Westinghouse Air Brake Technologies 10-Q 2022-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2022

OR

For the transition period from to

Commission file number: 033-90866

WESTINGHOUSE AIR BRAKE TECHNOLOGIES

CORPORATION

(Exact name of registrant as specified in its charter)

412-825-1000

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 27, 2022, there were 181,867,864 shares of common stock, par value $.01 per share, of the registrant outstanding.

WESTINGHOUSE AIR BRAKE

TECHNOLOGIES CORPORATION

September 30, 2022

FORM 10-Q

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of these statements.

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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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, 2021, filed with the Securities and Exchange Commission on February 17, 2022.

OVERVIEW

Wabtec is one of the world’s largest providers of value-added, technology-based locomotives, equipment, systems, and services for the global freight rail and passenger transit industries, as well as the mining, marine and industrial markets. Our highly engineered products, which are intended to enhance safety, improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight cars, passenger transit cars and buses around the world. Our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in over 50 countries and our products can be found in more than 100 countries throughout the world. In the first nine months of 2022, approximately 55% of the Company’s net sales came from customers outside the United States.

Business Update

The unfavorable global economic conditions driven by the impacts of the COVID-19 pandemic and supply chain disruptions, and further intensified by the Russian invasion of Ukraine, continue to have an adverse impact on our operations and business results. Impacts for the three and nine months ended September 30, 2022 and 2021, are discussed in more detail in the Results of Operations section below. Supply chain disruptions and labor availability have caused component, raw material and chip shortages resulting in an adverse effect on the timing of the Company’s revenue generation. Additionally, broad-based inflation, escalation of diesel, metals and other commodity costs, transportation and logistics costs, and labor costs all continue to impact our results.

The Russian invasion of Ukraine and the resultant sanctions related to Russia and Belarus have further impacted our supply and distribution channels and caused significant price inflation which had, and are expected to continue to have, adverse effects on Wabtec’s business results. For the year ended December 31, 2021, Wabtec had earnings of approximately $40 million attributable to customers in Russia, while earnings from customers in Ukraine and Belarus were not significant. As of September 30, 2022, Wabtec had approximately $16 million of assets related to Russian operations, which were primarily cash and inventory. Management has determined, based on information currently available, that these assets are expected to be recoverable and therefore no impairment was recorded during the first nine months of 2022. This will continue to be monitored and may result in a future impairment charge based on changes in the situation. Management determined that inventory related to operations in Ukraine were not expected to be recoverable and were written off resulting in an insignificant charge during the first quarter of 2022. Remaining assets related to Ukraine and those in Belarus were not significant.

The Company has implemented various mitigating actions intended to lessen the impact of these unfavorable economic conditions. These actions include implementing price escalations and surcharges, driving operational efficiencies through various cost mitigation efforts and discretionary spend management, strategically sourcing materials, reviewing and modifying distribution logistics, and accelerating integration synergies where possible. The Company expects to continue to incur increased costs in future quarters. Management will continue to monitor the evolving situations but, as a result of the numerous uncertainties surrounding the COVID-19 pandemic, recent supply chain disruptions and the Russian invasion of Ukraine, we are unable to specifically predict the extent and length of time that our business may be negatively impacted. We also face the possibility that additional actions may be taken by governmental authorities and private industry, or government policies may become more restrictive in response to the COVID-19 pandemic, especially if COVID-19 transmission rates increase in certain areas. Changes in trade regulations and sanctions including retaliatory measures, advancements or changes in the conflict in Ukraine, the impact of variants of COVID-19, actions taken in response to COVID-19 including curtailing operations of our plants, or significant adverse impacts to our customers, suppliers, distribution channels and operating locations, could result in material adverse impacts to the business, including impairment charges from changes in estimates.

Cyber Incident

As previously announced, on June 26, 2022, we detected a cyber security incident which impacted the Company’s network. The Company promptly activated incident response protocols, which included shutting down certain systems, and commenced an investigation of the incident, which is ongoing. The Company also notified law enforcement and engaged legal counsel and other third-party incident response and cybersecurity professionals.

Based on the Company's assessment to date and on the information currently known, the incident has not had a significant financial impact and the Company does not believe the incident will have a material impact on its business,

operations or financial results. The Company maintains cyber insurance, subject to certain deductibles and policy limitations typical for its size and industry.

Integration 2.0

During the first quarter of 2022, Wabtec announced a three-year strategic review expected to target incremental run rate synergies estimated to be between $75 million and $90 million by 2025. The scope of the review will include consolidating our operating footprint, reducing headcount, streamlining the end-to-end manufacturing process, restructuring the North America distribution channels, expanding operations in low-cost countries and simplifying the business through systems enablement, including the source-to-pay process. Management will also consider additional capital investments to further simplify and streamline the business. The Company anticipates that it will incur one-time restructuring charges in the future to execute on decisions resulting from the review, currently estimated to be approximately $135 million to $165 million. The estimate could change based on the specific programs approved or changes to the scope of the review. No significant programs related to Integration 2.0 were initiated during the nine months ended September 30, 2022.

RESULTS OF OPERATIONS

Consolidated Results

THIRD QUARTER 2022 COMPARED TO THIRD QUARTER 2021

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

The following table shows the major components of the change in sales in the three months ended September 30, 2022 from the three months ended September 30, 2021:

Net sales

Net sales for the three months ended September 30, 2022 increased by $174 million, or 9.1%, to $2.08 billion compared to the same period in 2021. Freight Segment organic sales increased $239 million driven primarily by Equipment sales from higher international locomotive deliveries and higher mining equipment sales, and Services sales from higher locomotive modernizations and a larger active locomotive fleet. In addition, Components sales increased due to a higher railcar build and increased railcars in operation, and Digital sales increased due to higher demand for on-board locomotive products and network optimization software. Transit Segment organic sales increased $15 million primarily due to higher demand for OEM and

Aftermarket products. Sales from acquisitions contributed $19 million to the change in net sales and unfavorable exchange rates, primarily in the Transit Segment, decreased sales by $99 million.

Cost of sales

Cost of sales for the three months ended September 30, 2022 increased by $129 million, or 9.9%, to $1.43 billion compared to the same period in 2021. Cost of sales as a percentage of sales was 68.9% and 68.4% for the three months ended September 30, 2022 and 2021, respectively, representing a 0.5 percentage point increase. The increase can be attributed to increased materials, transportation and labor costs and an unfavorable product mix partially offset by improved productivity and decreased restructuring cost. Cost of sales for the three months ended September 30, 2022 and 2021 included $5 million and $23 million, respectively, of restructuring costs, primarily for headcount actions and footprint rationalization.

Operating expenses

Total operating expenses increased $1 million, or 0.3%, for the three months ended September 30, 2022 compared to the same period in 2021. Operating expenses as a percentage of sales was 18.6% and 20.2% for the three months ended September 30, 2022 and 2021, respectively. Selling, general and administrative expenses ("SG&A") decreased $9 million due to lower restructuring and transaction costs. Restructuring and transaction costs included in SG&A were $4 million and $12 million for the three months ended September 30, 2022 and 2021, respectively, and were primarily for headcount actions and footprint rationalization programs. Engineering expenses increased $10 million primarily due to investments in new technology. Amortization expense remained flat year over year.

Interest expense, net

Interest expense, net, increased $6 million for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to higher effective interest rates in the current period.

Other income, net

Other income, net, increased to $4 million of income for the three months ended September 30, 2022 driven by higher equity income in the current year.

Income taxes

The effective income tax rate was 24.7% and 24.8% for the three months ended September 30, 2022 and 2021, respectively. The decrease in the quarterly effective tax rate is primarily the result of a more favorable earnings mix for the period ended September 30, 2022.

Freight Segment

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

The following table shows the major components of the change in net sales for the Freight Segment in the third quarter of 2022 from the third quarter of 2021:

Net sales

Freight Segment sales increased by $236 million, or 18.2%, to $1.53 billion, compared to the same period in 2021. Equipment sales increased due to higher international locomotive deliveries and higher mining equipment sales, Services sales increased from higher locomotive modernizations and a larger active locomotive fleet, Components sales increased due to a higher railcar build and increased railcars in operation, and Digital sales increased due to higher demand for on-board locomotive products and network optimization software. Sales from acquisitions contributed $18 million to the change in net sales and the effects of unfavorable foreign exchange rates decreased sales by $21 million.

Cost of sales

Freight Segment cost of sales for the three months ended September 30, 2022 increased by $183 million, or 21.5%, to $1.03 billion, compared to the same period in 2021. The increase is primarily due to the increase in sales and increased materials, transportation and labor costs. Cost of sales as a percentage of sales was 67.5% and 65.8% for the three months ended September 30, 2022 and 2021, respectively, representing a 1.7 percentage point increase driven by an unfavorable product mix and the increased costs discussed above. Cost of sales for the three months ended September 30, 2022 included restructuring costs of $4 million primarily for headcount actions. Cost of sales for the three months ended September 30, 2021 included transaction costs of $1 million primarily related to the acquisition of Nordco.

Operating expenses

Freight Segment operating expenses increased $15 million, or 6.0%, for the three months ended September 30, 2022 compared to the same period in 2021. SG&A increased $2 million due to incremental expense from acquisitions. SG&A for the three months ended September 30, 2022 includes $1 million of restructuring costs, compared to $2 million for the same period in 2021. Engineering expenses increased $13 million primarily due to investments in new technology. Amortization expense increased $1 million due to acquisitions.

Transit Segment

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

The following table shows the major components of the change in net sales for the Transit Segment in the third quarter of 2022 from the third quarter of 2021:

Net sales

Transit Segment sales for the three months ended September 30, 2022 decreased by $62 million, or 10.1%, to $550 million compared to the same period in 2021. The effects of unfavorable foreign exchange rates decreased sales by $78 million. Transit Segment organic sales increased by $15 million due to increased demand and an increase in government transportation spending partially offset by the carryover effects of the cyber incident in the second quarter.

Cost of sales

Transit Segment cost of sales for the three months ended September 30, 2022 decreased by $55 million, or 12.1%, to $399 million compared to the same period in 2021. The decrease is primarily due to the decrease in sales discussed above along with a decrease in restructuring cost in the current year. Cost of sales as a percentage of sales was 72.5% and 74.2% for the three months ended September 30, 2022 and 2021, respectively, representing a 1.7 percentage point decrease. This can be attributed to improved productivity, higher pricing, the exit of low margin businesses in the United Kingdom, and prior year structured cost actions taken through restructuring programs, partially offset by increased materials, transportation and labor costs and inefficiencies associated with the cyber incident. Cost of sales for the three months ended September 30, 2022 and 2021 includes $1 million and $22 million, respectively, of restructuring costs, primarily for footprint rationalization in Europe and headcount actions.

Operating expenses

Transit Segment operating expenses decreased $16 million, or 14.0%, for the three months ended September 30, 2022 compared to the same period in 2021. SG&A decreased $14 million for the three months ended September 30, 2022 compared to the same period in 2021 due to the effects of foreign exchange rates and lower employee compensation and benefit costs. SG&A for the three months ended September 30, 2022 and 2021 includes $2 million and $5 million of restructuring costs, respectively, primarily for footprint rationalization and related headcount actions. Additionally, engineering and amortization expenses remained consistent year over year.

FIRST NINE MONTHS OF 2022 COMPARED TO FIRST NINE MONTHS OF 2021

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

The following table shows the major components of the change in sales in the nine months ended September 30, 2022 from the nine months ended September 30, 2021:

Net sales

Net sales for the nine months ended September 30, 2022 increased by $307 million, or 5.3%, to $6.06 billion compared to the same period in 2021. Freight Segment organic sales increased $508 million driven primarily by Services sales from higher locomotive modernizations and a larger active locomotive fleet. In addition, Equipment sales increased due to higher international locomotive deliveries and higher mining equipment sales, and Components sales increased due to a higher railcar build, increased railcars in operation and growth in industrial end-markets. Transit Segment organic sales decreased $54 million primarily due to supply chain issues caused by the COVID-19 pandemic and the prior year exit of low margin

businesses and contracts in the United Kingdom. Sales from acquisitions contributed $65 million, primarily in the Freight Segment, and unfavorable exchange rates, primarily in the Transit Segment, decreased sales by $212 million.

Cost of sales

Cost of sales for the nine months ended September 30, 2022 increased by $136 million, or 3.4%, to $4.17 billion compared to the same period in 2021. The increase is primarily due to the increase in sales and increased materials, labor and transportation costs, partially offset due to favorable product mix between operating segments and product lines. Cost of sales as a percentage of sales was 68.8% and 70.1% for the nine months ended September 30, 2022 and 2021, respectively, representing a 1.3 percentage point decrease. The decrease as a percentage of sales can be attributed to favorable product mix, higher pricing and strong productivity and lower restructuring cost, partially offset by the increase in the costs described above. Cost of sales for the nine months ended September 30, 2022 and 2021 included $12 million and $48 million, respectively, of restructuring costs, primarily for headcount actions and footprint rationalization.

Operating expenses

Total operating expenses increased $19 million, or 1.7%, for the nine months ended September 30, 2022 compared to the same period in 2021. Operating expenses as a percentage of sales was 18.6% and 19.2% for the nine months ended September 30, 2022 and 2021, respectively. SG&A decreased $9 million for the nine months ended September 30, compared to the same period in 2021 due to the impacts of foreign exchange rates and lower restructuring and transaction costs, partially offset by higher technology costs and incremental expense from acquisitions. Restructuring and transaction costs included in SG&A were $8 million and $32 million for the nine months ended September 30, 2022 and 2021, respectively, and were primarily for headcount actions and footprint rationalization programs. Engineering expenses increased $25 million primarily due to investments in new technology and incremental expense from acquisitions. Amortization expense increased $3 million primarily due to the acquisition of Nordco.

Interest expense, net

Interest expense, net, remained consistent for the nine months ended September 30, 2022 compared to the same period in 2021.

Other income, net

Other income, net, was $15 million of income for the nine months ended September 30, 2022 compared to $25 million of income in the same period of 2021 primarily driven by a foreign exchange loss of $5 million in the current year as compared to a gain of $7 million in the prior year.

Income taxes

The effective income tax rate was 25.1% and 26.0% for the nine months ended September 30, 2022 and 2021, respectively. The decrease in the effective tax rate is primarily the result of a more favorable earnings mix for the nine months ended September 30, 2022.

Freight Segment

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

The following table shows the major components of the change in net sales for the Freight Segment in the first nine months of 2022 from the first nine months of 2021:

Net sales

Freight Segment sales increased by $529 million or 13.9%, to $4.34 billion, compared to the same period in 2021. Services sales increased from higher locomotive modernizations and a larger active locomotive fleet, Equipment sales increased due to higher international locomotive deliveries and higher mining equipment sales, and Components sales increased due to a higher railcar build and increased railcars in operation. Sales from acquisitions, contributed $62 million and the effects of unfavorable foreign exchange rates decreased sales by $41 million.

Cost of sales

Freight Segment cost of sales for the nine months ended September 30, 2022 increased by $328 million, or 12.6%, to $2.93 billion, compared to the same period in 2021. The increase is primarily due to the increase in sales and increased materials, transportation and labor costs. Cost of sales as a percentage of sales was 67.4% and 68.2% for the nine months ended September 30, 2022 and 2021, respectively, representing a 0.8 percentage point decrease which benefited from favorable product mix, increased pricing, improved productivity and synergy savings. Cost of sales for the nine months ended September 30, 2022 and 2021 includes $7 million and $6 million, respectively, of restructuring and transaction costs, primarily for headcount actions. The nine months ended September 30, 2021 also included transaction costs related to the Nordco acquisition.

Operating expenses

Freight Segment operating expenses increased $56 million, or 8.0%, for the nine months ended September 30, 2022 compared to the same period in 2021. SG&A increased $23 million primarily due to incremental expense from acquisitions and higher technology costs, partially offset by a decrease in restructuring and transaction costs. Restructuring and transaction costs included in SG&A for the nine months ended September 30, 2022 were $1 million compared to $11 million for the same period in 2021 primarily for headcount actions as part of the integration of GE Transportation. Engineering expenses increased $29 million primarily due to investments in new technology and incremental expense from acquisitions. Amortization expense increased $4 million due to acquisitions.

Transit Segment

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

The following table shows the major components of the change in net sales for the Transit Segment in the first nine months of 2022 from the first nine months of 2021:

Net sales

Transit Segment sales for the nine months ended September 30, 2022 decreased by $222 million, or 11.5%, to $1.71 billion compared to the same period in 2021, with unfavorable foreign exchange rates reducing sales $171 million. Sales of Original Equipment Manufacturing decreased due to supply chain issues caused by the COVID-19 pandemic partially offset by higher demand and an increase in government transportation spending. Aftermarket sales decreased from lower maintenance and overhauls driven by the prior year exit of low margin businesses and contracts in the United Kingdom, as well as supply chain issues caused by the COVID-19 pandemic. Additionally, both Original Equipment Manufacturing and Aftermarket sales were impacted by a manufacturing disruption caused by the second quarter cyber incident.

Cost of sales

Transit Segment cost of sales for the nine months ended September 30, 2022 decreased by $193 million, or 13.5%, to $1.24 billion compared to the same period in 2021. The decrease is primarily due to the decrease in sales discussed above and decreased restructuring costs. Cost of sales as a percentage of sales was 72.3% and 74.0% for the nine months ended September 30, 2022 and 2021, respectively, representing a 1.7 percentage point decrease. This can be attributed to improved productivity, higher pricing, the exit of low margin businesses in the United Kingdom, and prior year structured cost actions taken through restructuring programs, partially offset by increased metals, transportation and labor costs. Cost of sales for the nine months ended September 30, 2022 and 2021 included $5 million and $43 million, respectively, of restructuring costs, primarily for headcount actions and footprint rationalization in Europe.

Operating expenses

Transit Segment operating expenses decreased $38 million, or 11.0%, for the nine months ended September 30, 2022 compared to the same period in 2021. SG&A decreased $33 million due to the decrease in sales, the effects of foreign exchange rates and decreased restructuring cost. SG&A for the nine months ended September 30, 2022 and 2021 included $5 million and $12 million, respectively, of restructuring costs, primarily for headcount actions in Europe. Additionally, engineering and amortization expenses remained consistent year over year.

Liquidity and Capital Resources

Liquidity is provided primarily by operating cash flow and borrowings under the Company’s Senior Notes and unsecured credit facility with a consortium of commercial banks. Additionally, the Company utilizes the revolving receivables program and supply chain financing program described below for added flexibility as part of our liquidity management strategy. The following is a summary of selected cash flow information and other relevant data:

Operating activities In the first nine months of 2022, cash provided by operating activities was $628 million compared to $759 million in the first nine months of 2021. Significant changes to the sources and (uses) of cash for the nine month periods include the following:

• $92 million attributable to higher Net income and other changes in the related statements of income amounts;

• $(252) million from net changes in working capital primarily driven by: $(369) million unfavorable change in inventory primarily from proactive inventory build-ups ahead of expected growth and in response to supply chain challenges, $(74) million related to changes in receivables due to timing and volume of sales and the net change in the Revolving Receivables Program, and $191 million in accounts payable, primarily due to the timing of payments to suppliers;

• $(100) million from higher employee related benefit payments, inclusive of payments related to severance accruals; and,

• $156 million from changes in the timing of customer deposits.

Investing activities In the first nine months of 2022 and 2021, cash used for investing activities was $(149) million and $(475) million, respectively. The major components of the cash outflow in 2022 were $(82) million in additions to property, plant and equipment for investments in our facilities and manufacturing processes and $(69) million for strategic acquisitions. This compares to $(78) million in additions to property, plant, and equipment and $(405) million in net cash paid for acquisitions in the first nine months of 2021. Additional information with respect to acquisitions is included in Note 3 of the “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report.

Financing activities In the first nine months of 2022, cash used for financing activities was $(395) million which included $93 million from changes in debt, $(400) million in stock repurchases, and $(83) million of dividend payments. In the first nine months of 2021, cash used for financing activities was $(433) million, which included $(162) million in net repayments of debt, $(200) million in stock repurchases and $(69) million of dividend payments.

During the second quarter of 2022, the Company redeemed $25 million of principal from the 2024 Notes plus a premium and the related accrued interest.

On August 15, 2022, the Company amended, restated and replaced the then-existing credit agreement. The Restated Credit Agreement updated the multi-currency revolving loan facility from $1.2 billion to $1.5 billion and added a new Delayed Draw Term Loan of up to $250 million. Additional information with respect to credit facilities and long-term debt is included in Note 8 of the "Notes to Condensed Consolidated Financial Statements" included in Part I, Item 1 of this report.

As of September 30, 2022, the Company held approximately $514 million of cash and cash equivalents, of which approximately $1 million was held within the United States and approximately $513 million was held outside of the United States, primarily in India, Europe, China, and Brazil. While repatriation of some cash held outside the United States may be restricted by local laws, most of the Company’s foreign cash could be repatriated to the United States net of any tax impacts.

We or our affiliates may, from time to time, seek to retire or purchase outstanding debt through negotiated or open-market cash purchases, exchanges, or otherwise, and such transactions, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Revolving Receivables Program

The Company utilizes a revolving receivables facility to sell up to $350 million of certain receivables through our bankruptcy-remote facility to a financial institution on a recurring basis in exchange for cash equal to the gross receivables sold. As customers pay their balances, we transfer additional receivables into the program, which results in our gross receivables sold exceeding collections reinvested for any applicable periods. Net cash proceeds from the revolving receivables program were $205 million and $84 million for the nine months ended September 30, 2022 and 2021, respectively. Additional information with respect to the Revolving Receivables Program is included in Note 2 of "Notes to Condensed Consolidated Financial Statements" included in Part I, Item 1 of this report.

Supply Chain Financing Program

The Company has entered into supply chain financing arrangements with third-party financial institutions to provide our vendors with enhanced payment options while providing the Company with added working capital flexibility. The Company does not provide any guarantees under these arrangements, does not have an economic interest in our supplier's voluntary participation and does not receive an economic benefit from the financial institutions. The arrangements do not change the payable terms negotiated by the Company and our vendors and does not result in a change in the classification of amounts due as accounts payable in the consolidated balance sheets.

Guarantor Summarized Financial Information

The obligations under the Company's US Notes and Senior Credit Facility have been fully and unconditionally guaranteed by certain of the Company's U.S. subsidiaries. Each guarantor is 100% owned by the parent company, with the exception of GE Transportation, a Wabtec Company, which has 15,000 shares outstanding of Class A Non-Voting Preferred Stock held by General Electric Company. The Euro Notes are issued by Wabtec Transportation Netherlands B.V. ("Wabtec Netherlands") and are fully and unconditionally guaranteed by the Company.

On January 1, 2022, the Company completed an internal legal entity reorganization that resulted in changes to the subsidiaries and operating divisions serving as guarantors under the Company's US Notes and Senior Credit Facility. As such, certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation in line with the legal reorganization. Refer to Exhibit 22.1 for the updated list of guarantor subsidiaries.

The following tables present summarized financial information of the parent and the guarantor subsidiaries on a combined basis for the Company's US Notes and Senior Credit Facility. The combined summarized financial information eliminates intercompany balances and transactions among the parent and guarantor subsidiaries and equity in earnings and investments in any guarantor subsidiaries or non-guarantor subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and guarantor subsidiaries.

Summarized Statement of Income

Summarized Balance Sheet

The following is a description of the transactions between the combined Westinghouse Air Brake Technologies Corp. and guarantor subsidiaries with non-guarantor subsidiaries.

Summarized Financial Information—Euro Notes

The obligations under Wabtec Netherlands’ Euro Notes are fully and unconditionally guaranteed by the Company. Wabtec Netherlands is a wholly-owned, indirect subsidiary of the Company. Wabtec Netherlands is a holding company and does not have any independent operations. Its assets consist of its investments in subsidiaries, which are separate and distinct legal entities that are not guarantors of the Euro Notes and have no obligations to pay amounts due under Wabtec Netherlands’ obligations.

On January 1, 2022, the Company completed an internal legal entity reorganization that resulted in changes to the operating divisions serving as the parent guarantor under the Company's Euro Notes. As such, certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation in line with the legal reorganization.

The following tables present summarized financial information of Wabtec Netherlands, as the Issuer of the Euro Notes, and the Company, as the parent Guarantor, on a combined basis. The combined summarized financial information eliminates all intercompany balances and transactions among Wabtec Netherlands and the Company as well as all equity in earnings from and investments in any subsidiary of the Company, other than Wabtec Netherlands, which we refer to below as the Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and parent guarantor.

Summarized Statement of Income

Summarized Balance Sheet

The following is a description of the transactions between the combined Westinghouse Air Brake Technologies Corp. and Wabtec Netherlands, with the subsidiaries of Westinghouse Air Brake Technologies Corp., other than Wabtec Netherlands, none of which are guarantors of the Euro Notes.

Company Stock Repurchase Plan

On February 10, 2022, the Board of Directors increased its stock repurchase authorization to increase the amount available for stock repurchases to $750 million of the Company’s outstanding shares. This new stock repurchase authorization superseded the previous authorization of $500 million of which approximately $155 million remained. No time limit was set for the completion of the program which conforms to the requirements under the Senior Credit Facility and the Senior Notes currently outstanding. The Company may repurchase shares in the future at any time, depending upon market conditions, our capital needs and other factors. Purchases of shares may be made by open market purchases or privately negotiated purchases and may be made pursuant to Rule 10b5-1 plan or otherwise. As of September 30, 2022, approximately $395 million was remaining under the stock repurchase plan.

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 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

• changes in general economic and/or industry specific conditions, including the impacts of tax and tariff programs, inflation, supply chain disruptions, foreign currency exchange, and industry consolidation;

• prolonged unfavorable economic and industry conditions in the markets served by us, including North America, South America, Europe, Australia, Asia and Africa;

• decline in 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;

• fluctuations in interest rates and foreign currency exchange rates;

• availability of credit; or

• changes in market consensus as to what attributes are required for projects to be considered "green" or "sustainable" or negative perceptions regarding determinations in such regard with respect to our Green Finance Framework;

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 availability and relations;

• hiring and retention of key personnel;

• the outcome of our existing or any future legal proceedings, including litigation involving our principal customers and any litigation with respect to environmental matters, asbestos-related matters, pension liabilities, warranties, product liabilities, competition and anti-trust matters or intellectual property claims;

• completion and integration of acquisitions;

• the development and use of new technology; or

• cybersecurity and data protection risks;

Competitive factors

• the actions of competitors; or

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

Political/governmental factors

• political stability in relevant areas of the world, including the impacts of war and conflicts;

• 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, including those related to Positive Train Control;

• federal and state income tax legislation;

• sanctions imposed on countries and persons; or

• the outcome of negotiations with governments;

COVID-19 factors

• the severity and duration of the pandemic;

• deterioration of general economic conditions;

• shutdown of one or more of our operating facilities;

• supply chain and sourcing disruptions;

• ability of our customers to pay timely for goods and services delivered;

• health of our employees;

• ability to retain and recruit talented employees; or

• difficulty in obtaining debt or equity financing;

Statements in this Quarterly Report on Form 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. Reference is also made to the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and the risk factor added in Part II, Item 1A of this report on Form 10-Q.

Critical Accounting Estimates

A summary of critical accounting estimates is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. In particular, judgment is used in areas such as accounts receivable and the allowance for doubtful accounts, inventories, goodwill and indefinite-lived intangibles, business combinations, warranty reserves, stock-based compensation, income taxes, and revenue recognition. There have been no significant changes in the related accounting policies since December 31, 2021.

Contractual Obligations

During the second quarter of 2022, the Company redeemed $25 million of principal from the 2024 Notes plus a premium and the related accrued interest. As a result, contractual obligations related to the repayment of Long-term debt for 2023-2024 were reduced from $1,012 million to $987 million.

See "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021. Our exposure to market risk has not changed materially since December 31, 2021. Refer to Note 13 - Fair Value Measurement and Derivative Instruments of "Notes to Condensed Consolidated Financial Statements" included in Part I, Item 1 of this report for additional information regarding interest rate and foreign currency exchange risk.

Wabtec’s principal executive officer and its principal financial officer have evaluated the effectiveness of Wabtec’s “disclosure controls and procedures,” (as defined in Exchange Act Rule 13a-15(e)) as of September 30, 2022. Based upon their evaluation, the principal executive officer and principal financial officer concluded that Wabtec’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by Wabtec in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by Wabtec in such reports is accumulated and communicated to Wabtec’s Management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There was no change in Wabtec’s “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, Wabtec’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Additional information with respect to legal proceedings is included in Note 14 of “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report.

In response to the Russian invasion of Ukraine and the impact of the conflict on the Company and the global markets, the Company is providing the below additional risk factor. Other than the below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations.

Given the nature of our business and our global operations, political, economic, and other conditions in foreign countries and regions, including geopolitical risks such as those arising from the current conflict between Russia and Ukraine, may adversely affect our business and results of operations. The broader consequences of this conflict, which may include further sanctions, embargoes, regional instability, and geopolitical shifts; disruptions to transportation and distribution routes, or strategic decisions to alter certain routes; potential retaliatory action by the Russian government against companies, including us, including nationalization of foreign businesses and/or assets in Russia; increased tensions between the United States and countries in which we operate; and the extent of the conflict’s effect on our business and results of operations as well as the global economy, cannot be predicted.

Additionally, Wabtec has operations and a strategic joint venture in Kazakhstan that have continued operating but have incurred supply, distribution and currency impacts as an indirect result from the Russian invasion of Ukraine. To date, the operations in Kazakhstan have not been significantly impacted by the ongoing conflict outside of the overall unfavorable impact to economic conditions; however, the future impact to these operations cannot be predicted.

To the extent the current conflict between Russia and Ukraine adversely affects our business, particularly in Russia and Kazakhstan, it may also have the effect of heightening many other risks disclosed in our Annual Report, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation and business spending; disruptions to our global technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; our ability to maintain or increase our prices, our ability to implement and execute our business strategy, disruptions in global supply chains, our exposure to foreign currency fluctuations, and constraints, volatility, or disruption in the capital markets, difficulty staffing and managing impacted operations, and the recoverability of assets in the region.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes the Company's stock repurchase activity for the three months ended September 30, 2022:

(1) On February 10, 2022, the Board of Directors increased its stock repurchase authorization to increase the amount available for stock repurchases to $750 million of the Company’s outstanding shares. This new stock repurchase authorization superseded the previous authorization of $500 million, of which approximately $155 million remained at the reauthorization date. No time limit was set for the completion of the program which conforms to the requirements under the Senior Credit Facility and the Senior Notes currently outstanding. The Company may repurchase shares in the future at any time, depending upon market conditions, our capital needs and other factors. Purchases of shares may be made by open market purchases or privately negotiated purchases and may be made pursuant to Rule 10b5-1 plan or otherwise. As of September 30, 2022, approximately $395 million was remaining under the stock repurchase plan.

Item 4. MINE SAFETY DISCLOSURES

Not Applicable

The following exhibits are being filed with this report:

SIGNATURES

Pursuant to the requirements 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.