WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein andWestinghouse 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 endedDecember 31, 2021 , filed with theSecurities and Exchange Commission onFebruary 17, 2022 . OVERVIEWWabtec 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. 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 three months of 2022, approximately 60% of the Company's net sales came from customers outsidethe 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 ofUkraine , continue to have an adverse impact on our operations and business results. Impacts for the three months endedMarch 31, 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 ofUkraine and the resultant sanctions related toRussia andBelarus have further impacted our supply and distribution channels and caused significant price inflation which had, and are expected to continue to have, adverse effects onWabtec's business results. For the year endedDecember 31, 2021 ,Wabtec had earnings of approximately$40 million attributable to customers inRussia , while earnings from customers inUkraine andBelarus were not significant. As ofMarch 31, 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 in the first quarter 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 inUkraine were not expected to be recoverable and were written off resulting in an insignificant charge during the first quarter of 2022. Remaining assets related toUkraine and those inBelarus 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 ofUkraine , 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 as is currently happening inChina . Changes in trade regulations and sanctions including retaliatory measures, advancements or changes in the conflict inUkraine , 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. 22 --------------------------------------------------------------------------------
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 theNorth 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. 23 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Consolidated Results
FIRST QUARTER 2022 COMPARED TO FIRST QUARTER 2021
The following table shows our Consolidated Statements of Operations for the
periods indicated.
Three Months Ended
March 31,
In millions 2022 2021
Net sales:
Sales of goods $ 1,505 $ 1,485
Sales of services 422 345
Total net sales 1,927 1,830
Cost of sales:
Cost of goods (1,084) (1,108)
Cost of services (248) (188)
Total cost of sales (1,332) (1,296)
Gross profit 595 534
Operating expenses:
Selling, general and administrative expenses (238) (234)
Engineering expenses (45) (38)
Amortization expense (73) (70)
Total operating expenses (356) (342)
Income from operations 239 192
Other income and expenses:
Interest expense, net (43) (48)
Other income, net 4 14
Income before income taxes 200 158
Income tax expense (50) (43)
Net income 150 115
Less: Net income attributable to noncontrolling interest (1) (3)
Net income attributable to Wabtec shareholders$ 149
The following table shows the major components of the change in sales in the three months endedMarch 31, 2022 from the three months endedMarch 31, 2021 : In millions Freight Segment Transit Segment Total First Three Months of 2021 Net Sales $ 1,183 $ 647$ 1,830 Acquisitions 39 1 40 Foreign Exchange (4) (33) (37) Organic 104
(10) 94
First Three Months of 2022 Net Sales $ 1,322 $ 605
Net sales Net sales for the three months endedMarch 31, 2022 increased by$97 million , or 5.3%, to$1.93 billion compared to the same period in 2021. Freight Segment organic sales increased$104 million driven primarily by Services sales from higher locomotive modernizations and a decrease in locomotive parkings. In addition, Components sales increased due to a higher railcar build and lower railcar parkings and Equipment sales increased due to higher volumes for mining equipment, partially offset by lower sales inDigital Electronics due primarily to chip shortages caused by continued global supply chain disruptions. Transit Segment organic sales decreased$10 million primarily due to the prior year exit of low margin contracts in theUnited Kingdom and supply chain issues caused by the COVID-19 pandemic, particularly inChina , despite higher demand for 24 -------------------------------------------------------------------------------- Original Equipment Manufacturing driven by an increase in government transportation spending. Sales from acquisitions contributed$40 million and unfavorable exchange rates, primarily in the Transit Segment, decreased sales by$37 million . Cost of sales Cost of sales for the three months endedMarch 31, 2022 increased by$36 million , or 2.8%, to$1.33 billion compared to the same period in 2021. The increase is primarily due to the increase in sales and increased raw materials, commodity, labor and shipping costs. Cost of sales as a percentage of sales was 69.1% and 70.8% for the three months endedMarch 31, 2022 and 2021, respectively, representing a 1.7 percentage point decrease. The decrease as a percentage of sales can be attributed to favorable product mix, higher pricing, improved productivity, synergy savings and structured cost actions taken in prior years, partially offset by the increase in the costs described above. Cost of sales for the three months endedMarch 31, 2022 and 2021 included$5 million and$4 million , respectively, of restructuring costs, primarily for headcount actions and footprint rationalization.
Operating expenses
Total operating expenses increased$14 million , or 4.1%, for the three months endedMarch 31, 2022 compared to the same period in 2021. Operating expenses as a percentage of sales was 18.4% and 18.7% for the three months endedMarch 31, 2022 and 2021, respectively. Selling, general and administrative expenses ("SG&A") increased$4 million for the three months endedMarch 31, 2022 compared to the same period in 2021. The increase is primarily due to higher technology costs and incremental expense from the acquisition ofNordco , partially offset by decreased restructuring and transaction costs. Restructuring and transaction costs included in SG&A were$2 million and$11 million for the three months endedMarch 31, 2022 and 2021, respectively, and were primarily for headcount actions and footprint rationalization programs. Engineering expense increased$7 million primarily due to investments in new technology and incremental expense from the acquisition ofNordco . Amortization expense increased$3 million due to the acquisition ofNordco . Interest expense, net Interest expense, net, decreased$5 million for the three months endedMarch 31, 2022 compared to the same period in 2021 attributable to lower overall average debt balances and lower interest rates.
Other income, net
Other income, net, was$4 million of income for the three months endedMarch 31, 2022 compared to$14 million of income in the same period of 2021. The variance is primarily driven by lower foreign exchange gains and lower equity income in the current year. Income taxes The effective income tax rate was 25.1% and 27.5% for the three months endedMarch 31, 2022 and 2021, respectively. The difference in the quarterly effective tax rate is primarily the result of withholding tax expense on intercompany dividends incurred during the three months endedMarch 31, 2021 that did not recur in the three months endedMarch 31, 2022 . 25 --------------------------------------------------------------------------------
Freight Segment
The following table shows our Consolidated Statements of Operations for our Freight Segment for the periods indicated:
Three Months Ended
March 31,
In millions 2022 2021
Net sales:
Sales of goods $ 904 $ 844
Sales of services 418 339
Total net sales 1,322 1,183
Cost of sales:
Cost of goods (653) (644)
Cost of services (245) (183)
Total cost of sales (898) (827)
Gross profit 424 356
Operating expenses (235) (214)
Income from operations $ 189 $ 142
Income from operations 14.3 % 12.0 %
The following table shows the major components of the change in net sales for
the Freight Segment in the first quarter of 2022 from the first quarter of 2021:
In millions
First Quarter 2021 Net Sales $ 1,183
Acquisitions 39
Foreign Exchange (4)
Changes in Sales by Product Line:
Equipment 12
Components 30
Digital Electronics (2)
Services 64
First Quarter 2022 Net Sales $ 1,322
Net sales
Freight Segment sales increased by $139 million or 11.7%, to $1.32 billion ,
compared to the same period in 2021. Services sales increased from higher
locomotive modernizations and a decrease in locomotive parkings, Components
sales increased due to a higher railcar build and lower railcar parkings and
Equipment sales increased due to higher volumes for mining equipment, partially
offset by lower sales in Digital Electronics caused by continued global supply
chain disruptions, particularly chip shortages. Sales from the Nordco
acquisition contributed $39 million and the effects of unfavorable foreign
exchange rates decreased sales by $4 million .
Cost of sales
Freight Segment cost of sales for the three months endedMarch 31, 2022 increased by$71 million , or 8.5%, to$898 million , compared to the same period in 2021. The increase is primarily due to the increase in sales and increased raw materials, commodity, transportation and labor costs. Cost of sales as a percentage of sales was 67.9% and 69.9% for the three months endedMarch 31, 2022 and 2021, respectively, representing a 2.0 percentage point decrease which benefited from favorable product mix, increased pricing, improved productivity and synergy savings. Cost of sales for the three months endedMarch 31, 2022 and 2021 includes$2 million and$1 million , respectively, of restructuring costs, primarily for headcount actions. 26 --------------------------------------------------------------------------------
Operating expenses
Freight Segment operating expenses increased$21 million , or 9.8%, for the three months endedMarch 31, 2022 compared to the same period in 2021. SG&A increased$10 million for the three months endedMarch 31, 2022 compared to the same period in 2021. The increase is primarily due to incremental expense from the acquisition ofNordco and higher technology costs, partially offset by a decrease in restructuring and transaction costs. There were no restructuring and transaction costs included in SG&A for the three months endedMarch 31, 2022 compared to$6 million for the same period in 2021 primarily for headcount actions as part of the integration of GE Transportation. Engineering expense increased$8 million primarily due to investments in new technology and incremental expense from the acquisition ofNordco . Amortization expense increased$3 million due to the acquisition ofNordco . 27 --------------------------------------------------------------------------------
Transit Segment
The following table shows our Consolidated Statements of Operations for our Transit Segment for the periods indicated:
Three Months Ended
March 31,
In millions 2022 2021
Net sales $ 605 $ 647
Cost of sales (434) (469)
Gross profit 171 178
Operating expenses (106) (108)
Income from operations $ 65 $ 70
Income from operations 10.7 % 10.8 %
The following table shows the major components of the change in net sales for
the Transit Segment in the first quarter of 2022 from the first quarter of 2021:
In millions
First Quarter 2021 Net Sales $ 647
Acquisitions 1
Foreign Exchange (33)
Changes in Sales by Product Line:
Original Equipment Manufacturing 17
Aftermarket (27)
First Quarter 2022 Net Sales
Net sales Transit Segment sales for the three months endedMarch 31, 2022 decreased by$42 million , or 6.5%, to$605 million compared to the same period in 2021, with foreign exchange rates being the primary driver of the decrease. Sales of Original Equipment Manufacturing increased due to higher demand and an increase in government transportation spending. This increase was more than offset by a decrease in Aftermarket sales from lower maintenance and overhaul driven by the prior year exit of low margin contracts in theUnited Kingdom , as well as supply chain issues caused by the COVID-19 pandemic resulting in an overall decrease in Transit segment organic sales of$10 million as compared to the same period in 2021. Cost of sales Transit Segment cost of sales for the three months endedMarch 31, 2022 decreased by$35 million , or 7.5%, to$434 million compared to the same period in 2021. The decrease is primarily due to the decrease in sales discussed above, partially offset by increased raw materials, commodity, transportation and labor costs. Cost of sales as a percentage of sales was 71.7% and 72.5% for the three months endedMarch 31, 2022 and 2021, respectively, representing a 0.8 percentage point decrease which can be attributed to improved productivity, higher pricing, the exit of low margin business in theUnited Kingdom , and prior year structured cost actions taken through restructuring programs. Cost of sales for the three months endedMarch 31, 2022 and 2021 each included$3 million of restructuring costs, primarily for headcount actions inEurope and footprint rationalization in theUK , respectively.
Operating expenses
Transit Segment operating expenses decreased$2 million , or 1.9%, for the three months endedMarch 31, 2022 compared to the same period in 2021. SG&A decreased$1 million for the three months endedMarch 31, 2022 compared to the same period in 2021 due to the decrease in sales and the effects of foreign exchange rates. SG&A for the three months endedMarch 31, 2022 and 2021 includes$1 million of restructuring costs, respectively, primarily for headcount actions inEurope . Additionally, engineering and amortization expenses remained consistent year over year. 28 --------------------------------------------------------------------------------
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:
Three Months Ended
March 31,
In millions 2022 2021
Cash provided by (used for):
Operating activities $ 161 $ 292
Investing activities $ (18) $ (422)
Financing activities $ (133) $ 8
Operating activities In the first three months of 2022, cash provided by
operating activities was $161 million compared to cash provided by operating
activities of $292 million in the first three months of 2021. Significant
changes to the sources and (uses) of cash for the three month periods include
the following:
•$41 million attributable to higher Net income and other changes in the related statements of income;
•($41) million from net changes in working capital primarily driven by:$84 million related to changes in receivables due to timing and volume of sales and the net change in the Revolving Receivables Program, and($126) million unfavorable change in inventory primarily from inventory build-ups in response to supply chain challenges;
•$(77) million from higher employee related benefit payments and
•$(42) of changes in other assets and liabilities, primarily from changes in contract assets and liabilities.
Investing activities In the first three months of 2022 and 2021, cash used for investing activities was$(18) million and$(422) million , respectively. The major components of the cash outflow in 2022 were$(20) million in additions to property, plant and equipment for investments in our facilities and manufacturing processes. This compares to$(27) million in property, plant, and equipment for additions in the first three months of 2021 and$(401) million in net cash paid for acquisitions during 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 three months of 2022, cash used for financing activities was$(133) million which included$2,012 million in proceeds from debt,$(1,817) million in repayments of debt,$(296) million in stock repurchases and$(28) million of dividend payments. In the first three months of 2021, cash provided by financing activities was$8 million , which included$1,435 million in proceeds from debt,$(1,398) million in repayments of debt,$(1) million in stock repurchases and$(23) million of dividend payments. As ofMarch 31, 2022 , the Company held approximately$488 million of cash and cash equivalents. Of the$488 million , approximately$13 million was held withinthe United States and approximately$475 million was held outside ofthe United States , primarily inIndia ,Europe ,China , andBrazil . While repatriation of some cash held outsidethe United States may be restricted by local laws, most of the Company's foreign cash could be repatriated tothe United States net of any tax impacts. 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. 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 agreement to transfer up to$200 million of certain receivables to a financial institution on a recurring basis in exchange for cash equal to the gross receivables transferred. As customers pay their balances, we transfer additional receivables into the program, which resulted in our gross receivables sold exceeding collections reinvested for the periods presented. Net cash proceeds from the revolving receivables program were$155 million and$93 million for the three months endedMarch 31, 2022 and 2021, respectively. Additional information with respect to the Revolving Receivables Program is included in Note 2 of "Notes to Consolidated Financial Statements" included in Part I, Item 1 of this report. 29 --------------------------------------------------------------------------------
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
OnJanuary 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
Unaudited
Westinghouse Air
Brake Technologies
Corp. and Guarantor
Subsidiaries
Three Months Ended
In millions March 31, 2022
Net sales $ 1,055
Gross profit $ 210
Net income attributable to Wabtec shareholders $ 23
Summarized Balance Sheet
Unaudited
Guarantor Subsidiaries
In millions March 31, 2022 December 31, 2021
Current assets $ 1,017 $ 1,057
Noncurrent assets $ 2,364 $ 2,344
Current liabilities $ 1,333 $ 1,414
Long-term debt $ 3,667 $ 3,483
Other non-current liabilities $ 596 $ 592
30-------------------------------------------------------------------------------- The following is a description of the transactions between the combinedWestinghouse Air Brake Technologies Corp. and guarantor subsidiaries with non-guarantor subsidiaries. Unaudited Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries Three Months Ended In millions March 31, 2022 Net sales to non-guarantor subsidiaries $ 185 Purchases from non-guarantor subsidiaries $ 1,048 Unaudited Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries In millions March 31, 2022 Amount due from/(to) non-guarantor subsidiaries
$ (6,643)
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. OnJanuary 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 ofWabtec 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-Issuer and 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
Unaudited
Issuer and Guarantor
Three Months Ended
In millions March 31, 2022
Net sales $ 103
Gross profit $ 18
Net income attributable to Wabtec shareholders $ (80)
Summarized Balance Sheet
Unaudited
Issuer and Guarantor
In millions March 31, 2022 December 31, 2021
Current assets $ 142 $ 217
Noncurrent assets $ 768 $ 770
Current liabilities $ 392 $ 479
Long-term debt $ 4,214 $ 4,044
Other non-current liabilities $ 207 $ 207
31--------------------------------------------------------------------------------
The following is a description of the transactions between the combined
Unaudited
Issuer and
Guarantor
Three Months Ended
In millions March 31, 2022
Net sales to non-guarantor subsidiaries $ 6
Purchases from non-guarantor subsidiaries $ 21
Unaudited
Issuer and
Guarantor
In millions March 31, 2022
Amount due from/(to) non-guarantor subsidiaries $ (7,664)
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.
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
•prolonged unfavorable economic and industry conditions in the markets served by
us, including
•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;
32
--------------------------------------------------------------------------------•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;
•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; or
•the development and use of new technology;
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 endedDecember 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 endedDecember 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 sinceDecember 31, 2021 . 33
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