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Risk-to-Price Commentary from S&P Valuation and Risk Strategies

RESEARCH Westinghouse Air Brake Technologies Corp.

RISK-TO-PRICE SCORE Ticker WAB

CUSIP/CINS 960386AG5

Q1

126.5

Michael Thompson Managing Director Market, Credit, and Risk Strategies (1) 212-438-3480 michael_thompson@standardandpoors.com

The S&P 500 Index's capital goods subsector is expected to record an 8.95% year-over-year

Robert Keiser Senior Director Market, Credit, and Risk Strategies (1) 212-438-3540 robert_keiser@standardandpoors.com

an encouraging improvement. Consensus projections expect growing earnings to become a trend

Fabrice Jaudi Director Market, Credit, and Risk Strategies (44) 20-7176-8312 Fabrice_Jaudi@standardandpoors.com

increase in earnings for second-quartile 2010, with a forecast of $4.59 per share, according to Capital IQ's data (see chart 1). Since the low recorded in third-quarter 2009, and the subsequent earnings decline reported in first-quarter 2010 following a year-end spike, this result would be in the forthcoming quarters of 2010. These expectations suggest increasing profitability in the capital goods subsector over the balance of 2010, gradually offsetting the sharp earnings decline triggered by the economic recession from second-quarter 2008 to third-quarter 2009. Chart 1

The Market, Credit and Risk Strategies group (MCRS) is a separate and independent research team at Standard & Poor's. The objective of this group is to provide unique financial intelligence by analyzing relationships across multiple asset classes and markets. Enabled with cutting-edge S&P and third-party applications and data, the group offers investors valuable new sources for alpha discovery and "out-of-the-box" thinking through robust data exploration and analysis. The research is delivered through the Market Intellect series that provides investors with actionable and topical market perspectives that can offer innovative ways to leverage credit and risk intelligence.

July 15, 2010 809489 | 300001050


Westinghouse Air Brake Technologies Corp.

Risk-to-Price Commentary from S&P Valuation and Risk Strategies

In anticipation of expected increasing earnings, Standard & Poor's Market, Credit, and Risk Strategies (MCRS) group looked closer at the subsector for corporate securities that offer the best returns relative to their underlying risks. Today's Risk-to-Price (R2P) query highlights callable and noncallable North American capital goods issues with initial offering amounts of more than $50 million. Our search returned 339 individual securities with R2P scores ranging from 5 to 162.4. R2P scores measure on a relative basis how well a given security compensates investors, through yield, for underlying market and credit risks. The first quartile contains the highest-scoring issues, which best compensate investors for underlying risks; the lowest scores rank in the fourth quartile. The number of securities in the capital goods subsector has been evenly distributed between the two first and the two last R2P quartiles (see table 1). With 51% of securities in quartiles 1 and 2 on July 12, 2010, the subsector contains 174 issues that we consider to offer attractive returns relative to their underlying risks. Table 1

The North American Capital Goods Subsector's R2P Quartile Distribution History Number of issues 331

Quartile 1 (%) 31

Quartile 2 (%) 36

Quartile 3 (%) 26

Quartile 4 (%) 7

Quartiles 1 & 2 (%) 67

6/30/08

371

19

37

23

21

56

12/31/08

394

25

32

23

20

57

6/30/09

429

21

24

30

25

45

12/31/09

418

27

23

36

14

50

6/30/10

398

14

35

27

24

49

7/12/2010

339

15

36

27

22

51

12/31/07

In addition, the capital goods subsector has a history of relatively high scores. Several times, a capital goods security has held the top-ranking score in the full industrials sector, including twice from end of June 2010 (see table 2). Table 2

R2P Score Comparison Industrials sector

Capital goods subsector

Lowest 0.9

Highest 121.0

Lowest 3.9

Highest 97.8

6/30/08

2.7

208.8

6.4

128.1

12/31/08

1.2

46.5

1.2

46.5

6/30/09

1.5

120.1

1.9

83.7

12/31/09

2.5

234.6

4.7

219.3

6/30/10

4.5

173.0

4.9

173.0

7/12/2010

5.0

162.4

5.0

162.4

12/31/07

Westinghouse Air Brake Technologies Corp. (Wabtec)'s 6.875% note maturing July 31, 2013, with a first-quartile R2P score of 126.5, was among the highest-scoring issues in our query on July 12, 2010. This note's R2P score has ranked consistently in the first R2P quartile since December 2007. On July 12, 2010, the security was in the 96th percentile, indicating a very high score relative to the whole R2P-scored North American universe (see table 3). The note offers investors an attractive option-adjusted spread (OAS) of 488 basis points (bps) with a 2.8-year duration. The issue's high R2P score is a result of its high OAS, low quantitatively derived probability of default of 0.0096%, and low bond price

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Westinghouse Air Brake Technologies Corp.

Risk-to-Price Commentary from S&P Valuation and Risk Strategies

volatility of 0.0028%. We believe the issue fairly compensates investors for market and credit risks. Table 3

R2P Score History Capital goods subsector

Westinghouse Air Brake Technologies' 6.875% note due July 31, 2013

Lowest 3.9

Highest 97.8

R2P score 74.8

R2P quartile 1

R2P percentile 94

6/30/08

6.4

128.1

115.7

1

98

12/31/08

1.2

46.5

39.6

1

97

6/30/09

1.9

83.7

50.7

1

80

12/31/09

4.7

219.3

183.5

1

98

6/30/10

4.9

173.0

142.5

1

99

7/12/2010

5.0

162.4

126.5

1

96

12/31/07

The group is the leading North American supplier of railcar equipment and services. It serves the freight and passenger transit rail industries, which is the more stable transit segment, offsetting the cyclicality of the freight market. The company has an acquisitive growth strategy to strengthen its global presence, which has increased its leverage ratio, but strategic initiatives such as efficient cost savings have allowed it to improve its already good operating margins, according to Standard & Poor's Ratings Services (see the summary analysis of Westinghouse Air Brake Technologies Corp. published Jan. 15, 2010). Wabtec's satisfactory credit metrics, better than those of its capital goods peer group (see charts 2 to 5), support the note's high R2P score. The group's cash generated from operations historically has been steady, at about $150 million each year since December 2006 and increasing to $179 million as of June 2010 (see chart 2). The group had no debt repayments between December 2005 and December 2008. Its total cash (cash from operations plus cash and short-term investments) covered its annual repaid debt since, and the company has no more debt to be repaid until 2013. The next and only scheduled corporate debt repayment is its $150 million 6.875% note due July 31, 2013.

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Westinghouse Air Brake Technologies Corp.

Risk-to-Price Commentary from S&P Valuation and Risk Strategies

Chart 2

Although Wabtec's debt-to-EBITDA leverage ratio has increased over the past four years to 1.82x as of June 2010, historically it has been less than half that of its peer group (see chart 3).

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Westinghouse Air Brake Technologies Corp.

Risk-to-Price Commentary from S&P Valuation and Risk Strategies

Chart 3

As of June 2010, the company had an EBITDA net of capital expenditure-to-interest coverage ratio satisfactory at 13.76x, lower than its June 2009 level but still greater than in the past years since June 2006 (see chart 4). Chart 4

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Westinghouse Air Brake Technologies Corp.

Risk-to-Price Commentary from S&P Valuation and Risk Strategies

Wabtec's profitability, similar to that of its capital goods peer group, suffered during the economic recession with a declining return on capital since June 2008. However, the group has recorded consistently greater profitability than its peer group since June 2006 (see chart 5). Chart 5

Table 4

Risk-to-Price Score Ranking (North American Capital Goods Corporate Debt, Quartile 1)

Issue name CUSIP Carlisle Cos. Inc. 142339AC4

Offering amount Yield OAS PD R2P R2P R2P (Mil. $) Coupon Price (%) Volatility Maturity (%) (%) Duration score quartile percentile 150.0 6.125 102.18 5.695 0.0018 8/15/16 3.7521 0.0061 5.2 162.4 1 98

Kennametal Inc. 489170AB6

300.0

7.200 106.61

3.615

0.0003

6/15/12 2.4851 0.0259

1.9

158.1

1

98

Precision Castparts Corp.

740189AF2

200.0

5.600 109.92

2.555

0.0009 12/15/13 1.0751 0.0070

3.2

126.8

1

96

Westinghouse 960386AG5 Air Brake Technologies Corp.

150.0

6.875 101.66

6.267

0.0028

7/31/13 4.8755 0.0096

2.8

126.5

1

96

3M Co.

604059AE5

330.0

6.375 117.71

4.865

0.0046

2/15/28 2.0326 0.0026

11.7

124.2

1

95

Roper Industries 776696AC0 Inc.

500.0

6.250 110.42

4.825

0.0031

9/1/19 2.5098 0.0049

7.3

121.7

1

95

Roper Industries 776696AB2 Inc.

500.0

6.625 112.47

2.415

0.0014

8/15/13 1.0164 0.0049

2.8

117.1

1

94

Moog Inc.

615394AF0

150.0

6.250

98.00

6.772

0.0011

1/15/15 5.0869 0.0312

4.0

115.2

1

93

Danaher Corp.

235851AG7

500.0

5.625 113.61

3.545

0.0026

1/15/18 1.4013 0.0038

6.2

114.6

1

93

Interline Brands Inc.

458743AC5

200.0

8.125 101.11

7.490

0.0022

6/15/14 6.0604 0.0199

1.9

113.9

1

93

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Westinghouse Air Brake Technologies Corp.

Risk-to-Price Commentary from S&P Valuation and Risk Strategies

Table 4

Risk-to-Price Score Ranking (North American Capital Goods Corporate Debt, Quartile 1) (cont.) Esterline Technologies Corp.

297425AF7

175.0

6.625

99.31

6.754

0.0027

Danaher Corp.

3/1/17 4.7325 0.0129

5.6

112.6

1

93

235851AH5

750.0

5.400 112.35

3.715

0.0031

3/1/19 1.4352 0.0038

7.1

109.1

1

92

Rockwell Collins 774341AA9 Inc.

200.0

4.750 106.61

2.695

0.0009

12/1/13 1.2194 0.0123

3.2

106.0

1

91

TransDigm Inc.

893647AJ6

300.0

7.750 101.43

6.973

0.0042

7/15/14 5.5687 0.0116

1.8

105.7

1

91

TransDigm Inc.

893647AL1

425.0

7.750 101.47

6.955

0.0043

7/15/14 5.5543 0.0116

1.8

105.0

1

90

Valmont Industries Inc.

920253AD3

300.0

6.625 101.57

6.405

0.0037

4/20/20 4.0471 0.0104

7.7

101.8

1

89

Eaton Corp.

278058AX0

300.0

5.750 108.14

1.615

0.0003

7/15/12 0.4704 0.0140

1.9

101.3

1

89

Belden Inc.

077454AD8

200.0

9.250 105.00

8.290

0.0011

6/24/19 6.1034 0.0586

5.8

99.2

1

88

Snap-On Inc.

833034AF8

100.0

5.850 108.97

3.215

0.0012

3/1/14 1.6852 0.0147

3.3

98.5

1

88

Goodrich Corp.

382388AP1

500.0

7.625 113.98

1.715

0.0004 12/15/12 0.4695 0.0128

2.3

97.7

1

88

3M Co.

88579EAC9

750.0

5.700 112.40

4.865

0.0077

3/15/37 1.7811 0.0026

15.6

95.8

1

87

Triumph Group Inc.

896818AD3

175.0

8.000

96.75

8.603

0.0061 11/15/17 6.5117 0.0135

6.0

91.2

1

85

Hexcel Corp.

428291AL2

225.0

6.750

98.66

7.097

0.0036

2/1/15 5.4072 0.0203

4.0

88.5

1

83

GeoEye Inc.

37250WAA6

400.0

9.625 102.88

8.787

0.0047

10/1/15 7.0284 0.0206

3.7

88.1

1

83

Stanley Black & Decker Inc.

854616AK5

200.0

4.900 107.16

1.715

0.0004

11/1/12 0.4876 0.0186

2.2

87.9

1

83

Emerson Electric 291011AU8 Co.

250.0

4.750 109.96

2.705

0.0017 10/15/15 0.8734 0.0072

4.8

87.6

1

83

Alliant Techsystems Inc.

018804AL8

400.0

6.750

99.25

6.908

0.0027

4/1/16 5.0194 0.0279

4.9

85.3

1

82

L-3 502413AR8 Communications Corp.

650.0

5.875 100.50

5.748

0.0034

1/15/15 4.0592 0.0177

4.0

85.2

1

81

Snap-On Inc.

833034AE1

150.0

5.500 106.31

4.375

0.0024

1/15/17 2.3632 0.0147

5.5

85.1

1

81

L-3 502413AS6 Communications Corp.

633.6

5.875 100.50

5.658

0.0034

1/15/15 4.0200 0.0177

2.3

84.9

1

81

Illinois Tool Works Inc.

452308AJ8

700.0

6.250 118.73

3.715

0.0030

4/1/19 1.4401 0.0079

7.1

81.7

1

79

Emerson Electric 291011AV6 Co.

250.0

5.125 113.10

2.865

0.0020

12/1/16 0.8621 0.0072

5.7

81.7

1

79

Goodrich Corp.

38238QAM8

130.0

6.800 116.85

4.175

0.0026

2/1/18 2.0423 0.0128

6.1

81.6

1

79

Emerson Electric 291011AW4 Co.

250.0

5.375 113.60

3.255

0.0027 10/15/17 1.1366 0.0072

6.2

81.2

1

79

Hubbell Inc.

443510AE2

300.0

5.950 109.01

4.575

0.0028

6/1/18 2.3905 0.0146

6.7

81.1

1

79

Emerson Electric 291011AX2 Co.

400.0

5.250 111.43

3.635

0.0033 10/15/18 1.3960 0.0072

7.0

81.0

1

79

Hubbell Inc.

443510AD4

200.0

6.375 107.65

2.115

0.0012

5/15/12 1.0037 0.0146

1.8

79.7

1

78

Emerson Electric 291011AS3 Co.

250.0

5.000 111.45

2.265

0.0014 12/15/14 0.5835 0.0072

4.1

79.5

1

78

ITT Corp.

450679AT2

250.0

7.400 116.38

5.775

0.0042 11/15/25 3.0686 0.0132

10.6

79.0

1

78

Goodrich Corp.

38238QAL0

150.0

7.100 112.04

5.975

0.0045 11/15/27 3.1846 0.0128

11.6

78.9

1

77

United Technologies Corp.

913017AS8

250.0

8.750 138.96

4.175

0.0033

7.8

78.0

1

77

7

3/1/21 1.7591 0.0099

July 15, 2010 809489 | 300001050


Westinghouse Air Brake Technologies Corp.

Risk-to-Price Commentary from S&P Valuation and Risk Strategies

Table 4

Risk-to-Price Score Ranking (North American Capital Goods Corporate Debt, Quartile 1) (cont.) Parker-Hannifin Corp.

701094AG9

225.0

4.875 107.24

1.995

0.0007

2/15/13 0.7060 0.0198

2.4

78.0

1

77

Emerson Electric 291011BA1 Co.

250.0

5.000 110.16

3.635

0.0035

4/15/19 1.3379 0.0072

7.3

77.9

1

77

L-3 502413AU1 Communications Corp.

1,000.0

6.375 101.50

5.859

0.0044 10/15/15 4.1140 0.0177

3.0

77.5

1

76

ITT Corp.

450679BW4

500.0

4.900 108.59

2.515

0.0014

5/1/14 0.9508 0.0132

3.6

77.2

1

76

Emerson Electric 291011AQ7 Co.

250.0

6.000 113.64

4.975

0.0055

8/15/32 1.9981 0.0072

13.7

76.3

1

76

Snap-On Inc.

833034AG6

200.0

6.700 116.18

4.425

0.0029

3/1/19 2.1652 0.0147

6.9

75.9

1

76

Eaton Corp.

278058DC3

250.0

5.300 109.17

3.735

0.0025

3/15/17 1.6915 0.0140

5.8

75.0

1

75

DigitalGlobe Inc. 25389MAB5

355.0

10.500 109.13

6.858

0.0045

5/1/14 5.5098 0.0251

2.6

75.0

1

75

Thomas & Betts Corp.

884315AG7

250.0

5.625 107.19

4.795

0.0034 11/15/21 2.2796 0.0139

8.9

74.9

1

75

United Technologies Corp.

913017AR0

300.0

8.875 138.30

3.935

0.0034 11/15/19 1.6314 0.0099

7.2

74.6

1

75

Emerson Electric 291011AR5 Co.

250.0

4.625 107.29

1.335

0.0004 10/15/12 0.1222 0.0072

2.2

74.4

1

75

Analysis as of July 12, 2010. OAS--Option-adjusted spread. PD--Probability of default.

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July 15, 2010 809489 | 300001050


Copyright ( c ) 2010 by Standard & Poor’s Financial Services LLC (S&P), a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved. This report was prepared by S&P Valuation and Risk Strategies research group, formerly known as Market Credit and Risk Strategies (MCRS). This group is analytically and editorially independent from any other analytical group at S&P, including Standard & Poor's Ratings Services. Credit-related analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P's opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary or an investment advisor. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

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July 15, 2010 809489 | 300001050


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Any opinions expressed herein are given in good faith, are subject to change without notice and are only correct as of the stated date of their issue. Standard & Poor's directly and through its affiliates provides a wide range of services to, or relating to many issuers and organizations and accordingly, may receive fees or other economic benefits from those issuers and organizations whose securities they may recommend, rate, include in model portfolios, evaluate or otherwise address, including issuers and organizations included in this service. For residents of the UNITED ARAB EMIRATES ("UAE") (NON-DIFC ZONE) Subscriber hereby accepts and acknowledges that the place and receipt of SPSE's acceptance and execution of its Agreements is not within the UAE.

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