What changed in this filing

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Item 1A. Risk Factors

2022-02-17 compared with 2021-02-19 · 41 added, 21 removed, 261 unchanged (19% of the section changed)

2 unchanged sentences

We rely on several key customers who represent a significant portion of our business.

While we believe our relationships with our customers are generally good, our top customers could choose to reduce or terminate their relationships with us.

While we believe our relationships with our customers are generally good, our top customers could choose to reduce or terminate their relationships with Wabtec.

In addition, many of our customers place orders for products on an as-needed basis and operate in cyclical industries.

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If we are unable to accurately forecast demand for our existing products or to react appropriately to changes in demand, we may experience delayed product shipments and customer dissatisfaction.

If demand increases significantly from current

levels, both we and our suppliers may have difficulty meeting such demand, particularly if such demand increases occur rapidly.

If demand increases significantly from current levels, both we and our suppliers may have difficulty meeting such demand, particularly if such demand increases occur rapidly.

Alternatively, we may carry excess inventory if demand for our products decreases below projected levels.

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In economic downturns, railroads have deferred, and may defer, certain expenditures in order to conserve cash in the short term.

For example, the economic slowdown that was caused by COVID-19 impacted the timing of some orders, as customers deferred the delivery of some goods and services to future years.

Reductions in freight traffic may reduce demand for our replacement products.

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To the extent that future funding for proposed public projects is curtailed or withdrawn altogether as a result of changes in political, economic, fiscal or other conditions beyond our control, such projects may be delayed or canceled, resulting in a potential loss of business for us, including transit aftermarket and new transit car orders.

There can be no assurance that economic conditions will be favorable or that there will not be significant fluctuations adversely affecting the industry as a whole and, as a result, us.

There can be no assurance that economic conditions will be favorable or that there will not be significant fluctuations adversely affecting the industry as a whole and Wabtec.

Our backlog is not necessarily indicative of the level of our future revenues.

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Instability in the global economy, negative conditions in the global credit markets, volatility in the industries that our products serve, changes in legislative policy, adverse changes in the financial condition of our customers, adverse changes in the availability of raw materials and supplies, or un-remedied contract breaches could possibly lead to contract termination or cancellations of orders in our backlog or request for deferred deliveries of our backlog orders, each of which could adversely affect our cash flows and results of operations.

For example, although the Company saw no material cancellations of backlog during the year ended December 31, 2021, the economic slowdown that was caused by COVID-19 did impact the timing of some orders in backlog as the delivery of goods and services previously expected to be completed in the current year were pushed out to subsequent periods.

Equipment failures, interruptions, delays in deliveries or extensive damage to our facilities, supply chains, distribution systems or information technology systems, could adversely affect our business.

All of our facilities, equipment, supply chains, distribution systems and information technology systems are subject to the risk of catastrophic loss due to unanticipated events, such as disease outbreak, fires, earthquakes, explosions, floods, tornadoes, hurricanes or weather conditions.

All of our facilities, equipment, supply chains, distribution systems and information technology systems are subject to the risk of catastrophic loss due to unanticipated events, such as cyber attacks, disease outbreak, fires, earthquakes, explosions, floods, tornadoes, hurricanes or weather conditions.

An interruption in our manufacturing capabilities, supply chains, distribution systems or information technology systems, whether as a result of such catastrophic loss or any other reason, could reduce, prevent or delay our production and shipment of our product offerings, result in defective products or services, damage customer relationships and our reputation and result in legal exposure and large repair or replacement expenses.

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Failure to take adequate steps to mitigate the likelihood or potential impact of disruptions, or to effectively manage such events if they occur, particularly when a product is sourced from a single supplier or location, could adversely affect our business or financial results.

Due to the on-going impacts and uncertainty of continued impacts of the COVID-19 pandemic and the global government actions to contain it, some of our supply chains, particularly in China, India and Europe, have been, and continue to be, impacted.

Due to the ongoing impacts and uncertainty of continued impacts of the COVID-19 pandemic and the global government actions to contain it, some of our supply chains, particularly in China, India, the U.S., and Europe, have been, and continue to be, impacted.

Supply chain disruptions and labor availability have caused component and chip shortages resulting in an adverse effect on the timing of the Company’s revenue generation.

Additionally, broad-based inflation, escalation of metals and commodities costs, transportation and logistics costs and labor costs have all resulted from the COVID-19 pandemic.

There can be no assurance that there will not be further, or deeper, supply chain disruptions, or that the steps we are taking to mitigate such disruptions will be effective or achieve their desired results in a timely fashion.

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The effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events on our business, operating results and cash flows are uncertain.

We face a wide variety of risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of coronavirus disease 2019 ("COVID-19").

Since first reported in late 2019, the COVID-19 pandemic has

dramatically impacted the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, government challenges and market volatility of an unprecedented nature.

We face a wide variety of risks related to health epidemics, pandemics and similar outbreaks, including the global outbreak of COVID-19.

Since first reported in late 2019, the COVID-19 pandemic has dramatically impacted the global health and economic environment, including millions of confirmed cases, business slowdowns or shutdowns, government challenges and market volatility of an unprecedented nature.

Although we have, to date, managed to continue most of our operations, we cannot predict the future course of events nor can we assure that this global pandemic, including its economic impact, will not have a material adverse impact on our business, financial position, results of operations and/or cash flows.

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The COVID-19 pandemic has resulted in operational and supply chain disruptions for us and our customers and may further adversely affect operations and the operations of our customers and suppliers.

Accordingly, COVID-19 had a materially adverse impact on our operations and business results for the year ended December 31, 2020, and we expect COVID-19 to continue to have a materially adverse impact on our operations and business results into 2021.

The spread of COVID-19 has caused us to modify our business practices and to implement significant proactive measures to protect the health and safety of employees, and we may take further actions as may be required by government authorities or as we determine are appropriate under the circumstances.

Accordingly, COVID-19 had a materially adverse impact on our operations and business results for the years ended December 31, 2021, and 2020.

Supply chain disruptions and shortages in labor availability have caused component and chip shortages, which have resulted in adverse effects on the timing of our revenue generation.

Additionally, broad-based inflation, escalation of metals and commodities costs, transportation and logistics costs and labor costs have all resulted from the COVID-19 pandemic and have adversely impacted our business.

W e expect COVID-19 to continue to have a materially adverse impact on our operations and business results into 2022.

The spread of COVID-19, and the emergence of new strains of the virus, have caused us to modify our business practices and to implement significant proactive measures to protect the health and safety of employees, and we may take further actions as may be required by government authorities or as we determine are appropriate under the circumstances.

There is no certainty that such measures will be sufficient to mitigate the continued risks posed by the pandemic.

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We continue to monitor the situation, to assess further possible implications to our employees, business, supply chain and customers, and to take certain actions in an effort to mitigate various adverse consequences.

However, uncertainty around general global economic and market conditions, exacerbated by the COVID-19 pandemic, will have an impact on our sales and operations in 2022 and beyond.

We expect that the longer the COVID-19 pandemic, including its economic disruption, continues, the greater the adverse impact on our business operations, financial performance and results of operations could be.

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We intend to continue to expand our international operations, including in emerging markets, in the future.

Our global headquarters for the Transit group is located in France, and we conduct other international operations

through a variety of wholly and majority-owned subsidiaries and joint ventures, including in Australia, Austria, Brazil, Canada, China, Czech Republic, France, Germany, India, Italy, Macedonia, Mexico, the Netherlands, Poland, Russia, Spain, South Africa, Turkey, and the United Kingdom.

Our global headquarters for the Transit group is located in France, and we conduct other international operations through a variety of wholly and majority-owned subsidiaries and joint ventures, including in Australia, Austria, Brazil, Canada, China, Czech Republic, France, Germany, India, Italy, Kazakhstan, Macedonia, Mexico, the Netherlands, Poland, Russia, Spain, South Africa, Turkey, and the United Kingdom.

As a result, we are subject to various risks, any one of which could have a material adverse effect on those operations and on our business as a whole, including:

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Despite our policies, procedures and compliance programs, our internal controls and compliance systems may not be able to protect us from prohibited acts willfully committed by our employees, agents or business partners that would violate such applicable laws and regulations.

Any such improper acts could damage our reputation, subject us to civil or criminal judgments, fines or penalties, and could otherwise disrupt our business, and as a result, could materially adversely impact our business, results of operations and financial condition.

Any such improper acts could

damage our reputation, subject us to civil or criminal judgments, fines or penalties, and could otherwise disrupt our business, and as a result, could materially adversely impact our business, results of operations and financial condition.

In addition, our manufacturing operations are subject to safety, operations, maintenance and mechanical standards, rules and regulations enforced by various federal and state agencies and industry organizations both domestically and internationally.

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Future climate change regulation could result in increased operating costs, affect the demand for our products or affect the ability of our critical suppliers to meet our needs.

Management believes it is reasonably likely that the scientific and political attention to issues concerning the existence and extent of climate change, and the role of human activity in it, will continue, with the potential for further regulation that affects the company’s operations.

The potential challenges posed by evolving climate change policy and prospective legislation are heavily dependent on the nature and degree of climate change legislation and the extent to which it applies to our industry.

Although uncertain, these developments could increase costs or reduce the demand for the products the company sells.

The company’s production and processing operations typically result in emissions of greenhouse gases.

Likewise, emissions arise from midstream and downstream operations, including operations of our locomotives and other products.

Finally, although beyond the control of the company, the use of fuels and related products by operators also results in greenhouse gas emissions that may be regulated.

International agreements, domestic legislation and regulatory measures to limit greenhouse gas emissions are currently in various phases of discussion or implementation.

While we are carefully monitoring developments and reviewing the challenges associated with alternative proposals, at this time, we cannot predict the ultimate impact of climate change and climate change legislation on our operations.

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We face cybersecurity and data protection risks relating to cyber-attacks and information technology failures that could cause loss of confidential information and other business disruptions.

We rely extensively on information technology in our business.

We rely extensively on the security, stability, and availability of technology systems in our business.

We also collect, process, and retain sensitive and confidential customer information, including proprietary business information, personal data and other information that may be subject to privacy and security laws, regulations and/or customer-imposed data protection controls.

Our business may be adversely impacted by unintentional technology disruptions, including those resulting from programming errors, employee operational errors, software defects, and product vulnerabilities.

We also provide technological products integral to train operation.

Accordingly, our business may be adversely impacted by disruptions to our own or third-party information technology infrastructure, which could result from individual or highly-coordinated cyber attacks, including but not limited to data theft, system breaches, malfeasance or improper use or unauthorized access to IT systems.

Our business may also be adversely impacted by unintentional technology disruptions, including those resulting from programming errors, employee operational errors and software defects.

Accordingly, our business may be adversely impacted by disruptions to our own or third-party information technology infrastructure, which could result from cybersecurity incidents, including, but not limited to, unauthorized access to the Company’s information technology systems, data access or acquisition, and/or encryption of the Company’s environment.

For instance, one of our vendors publicly disclosed vulnerabilities in its operating system that we use for certain Wabtec products.

A successful exploitation of our own or our vendors’ information technology infrastructure could result in service interruptions, safety hazards, misappropriation of confidential information, process failures, security breaches or other operational difficulties.

Such an event could result in decreased revenues and increased capital, insurance or operating costs, including the increased costs of security to protect the

Company’s infrastructure, among other results.

Insurance maintained by the Company to protect against loss of business and other related consequences resulting from cyber incidents may not be sufficient to cover all damages.

A disruption or compromise of the Company’s technology systems, even for short periods of time, could have a material adverse effect.

RISKS RELATED TO HUMAN CAPITAL

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If we lose key personnel, because they terminate their employment or retire, or as a result of illness, disability or death, or if an insufficient number of employees is retained to maintain effective operations, our business activities may be adversely affected and our management team's attention may be diverted.

In addition, we may not be able to locate suitable replacements for any key personnel that we lose, or

we may not be able to hire potential replacements on reasonable terms, all of which could adversely affect our product sales, financial condition, and operating results.

In addition, we may not be able to locate suitable replacements for any key personnel that we lose, or we may not be able to hire potential replacements on reasonable terms, all of which could adversely affect our product sales, financial condition, and operating results.

RISKS RELATED TO OUR INDEBTEDNESS

Our indebtedness could adversely affect our financial health.

At December 31, 2020, we had total debt of $4.2 billion, including $3.5 billion related to senior notes and $0.7 billion related to term loans and amounts drawn under our revolving loan facility, in each case, under the Senior Credit Facility.

At December 31, 2021, we had total debt of $4.1 billion, primarily related to Senior Notes.

Being indebted could have important consequences to us.

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• limit our ability to borrow additional funds.

Moreover, our Credit Agreement and the indentures governing our senior notes permit us to incur substantial additional indebtedness, which may further contribute to, or exacerbate the impact of, the foregoing impacts.

The indentures for our outstanding senior notes and our Credit Agreement contain various covenants that limit our management’s discretion in the operation of our businesses.

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In addition, we are required to maintain (i) a ratio of EBITDA to interest expense of at least 3.00 to 1.00 over each period of four consecutive fiscal quarters ending on the last day of a fiscal quarter and (ii) a Leverage Ratio, calculated as of the last day of a fiscal quarter for a period of four consecutive fiscal quarters, of 3.25 to 1.00 or less;

provided that, in connection with the acquisition of GE Transportation and in the event of any further material acquisition in which the cash consideration to be paid exceeds $500.0 million, the maximum Leverage Ratio permitted adjusts to (x) 3.75 to 1.00 at the end of the fiscal quarter in which such acquisition is consummated and each of the three fiscal quarters immediately following such fiscal quarter and (y) 3.50 to 1.00 at the end of each of the fourth and fifth full fiscal quarters after the consummation of such acquisition.

provided that, in the second quarter of 2021, the Credit Agreement was amended so that we may, upon our request, increase the maximum Leverage Ratio to (x) 3.75 to 1.00 at the end of the fiscal quarter in which our acquisition of Nordco was consummated and each of the three fiscal quarters immediately following such fiscal quarter and (y)

3.50 to 1.00 at the end of each of the fourth and fifth full fiscal quarters after the consummation of such acquisition.

The Company has not requested any such increase in the leverage ratio at this time.

The indentures under which our Senior Notes were issued contain covenants and restrictions which limit, subject to certain exceptions, certain sale and leaseback transactions with respect to principal properties, the incurrence of secured debt without equally and ratably securing the senior notes and certain merger and consolidation transactions.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors