    $ 191,766      (6.2 )%
             Transit Group                198,013      191,561       3.3 %

             Net sales                    377,960      383,327      (1.4 )%

             Income from operations        55,748       53,886       3.5 %
             Net income                    32,666       32,510       0.5 %

Net sales decreased by $5.3 million to $378.0 million from $383.3 million for the three months ended March 31, 2009 and 2008, respectively. The decrease is primarily due to the current economic conditions. The Company also realized a net sales reduction of $22.6 million due to unfavorable effects of foreign exchange, but net earnings were generally not impacted by foreign exchange. Net income for the three months ended March 31, 2009 was $32.7 million or $0.68 per diluted share. Net income for the three months ended March 31, 2008 was $32.5 million or $0.66 per diluted share. Net income improved primarily due to decreased operating costs and administrative expenses.

Freight Group sales decreased by $11.8 million or 6.2% primarily due to decreased sales of $22.2 million for brake products, $21.6 million for freight electronics and specialty products, and $2.4 million for remanufacturing, overhaul and build of locomotives. Offsetting those decreases were increases of $33.2 million from acquisitions and $7.5 million for other products. For the Freight Group, net sales were reduced by $6.3 million of the total impact due to unfavorable effects of foreign exchange on sales mentioned above.

Transit Group sales increased by $6.4 million or 3.3% primarily due to increased sales of $15.9 million for brake products, $11.5 million for other transit-related products for certain transit contracts and $7.4 million from acquisitions. Offsetting those increases was a decrease of $12.1 million for remanufacturing, overhaul and build of locomotives. For the Transit Group, net sales were reduced by $16.3 million of the total impact due to unfavorable effects of foreign exchange on sales mentioned above.

Gross profit Gross profit increased to $106.5 million in the first quarter of 2009 compared to $105.2 million in the same period of 2008. Gross profit is dependent on a number of factors including pricing, sales volume and product
mix. Gross profit, as a percentage of sales, was 28.2% compared to 27.4%, for the first quarter of 2009 and 2008, respectively. The gross profit percentage increased due to ongoing efficiency and cost-saving initiatives during the current economic conditions. The provision for warranty expense is generally established for specific losses, along with historical estimates of customer claims as a percentage of sales. The provision for warranty expense was $0.8 million less in 2009 compared to the same period of 2008 because of decreased sales. The warranty reserve increased at March 31, 2009 compared to March 31, 2008 by $0.7 million due primarily to transit authority contracts.

Operating expenses The following table shows our operating expenses:

                                                    Three months ended March 31,
                                                                            Percent
  In thousands                                      2009          2008      Change
  Selling, general and administrative expenses   $    38,787    $  40,445      (4.1 )%
  Engineering expenses                                10,559        9,981       5.8 %
  Amortization expense                                 1,391          903      54.0 %

  Total operating expenses                       $    50,737    $  51,329      (1.2 )%

Selling, general, and administrative expenses decreased $1.7 million in the first quarter of 2009 compared to the same period of 2008 due to cost-saving initiatives. Engineering expenses increased by $578,000 in the first quarter of 2009 compared to the same period of 2008. Amortization expense increased in the first quarter of 2009 compared to the same period in 2008 due primarily to the acquisitions that occurred in 2008. During the quarter ended March 31, 2009 the Company sold a facility for net cash proceeds of $3.6 million to an unrelated third party. While certain portions of the building are being leased back, this transaction resulted in a gain of $2.1 million and deferred gain of $0.6 million. The deferred gain will be recognized over five years. Total operating expenses were 13.4% and 13.4% of sales for the first quarter of 2009 and 2008, respectively.

Income from operations Income from operations totaled $55.7 million (or 14.7% of sales) in the first quarter of 2009 compared with $53.9 million (or 14.1% of sales) in the same period of 2008. Income from operations improved primarily due to improved margins and decreases in administrative expenses.

Interest expense, net Interest expense, net increased $3.4 million in the first quarter of 2009 compared to the same period of 2008 primarily due to interest expense related to the Company's new revolving credit facility and term loan.

Other expense, net The Company recorded foreign exchange gain of $0.4 million in the first quarter of 2009 and foreign exchange loss of $0.3 million in the first quarter of 2008, respectively, due to the effect of currency exchange rate changes on intercompany transactions that are non U.S. dollar denominated amounts and charged or credited to earnings.

Income taxes The effective income tax rate was 36.2% and 37.5% for first quarter of 2009 and 2008, respectively. The decrease in the effective rate is primarily due to the legislative extension of the research and development tax credit through 2009.

Net income Net income for the first quarter of 2009 increased $0.2 million, compared with the same period of 2008. Net income improved primarily due to decreases in operating costs and administrative expenses.

Liquidity and Capital Resources

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



                                                 Three months ended
                                                      March 31,
                In thousands                     2009          2008
                Cash provided by (used for):
                Operating activities           $  (5,738 )   $ (33,889 )
                Investing activities                 199        (3,838 )
                Financing activities             (32,990 )     (24,571 )
                Decrease in cash               $ (43,713 )   $ (59,856 )

Operating activities Cash used for operations in the first three months of 2009 was $5.7 million as compared to $33.9 million for the same period of 2008. This $28.2 million decrease in cash used for operations primarily resulted from a decrease in working capital. The accounts receivable decrease resulted in a $72.2 million improvement, which was due to timely collections and decreased sales. The inventory decrease resulted in a $17.4 million improvement, which was due to depletion of inventory on hand. Accounts payables used cash of $26.9 million due to timing of payments and a reduction in purchasing. Accrued liabilities and customer deposits used cash of $34.1 million primarily due to a reduction in customer deposits. Other assets and liabilities, including accrued income taxes, used cash of $0.4 million.

Investing activities Cash provided by investing activities in the first three months of 2009 was $0.2 million as compared to cash used for operations of $3.8 million for the same period of 2008. Capital expenditures were $3.4 million and $3.9 million in the first three months of 2009 and 2008, respectively. During the quarter ended March 31, 2009 the Company sold a facility for net cash proceeds of $3.6 million to an unrelated third party. While certain portions of the building are being leased back, this transaction resulted in a gain of $2.1 million and deferred gain of $0.6 million. The deferred gain will be recognized over five years.

Financing activities In the first three months of 2009, cash used by financing activities was $33.0 million, which included $23.0 million of debt repayments and $6.0 million in proceeds from debt on the revolving credit facility, $8.1 million of debt repayments on the term loan and other debt, $0.5 million of dividend payments and $7.3 million for the repurchase of 290,000 shares of stock. In the first three months of 2008, cash used for financing activities was $24.6 million, which included $0.4 million of proceeds from the exercise of stock options and other benefit plans, offset by $0.5 million of dividend payments and $24.5 million for the repurchase of 712,900 shares of stock.

The following table shows outstanding indebtedness at March 31, 2009 and December 31, 2008.

                                             March 31,     December 31,
             In thousands                       2009           2008
             6.875% Senior Notes, due 2013   $  150,000   $      150,000
             Term Loan Facility                 192,500          200,000
             Revolving Credit Facility           19,000           36,000
             Capital Leases                         980            1,080

             Total                              362,480          387,080
             Less-current portion                30,727           30,381

             Long-term portion               $  331,753   $      356,699

Cash balance at March 31, 2009 and December 31, 2008 was $98.1 and $141.8 million, respectively.

2008 Refinancing Credit Agreement

On November 4, 2008, the Company refinanced its existing unsecured revolving credit agreement with a consortium of commercial banks. This "2008 Refinancing Credit Agreement" provides the company with a $300 million five-year revolving credit facility and a $200 million five-year term loan facility. The Company incurred $2.9 million of deferred financing cost related to the 2008 Refinancing Credit Agreement. Both facilities expire in January 2013. The 2008 Refinancing Credit Agreement borrowings bear variable interest rates indexed to the indices described below. At March 31, 2009 the weighted average interest rate on the Company's variable rate debt was 1.81%. At March 31, 2009, the Company had available bank borrowing capacity, net of $56.9 million of letters of credit, of approximately $262.1 million, subject to certain financial covenant restrictions.

Under the 2008 Refinancing Credit Agreement, the Company may elect a Base Rate of interest or an interest rate based on the London Interbank Offered Rate ("LIBOR") of interest ("the Alternate Rate"). The Base Rate adjusts on a daily basis and is the greater of the PNC, N.A. prime rate, 30-day LIBOR plus 150 basis points or the Federal Funds Effective Rate plus 0.5% per annum, plus a margin that ranges from 25 to 50 basis points. The Alternate rate is based on quoted LIBOR rates plus a margin that ranges from 125 to 200 basis points. Both the Base Rate and Alternate Rate margins are dependent on the Company's consolidated total indebtedness to cash flow ratios. The Base Rate margin is zero basis points and the initial Alternate Rate margin is 125 basis points. 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 March 31, 2003, the notional value of interest rate swaps outstanding totaled $177.5 million and effectively changed the Company's interest rate on bank debt at March 31, 2009 from a variable rate to a fixed rate of 2.14%. The interest rate swap agreements mature at various times through January 2010. 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.

The 2008 Refinancing Credit Agreement limits the Company's ability to declare or pay cash dividends and prohibits the Company from declaring or making other distributions, subject to certain exceptions. The 2008 Refinancing Credit Agreement contains various other covenants and restrictions including the following limitations: incurrence of additional indebtedness; mergers, consolidations, sales of assets and acquisitions; additional liens; sale and leasebacks; permissible investments, loans and advances; certain debt payments; and imposes a minimum interest expense coverage ratio of 3.0 and a maximum debt to cash flow ratio of 3.25. The Company is in compliance with these measurements and covenants and expects that these measurements will not be any type of limiting factor in executing our operating activities.

6.875% Senior Notes Due August 2013

In August 2003, the Company issued $150 million of Senior Notes due in 2013 ("the Notes"). The Notes were issued at par. Interest on the Notes accrues at a rate of 6.875% per annum and is payable semi-annually on January 31 and July 31 of each year. The proceeds were used to repay debt outstanding under the Company's existing credit agreement, and for general corporate purposes. The principal balance is due in full at maturity.

The Company 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 to meet its 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.

Company Stock Repurchase Plan

On July 31, 2006, the Board of Directors authorized the repurchase of up to $50 million of the Company's outstanding shares. On February 20, 2008, the Board of Directors authorized the repurchase of up to an additional $100 million of the Company's outstanding shares. During the first quarter of 2008, the Company completed the $50 million authorization made in 2006. Cumulative purchases under both plans have totaled $89.8 million, leaving $60.2 million under the authorization.

The Company intends to purchase these shares on the open market or in negotiated or block trades. No time limit was set for the completion of the program which qualifies under the 2008 Refinancing Credit Agreement, as well as the 6 7/8% Senior Notes currently outstanding.

During the first quarter of 2009, the Company repurchased 290,000 shares at an average price of $25.08 per share. During 2008, the Company repurchased 1,317,900 shares of its stock at an average price of $34.75 per share. All purchases were on the open market.

Contractual Obligations and Off-Balance Sheet Arrangements

Since the adoption of FIN 48, the Company has recognized a total liability of $17.4 million for unrecognized tax benefits. The Company estimates that $6.7 million of the total unrecognized tax benefits relate to uncertain tax positions in various taxing jurisdictions that may be resolved within the next 12 months. At this time, the Company is unable to make a reasonably reliable estimate of the timing of cash settlement for the remaining balances due to the uncertainty of the timing and outcome of its audits and other factors.

Since December 31, 2008, there have been no other significant changes in the total amount of the Company's contractual obligations or the timing of cash flows in accordance with those obligations, as reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

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 freight cars, locomotives, passenger transit cars, buses and related products and services;

• reliance on major original equipment manufacturer customers;

• original equipment manufacturers' program delays;

• demand for services in the freight and passenger rail industry;

• demand for our products and services;

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

• consolidations in the rail industry;

• continued outsourcing by our customers; industry demand for faster and more efficient braking equipment; or

• fluctuations in interest rates and foreign currency exchange rates;

• availability of credit;

Operating factors

• supply disruptions;

• technical difficulties;

• changes in operating conditions and costs;

• increases in raw material costs;

• successful introduction of new products;

• performance under material long-term contracts;

• labor relations;

• completion and integration of acquisitions;

• the development and use of new technology; or

• the integration of recently completed or future acquisitions.

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;

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

• political developments and laws and regulations; or

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

Transaction or commercial factors

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

Statements in this 10-Q apply only as of the date on which such statements are made, and we undertake no obligation to update any statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

A summary of critical accounting policies is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. In particular, judgment is used in areas such as accounts receivable and the allowance for doubtful accounts, inventories, goodwill and indefinite-lived intangibles, warranty reserves, pensions and postretirement benefits, income taxes and revenue recognition. There have been no significant changes in accounting policies since December 31, 2008.

Recent Accounting Pronouncements

See Note 2 of "Notes to Condensed Consolidated Financial Statements" included elsewhere in this report.