What changed in this filing

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Item 1. Financial Statements

2022-08-05 compared with 2022-04-27 · 141 added, 87 removed, 549 unchanged (29% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

In millions, except par value March 31,

In millions, except par value June 30,

2022 December 31,

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Common stock, $ .01 par value;

500.0 shares authorized:

226.9 and 226.9 shares issued and 182.9 and 185.8 outstanding at March 31, 2022 and December 31, 2021, respectively

500.0 shares authorized and 226.9 shares issued:

181.9 and 185.8 outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 7,926 7,916

Treasury stock, at cost, 44.0 and 41.1 shares, at March 31, 2022 and December 31, 2021, respectively

Treasury stock, at cost, 45.0 and 41.1 shares, at June 30, 2022 and December 31, 2021, respectively

( 1,696 ) ( 1,306 )

8 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited Unaudited

Three Months Ended

June 30, Six Months Ended

In millions, except per share data 2022 2021 2022 2021

30 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited Unaudited

Three Months Ended

June 30, Six Months Ended

In millions 2022 2021 2022 2021

Net income attributable to Wabtec shareholders $ 166 $ 125 $ 315 $ 237

Foreign currency translation gain (loss) 13 ( 62 )

Foreign currency translation (loss) gain ( 195 ) 34 ( 182 ) ( 28 )

Unrealized gain (loss) on derivative contracts — — 3 ( 8 )

Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans 4 ( 1 ) 5 ( 4 )

Other comprehensive income (loss) before tax 17 ( 73 )

Income tax benefit related to components of Other comprehensive income (loss) — 3

Other comprehensive income (loss), net of tax 17 ( 70 )

Comprehensive income attributable to Wabtec shareholders $ 166 $ 42

Other comprehensive (loss) income before tax ( 191 ) 33 ( 174 ) ( 40 )

Income tax (expense) benefit related to components of other comprehensive (loss) income ( 1 ) — ( 1 ) 3

Other comprehensive (loss) income, net of tax ( 192 ) 33 ( 175 ) ( 37 )

Comprehensive (loss) income attributable to Wabtec shareholders $ ( 26 ) $ 158 $ 140 $ 200

The accompanying notes are an integral part of these statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

In millions 2022 2021

25 unchanged sentences

Other financing activities ( 2 ) ( 4 )

Net cash (used for) provided by financing activities ( 133 ) 8

Net cash used for financing activities ( 256 ) ( 213 )

Effect of changes in currency exchange rates ( 23 ) 5

15 unchanged sentences

Balance, March 31, 2022 226.9 $ 2 $ 7,917 ( 44.0 ) $ ( 1,597 ) $ 4,176 $ ( 449 ) $ 39 $ 10,088

Cash dividends ($ 0.15 dividend per share)

— — — — — ( 27 ) — — ( 27 )

Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax — — ( 1 ) 0.1 4 — — — 3

Stock based compensation — — 10 — — — — — 10

Net income — — — — — 166 — 3 169

Other comprehensive loss, net of tax — — — — — — ( 192 ) — ( 192 )

Stock repurchase — — — ( 1.1 ) ( 103 ) — — — ( 103 )

Balance, June 30, 2022 226.9 $ 2 $ 7,926 ( 45.0 ) $ ( 1,696 ) $ 4,314 $ ( 641 ) $ 42 $ 9,947

Balance, December 31, 2020 226.9 $ 2 $ 7,881 ( 38.0 ) $ ( 1,010 ) $ 3,589 $ ( 339 ) $ 30 $ 10,153

7 unchanged sentences

Balance, March 31, 2021 226.9 $ 2 $ 7,884 ( 38.0 ) $ ( 1,011 ) $ 3,678 $ ( 409 ) $ 33 $ 10,177

Cash dividends ($ 0.12 dividend per share)

— — — — — ( 23 ) — — ( 23 )

Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax — — ( 1 ) 0.1 2 — — — 1

Stock based compensation — — 14 — — — — — 14

Net income — — — — — 125 — — 125

Other comprehensive income, net of tax — — — — — — 33 — 33

Balance, June 30, 2021 226.9 $ 2 $ 7,897 ( 37.9 ) $ ( 1,009 ) $ 3,780 $ ( 376 ) $ 33 $ 10,327

The accompanying notes are an integral part of these statements.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022 (UNAUDITED)

Westinghouse Air Brake Technologies Corporation (“Wabtec” or the "Company") 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.

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 (UNAUDITED)

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.

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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 outside the United States.

In the first six months of 2022, approximately 55 % of the Company’s net sales came from customers outside the United States.

ACCOUNTING POLICIES

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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 no t significant.

As of March 31, 2022, Wabtec had approximately $ 16 million of assets related to Russian operations, which were primarily cash and inventory.

As of June 30, 2022, Wabtec had approximately $ 18 million of assets related to Russian operations, which were primarily cash and inventory.

Assets related to Ukraine and Belarus operations are not significant.

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Remaining performance obligations represent the transaction price of firm customer orders subject to standard industry cancellation provisions and substantial scope-of-work adjustments.

As of March 31, 2022, the Company's remaining performance obligations were approximately $ 22.2 billion.

As of June 30, 2022, the Company's remaining performance obligations were approximately $ 22.8 billion.

The Company expects to recognize revenue of approximately 25 % of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.

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The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary, which holds additional receivables that are pledged as collateral under this agreement.

At March 31, 2022 and 2021 the bankruptcy-remote subsidiary held receivables of $ 367 million and $ 260 million, respectively.

At June 30, 2022 and 2021 the bankruptcy-remote subsidiary held receivables of $ 410 million and $ 333 million, respectively.

The transfers are recorded at the fair value of the proceeds received and obligations assumed less derecognized receivables.

No obligation was recorded at March 31, 2022 or 2021 as the estimated expected credit losses on receivables sold is insignificant.

No obligation was recorded at June 30, 2022 or 2021 as the estimated expected credit losses on receivables sold is insignificant.

Our maximum exposure to losses related to these receivables transferred is limited to the amount outstanding.

The Company has agreed to guarantee the performance of the Originators respective obligations under the revolving agreement.

None of the Company (except for the bankruptcy-remote consolidated subsidiary referenced above) nor the Originators guarantees the collectability of the receivables under the revolving agreements.

Neither the Company (except for the bankruptcy-remote consolidated subsidiary referenced above) nor the Originators guarantees the collectability of the receivables under the revolving agreements.

The following table sets forth a summary of receivables sold:

In millions Three Months Ended

March 31, 2022 Three Months Ended

March 31, 2021

In millions Six Months Ended

June 30, 2022 Six Months Ended

June 30, 2021

Gross receivables sold/cash proceeds received $ 864 $ 569

2 unchanged sentences

Depreciation Expense Depreciation of property, plant and equipment related to the manufacturing of products or services provided is included in Cost of goods or Cost of services.

Depreciation of other property, plant and equipment that is not attributable to the manufacturing of products or services provided is included in Selling, general and administrative expenses or Engineering expense depending on how the property, plant and equipment is used.

Depreciation of other property, plant and equipment that is not attributable to the manufacturing of products or services provided is included in Selling, general and administrative expenses or Engineering expenses depending on how the property, plant and equipment is used.

Goodwill and Intangible Assets Goodwill and other intangible assets with indefinite lives are not amortized.

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The amendments in this update will be effective for Wabtec on January 1, 2023 and will be applied prospectively to business combinations occurring on or after the effective date.

Accumulated Other Comprehensive Loss Comprehensive income comprises both net income and Other comprehensive income (loss) resulting from the change in equity from transactions and other events and circumstances from non-owner sources.

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the three months ended March 31, 2022 are as follows:

In millions Foreign currency translation Derivative contracts Pension and postretirement benefit plans Total

Balance at December 31, 2021 $ ( 396 ) $ ( 5 ) $ ( 65 ) $ ( 466 )

Other comprehensive income before reclassifications 13 3 — 16

Amounts reclassified from Accumulated other comprehensive loss — — 1 1

Other comprehensive income, net 13 3 1 17

Accumulated Other Comprehensive Loss Comprehensive income comprises both net income and Other comprehensive (loss) income resulting from the change in equity from transactions and other events and circumstances from non-owner sources.

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the three months ended June 30, 2022 and 2021 are as follows:

Foreign currency translation Derivative contracts Pension and postretirement benefit plans Total

In millions 2022 2021 2022 2021 2022 2021 2022 2021

Balance at March 31 $ ( 383 ) $ ( 322 ) $ ( 2 ) $ ( 3 ) $ ( 64 ) $ ( 84 ) $ ( 449 ) $ ( 409 )

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the three months ended March 31, 2021 are as follows:

In millions Foreign currency translation Derivative contracts Pension and postretirement benefit plans Total

Balance at December 31, 2020 $ ( 260 ) $ 3 $ ( 82 ) $ ( 339 )

Other comprehensive loss before reclassifications ( 62 ) ( 6 ) ( 3 ) ( 71 )

Other comprehensive (loss) income before reclassifications ( 195 ) 34 — — 3 ( 2 ) ( 192 ) 32

Amounts reclassified from Accumulated other comprehensive loss — — — — — 1 — 1

Other comprehensive loss, net ( 62 ) ( 6 ) ( 2 ) ( 70 )

Balance at March 31, 2021 $ ( 322 ) $ ( 3 ) $ ( 84 ) $ ( 409 )

Other comprehensive (loss) income, net ( 195 ) 34 — — 3 ( 1 ) ( 192 ) 33

Balance at June 30 $ ( 578 ) $ ( 288 ) $ ( 2 ) $ ( 3 ) $ ( 61 ) $ ( 85 ) $ ( 641 ) $ ( 376 )

The changes in Accumulated other comprehensive loss by component, including any tax impacts, for the six months ended June 30, 2022 and 2021 are as follows:

Foreign currency translation Derivative contracts Pension and postretirement benefit plans Total

In millions 2022 2021 2022 2021 2022 2021 2022 2021

Balance at beginning of year $ ( 396 ) $ ( 260 ) $ ( 5 ) $ 3 $ ( 65 ) $ ( 82 ) $ ( 466 ) $ ( 339 )

Other comprehensive (loss) income before reclassifications ( 182 ) ( 28 ) 3 ( 6 ) 3 ( 5 ) ( 176 ) ( 39 )

Amounts reclassified from Accumulated other comprehensive loss — — — — 1 2 1 2

Other comprehensive (loss) income, net ( 182 ) ( 28 ) 3 ( 6 ) 4 ( 3 ) ( 175 ) ( 37 )

Balance at June 30 $ ( 578 ) $ ( 288 ) $ ( 2 ) $ ( 3 ) $ ( 61 ) $ ( 85 ) $ ( 641 ) $ ( 376 )

Amounts reclassified from Accumulated other comprehensive loss are recognized in "Other income, net" with the tax impact recognized in "Income tax expense."

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The purchased goodwill is not expected to be deductible for tax purposes.

The results of this business since the date of acquisition are reported within the Freight Segment and the Services product line.

The results of this business since the date of acquisition are reported within the Services product line of the Freight Segment.

The pro forma impact on Wabtec’s sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, was not significant.

The Company also made smaller acquisitions in prior periods not listed above which are individually and collectively immaterial.

During the second quarter of 2022 the Company made two strategic acquisitions for a combined purchase price of $ 69 million within the Digital Electronics product line of the Freight Segment which are individually and collectively immaterial.

The Company also made acquisitions in prior periods not listed above which are individually and collectively immaterial.

The components of inventory, net of reserves, were:

In millions March 31,

In millions June 30,

2022 December 31,

9 unchanged sentences

Foreign currency impact ( 20 ) ( 123 ) ( 143 )

Balance at March 31, 2022 $ 7,091 $ 1,476 $ 8,567

As of March 31, 2022 and December 31, 2021, the Company’s trade names had a net carrying amount of $ 621 million and $ 635 million, respectively.

Balance at June 30, 2022 $ 7,070 $ 1,389 $ 8,459

As of June 30, 2022 and December 31, 2021, the Company’s trade names had a net carrying amount of $ 597 million and $ 635 million, respectively.

The Company believes these intangibles have indefinite lives, with the exception of the right to use the GE Transportation trade name, to which the Company has assigned a useful life of 5 years.

Intangible assets of the Company, other than goodwill and trade names, consist of the following:

In millions March 31,

In millions June 30,

2022 December 31,

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The backlog intangible asset primarily consists of in-place long-term service agreements acquired by the Company in conjunction with the acquisition of GE Transportation in 2019.

Amortization expense for intangible assets was $ 73 million and $ 70 million for the three months ended March 31, 2022 and 2021, respectively.

Amortization expense for intangible assets was $ 72 million and $ 145 million for the three and six months ended June 30, 2022, respectively, and $ 72 million and $ 142 million for the three and six months ended June 30, 2021, respectively.

Amortization expense for the five succeeding years is estimated to be as follows:

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The current portion of the contract assets are classified as current assets under the caption “Unbilled accounts receivable” while the noncurrent contract assets are classified as other assets under the caption "Other noncurrent assets" on the consolidated balance sheets.

Noncurrent contract assets were $ 184 million at March 31, 2022 and $ 153 million at December 31, 2021.

Noncurrent contract assets were $ 190 million at June 30, 2022 and $ 153 million at December 31, 2021.

Included in noncurrent contract assets are certain costs that are specifically related to a contract but do not directly contribute to the transfer of control of the tangible product being created, such as non-recurring engineering costs.

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The current portion of contract liabilities are classified as current liabilities under the caption “Customer deposits” while the noncurrent contract liabilities are classified as noncurrent liabilities under the caption "Other long-term liabilities" on the consolidated balance sheets.

Noncurrent contract liabilities were $ 86 million at March 31, 2022 and $ 88 million at December 31, 2021.

Noncurrent contract liabilities were $ 89 million at June 30, 2022 and $ 88 million at December 31, 2021.

These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract or revenue associated with the contract liabilities is expected to be recognized within one year.

Contract liabilities also include provisions for estimated losses from uncompleted contracts.

Provisions for loss contracts were $ 106 million and $ 107 million at March 31, 2022 and December 31, 2021, respectively.

Provisions for loss contracts were $ 110 million and $ 107 million at June 30, 2022 and December 31, 2021, respectively.

These provisions for

estimated losses are classified as current liabilities and included within the caption “Other accrued liabilities” on the consolidated balance sheets.

The change in the carrying amount of contract assets and contract liabilities for the three months ended March 31, 2022 and 2021 is as follows:

The change in the carrying amount of contract assets and contract liabilities for the six months ended June 30, 2022 and 2021 is as follows:

Contract Assets

1 unchanged sentence

Balance at beginning of year $ 545 $ 544

Acquisitions 28 —

Recognized in current year 284 370

1 unchanged sentence

Foreign currency impact ( 20 ) ( 5 )

Balance at March 31

Balance at June 30

Contract Liabilities

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Foreign currency impact ( 17 ) ( 7 )

Balance at March 31 $ 816 $ 833

Balance at June 30 $ 826 $ 786

The Company leases certain property, buildings and equipment.

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The current portion of lease liabilities are classified under the caption "Other accrued liabilities," while the noncurrent portion of lease liabilities are classified under the caption "Other long-term liabilities" on the consolidated balance sheets.

Operating lease expense for the three months ended March 31, 2022 and 2021, was $ 15 million and $ 14 million, respectively.

New operating leases of $ 2 million were added during the three months ended March 31, 2022.

Operating lease expense was $ 14 million and $ 29 million for the three and six months ended June 30, 2022, respectively, and $ 14 million and $ 28 million for the three and six months ended June 30, 2021, respectively.

New operating leases of $ 22 million and $ 24 million were added during the three and six months ended June 30, 2022, respectively.

Wabtec does not have material financing leases, short-term or variable leases or sublease income.

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Long-term debt consisted of the following:

Effective Interest Rate Face Value March 31, 2022 December 31, 2021

Effective Interest Rate Face Value June 30, 2022 December 31, 2021

In millions Book Value Fair Value 1

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Total 4,213 4,034 4,058 4,383

Less - current portion 14 14 2 2

current portion 226 226 2 2

Long-term portion $ 3,987 $ 3,808 $ 4,056 $ 4,381

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Additionally, the Company has debt issuance costs related to certain financing transactions which are also amortized through interest expense.

As of March 31, 2022 and December 31, 2021, the Company had total combined unamortized discount and debt issuance costs of $ 21 million and $ 23 million, respectively.

As of June 30, 2022 and December 31, 2021, the Company had total combined unamortized discount and debt issuance costs of $ 20 million and $ 23 million, respectively.

Senior Credit Facility

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and (ii) a multi-currency revolving loan facility, providing for an equivalent in U.S.

dollars of up to $ 1,200 million in multi-currency revolving loans (inclusive of swingline loans of up to $ 75 million and letters of credit of up to $ 450 million (the "Revolving Credit Facility")).

dollars of up to $ 1,200 million in multi-currency revolving loans (inclusive of swingline

loans of up to $ 75 million and letters of credit of up to $ 450 million (the "Revolving Credit Facility")).

The Revolving Credit Facility will mature on June 8, 2023.

The Company is currently negotiating an extension of the maturity of the Senior Credit Facility and management expects that this can be accomplished at market rates.

Under the Senior Credit Facility, we can elect to receive advances bearing interest based on either the Alternate Base Rate ("ABR"), the London Interbank Offered Rate ("LIBOR") or the adjusted risk-free rate (each as defined in the Senior Credit Facility) plus applicable margin that is determined based on our credit ratings or the Company's Leverage (as defined in the Senior Credit Facility).

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

The Company was in compliance with all covenants in the Senior Credit Facility as of March 31, 2022.

The following table presents availability under the Senior Credit Facility at March 31, 2022:

The Company was in compliance with all covenants in the Senior Credit Facility as of June 30, 2022.

The following table presents availability under the Senior Credit Facility at June 30, 2022:

In millions Senior Credit Facility

9 unchanged sentences

The US Notes and the Company's guarantee of the Euro Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt, and are senior to all existing and future subordinated indebtedness of the Company.

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.

The indentures under which the 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.

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STOCK-BASED COMPENSATION

As of March 31, 2022, the Company maintains employee stock-based compensation plans for stock options, restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan, as amended and restated (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”).

The 2011 Plan has a term through May 15, 2030, and as of March 31, 2022 the number of shares available for future grants under the 2011 Plan was 6.1 million shares, which includes remaining shares available under the 2000 Plan.

As of June 30, 2022, the Company maintains employee stock-based compensation plans for stock options, restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan, as amended and restated (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”).

The 2011 Plan has a term through May 15, 2030, and as of June 30, 2022 the number of shares available for future grants under the 2011 Plan was 6.0 million shares, which includes remaining shares available under the 2000 Plan.

The Company also maintains a 1995 Non-Employee Directors’ Fee and Stock Option Plan as amended and restated (“the Directors Plan”).

Stock-based compensation expense was $ 11 million and $ 8 million for the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022, unamortized compensation expense related to stock options, non-vested restricted shares and incentive stock units expected to vest totaled $ 71 million.

Stock-based compensation expense was $ 12 million and $ 23 million for the three and six months ended June 30, 2022, respectively, and $ 16 million and $ 24 million for the three and six months ended June 30, 2021, respectively.

At June 30, 2022, unamortized compensation expense related to stock options, non-vested restricted shares and incentive stock units expected to vest totaled $ 69 million.

Stock Options Stock options are granted to eligible employees at an exercise price equivalent to the stock's fair market value, which is the average of the high and low Wabtec stock price on the date of grant.

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Options expire 10 years from the date of grant.

No stock options were granted during the three months ended March 31, 2022.

The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the three months ended March 31, 2022:

No stock options were granted during the six months ended June 30, 2022.

The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the six months ended June 30, 2022:

Options Weighted

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Canceled ( 15,132 ) $ 73.40

Outstanding at March 31, 2022 476,978 $ 75.47 6.3 $ 10

Exercisable at March 31, 2022 365,205 $ 74.31 6.1 $ 8

Outstanding at June 30, 2022 461,726 $ 75.56 6.0 $ 4

Exercisable at June 30, 2022 350,898 $ 74.39 5.8 $ 3

Restricted Stock, Restricted Units and Incentive Stock As provided for under the 2011 Plan and 2000 Plan, eligible employees are granted restricted stock that generally vests over three years from the date of grant.

3 unchanged sentences

The incentive stock units included in the table below represent the number of incentive stock units that are expected to vest based on the Company’s estimate for meeting those established performance targets.

As of March 31, 2022, the Company estimates that it will achieve 121 %, 117 % and 100 % for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2022, 2023, and 2024, respectively, and has recorded incentive compensation expense accordingly.

As of June 30, 2022, the Company estimates that it will achieve 132 %, 117 % and 103 % for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2022, 2023, and 2024, respectively, and has recorded incentive compensation expense accordingly.

If the estimate of the number of these incentive stock units expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease resulting in recognition in the current period for the elapsed portion of the vesting period and would change future expense for the remaining vesting period.

Compensation expense for the non-vested restricted stock and incentive stock units is based on the average of the high and low Wabtec stock price on the date of grant and recognized over the applicable vesting period.

The following table summarizes the restricted stock activity and incentive stock units' activity for the three months ended March 31, 2022:

The following table summarizes the restricted stock activity and incentive stock units' activity for the six months ended June 30, 2022:

and Units Incentive

4 unchanged sentences

Vested ( 208,525 ) ( 43,039 ) $ 74.91

Adjustment for incentive stock awards expected to vest — 10,962 $ 83.91

Canceled ( 21,812 ) ( 25,362 ) $ 78.42

Outstanding at March 31, 2022 604,214 723,076 $ 84.00

The overall effective tax rate of 25.1 % for the three months ended March 31, 2022 differs from the U.S.

Outstanding at June 30, 2022 717,044 726,319 $ 84.25

The overall effective tax rate of 25.5 % and 25.3 % for the three and six months ended June 30, 2022, respectively, differs from the U.S.

Federal statutory rate of 21.0% primarily due to the impact of state and foreign taxes .

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

In millions, except per share data 2022 2021 2022 2021

7 unchanged sentences

Diluted $ 0.91 $ 0.66 $ 1.71 $ 1.25

Approximately 0.3 million outstanding shares of stock options for the three months ended March 31, 2021 were not included in the computation of quarterly diluted earnings per share because their exercise price exceeded the average market price of the Company's common stock.

The following table reconciles the changes in the Company’s product warranty reserve for the three months ended March 31, 2022 and 2021:

Approximately 0.2 million outstanding shares of stock options for the three and six months ended June 30, 2021 were not included in the computation of quarterly diluted earnings per share because their exercise price exceeded the average market price of the Company's common stock.

The following table reconciles the changes in the Company’s product warranty reserve for the six months ended June 30, 2022 and 2021:

In millions 2022 2021

4 unchanged sentences

Foreign currency impact/other ( 10 ) ( 7 )

Balance at March 31

Balance at June 30

FAIR VALUE MEASUREMENT AND DERIVATIVE INSTRUMENTS

9 unchanged sentences

The Company’s cash and cash equivalents are highly liquid investments purchased with an original maturity of three months or less and are considered Level 1 on the fair value valuation hierarchy.

The fair value of cash and cash equivalents approximated the carrying value at March 31, 2022 and December 31, 2021.

The fair value of cash and cash equivalents approximated the carrying value at June 30, 2022 and December 31, 2021.

The Company’s defined benefit pension plan assets consist primarily of equity security funds, debt security funds, insurance contracts, and temporary cash and cash equivalent investments.

4 unchanged sentences

Contingent consideration related to the GE Transportation acquisition is considered Level 3 based on the fair value valuation hierarchy.

At March 31, 2022 and December 31, 2021, $ 110 million was classified as "Other accrued liabilities" on the Company's Consolidated Balance Sheets and $ 142 million and $ 141 million, respectively, was included within long-term liabilities classified as "Contingent consideration" on the Company's Consolidated Balance Sheets.

The fair value approximates the carrying value at March 31, 2022 and December 31, 2021.

At June 30, 2022 and December 31, 2021, $ 110 million was classified as "Other accrued liabilities" on the Company's Consolidated Balance Sheets and $ 143 million and $ 141 million, respectively, was included within long-term liabilities classified as "Contingent consideration" on the Company's Consolidated Balance Sheets.

The fair value approximates the carrying value at June 30, 2022 and December 31, 2021.

Hedging Activities In the normal course of business, the Company is exposed to market risk related to interest rates, commodity prices and foreign currency exchange rate fluctuations, which may adversely affect our operating results and financial position.

8 unchanged sentences

The effective portion of gains and losses is deferred as a component of Accumulated other comprehensive loss and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item.

For the three months ended March 31, 2022 and 2021, the amounts reclassified into income were not material.

For the three and six months ended June 30, 2022 and 2021, the amounts reclassified into income were not material.

The Company has also established balance sheet risk management and net investment hedging programs to protect its balance sheet against foreign currency exchange rate volatility.

7 unchanged sentences

These foreign exchange contracts are accounted for on a full mark to market basis through earnings, with gains and losses recorded as a component of Other income, net.

The net loss related to these contracts was $ 1 million and $ 2 million for the three months ended March 31, 2022 and 2021, respectively.

The net loss related to these contracts was $ 7 million and $ 8 million for the three and six

months ended June 30, 2022, respectively, and a net loss of $ 1 million and $ 3 million for the three and six months ended June 30, 2021, respectively.

These contracts typically mature within one year .

The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of March 31, 2022, which are included in "Other current assets" and "Other accrued liabilities" on the Consolidated Balance Sheets:

The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of June 30, 2022, which are included in "Other current assets" and "Other accrued liabilities" on the Consolidated Balance Sheets:

Fair Value Gross Notional Amount

18 unchanged sentences

The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk.

For the three months ended March 31, 2022 and 2021 the amounts reclassified into income were not material.

For the six months ended June 30, 2022 and 2021 the amounts reclassified into income were not material.

Commodity Price Risk

The Company may use commodity forward contracts and futures to mitigate its exposure to commodity price changes and to reduce its overall cost of manufacturing.

For the three months ended March 31, 2022 and 2021 the amounts recognized as income or expense were not material.

For the six months ended June 30, 2022 and 2021 the amounts recognized as income or expense were not material.

COMMITMENTS AND CONTINGENCIES

8 unchanged sentences

Management believes that the costs of the Company’s asbestos-related cases will not be material to the Company’s overall financial position, results of operations and cash flows.

Xorail, Inc., a wholly owned subsidiary of the Company (“Xorail”), has received notices from Denver Transit Constructors (“DTC”) alleging breach of contract related to the operating of constant warning wireless crossings, and late delivery of the Train Management & Dispatch System (“TMDS”) for the Denver Eagle P3 Project, which is owned by the

Denver Regional Transit District ("RTD").

No damages have been asserted for the alleged late delivery of the TMDS, and no formal claim has been filed;

25 unchanged sentences

Corporate activities include general corporate expenses, elimination of intersegment transactions, interest income and expense, and other unallocated charges.

Segment financial information for the three months ended March 31, 2022 is as follows:

Segment financial information for the three months ended June 30, 2022 is as follows:

In millions Freight

9 unchanged sentences

Income (loss) before income taxes $ 233 $ 50 $ ( 56 ) $ 227

Segment financial information for the three months ended March 31, 2021 is as follows:

Segment financial information for the three months ended June 30, 2021 is as follows:

In millions Freight

9 unchanged sentences

Income (loss) before income taxes $ 173 $ 45 $ ( 49 ) $ 169

Segment financial information for the six months ended June 30, 2022 is as follows:

In millions Freight

Segment Transit

Segment Corporate

Activities and

Elimination Total

Sales to external customers $ 2,812 $ 1,163 $ — $ 3,975

Intersegment sales/(elimination) 25 17 ( 42 ) —

Total sales $ 2,837 $ 1,180 $ ( 42 ) $ 3,975

Income (loss) from operations $ 422 $ 115 $ ( 34 ) $ 503

Interest expense and other, net — — ( 76 ) ( 76 )

Income (loss) before income taxes $ 422 $ 115 $ ( 110 ) $ 427

Segment financial information for the six months ended June 30, 2021 is as follows:

In millions Freight

Segment Transit

Segment Corporate

Activities and

Elimination Total

Sales to external customers $ 2,519 $ 1,323 $ — $ 3,842

Intersegment sales/(elimination) 24 17 ( 41 ) —

Total sales $ 2,543 $ 1,340 $ ( 41 ) $ 3,842

Income (loss) from operations $ 315 $ 115 $ ( 35 ) $ 395

Interest expense and other, net — — ( 68 ) ( 68 )

Income (loss) before income taxes $ 315 $ 115 $ ( 103 ) $ 327

Sales to external customers by product line are as follows:

Three Months Ended

June 30, Six Months Ended

In millions 2022 2021 2022 2021

Freight Segment

Services $ 711 $ 622 $ 1,377 $ 1,184

Equipment 381 328 655 590

1 unchanged sentence

Digital Electronics 164 162 317 318

Services 666 562

Total Freight Segment $ 1,490 $ 1,336 $ 2,812 $ 2,519

6 unchanged sentences

Three Months Ended

June 30, Six Months Ended

In millions 2022 2021 2022 2021

Foreign currency gain $ 3 $ 9

Foreign currency (loss) gain $ ( 2 ) $ 2 $ 1 $ 11

Equity income 7 4 7 7

Expected return on pension assets/amortization 2 2 5 5

Other miscellaneous expense, net ( 2 ) ( 1 )

Other miscellaneous income (expense), net — 3 ( 2 ) 2

Total Other income, net $ 7 $ 11 $ 11 $ 25

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-Q

Item 1. Financial Statements