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Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-29 · 239 added, 214 removed, 172 unchanged (72% of the section changed)

4 unchanged sentences

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help you understand the results of operations and financial condition of Garrett Motion Inc.

for the three and six months ended June 30, 2021.

for the three and nine months ended September 30, 2021.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements.

We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act.

We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding the following, are forward-looking statements:

6 unchanged sentences

• the consequences of our recent emergence from bankruptcy;

the potential to experience increased levels of employee attrition as a result of the Chapter 11 Cases;

ability to utilize our net operating loss carryforwards in future years;

• changes in the automotive industry and economic or competitive conditions;

4 unchanged sentences

• any significant failure or inability to comply with the specifications and manufacturing requirements of our original equipment manufacturer customers or by increases or decreases to the inventory levels maintained by our customers;

changes in the volume of products we produce and market demand for such products and prices we charge and the margins we realize from our sales of our products;

any loss of or a significant reduction in purchases by our largest customers, material nonpayment or nonperformance by any our key customers, and difficulty collecting receivables;

• changes in the volume of products we produce and market demand for such products and prices we charge and the margins we realize from the sales of our products;

• any loss of, or a significant reduction in purchases by, our largest customers, material nonpayment or nonperformance by any of our key customers, and difficulty collecting receivables;

• inaccuracies in estimates of volumes of awarded business;

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• technical difficulties or failures, including cybersecurity risks;

changes in legislation or government regulations or policies, including with respect to CO 2 reduction targets in Europe as part of the Green Deal objectives or other similar changes which may contribute to a proportionately higher level of battery electric vehicles;

• changes in legislation or government regulations or policies, including with respect to CO 2 reduction targets in Europe as part of the Green Deal objectives or other similar changes and growing recognition among consumers of the dangers of climate change, which may affect demand for our products, our supply chain, and our results of operations;

• risks related to international operations and our investment in foreign markets, including risks related to the withdrawal of the United Kingdom from the European Union;

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• unforeseen adverse tax effects;

our leveraged capital structure and liabilities to Honeywell may pose significant challenges to our overall strategic and financial flexibility and have a material adverse effect on our business, liquidity position and financial position;

• inability to recruit and retain qualified personnel;

the other factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as updated in this Quarterly Report on Form 10-Q, and in our other filings with the SEC.

• the other factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as updated in this Quarterly Report on Form 10-Q, and our other filings with the SEC.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein completely and with the understanding that our actual future results may be materially different from what we expect.

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We are a global technology leader with significant expertise in delivering products across gasoline, diesel, natural gas and electric (hybrid and fuel cell) powertrains.

These products are key enablers for fuel economy and emission standards compliance.

Market penetration of vehicles with a turbocharger is expected to increase from approximately 52% in 2020 to approximately 55% by 2024, according to IHS Markit (“IHS”) for Light Vehicle and other industry sources for Commercial Vehicle on-highway and off-highway, which we believe will allow the turbocharger market to grow at a faster rate than overall automobile production.

We expect that the powertrain mix evolution trends will remain mostly unchanged, which should support the turbocharger industry in the short to medium term.

In the first half of 2021, a significant increase in battery electric vehicle (“BEV”) sales as been observed in Europe and in China.

with BEV representing respectively 6% and 9% of vehicle sold.

In China, renewed sales incentives, especially in Tier 2 and Tier 3 cities, as well as non-financial incentives such as more generous license-plate quotas for major metropolitan areas, bolsters Chinese BEV penetration.

These products are key enablers for fuel economy and emissions standards compliance.

Market penetration of vehicles with a turbocharger is expected to increase from approximately 52% in 2020 to approximately 54% by 2024, according to IHS Markit (“IHS”) for light vehicle and other industry sources for commercial vehicle on-highway and off-highway, which we believe will allow the turbocharger market to grow at a faster rate than overall automobile production in the short to medium term.

In the first half of 2021, a significant increase in battery electric vehicle (“BEV”) sales has been observed in Europe and China, with BEV representing, respectively 6% and 8% of vehicles sold.

In Europe, the COVID-19 stimulus packages are mostly directed to electric vehicles, as well as fleet average CO2 targets to be achieved by OEMs are supporting BEV penetration.

It has to be noticed that short term, selling price, charging time, charging infrastructure availability and profitability issues for OEMs remain challenges to adoption.

The Company acknowledges that short-term, selling price, charging time, charging infrastructure availability and profitability issues for OEMs remain challenges to adoption.

In the long-term, the expected revision of CO2 reduction targets by 2030 proposed by the E.U.

could drive further increase of BEV penetration in Europe beyond currently forecasted levels.

In the USA, the expected tightening of CO2 / mileage targets is expected to drive higher turbo penetration.

In the short to medium term, we believe that turbo penetration will grow as turbos remain one of the most cost-efficient levers to improve the fuel efficiency of conventional Gasoline and Diesel vehicles as well as hybrid and fuel-cell vehicles.

could drive a further increase of BEV penetration in Europe beyond currently forecasted levels.

In the USA, the expected tightening of CO2/mileage targets is expected to drive higher turbo penetration in the short to medium-term.

Mid-to-long-term, the US President has signed an executive order with the goal of making half of all new vehicles sold in 2030 zero-emissions vehicles, including battery electric, plug-in hybrid electric, or fuel cell electric vehicles, which is expected to impact the powertrain mix .

In China, the roadmap released by the China Society of Automotive Engineers, Energy-saving and New Energy Vehicle Technology Roadmap 2.0, outlines a technology path for the next ten years that aims at finding a balance between fuel consumption improvement for hybrids and the introduction of electric vehicles.

In that context, the turbocharger industry is expected to keep contributing to fuel economy optimization of both conventional gasoline and diesel vehicles and hybrid vehicles.

In the short to medium term, we believe that turbo penetration will grow as turbos remain one of the most cost-efficient levers to improve the fuel efficiency of conventional gasoline and diesel vehicles as well as hybrid vehicles.

In addition, fuel cell vehicles also require a high-performance electric boosting system.

In the commercial vehicle market, we expect a slower transition to BEVs, which could also bolster turbo penetration.

Growth in the turbo market is expected in all regions, with special mention for high-growth regions in Asia, where rising income levels continue to drive long-term automotive and vehicle content demand.

While these positive factors do not isolate the turbo industry from fluctuations in global vehicle production volumes, such factors may mitigate the negative impact of macroeconomic cycles, or the negative impact of a shift from light vehicle Diesel to light vehicle Gasoline engines.

At the same time, the global semiconductor shortage is creating uncertainty across multiple industries, including the automotive industry, and will keep influenc ing our operating activity until the end of the year.

Automotive OEMs have reduced production plans in the first two quarters.

The C ompany is currently reviewing production at OEM plants and is closely monitoring supply chain disruptions related to semiconductor shortages in an effort to minimize the impact of the bottleneck in supply and to mitigate any potential disruption in production.

While these positive factors do not isolate the turbo industry from fluctuations in global vehicle production volumes, such factors may mitigate the negative impact of macroeconomic cycles.

At the same time, the global semiconductor shortage is creating uncertainty across multiple industries, including the automotive industry, and will keep influencing our operating activity until mid of 2022 at least.

Automotive OEMs have reduced production plans in the first two quarters of 2022.

The Company is currently reviewing production levels at OEM plants and is closely monitoring supply-chain disruptions related to semiconductor shortages in an effort to minimize the impact of the bottleneck in supply and to mitigate any potential disruption in production.

In addition, our business uses substantial amounts of energy in production, and our production activities may therefore be impacted by power outages in the places where we produce our products, such as China (Jiangsu province in particular).

As of September 30, 2021, Garrett plants in China have not experienced power outage impacts at our own production facilities.

However, reduced supplier capacity may not meet our demands, and we may also encounter demand reduction from customers or power cuts in our own plants going forward.

Any power outage impacts are closely monitored.

In addition, as of September 30, 2021, the global economy has experienced an increased risk of shortages and other disruptions to global supply chains, including as a result of the continuing impact of the COVID-19 pandemic.

Emergence from Chapter 11

For more detailed information regarding the emergence from Chapter 11 see Note 2, Plan of Reorganization of the Notes to the Consolidated Interim Financial Statements.

For more detailed information regarding our emergence from Chapter 11, see Note 2 , Plan of Reorganization of the Notes to the Consolidated Interim Financial Statements.

Impact of COVID-19 Pandemic

After the extensive impact on our sales in the second half of 2020 year caused by the COVID-19 pandemic, we have observed a fast recovery in all geographies since mid-2020, that enabled us to ramp up production in most of our production sites to normal levels in the third quarter of 2020 and continuing through the second quarter of 2021, despite the resurgence of infection rates in the U.S.

After the extensive impact on our sales in the second half of 2020 caused by the COVID-19 pandemic, we have observed a fast recovery in all geographies since mid-2020, which enabled us to ramp up production in most of our production sites to normal levels in the third quarter of 2020 and continuing through the third quarter of 2021, despite the resurgence of infection rates in the U.S.

and European Union.

If the COVID-19 pandemic, despite vaccination campaigns, drives new lockdown measures impacting our manufacturing facilities, our facilities may be forced to shut down or operate at reduced capacity again.

If the COVID-19 pandemic, despite vaccination campaigns, drives new lockdown measures impacting our manufacturing facilities, our facilities may be forced to shut down or operate

at reduced capacity again.

Additional or continued facility closures or reductions in operations could significantly reduce our production volumes and have a material adverse impact on our business, results of operations and financial condition.

According to IHS and other industry sources, in 2020 a 16% decrease in global light vehicle production and a 5% decline in commercial vehicle production were observed, a larger drop than during the financial crisis in 2008 and 2009.

According to IHS and other industry sources, in 2020 a 16% decrease in global light vehicle production and a 5% decline in commercial vehicle production was observed, a larger drop than during the financial crisis in 2008 and 2009.

In 2021, a partial recovery is expected with a rebound of light vehicle production of 2% and commercial vehicles of 5%.

As a result, we estimate that a contraction of approximately 13% for the combined light and commercial vehicle turbocharger industry volume occurred in 2020 and we expect a strong rebound in 2021, which is observed since the second half of 2020.

As a result, we estimate that a contraction of approximately 12% for the combined light and commercial vehicle turbocharger industry volume occurred in 2020 and rebound is not expected until 2022 due to semiconductor shortage in the overall automotive industry.

We have prepared contingency plans for multiple scenarios that we believe will allow us to react swiftly to changes in customer demand while protecting Garrett’s long-term growth potential.

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In limited circumstances, certain suppliers experienced financial distress during 2020, resulting in supply disruptions.

In line with action already started in 2020, we continue to systematically monitor supplier risks associated with COVID-19 and other material supply shortages and believe we have substantially addressed such risks with manageable economic impacts including use of Premium Freight or adjusted payment terms that are limited in time.

In line with the action already started in 2020, we continue to systematically monitor supplier risks associated with COVID-19 and other material supply shortages and believe we have substantially addressed such risks with manageable economic impacts, including the use of premium freight or adjusted payment terms that are limited in time.

In addition, we have implemented cost control measures and cash management actions, including:

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• Restricting external hiring.

The following charts show our percentage of revenues by geographic region and product line for the three and six months ended June 30, 2021 and the percentage change from the prior year comparable period.

The following charts show our percentage of revenues by geographic region and product line for the three and nine months ended September 30, 2021 and the percentage change from the prior year comparable period.

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

By Product Line

We are a global business that generated revenues of approximately $0.9 billion and $1.9 billion for the three and six months ended June 30, 2021 respectively.

Light vehicle products (which includes Diesel and Gas products, including products for passenger cars, SUVs, light trucks, and other products) accounted for approximately 67% and 69% of our revenues for the three and six months ended June 30, 2021.

Commercial vehicle products (products for on-highway trucks and off-highway trucks, construction, agriculture and power-generation machines) accounted for 20% and 19% of our revenues for the three and six months ended June 30, 2021.

Our OEM sales contributed approximately 87% and 88% of our revenues while our aftermarket and other products contributed 11% and 10% of our revenues for the three and six months ended June 30, 2021.

Approximately 52% and 52% of our revenues came from sales to customers located in Europe, 32% and 32% from sales to customers located in Asia, 15% and 15% from sales to customers in North America, and 1% and 1% from sales to customers in other international markets for the three and six months ended June 30, 2021.

Basis of Presentation

The Consolidated Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

All amounts presented are in millions, except per share amounts.

Results of Operations for the three and six months ended June 30, 2021 compared with the three and six months ended June 30, 2020

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

• We are a global business that generated revenues of approximately $0.8 billion and $2.8 billion for the three and nine months ended September 30, 2021, respectively.

• Light vehicle products (which includes diesel and gas products, including products for passenger cars, SUVs, light trucks, and other products) accounted for approximately 66% and 68% of our revenues for the three and nine months ended September 30, 2021, respectively.

Commercial vehicle products (products for on-highway trucks and off-highway trucks, construction, agriculture and power-generation machines) accounted for 19% and 19% of our revenues for the three and nine months ended September 30, 2021, respectively.

• Our OEM sales contributed approximately 85% and 87% of our revenues while our aftermarket and other products contributed 15% and 13% of our revenues for the three and nine months ended September 30, 2021, respectively.

• Approximately 47% and 51% of our revenues came from sales to customers located in Europe, 34% and 33% from sales to customers located in Asia, 17% and 15% from sales to customers in North America, and 2% and 1% from sales to customers in other international markets for the three and nine months ended September 30, 2021, respectively.

Results of Operations for the three and nine months ended September 30, 2021 compared with the three and nine months ended September 30, 2020

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

Net sales $ 839 $ 804 $ 2,771 $ 2,026

% change compared with prior period 4.4 % 36.8 %

The change in net sales compared to prior year period is attributable to the following:

For the Three

June 30, 2021

Foreign Currency Translation

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Our net sales increased for the three months ended June 30, 2021 compared to the prior year period by $458 million or 96.0% (including a favorable impact of 13.4% due to foreign currency translation).

The increase in sales was primarily driven by light vehicles OEM products increase of $332 million, commercial vehicles OEM products increase of $91 million, aftermarket products net sales increase of $32 million and other products’ increase of $3 million.

Our higher net sales of light vehicles OEM products was primarily driven by higher gasoline and diesel volumes in Europe and North America.

The increase in net sales for commercial vehicles and aftermarket product sales were primarily driven by higher volumes in Europe and North America.

The increase in aftermarket product sales was primarily driven by higher volumes in Europe and North America.

The production at our facilities in Europe and North America increased significantly, compared to the three months ended June 30, 2020.

We experienced diminished production in our manufacturing facilities for that same time period during 2020, due to the COVID-19 pandemic.

Six Months Ended June 30, 2021 compared with Six Months Ended June 30, 2020

Our net sales increased for the six months ended June 30, 2021 compared to the prior year period by $710 million or 58.1% (including a positive impact of 10.3% due to foreign currency translation).

The increase in sales was primarily driven by light vehicles OEM products increase of $529 million, commercial vehicles OEM products increase of $135 million, aftermarket products increase of $41 million and other products’ increase of $5 million.

Our higher net sales of light vehicles OEM products was primarily driven by higher diesel volumes in Europe and higher gasoline volumes in Europe and China.

The increase in net sales for commercial vehicles OEM products and aftermarket product sales were primarily driven by higher volumes in Europe and North America.

The increase in other net sales was primarily driven by an increase in prototype volumes.

The production at our facilities in China has increased significantly, compared to the six months ended June 30, 2020, given that our manufacturing facility in Wuhan, China, was shut down for six weeks in February and March 2020 and we saw diminished production in our Shanghai, China facility for the same time period, due to the COVID-19 pandemic.

The production at our facilities in Europe and North America has increased significantly, compared to the six months ended June 30, 2020, given that we saw diminished production in our manufacturing facilities for that same time period during 2020, due to the COVID-19 pandemic.

Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020

The change in net sales for the three months ended September 30, 2021 compared with the three months ended September 30, 2020 is attributable to the following:

Our net sales increased for the three months ended September 30, 2021 compared to the prior-year period by $35 million or 4.4% (including a favorable impact of $18 million or 2.2% due to foreign currency translation driven by a higher Euro-to-US dollar exchange rate).

Gasoline product sales increased by $10 million or 3% (including a favorable impact of $11 million or 3% due to foreign currency translation) over the same period last year, with both ramp-up to peak volumes and new launches of certain products in North America and other regions partially offsetting the impact of the semiconductor shortage on net sales in Europe.

Diesel product sales in the period decreased by $9 million or 4% (including a favorable impact of $4 million or 1% due to foreign currency translation), primarily driven by the impact of the semiconductor shortage on net sales in Europe.

Commercial vehicle sales increased by $17 million or 12% (including a favorable impact of $2 million or 2% due to foreign currency translation), primarily driven by the continuing recovery in customer demand following the pandemic related disruptions experienced in 2020, with both ramp-up to peak volumes and new launches of certain products in Europe and North America off-highway business, which offset the market decline in China following the implementation of the heightened China 6a emissions standards for heavy-duty trucks on 1 July 2021 and in North America on-highway due to component shortage.

Aftermarket sales improved by $20 million or 23% (including a favorable impact of $1 million or 1% due to foreign currency translation), primarily driven by North America off-highway business and service replacements in aftermarket, following economic recovery in major regions after pandemic related disruptions.

Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020

The change in net sales for the nine months ended September 30, 2021 compared with the nine months ended September 30, 2020 is attributable to the following:

Our net sales increased for the nine months ended September 30, 2021 compared to the prior-year period by $745 million or 36.8% reported (including a favorable impact of $143 million or 7.1% due to foreign currency translation driven by a higher Euro-to-US dollar exchange rate).

Gasoline product sales increased by $307 million or 40% (including a favorable impact of $64 million or 8% due to foreign currency translation), primarily driven by the continuing recovery in customer demand following the pandemic related disruptions experienced in 2020, with both ramp-up to peak volumes and new launches of certain products in North America and China.

Diesel product sales increased by $225 million or 38% (including a favorable impact of $49 million or 9% due to foreign currency translation), primarily driven by the strong recovery in customer demand in the first six months ending June, 30 2021 following the pandemic related disruptions experienced in 2020, which was partially offset by the semiconductor shortage in the three months ended September 30, 2021.

Commercial Vehicle sales increased by $150 million or 39% (including a favorable impact of $19 million or 5% due to foreign currency translation), primarily driven by the continuing recovery in customer demand following the pandemic related disruptions experienced in 2020 and with both ramp-up to peak volumes and new launches of certain products in Europe and China.

Aftermarket sales increased by $61 million or 26% (including a favorable impact of $9 million or 4% due to foreign currency translation), primarily due to continuing recovery in customer demand following the pandemic-related disruptions experienced in 2020 driven by service replacements.

Cost of Goods Sold

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

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Gross profit percentage 19.4 % 18.3 % 19.9 % 18.0 %

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Costs of goods sold increased for the three months ended June 30, 2021 compared to the prior year period by $345 million or 86.9% primarily due to an increase in direct material and labor costs of $290 million.

Gross profit percentage increased by 3.8% primarily due to favorable impact of productivity including higher volume leverage (10.0%) and the favorable impacts from foreign and exchange rates (0.7%), partially offset by unfavorable impacts from mix and price (3.3%), unfavorable impacts from inflation (1.4%), unfavorable impact from repositioning costs (0.2%), and other factors (2.0%), mainly driven by material scrap and prior year period cost savings actions to mitigate Covid-19 impact.

Six Months Ended June 30, 2021 compared with Six Months Ended June 30, 2020

Costs of goods sold increased in the six months ended June 30, 2021 compared to the prior year period by $539 million or 53.7% primarily due to an increase in direct material and labor costs of $451 million.

Gross profit percentage increased by 2.3% primarily due to favorable impact of productivity including higher volume leverage (7.4%) and the favorable impacts from foreign and exchange rates (0.6%), partially offset by unfavorable impacts from mix and price (3.1%), unfavorable impacts from inflation (0.9%), unfavorable impact from repositioning costs (0.3%), and other factors (1.4%), mainly driven by Brazil environmental expenses and prior year period cost savings actions to mitigate Covid-19 impact.

Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020

Costs of goods sold increased for the three months ended September 30, 2021 compared to the prior-year period by $19 million or 2.9% (including an unfavorable impact of $14 million or 2.1% due to foreign currency translation).

This increase in cost of goods sold was primarily driven by higher direct material and labor costs of $10 million, an increase in freight costs of $7 million (of which $5 million represents transportation inflation), and an increase in R&D expenses of $5 million as we continue to invest in new technologies, which was partially offset by benefits from productivity including higher volume leverage.

Gross profit percentage increased by 1.1% primarily due to favorable impact of productivity (2.8%) and other factors (1.1%) mainly driven by the non-recurrence of environmental costs in Brazil incurred in the prior year and China Government incentives received in 2021, which was partially offset by unfavorable impacts from inflation (2.2%), unfavorable impacts from price net of a favorable mix (0.5%), and an unfavorable impact from repositioning costs (0.1%).

Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020

Costs of goods sold increased in the nine months ended September 30, 2021 compared to the prior-year period by $558 million or 33.6% (including an unfavorable impact of $106 million or 6.4% due to foreign currency translation).

This increase in cost of goods sold was primarily driven by higher direct material and labor costs of $462 million driven by higher volume, an increase in freight costs of $31 million (of which $15 million represents transportation inflation), as well as an increase in R&D expenses of $15 million as we continue to invest in new technologies.

Gross profit percentage increased by 1.9% primarily due to favorable impact of productivity including higher volume leverage (6.0%) and the favorable impacts from foreign and exchange rates (0.4%), partially offset by unfavorable impacts from mix and price (2.3%), unfavorable impacts from inflation (1.6%), unfavorable impact from repositioning costs (0.2%), and other factors (0.3%) mainly driven by prior year period cost savings actions to mitigate COVID-19 impact, which was partially offset by the non-recurrence of environmental costs in Brazil incurred in the prior year and China Government incentives received in 2021.

Selling, General and Administrative Expenses

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

Selling, general and administrative expense $ 60 $ 98 $ 166 $ 202

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Selling, general and administrative expenses increased for the three months ended June 30, 2021 compared to the prior year period by $4 million, mainly driven by foreign exchange rate.

The cost savings actions implemented in the three months ended June 30, 2020 to mitigate the impact of COVID-19 were offset by the strategic planning costs incurred during the same year period.

During current year period, the accrual for employee incentives increased, reflecting expected payout in 2021, and was partially offset by lower spend and timing from external services and bad debt recovery.

As a percentage of net sales, SG&A for the three months ended June 30, 2021 was 5.5% versus 9.9% in the prior year period.

Six Months Ended June 30, 2021 compared with Six Months Ended June 30, 2020

Selling, general and administrative expenses increased for the six months ended June 30, 2021 compared to the prior year period by $2 million, mainly driven by foreign exchange rate.

The cost savings actions implemented in the six months ended June 30, 2020 to mitigate the impact of COVID-19, were offset by the strategic planning costs incurred in the same year period.

During current year period, the accrual for employee incentives increased, reflecting expected payout in 2021 and was partially offset by lower spend and timing from external services and bad debt recovery.

As a percentage of net sales, SG&A for the six months ended June 30, 2021 was 5.5% versus 8.5% in the prior year period.

% of sales 7.2 % 12.2 % 6.0 % 10.0 %

Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020

Selling, general and administrative (“SG&A”) expenses decreased for the three months ended September 30, 2021 compared to the prior-year period by $38 million, mainly driven by $44 million of the strategic planning costs incurred during the three months ended September 30, 2020.

This was partially offset by labor inflation, higher accrual for employees incentives which reflect the expected payouts in 2021, a $2 million capital tax expense and an unfavorable impact of foreign exchange.

We also implemented a number of cost savings initiatives in the three months ended September 30, 2020 to mitigate the impact of COVID-19, which were offset by the strategic planning costs incurred in the same period.

As a percentage of net sales, SG&A for the three months ended September 30, 2021 was 7.2% versus 12.2% in the prior-year period.

Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020

SG&A expenses decreased for the nine months ended September 30, 2021 compared to the prior-year period by $36 million, mainly driven by $51 million of strategic planning costs incurred during the nine months ended September 30, 2020.

This was partially offset by labor inflation, higher accrual for employees incentives which reflect the expected payouts in 2021 and an unfavorable impact of foreign exchange.

We also implemented a number of costs savings initiatives in the nine months ended September 30, 2020 to mitigate the impact of COVID-19, which were offset by the strategic planning costs incurred in the same year period.

As a percentage of net sales, SG&A for the nine months ended September 30, 2021 was 6.0% versus 10.0% in the prior-year period.

Other Expense, Net

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

(Dollars in millions)

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

Other expense, net $ — $ 14 $ 1 $ 45

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Other expense, net decreased for the three months ended June 30, 2021 compared to the prior year period by $15 million.

The decrease was attributable to the cancellation of the liability related to the Honeywell Indemnity Agreement and associated litigation, following emergence from Chapter 11.

Six Months Ended June 30, 2021 compared with Six Months Ended June 30, 2020

Other expense, net decreased for the six months ended June 30, 2021 compared to the prior year period by $30 million.

The decrease was attributable to the cancellation of the liability related to the Honeywell Indemnity Agreement and associated litigation, following emergence from Chapter 11.

% of sales — % 1.7 % — % 2.2 %

Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020

Other expense, net decreased for the three months ended September 30, 2021 compared to the prior-year-period by $14 million.

The decrease is attributable to the cancellation of the liability related to the Honeywell Indemnity Agreement and associated litigation, following our emergence from Chapter 11.

Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020

Other expense, net decreased for the nine months ended September 30, 2021 compared to the prior-year-period by $44 million.

The decrease is attributable to the cancellation of the liability related to the Honeywell Indemnity Agreement and associated litigation, following our emergence from Chapter 11.

Interest Expense

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

Interest expense $ 25 $ 20 $ 70 $ 56

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Interest expense increased in the three months ended June 30, 2021 compared to the prior year period by $4 million, primarily due to $7 million related to the Series B Preferred Stock, partially offset by prior year period fees related to amendments to our previous credit facilities.

Six Months Ended June 30, 2021 compared with Six Months Ended June 30, 2020

Interest expense increased in the six months ended June 30, 2021 compared to the prior year period by $9 million, mainly due to $7 million related to the Series B Preferred Stock and the addition of supplementary financing under our Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “DIP Credit Agreement”), partially offset by prior year period fees related to amendments to our previous credit facilities.

Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020

Interest expense increased in the three months ended September 30, 2021 compared to the prior-year period by $5 million, primarily due to $11 million in accretion expense on the Series B Preferred Stock, partially offset by $5 million lower interest expense on our current credit facilities compared to our credit facility in the prior-year period, before emergence from Chapter 11.

Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020

Interest expense increased in the nine months ended September 30, 2021 compared to the prior-year period by $14 million, mainly due to $18 million accrued on the Series B Preferred Stock and the addition of supplementary financing under our Senior Secured Super-Priority Debtor-in-Possession Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “DIP Credit Agreement”), partially offset by prior year period fees related to amendments to our previous credit facilities.

Non-operating (income) expense

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

Non-operating (income) expense $ (4) $ 1 $ (4) $ (7)

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Non-operating (income) expense for the three months ended June 30, 2021 increased to an income of $26 million from income of $4 million in the prior year period, primarily due to foreign exchange rates fluctuations related to the debt, which were unhedged due to the restrictions placed on the company in Chapter 11 Cases.

Six Months Ended June 30, 20 2 1 compared with Six Months Ended June 30, 2020

Non-operating (income) expense for the six months ended June 30, 2021 decreased $8 million from income of $8 million in the prior year period, primarily due to foreign exchange rates fluctuations related to the debt, which were unhedged due to the restrictions placed on the company in Chapter 11 Cases.

Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020

Non-operating (income) expense for the three months ended September 30, 2021 increased to an income of $4 million from an expense of $1 million in the prior-year period, primarily due to foreign exchange rates fluctuations related to the debt, which were unhedged due to the restrictions placed on the Company in Chapter 11 Cases.

Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020

Non-operating (income) expense for the nine months ended September 30, 2021 decreased $3 million from income of $7 million in the prior-year period, primarily due to foreign exchange rates fluctuations related to the debt, which were unhedged due to the restrictions placed on the Company in Chapter 11 Cases, partially offset by higher non-service pension benefit in the current year period.

Reorganization items, net

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

Reorganization items, net $ (9) $ 4 $ (130) $ 4

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Reorganization items, net for the three months ended June 30, 2021 were $295 million gain, representing $502 million gain on settlement of Honeywell claims, partially offset by $96 million professional service fees related to the Chapter 11 Cases, $39 million in Directors and Officers insurance related to Chapter 11 Cases, $25 million write off on debt issuance costs of the old term loan debt, $13 million in employee stock awards cancellation and $34 million in other costs mainly related to unsecured notes settlement.

There were no Reorganization items, net for the three months ended June 30, 2020, since these are new items related to the Chapter 11 Cases.

Six Months Ended June 30, 2021 compared with Six Months Ended June 30, 2020

Reorganization items, net for the six months ended June 30, 2021 were $121 million gain, representing $502 million gain on settlement of Honeywell claims, partially offset by $181 million professional service fees related to the Chapter 11 Cases, $79 million related to termination of and expense reimbursement under the Stalking Horse Purchase Agreement, $39 million Directors and Officers insurance related to Chapter 11 Cases, $25 million write off on debt issuance costs of the old term loan debt, $13 million in employee stock awards cancellation and $44 million in other costs mainly related to unsecured notes settlement.

There were no Reorganization items, net for the six months ended June 30, 2020, since these are new items related to the Chapter 11 Cases.

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020

Reorganization items, net for the three months ended September 30, 2021 were a $9 million gain, representing the reversal of the excess accrual of professional service fees related to the Chapter 11 Cases.

During the prior-year period, $6 million of expense within reorganization items was attributable to the write-off on debt issuance costs of the Pre-petition Credit Agreement.

Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020

Reorganization items, net for the nine months ended September 30, 2021 were a $130 million gain, representing a $502 million gain on the settlement of Honeywell claims, partially offset by $173 million professional service fees related to the Chapter 11 Cases, $79 million related to the termination of and expense reimbursement under the Stalking Horse Purchase Agreement, $39 million in Directors and Officers insurance related to Chapter 11 Cases, a $25 million write off on debt issuance costs of the Pre-petition Credit Agreement debt, $13 million in employee stock awards cancellation and $43 million in other costs mainly related to unsecured notes settlement.

During the prior-year period, $6 million were attributable to the write-off on debt issuance costs of the Pre-petition Credit Agreement.

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

Tax expense $ 28 $ (1) $ 82 $ 11

Effective tax rate 30.8 % (10.0) % 18.3 % 16.9 %

See Note 7, Income Taxes of the Notes to the Consolidated Interim Financial Statements for a discussion of the change in effective tax rates for the three and six months ended June 30, 2021 versus the prior year periods.

Net Income (loss)

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

See Note 7, Income Taxes of the Notes to the Consolidated Interim Financial Statements for a discussion of the change in effective tax rates for the three and nine months ended September 30, 2021 versus the prior-year periods.

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

Net income (loss)

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

As a result of the factors described above, net income was $409 million for the three months ended June 30, 2021 as compared to net loss of $9 million for the three months ended June 30, 2020.

Six Months Ended June 30, 20 2 1 compared with Six Months Ended June 30, 2020

As a result of the factors described above, net income was $304 million for the six months ended June 30, 2021 as compared to net income of $43 million for the six months ended June 30, 2020.

Net income $ 63 $ 11 $ 367 $ 54

Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020

As a result of the factors described above, net income was $63 million for the three months ended September 30, 2021 as compared to net income of $11 million for the three months ended September 30, 2020.

Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020

As a result of the factors described above, net income was $367 million for the nine months ended September 30, 2021 as compared to net income of $54 million for the nine months ended September 30, 2020.

Non-GAAP Measures

It is management’s intent to provide non-GAAP financial information to supplement the understanding of our business operations and performance, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP.

Management intends to provide non-GAAP financial information to supplement the understanding of our business operations and performance, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP.

Each non-GAAP financial measure is presented along with the most directly comparable GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure.

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EBITDA and Adjusted EBITDA (1)

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

Net income (loss) — GAAP

Net income — GAAP $ 63 $ 11 $ 367 $ 54

Net interest expense 24 19 67 53

Tax expense (benefit) 28 (1) 82 11

Depreciation 23 23 70 60

EBITDA (Non-GAAP) $ 138 $ 52 $ 586 $ 178

Other expense, net (which consists of indemnification,

asbestos and environmental expenses) (2)

Other expense, net (which consists of indemnification, asbestos and environmental expenses) (2)

Non-operating income (3)

(3) (3) (9) (8)

Reorganization items, net (4)

(9) 4 (130) 4

Stock compensation expense (5)

Repositioning charges (6)

Foreign exchange (gain) loss on debt, net of related hedging (gain) loss

Foreign exchange loss on debt, net of related hedging loss — 5 9 4

Professional service costs (7)

Capital tax expense (8)

Adjusted EBITDA (Non-GAAP) $ 134 $ 120 $ 478 $ 291

We evaluate performance on the basis of EBITDA and Adjusted EBITDA.

(1) We evaluate performance based on EBITDA and Adjusted EBITDA.

We define “EBITDA” as our net income/loss calculated in accordance with U.S.

GAAP, plus the sum of net interest expense/income, tax expense/benefit and depreciation.

We define “Adjusted EBITDA” as EBITDA, plus the sum of non-operating income/expense, other expenses, net (which consists of indemnification, asbestos and environmental expenses), stock compensation expense, reorganization items, net, repositioning charges and foreign exchange gain/loss on debt, net of related hedging gain/loss.

We define “Adjusted EBITDA” as EBITDA, plus the sum of non-operating income/expense, other expenses, net (which consists of indemnification, asbestos and environmental expenses), stock compensation expense, reorganization items, net, repositioning charges, foreign exchange gain (loss) on debt, net of related hedging (gain) loss, Spin-Off costs, professional services costs and Capital tax expense.

We believe that EBITDA and Adjusted EBITDA are important indicators of operating performance and provide useful information for investors because:

• EBITDA and Adjusted EBITDA exclude the effects of income taxes, as well as the effects of financing and investing activities by eliminating the effects of interest and depreciation expenses and therefore more closely measure our operational performance;

certain adjustment items, while periodically affecting our results, may vary significantly from period to period and have disproportionate effect in a given period, which affects comparability of our results.

In addition, our management may use Adjusted EBITDA in setting performance incentive targets in order to align performance measurement with operational performance.

The accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the Honeywell Indemnity Agreement with Honeywell entered into on September 12, 2018, under which Garrett ASASCO is currently required to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to Honeywell’s former Bendix business in the United States, as well as certain environmental-related liability payments and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elements of the Bendix business, including the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities.

The Plan as confirmed by the Bankruptcy Court include s a global settlement with Honeywell providing for, among other things, the full and final satisfaction, settlement, release, and discharge of all liabilities under or related to the Honeywell Indemnity Agreement, that certain Indemnification Guarantee Agreement, dated as of September 27, 2018 (as amended, restated, amended and restated, supplemented, or otherwise modified from time to time), by and among Honeywell ASASCO 2 Inc.

as payee, Garrett ASASCO as payor, and certain subsidiary guarantors as defined therein (the “Guarantee Agreement,” and together with the Honeywell Indemnity Agreement, the “Indemnity Agreements”) and the Tax Matters Agreement.

See Note 2 2 , Commitments and Contingencies of Notes to the Consolidated Interim Financial Statements.

• certain adjustment items, while periodically affecting our results, may vary significantly from period to period and have disproportionate effect in a given period, which affects the comparability of our results.

In addition, our management may use Adjusted EBITDA in setting performance incentive targets to align performance measurement with operational performance.

(2) The accounting for the majority of our asbestos-related liability payments and accounts payable reflect the terms of the Honeywell Indemnity Agreement with Honeywell entered into on September 12, 2018, under which Garrett ASASCO was expected to make payments to Honeywell in amounts equal to 90% of Honeywell’s asbestos-related liability payments and accounts payable, primarily related to Honeywell’s former Bendix business in the United States, as well as certain environmental-related liability payments and accounts payable and non-United States asbestos-related liability payments and accounts payable, in each case related to legacy elements of the Bendix business, including the legal costs of defending and resolving such liabilities, less 90% of Honeywell’s net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities.

(3) Non-operating income adjustment includes the non-service component of pension expense and other expense, net and excludes interest income, equity income of affiliates, and the impact of foreign exchange.

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The Company applied U.S.

GAAP for period subsequent to the Effective Date.

See Note 1, Background and Basis of Presentation of Notes to the Consolidated Interim Financial Statements.

GAAP for the period subsequent to the Effective Date.

See Note 1, Background and Basis of Presentation of the Notes to the Consolidated Interim Financial Statements.

(5) Stock compensation expense adjustment includes only non-cash expenses.

(6) Repositioning charges adjustment primarily includes severance costs related to restructuring projects to improve future productivity.

Professional service costs consist of professional service fees related to strategic planning for the Company in the period before the Debtors filed for relief under Chapter 11 of the Bankruptcy Code in September 2020 .

(7) Professional service costs consist of professional service fees related to strategic planning for the Company.

Costs incurred in 2020 relate to the period before the Debtors filed for relief under Chapter 11 of the Bankruptcy Code in September 2020.

Costs incurred in 2021 relate to strategic planning activities for the Company which occurred following the effective date.

We consider these costs to be unrelated to our ongoing core business operations.

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Adjusted EBITDA (non-GAAP) increased by $105 million for the three months ended June 30, 2021 compared to the prior year period.

The increase was primarily due to favorable impacts of sales volume ($125 million), foreign exchange including the prior year’s hedge losses ($15 million) and favorable impact of productivity, net of mix ($5 million), partially offset by price ($16 million), inflation ($13 million), higher research and development expenses ($7 million) and higher selling, general and administrative expenses ($4 million).

Six Months Ended June 30, 2021 compared with Six Months Ended June 30, 2020

Adjusted EBITDA (non-GAAP) increased by $173 million for the six months ended June 30, 2021 compared to the prior year period.

The increase was primarily due to favorable impacts of sales volume ($190 million), foreign exchange including the prior year’s hedge gains ($31 million) and favorable impact of productivity, net of mix ($20 million), partially offset by price ($39 million), inflation ($17 million), higher research and development expenses ($10 million) and higher selling, general and administrative expenses ($2 million).

(8) The canton of Vaud, Switzerland generally provides for crediting the cantonal corporate income tax against capital tax.

There was no income tax payable for the period ended September 30, 2021 and therefore the 2021 capital tax due of $2 million was recorded in Selling, General, and Administrative expenses.

Three Months Ended September 30, 2021 compared with Three Months Ended September 30, 2020

For the three months ended September 30, 2021, Garrett’s Adjusted EBITDA of $134 million increased $14 million compared to the same period last year, mainly due to benefits from productivity and positive mix, offset by metal, labor and transportation inflation.

In the three months ended September 30, 2021, our volumes totaled 3.1 million units, a decrease of approximately 1% from the three months ended September 30, 2020 and a decrease of 8.8% from the three months ended June 30, 2021.

Our Adjusted EBITDA margin in the three months ended September 30, 2021 of 16.0% represented a year-over-year improvement of 105 basis points.

We benefited from a positive sales mix in the three months ended September 30, 2021 due to the global semiconductor shortages as OEMs are placing greater effort in producing their larger, higher-margin vehicles.

We also maintained our focus on productivity in the three months ended September 30, 2021 as rising commodity prices led to higher raw material costs, particularly for aluminum and steel.

We recovered a majority of the increase from our customer pass-through agreements, especially for nickel, and continue to actively manage our supply base and cost recovery mechanisms with the aim of minimizing the impact of materials cost inflation.

SG&A increased by $3 million which represents labor inflation year-over-year.

Also, for the three months ended September 30, 2020, we took a number of temporary cost control and cash management actions to combat the Covid crisis.

R&D expenses increased by $5 million as we continue to invest in new technologies.

The benefit from foreign currency translation in the three months ended September 30, 2021 was $2 million.

Nine Months Ended September 30, 2021 compared with Nine Months Ended September 30, 2020

For the nine months ended September 30, 2021, Garrett’s Adjusted EBITDA of $478 million increased $187 million compared to the same period last year, mainly due to benefits from volume and productivity, partially offset by mix and metal, labor and transportation inflation.

In 2021, our volumes totaled 10.4 million units, an increase of approximately 30% from 2020.

Our Adjusted EBITDA margin year-to-date of 17.3% represented a year-over-year improvement of 290 basis points.

We started the year with high volume demand following the COVID-19 crisis recovery, but have been facing demand volatility driven by the global semiconductor shortage, primarily for the three months ended June 30, 2021 and September 30, 2021.

We also maintained our focus on productivity in the nine months ended September 30, 2021 as rising commodity prices led to higher raw material costs, particularly for aluminum and steel.

We recovered a majority of the increase from our customer pass-through agreements, especially for nickel, and continue to actively manage our supply base and cost recovery mechanisms to minimize the impact of materials cost inflation.

SG&A increased by $16 million and includes year-over-year labor inflation and increased accrual for employee incentives, reflecting expected payout in 2021 and was partially offset by bad debt recovery.

Also, for the six months ended September 30, 2020, we took a number of temporary cost control and cash management actions to combat the Covid crisis.

R&D expenses increased by $15 million as we continue to invest in new technologies.

The benefit from foreign currency translation in the nine months ended September 30, 2021 was $33 million and was primarily driven by a higher Euro-to-US dollar exchange rate versus the prior-year period.

Cash flow from operations less Expenditures for property, plant and equipment (1)

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

(Dollars in millions)

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2021 2020 2021 2020

(Dollars in millions)

1 unchanged sentence

activities — GAAP

$ (55) $ (41) $ (446) $ (136)

Expenditures for property, plant

and equipment

(34) (16) (74) (79)

Cash flow from operations less

1 unchanged sentence

plant and equipment (Non-GAAP)

$ (89) $ (57) $ (520) $ (215)

(1) Cash flow from operations less Expenditures for property, plant and equipment is a non-GAAP financial measure that reflects an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a supplemental understanding of factors and trends affecting our cash flows.

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We believe it is important to view Cash flow from operations less Expenditures for property, plant and equipment as a supplement to our Consolidated Interim Statements of Cash Flows.

Cash flow from operations less Expenditures for property, plant and equipment (non-GAAP) decreased by $273 million for the six months ended June 30, 2021 versus the prior year period, primarily due to a $375 million payment to Honeywell pursuant to the Plan, in the current year period, partially offset by $8 million prior period payment to Honeywell.

Additionally, there was an increase in net loss, net of deferred taxes and non-cash gains related to reorganization of $94 million, partially offset by a favorable impact from working capital of $54 million and an increase of $111 million in other items (mainly other assets and accrued liabilities).

Cash flow from operations less Expenditures for property, plant and equipment (non-GAAP) decreased by $305 million for the nine months ended September 30, 2021 versus the prior-year period, primarily due to a $375 million payment to Honeywell pursuant to the Plan, in the current year period, partially offset by $6 million in prior-period payment to Honeywell.

Additionally, there was an increase in net loss, net of deferred taxes and non-cash gains related to the reorganization of $46 million, partially offset by a favorable impact from working capital of $15 million and an increase of $102 million in other items (mainly other assets).

Additionally, Expenditures for property, plant and equipment expenses decreased by $5 million.

Liquidity and Capital Resources

During the six months ended June 30, 2021, we funded our operations primarily through the cash flows from operating activities, proceeds from the issuance of Series A Preferred Stock rights offerings and borrowings from Credit facilities.

On June 30, 2021, the Company reported a cash and cash equivalents position of $401 million (not including $215 million in restricted cash as of June 30, 2021) as compared to $592 million on December 31, 2020 (not including $101 million in restricted cash as of December 31, 2020).

As of June 30, 2021, the Company had no outstanding borrowings under the Revolving Facility and had available borrowing capacity of $261 million.

This amount consisted of $300 million less undrawn letters of credit of $39 million.

In addition, on June 30, 2021, the Company had $1,247 million outstanding in Term Loan Facilities.

The Company currently expects that the holders of the Series B Preferred Stock may have the right to require the Company to redeem the Series B Preferred Stock as soon as the fourth quarter of 2021.

During the nine months ended September 30, 2021 , we funded our operations primarily through the cash flows from operating activities, proceeds from the issuance of Series A Preferred Stock rights offerings and borrowings from Credit Facilities.

On September 30, 2021 , the Company reported a cash and cash equivalents position of $456 million (not including $78 million in restricted cash as of September 30, 2021 ) as compared to $592 million on December 31, 2020 (not including $101 million in restricted cash as of December 31, 2020).

As of September 30, 2021 , the Company had no borrowings outstanding under the Revolving Facility, $4 million of outstanding letters of credit, and available borrowing capacity of $296 million.

In addition, on September 30, 2021 , the Company had $1,237 million outstanding in Term Loan

Facilities and $24 million in available letter of credit facilities.

On September 30, 2021, the Company filed the A&R Certificate of Designations amending and restating the terms of the Series B Preferred Stock.

The A&R Certificate of Designations became effective on October 1, 2021.

The A&R Certificate of Designations amended and restated the original Series B Certificate of Designations to, among other things, (i) require the Company to effect a Planned Partial Early Redemption and (ii) provide that the Holder Put Right cannot be exercised until after December 31, 2022 at the earliest (subject to the prior occurrence of a triggering event), unless the Planned Partial Early Redemption does not occur on or prior to March 31, 2022, in which case the Holder Put Right can be exercised (subject to the prior occurrence of a triggering event) after March 31, 2022 on the terms set forth in the A&R Certificate of Designations.

In connection with the amendment to the Series B Certificate of Designations, Garrett expects to partially redeem the Series B Preferred Stock prior to the end of the first quarter of 2022, which would result in a cash payment of approximately $213 million as of January 1, 2022.

Emergence - Exit Financing and Entry into Credit Facilities

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• Issuance of Series A Preferred Stock in a rights offering for $1,301 million;

Settlement of $1,459 million of claims with Honeywell for a $375 million payment and $577 million of Series B Preferred Stock.

• Settlement of $1,459 million of claims with Honeywell for a $375 million payment and the issuance of $577 million of Series B Preferred Stock.

Going Concern

6 unchanged sentences

After certain administrative actions, our Common Stock was removed from listing and registration on the NYSE effective as of the opening of business on October 19, 2020.

Following our emergence from Chapter 11, our Common Stock commenced trading on the Nasdaq Global Select Market under the ticker symbol “GTX” on May 3, 2021.

Cash Flow Summary for the Six Months Ended June 30, 2021 and 2020

For the Six Months

Ended June 30,

Following our emergence from Chapter 11, our Common Stock commenced trading on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “GTX” on May 3, 2021.

On October 1, 2021, our Series A Preferred Stock commenced trading on Nasdaq under the ticker symbol “GTXAP.”

Cash Flow Summary for the Nine Months Ended September 30, 2021 and 2020

For the Nine Months Ended

September 30,

(Dollars in millions)

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Net decrease in cash, cash equivalents and restricted cash $ (159) $ 128

Cash used for operating activities increased by $296 million for the six months ended June 30, 2021 versus the prior year period, primarily due to a $375 million payment to Honeywell pursuant to the Plan, in the current year period, partially offset by $8 million from prior period payment to Honeywell.

Cash used for investing activities decreased by $25 million for the six months ended June 30, 2021 versus the prior year period, primarily due to decrease in Expenditures for property, plant and equipment of $23 million, due to higher customer contribution and lower spend.

Cash provided by financing activities increased by $245 million for the six months ended June 30, 2021 versus the prior year period.

The change was driven by $1,301 million proceeds from issuance of Series A Preferred Stock and $1,221 million, proceeds from issuance of the new long-term debt, partially offset by $201 million repayments on DIP Credit Agreement, $1,513 million payments of the old long term debt and $69 million payments for Cash-Out election.

Cash used for operating activities increased by $310 million for the nine months ended September 30, 2021 versus the prior-year period, primarily due to a $375 million payment to Honeywell pursuant to the Plan, in the current-year period, partially offset by $6 million from a prior-period payment to Honeywell.

Cash used for investing activities decreased by $6 million for the nine months ended September 30, 2021 versus the prior-year period, primarily due to a decrease in Expenditures for property, plant and equipment of $5 million.

Cash provided by financing activities increased by $22 million for the nine months ended September 30, 2021 versus the prior-year period.

The change was driven by $1,301 million in proceeds from the issuance of Series A Preferred Stock and $1,221 million in proceeds from the issuance of the new long-term debt, partially offset by $200 million repayments on the DIP Credit Agreement, $1,513 million payments of the old long-term debt and $69 million in payments for the Cash-Out election.

Additionally, there was $497 million of full payment of our Old Revolving Facility, net of prior-year period proceeds.

Our business is typically moderately seasonal.

Our primary North American customers historically reduce production during the month of July and halt operations for approximately one week in December;

our European customers generally reduce production during the months of July and August and for one week in December;

Our primary North American customers historically reduce production during July and halt operations for approximately one week in December;

our European customers generally reduce production during July and August and for one week in December;

and our Chinese customers often reduce production during the period surrounding the Chinese New Year.

Shut-down periods in the rest of the world generally vary by country.

In addition, automotive production is traditionally reduced in the months of July, August and September due to the launch of parts production for new vehicle models.

In addition, automotive production is traditionally reduced in July, August and September due to the launch of parts production for new vehicle models.

Accordingly, our results have historically reflected this seasonality.

1 unchanged sentence

We also typically experience seasonality in cash flow, as a relatively small portion of our full-year cash flow is typically generated in the first quarter of the year and a relatively large portion in the last quarter.

This seasonality in cash flow is mostly caused by timing of supplier payments for capital expenditures, changes in working capital balances related to the sales seasonality discussed above, and the impact of incentive payments to management.

This seasonality in cash flow is mostly caused by the timing of supplier payments for capital expenditures, changes in working capital balances related to the seasonality of our sales discussed above, and the impact of incentive payments to management.

Additionally, tax payments are due based on jurisdictional requirements, which vary in timing throughout the year.

Contractual Obligations and Probable Liability Payments

The summary of our significant contractual obligations and probable liability payments at June 30, 2021 were as set forth in the table below:

Payments by Period

(Dollars in millions)

Obligations to Honeywell –

Series B Preferred Stock (1)

Long-term debt (2)

Interest payments on long-term debt (3)

Minimum lease payments

Purchase obligations (4)

Under the terms of the Series B Preferred Stock issued to Honeywell pursuant to the Plan, we are obligated to pay an aggregate of $834.8 million to Honeywell, payable in annual cash installments beginning in 2022 and ending in 2030, subject to various conditions and put and call rights set forth in the Certificate of Designations for the Series B Preferred Stock.

The Company currently expects that the holders of the Series B Preferred Stock may have the right to require the Company to redeem the Series B Preferred Stock as soon as the fourth quarter of 2021.

Of the $585 million recorded on our Consolidated Interim Balance Sheet as of June 30, 2021, $550 million is classified as a long-term liability.

If the Company has Consolidated EBITDA (as defined in the Series B Certificate of Designations) for the twelve months ended June 30, 2021 and for the twelve months ended September 30, 2021 of over $600 million, the entire recorded amount will be classified as current on our September 30, 2021 Consolidated Interim Balance Sheet.

Assumes all long-term debt is outstanding until contractual maturity.

Does not include expected utilization of our Revolving Facility.

Interest payments are estimated based on the interest rates applicable as of June 30, 2021.

This includes the impact of the cross currency interest rate swap and the interest rate swap.

This does not include the expected utilization of our Revolving Facility.

Purchase obligations are entered into with various vendors in the normal course of business and are consistent with our expected requirements.

There have been no material changes in the Company’s contractual obligations since June 30, 2021, other than the amendment to the Series B Certificate of Designations described above that has the effect of bringing forward the redemption of outstanding shares of Series B Preferred Stock such that the Present Value (as defined in the A&R Certificate of Designations) of all remaining outstanding shares of Series B Preferred Stock will be $400 million on or prior to March 31, 2022.

The Company's new leases for use in its operations increased total lease payments by $19 million, but did not materially change our lease payments due within five years, compared to the amounts reported in our 2020 Form 10-K.

Capital Expenditures

8 unchanged sentences

Our critical accounting policies are summarized in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2020 Form 10-K.

In connection with the filing of the Chapter 11 Cases on the Petition Date, the Consolidated Interim Financial Statements included herein have been prepared in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No.

In connection with the filing of the Chapter 11 Cases on the Petition Date, the Consolidated Interim Financial Statements included herein have been prepared in accordance with FASB ASC Topic No.

852, Reorganizations.

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Recent Accounting Pronouncements

See Note 3, Summary of Significant Accounting Policies of the Notes to Consolidated Interim Financial Statements for further discussion of recent accounting pronouncements.

See Note 3, Summary of Significant Accounting Policies of the Notes to the Consolidated Interim Financial Statements for further discussion of recent accounting pronouncements.

Other Matters

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-Q

Item 2. Management’s Discussion and Analysis